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BUILDING AMENDMENT BILL 2002
2002
LEGISLATIVE
ASSEMBLY FOR THE AUSTRALIAN CAPITAL TERRITORY
BUILDING AMENDMENT BILL
2002
EXPLANATORY
MEMORANDUM
Circulated by authority
of
Simon Corbell
MLA
Minister for
Planning
Overview
The Building Amendment Bill 2002 (the Bill)
amends the Building Act 1972 (“the Act”).
Part 5A of the Act (Residential building
– statutory warranties and insurance) sets out a system of consumer
protection for the owners of new homes and significant changes to homes. It
requires builders of new homes or significant additions to existing homes to
take out residential building work insurance against which owners can claim if
the building work is not completed or there are defects in the work. The
insurance protects the owner during construction and for a period of five years
from completion. Part 3 of the Act (Building work) includes provisions designed
to ensure that the insurance is taken out before work
begins.
It has recently become difficult for
builders to obtain this insurance. The brokers for one of the two approved
insurance schemes were unable to find enough reinsurance to satisfy their
insurance company. On 10 April 2002 they announced that they were no
longer able to provide residential building work insurance. This has affected
more than half of the ACT’s house builders and their customers. Further
insurance may become available on a commercial basis but the market for
insurance is currently volatile. The Bill therefore amends the Act by inserting
new provisions in Part 5A that allow the approval, as an alternative to
insurance, of a fidelity fund scheme that will provide similar consumer
protection.
Residential building work
insurance must be provided by approved insurers and is subject to the capital
adequacy and other prudential obligations of the Insurance Act 1973 of
the Commonwealth and supervision by APRA, the Australian Prudential Regulation
Authority. The Bill, and detailed approval criteria and prudential standards to
be determined by the Minister, therefore include provisions intended to ensure
that a fidelity fund scheme is responsibly managed and fair.
A scheme operates under a trust deed and is managed
by a Board of Trustees. A scheme may be approved if it meets entry criteria.
These include the scope of the protection to be provided to consumers by the
issue of Fidelity Certificates. A scheme is subject to requirements for
prudent management (including capital adequacy, the valuation of liabilities and
effective risk management strategies and techniques). An independent auditor
and actuary must examine and certify the activities of the scheme and report
annually, or as otherwise directed by the Minister, on the state of the scheme.
A statutory officer, the Commissioner for Fair Trading, has a supervisory role
and the Minister may, if necessary, suspend or revoke a scheme’s authority
to operate..
The Bill also makes changes to
Part 3 of the Act so that certificates under an approved industry scheme are
acceptable during building approval.
Financial
implications
Nil.
Clause Notes
Clauses 1 to 3
Clauses 1, 2 and 3 are formal clauses that deal with the
name of the Bill, its commencement and the name of the Act amended. The
proposed Act commences the day after it is notified on the legislation
register.
Clause 4 - Section 5(1) new
definition
Clause 4 adds to the Act a definition of “fidelity
certificate”.
Clause 5 - New section 34 (1)
(fa) (ii)
Clause 5 amends section 34 of the Act (Issue of building
approvals) to allow a fidelity certificate issued under division 5A.4 of the Act
to be accepted by a building certifier as an alternative to evidence of
insurance.
Clause 6 - Section
34
Clause 6 provides for the renumbering of section 34 as
amended.
Clause 7 - Section 38
(2)
Clause 7 amends section 38 of the Act (Notifications by
certifier in relation to building work) in line with the changes in section
34.
Clause 8 - Part 5A
heading
Clause 8 changes the title of Part 5A and inserts a new
division title. The effect, in combination with other changes, is to divide the
existing provisions of Part 5A into three divisions that deal in turn with
preliminary matters, statutory warranties and residential building insurance.
New provisions for approved fidelity fund schemes, for auditors and actuaries of
approved schemes and transitional provisions then become the fourth to sixth
divisions of the Part.
Clause 9 Section 58A, new
definitions
Clause 9 adds to Part 5A definitions of terms used in
relation to a fidelity fund scheme.
