Progress payment problem
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Mr and Mrs J were living in Germany and entered into a building contract with Z Pty Ltd to build a duplex on vacant land in Queensland.
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Mr and Mrs J applied to the bank for finance to fund the project which was approved. The bank paid the builder a deposit of $14,000 and construction of the duplex commenced.
Mr and Mrs J received the first progress payment request from Z Pty Ltd and asked the bank what they should do. They said that the bank advised them to sign and return the request to Z Pty Ltd. Z Pty Ltd would then present the request to the bank and the bank would inspect the property and make the payment.
The bank made payments for the slab, frame, lock-up and pre-paint stages of construction. These payments were made on the basis of valuation reports provided to the bank by a valuer which it appointed.
Z Pty Ltd subsequently went into liquidation and did not complete the duplex.
Mr and Mrs J appointed another builder to finish the project but discovered they had insufficient loan funds available to cover the costs of completion.
Mr and Mrs J wrote to BFSO saying that they believed the bank had overpaid around $60,000 to Z Pty Ltd. They asked that the bank refund this amount plus interest.
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The bank’s response
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The bank’s position was that each of the progress payments made to Z Pty Ltd was authorised by Mr and Mrs J. It said that the progress payments had been released in accordance with the advice of its valuer and the building contract.
It also said that under the terms and conditions for the construction loan it was a customer’s responsibility to ensure they were satisfied with the quality of construction.
The bank declined Mr and Mrs J’s request for compensation. However, it agreed to convert the loan to a line of credit with an increased limit to enable completion of the duplex.
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Conciliation conference
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Following her review of the file, the case manager noted that the bank made progress payments to Z Pty Ltd for the frame, lock-up and pre-paint stages even though the total payments made exceeded the total value of the completed work, as advised by the bank’s valuer, at the relevant stages. This seemed contrary to the bank’s position that the progress payments were released in accordance with its valuer’s recommendations.
The case manager and the Ombudsman’s legal counsel were of the view that a conciliation conference was appropriate in this case. A conciliation conference is an informal procedure in which this office assists a disputant and a member to find a solution to the dispute.
The case was resolved by the parties with the assistance of the Ombudsman’s Legal Counsel at the conciliation conference. The bank agreed to pay Mr and Mrs J $25,000 in full and final settlement of their dispute and the case was closed.
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