$1,000,000 plus damages for victims of "cynical" home design company and "predator" builder

Damages in excess of $1 million have been awarded to seven families after Australian Competition and Consumer Commission representative action against Collings Construction Co Pty Limited and Venture Industries Pty Limited over home-building.

In the NSW Supreme Court on Tuesday, Justice Hunter handed down his judgment, describing Collings Constructions as 'cynical' and Venture as 'predatory' in its treatment of the families.

The ACCC took action both for injunctions and on behalf of the families, alleging misleading, deceptive conduct and unconscionable conduct in breach of the Trade Practices Act. The action began in the Federal Court in September 1993 and was transferred to the Supreme Court in September 1994.

The six defendants were: Collings Construction Co Pty Limited, Wayne Collings, Venture Industries Pty Limited, Harry Kioussis, Penny Kioussis and June Collings. Only June Collings was not found implicated in the conduct..

In his judgment, Justice Hunter said of Collings:

"[Collings Construction] held itself out as a builder or builder supervisor which would oversee the building of the subject works when it had no intention of involving itself beyond design stage. ....[Collings Construction] set about obtaining the commitment of the owners to arrangements with it by constructing a contract price which was superficially and deceptively very competitive when, in fact, it was constructed on a contractual foundation of provisional sum items and provisions for variations, which, in the circumstances ensured that the contract price could be greatly increased during the performance of the works by adjustment of provisional sum allowances and by variation claims.

Justice Hunter also said of Collings:

"[Collings Construction offered] a contract price which was within the prospective clients budget, and superficially, highly competitive, but which in reality, was illusory and susceptible to significant increases. Dealing with a customer whose funds were limited, and dependent usually on loan facilities, I regard this technique of Collings Construction as cynical in its treatment of the customer....Collings Construction was well aware of the propensity of Venture to take advantage of this contract structure by exploiting its provisional sum items and variation provisions and by forcing fresh contracts upon the owners in the knowledge that they were committed to the project through the payment of irrefundable deposits to Collings Constructions.

Justice Hunter also commented of Venture Industries:

"far from being a highly qualified builder of excellence and a craftsman, (Venture) was extremely incompetent, indifferent to the needs and interests of the owners to the point of being a predator rather than the provider of services."

Justice Hunter, in awarding damages for vexation, commented he had no doubt that damages for vexation or aggravated damages should be awarded against Venture.

"In all instances, except in the case of the Quaglias, there was clearly considerable distress and anxiety created by the pattern of conduct of Venture in the way in which it virtually forced contractural commitments upon the owners, deceived them as to the contractual consequences of the documents which they were required to sign and as to the nature of the organisation with which the owners were dealing. ...The damages for the most part I would treat as damages for vexation, except for the acts of harassment, intimidation and damage to property which fit more into the category of damages for aggravation."

"The case serves as a severe warning to people wishing to build a home." ACCC Chairman, Professor Allan Fels, said today.

"These families wanted only to build a home, and instead have suffered years of distress and this protracted litigation. Their problems were at the extreme end of the scale, but unfortunately those experiences are far more widespread in this industry than they should be. The sort of problem areas, illustrated in this case, that families seeking to build new homes should look out for include: underquoting for business, inadequate dispute resolution; complicated contracts and indefinite building times.

"In this case in one instance, a family thought that their house package would cost about $167,000 to build. They ended up paying out about $260,000.

"After the builder told them the house was finished, they moved in. But they found the house was so defective they had to move out again, into rented accommodation, pull the house down and start again. At that time, the insurance was to a maximum of $60,000 - a huge shortfall."

Background

HOME BUILDING INDUSTRY

In December 1992, the-then Trade Practices Commission released a discussion paper about the residential home building industry in Australia, and the consumer experience. This report followed the TPCs experience in various litigation, including the Kimberley, Mansard and Manfal cases. The report identified various failures in the residential home building industry which occurred in the various States, even though each State has its own system of regulation of the industry. These common failures included;

• lack of understanding of the building contracts; substantial price increases; delays during construction; standard of work; lack of communication or consultation about price or time changes and about potential problems; lack of appropriate dispute resolution processes; perceived impartiality and inefficiency of building regulatory bodies; and inadequate insurance and indemnity.