Clauses 10 and 11 - New
division 5A.2, new heading, New division 5A.3, new heading
Clauses 10 and 11 insert two division titles for
existing text.
Clause 12 - New divisions 5A.4
to 5A.6
Clause 12 inserts new divisions 5A.4 to 5A.6 into the
Act. These divisions provide for the issue of fidelity certificates as an
alternative to insurance. New provisions for approved fidelity fund schemes,
auditors and actuaries of approved schemes and transitional provisions become
the fourth to sixth divisions of the Part.
Approval of fidelity fund
schemes
New section 58H sets out requirements for the approval
of a fidelity fund. The Minister responsible for the Act can only approve a
scheme if the scheme complies with the requirements in this section. An
approval is a must be notified on the legislation register but is not
disallowable, because this could make for significant delays in the effective
commencement of an approved scheme.
Additional information
etc
New section 58I provides for a written requirement to
produce additional information or a statutory declaration to clarify an
application for approval of a scheme.
Minister may require changes to
scheme
New section 58J allows an application for a building
industry scheme to be amended and then approved rather then merely approved or
rejected. The changes to the scheme may only be made to ensure that the scheme
complies with the requirements in the Act.
Approval criteria for fidelity
fund schemes
New section 58K allows the determination, in a
disallowable instrument, of requirements, additional to those of new section
58H, for a scheme that is to be approved. They include compliance with the
prudential standards that the Bill provides for and provisions relating to
consumer protection through the issue of fidelity certificates and the making
and handling of claims under certificates.
Approval of scheme may be
conditional
New section 58L allows an application for a building
industry scheme to be approved with conditions that must then be complied with.
Conditions may include a higher standard than the prudential standards provided
for by the Bill. Failure to comply is an offence of strict
liability.
Application for changes to
approved scheme
New section 58M provides for a written application to
change an approved scheme. Minor changes of a kind specified in the prudential
standards may be made without the need for approval.
Approval of changes to
approved scheme
New section 58N allows an application for changes to be
approved but only if the changes are consistent with the approval criteria and
prudential standards provided for by the Bill.
Prudential
standards
New section 58O provides for the determination, as a
disallowable instrument, of prudential standards for the management of a
fidelity fund scheme. The section also sets out the topics that may be included
in the disallowable instrument and allows the standards to include discretionary
provisions.
Compliance with prudential
standards by trustees
New section 58P makes it an offence of strict liability
for the trustees of an approved scheme, if the scheme fails to comply with the
prudential standards.
Notice to trustees to comply
with prudential standards
New section 58Q allows for directions to the trustees of
an approved scheme to comply with a prudential standard and for deadlines for
doing so. Failure to comply with a direction is an offence of strict liability.
The direction must be complied with despite the trustees acting in accordance
with the trust fund or another agreement.
Notice to trustees requiring
information
New section 58R provides for a written notice to the
trustees of an approved scheme to provide information about the scheme’s
liabilities or potential liabilities and sets out information that may be
required. A notice must include a deadline. Failure to comply with a direction
is an offence of strict liability.
Suspension or cancellation of
approval of approved scheme
New section 58S allows the issue of a written notice
that suspends or cancels the approval of a fidelity fund scheme and sets out
grounds for doing so. The trustees must first be given a written warning and
time to respond. A notice under this section must be notified on the
legislation register.
Cancellation of approval on
application
New section 58T allows the Minister responsible for the
Act to issue, at the request of the trustees, a written notice that cancels the
approval of a fidelity fund scheme. The revocation must be notified on the
legislation register.
Orders consequential on
suspension or cancellation
New section 58U provides for the winding-up of a
building industry scheme that has been suspended or cancelled by the Minister
responsible for the Act. If an approval is suspended or cancelled, the Minister
may apply to the Supreme Court for directions about matters including the
winding up of the scheme and the assignment of the scheme’s assets and
liabilities.
Address for service for
trustees
New section 58V requires the trustees for an approved
scheme to provide advice of their address for service and makes this address
their legal address for notices under the Act.
Appointment of auditor and
actuary for approved scheme
New section 58W requires the trustees for an approved
scheme to appoint an auditor and actuary. The Minister must approve the
appointment and the terms of appointment.
