Construction Law - Homebuilders must register

Knowledge

Construction Law - Homebuilders must register with the NHBRC before commencement of building works to claim payment

1. The judgment in the matter of Cool Ideas 1186 CC (Cool Ideas) v Anne Christine Hubbard (“Hubbard”) & Minister of Justice and Constitutional Development confirms finally that an homebuilder is not entitled to receive compensation for a house constructed for a housing consumer unless registered in terms of the Housing Consumer Protection Measures Act. 

BACKGROUND

2. Cool Ideas and Hubbard entered into a building contract on 13 February 2006 in terms of which Cool Ideas undertook to construct a residence for Hubbard for consideration of R2 695 600.00. The building project was however executed by Velvori Construction CC (Velvori) in terms of its appointment by Cool Ideas.

3. The building project was enrolled by Velvori, as required in terms of the Act.  Velvori was duly registered as a home builder as required by section 10 the Act.  Cool Ideas was not.

4. The building works were completed in October 2008, but Hubbard took issue with the quality of the works and refused to make payment to Cool Ideas. Hubbard instituted arbitration proceedings in terms of the building contract, claiming the costs of the remedial works. Cool Ideas accordingly instituted a counter-claim for the balance of the contract price. The arbitrator found in favour of Cool Ideas i.e. that Hubbard had to make payment to Cool Ideas. Hubbard failed to comply with the arbitral award.

5. Cool Ideas approached the High Court for an order enforcing the arbitral award, which application Hubbard opposed on the basis that Cool Ideas was not registered as a home builder in terms of the Act. Cool Ideas argued that it, in fact, registered as a home builder during the litigation proceedings and that construction was done by Velvori, a registered home builder. The High Court granted the order and made the arbitral award an order of court.

6. Hubbard appealed to the Supreme Court of Appeal. The majority upheld the appeal submitting that the purpose of the Act is to protect consumers and therefore Cool Ideas was required to register before commencing with construction. The Court further submitted that enforcement of the arbitral award would disregard a prohibition in law. The dissenting judgment of the Supreme Court of Appeal submitted that Cool Ideas did not intentionally fail to register and that refusing to enforce the award would be unjust.

7. Cool Ideas applied to the Constitutional Court for leave to appeal the judgment by the Supreme Court of Appeal, which application was granted. The appeal was, however, dismissed in terms the majority judgment handed down by Majiedt AJ (Moseneke ACJ, Skweyiya ADCJ, Khampepe J and Madlanga J).

MAJORITY JUDGMENT

8. The majority judgment held that the interpretation given by the Supreme Court of Appeal in terms of section 10(1)(b) of the Act, namely that registration is a prerequisite for building works to be undertaken by a homebuilder, must be upheld. It further held that the failure to register would result in the home builder being ineligible to seek consideration for the work done in terms of the building agreement.

9. It held that the underlying building agreement remains valid, notwithstanding that Cool Ideas was not entitled to consideration as a result of its failure to register as required in terms of section 10(1)(b) of the Act. It held that the legislative scheme does not suggest that the building contract be invalidated by statutory prohibitions.

10. According to the judgment it is difficult to conceive how the entire agreement must be invalidated as a result of the conclusion that an unregistered home builder is not entitled consideration for work done in terms of section 10(1)(b) of the Act. It further held that it is inconceivable that the Legislature would enact provisions incorporating various protective measures for the benefit of consumers but then render their contract invalid. Therefore, the parties are entitled to retain what has been done or rendered in terms of the agreement. i.e. In these circumstances, restitution is not legally sound, as would have been the case with an invalid agreement. Therefore Cool Ideas would also not be entitled to file a suit against Hubbard based on unjust enrichment. 

11. In light of the aforementioned the Court dismissed the appeal with costs.

DISSENTING JUDGMENT

12. The judgment written by Froneman J (Cameron J, Dambuza AJ, and Van der Westhuizen J) opposed the conclusion of the majority judgment dismissing the appeal.

13. The fundamental difference in this judgment as opposed to the majority judgment lies in the constitutional principle. It held that public policy in the interpretation, application and enforcement of contracts embrace the principle of fairness. This judgment therefore disagrees that with the finding that a private arbitration award may not be enforced conflicting to a statutory provision. It held that the inevitable result of the reasoning of the main judgment is that Cool Ideas will be deprived of its right to payment for work fairly and properly done. The provisions of the Act should be interpreted in a manner that embrace the principle of fairness and avoids an unjust and unfair result.

14. The majority judgment found that the building contract between the parties remain valid, but that Cool Ideas are however disentitled to claim or enforce payment for any work done in terms of such agreement. This result, is in terms of the dissenting judgment on any standard, prejudicial and unfair to Cool Ideas. If the building contract was held to be invalid, Cool Ideas, could in terms of the common law, enforced an enrichment claim. By clothing the contract with validity, an enrichment claim is avoided.

15. The Court raised the following question: How can it be that Cool Ideas’ contract with Hubbard is valid, but its claim is unenforceable?  The Court argued that the Act employed various measures to protect housing consumers and therefore it would be reasonable to interpret the provisions of the Act in a manner that is fair and does not deprive Cool Ideas of its right to reasonable consideration.

16. According to the judgment, Hubbard did not sought the Act’s protection to attain proper building or correction of building works by Cool Ideas, but to escape payment of what she had been fairly found to owe to Cool Ideas.

17. The dissenting judgement further argued that there were various ways of achieving the purpose of the Act (i.e. enforcement of proper performance by home builders for housing consumers) and striking the correct balance between the interest of housing consumers and those who have performed construction work. In other words, the Act can be read to protect consumers without barring Cool Ideas’ claim for performance.

 +27 12 346 1278

  This email address is being protected from spambots. You need JavaScript enabled to view it.