Following submissions from the public, consumer lobby groups, industry, industry associations and regulators, the TPC released a final report into the industry entitled "Home building - consumer problems and solutions" in November 1993. The areas identified by the final report as requiring reform included;

• contracts that consumers and many builders do not understand, and additionally biased in the builders favour;
• significant construction delays and substantial increases in price during the life of the contracts; the failure of dispute resolution mechanisms to provide inexpensive, fair and quick resolution of disputes;
• inadequate insurance cover; and
• poor performance and reputation of many of the regulatory agencies.

The Defendants: Collings Construction Co Pty Limited, Wayne Collings, June Collings and Venture Industries Pty Limited, Harry Kioussis, Penny Kioussis

The allegations in general: The Commission alleged that customers were attracted to Collings Construction (which used the trade name "Collings Homes") by its advertisements in the publication Project Home Buyers Guide and its display homes in "Homeworld". Part of the attraction was the offer of homes "designed to your individual requirements". Collings Construction offered to the customers a design and construction deal for a project home design in which the customers believed that Collings Construction was responsible for the whole package. In reality, Collings Construction intended that its obligations to the owners were brought to an end at about the stage when the council had approved the construction drawings for which the customers paid Collings Construction a deposit which Collings Construction labelled a non-refundable design fee. Collings Construction structured a contract price that was illusory in that the stated price was unreasonably low, subject to many exclusions of work, omissions and was based upon an unreasonable use of provisional sums items which, sometimes, had no sum allocated to the item. In some cases, the contract related to a scope of work that had already been superseded and therefore exposed the customers to large payments for so called variations. Most of these matters were not brought to the attention of the customers of were inadequately notified by Collings Construction.

Collings Construction then passed the customers over to Venture for the construction of the customers home and, in doing so, retained no contractual control over Venture. In this way the customers, who had paid non-refundable deposits, had already paid money into the deal. This financial commitment before Venture came onto the scene enabled Venture to exploit the illusory price structure of the Collings Construction deal and force upon the customers contractual arrangements which were even less favourable than the terms proposed by Collings Construction. These contracts helped, in most instances, the obtaining of an illegal deposit by Venture and permitted Venture to make demands over and above the contract price for variations or provisional sum adjustments. Whereas Collings Construction told the customers that Venture was a builder of outstanding competence, Venture was completely incompetent.

In addition, it is alleged Venture induced the customers to enter into contractual arrangements with it by representations that Kioussis held a university degree in building (which he did not have), and by representations as to Ventures building competence (which Venture did not have).

Of the seven families represented, six proceeded to build with Venture. Of those six, one house was completely demolished, three substantially demolished down to the concrete slab level or similar, and one was rectified to such an extent that the rectifying works cost about as much a building another house.

 

The history of the case:

In September 1993 the then Trade Practices Commission commenced an action in the Federal Court seeking injunctions and damages for the named consumers. The Commission alleged misleading, deceptive and unconscionable conduct on the part of the defendants. The Venture parties ( Venture Industries Pty Limited, Harry Kioussis and Penny Kioussis) unsuccessfully sought to stay the proceedings because the company, Venture Industries had invoked the arbitration clauses in the building contracts.

The case involved the determination of many technical building issues, and the Federal Court rules required agreement between the parties to appoint an arbitrator. The TPC considered that the matter would be best run with an appropriately technically qualified person to consider the technical building issues and so sought successfully to have the matter transferred to the NSW Supreme Court in September 1994, that court having the ability to refer matters out without the agreement of the parties. Certain technical building issues were referred by Justice Hunter of the NSW Supreme Court to a referee who, after conducting his own hearing in June 1995, reported back to the Court on 9 August 1995. The report was later adopted by the Court with some alterations. The trial of the case was conducted before Justice Hunter from 9 October 1995 to 28 November 1995. Justice Hunter reserved his decision on 28 November 1995.

In December 1995, the Venture parties applied to the High Court to overturn the September 1994 cross-vesting of the matter from the Federal Court to the NSW Supreme Court. The matter was remitted back to the Full Federal Court, which rejected the application of the Venture parties on 23 May 1996. The Venture parties then sought special leave to appeal to the High Court, which was denied on 30 September 1996.

Justice Hunters findings of 10 December 1996 provides damages, including that for vexation, of over $1,000,000 in total. None of the Collings parties were responsible for the vexation part of the damages, which totals about $148,000. June Collings was not found to have acted in contravention of the Trade Practices Act 1974, and was held not to be liable for any of the damages.

Justice Hunter anticipates that the consumers will repay the amounts paid to them by the then Building Services Corporation under its statutory insurance scheme.