Approval of appointment of
auditor or actuary
New section 58X provides for the approval by the
Minister responsible for the Act of an approved scheme’s auditor and
actuary. The person must be eligible to be appointed.
Revocation of approval of
appointment of auditor or actuary
New section 58Y sets out circumstances in which the
Minister responsible for the Act may revoke the approval of an approved
scheme’s auditor or actuary.
When person stops holding
appointment as auditor or actuary
New section 58Z provides that a person is no longer an
approved scheme’s auditor or actuary once he or she is no longer eligible
under the prudential standards or the appointment is revoked under the preceding
new section, as well as in the case of resignation.
Notification of appointment or
ending of appointment of auditor or actuary
New section 58ZA requires notice to the Minister
responsible for the Act that a person has become, or ceased to be, an auditor or
actuary for the scheme. This does not apply when the appointment is revoked by
the Minister responsible for the Act.
Compliance with prudential
standards by auditors and actuaries
New section 58ZB makes it an offence of strict liability
for an auditor or actuary for an approved scheme to breach the prudential
standards.
Auditor and actuary to tell
Minister if scheme insolvent
New section 58ZC sets out findings about an approved
scheme that an auditor or actuary must inform the Minister responsible for the
Act of within a maximum period. Failure to do so is an
offence.
Giving of information to
Minister by auditors or actuary etc
New section 58ZD allows an auditor or former auditor and
an actuary or former actuary for an approved scheme to choose to provide the
Minister responsible for the Act with information about the scheme or to be
required to provide specified information to the Minister. It is an offence to
fail to respond to a demand for information or to give false or materially
misleading information in response to a demand.
Auditor’s
role
New section 58ZE sets out obligations of the auditor of
an approved scheme in relation to the prudential standards.
Actuary’s
role
New section 58ZF sets out obligations of the actuary of
an approved scheme in relation to the prudential standards.
Certificates and reports
required to be given to Minister
New section 58ZG identifies certificates and reports
that the trustees for an approved scheme must provide copies of to the Minister
responsible for the Act. Failure to comply is an offence of strict
liability.
Investigation of liabilities
by special actuary
New section 58ZH provides for written notice to an
approved scheme to appoint a new actuary and for the actuary to investigate the
scheme’s liabilities and report to the Minister responsible for the Act on
the results. The new actuary must be acceptable to the Minister. The section
sets a series of deadlines for action and specifies matters that the report must
deal with.
Offences in relation to
appointment of special actuary
New section 58ZI creates offences for failures by the
trustees of an approved scheme to comply with requirements related to the
appointment of a special actuary.
Who can be appointed as a
special actuary
New section 58ZJ states who is eligible to be appointed
as a special actuary. The person needs not hold all of these qualifications if
the person has other relevant qualifications ands experience and the appointment
is approved by the Minister responsible for the Act.
Obligations of trustees to
auditors and actuaries
New section 58ZK requires the trustees for an approved
scheme to assist the auditor and actuary or a special actuary in carrying out
the functions assigned to them by the Act. Failure to comply is an offence of
strict liability.
Protection of auditor and
actuary from liability
New section 58ZL limits the extent to which an auditor
or actuary for a scheme or a special actuary incurs
liability.
Transitional
regulations
New section 58ZM allows the regulation-making powers of
the Act to provide for savings or transitional matters arising from the
Bill.
Modification of operation of divisions
5A.4 and 5A.5New section 58ZN allows the regulation-making powers of the Act to
be used to correct errors in the Bill.
Expiry of div
5A.6
New section 58ZO repeals the two preceding sections
after a year.
Clause 13 - Parts 5A and
6
Clause 13 provides for the renumbering of the Parts and
sections of the Act most affected by the Bill.
Clause 14 –
Administrative decisions (Judicial Review) Act 1989
Clause 14 excludes decisions about the approval of a
scheme or about the suspension or cancel a scheme from review under the
Administrative decisions (Judicial Review) Act. The purpose is to avoid the
difficulties that may follow delay.
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