May 22, 2022 | Building and Construction Law
Terminating a building contract enables parties to discontinue their contractual obligations. The terms for termination are dependent on the terms of the contract and the circumstances involved. Therefore it is important that the contract is reviewed by a solicitor prior to enforcement and/or termination. If there has been a substantial breach or repudiation of the contract, termination can be made by express or implied agreement.
There are significant consequences for owners who invalidly terminate a building contract. This article will examine a recent case where the owners claimed the builder had breached their due diligence and thus the owners repudiated the contract. However they failed to establish the builder’s breach of due diligence, thus emphasising the importance for owners to fulfil all of their obligations when considering termination.
A recent case study: Patel v Redmyre Group Limited
The builder (Redmyre Group) carried out building works to renovate and restore a 4 storey residential terrace in Dawes Point, Sydney, for the owners (Nandini Patel, Harsh Jain and Jainco Services Pty Ltd). The building contract required building completion within 32 calendar weeks from the date of commencement. At the end of 32 weeks, the building was not complete. The owners took the following actions:
- 20 February 2019: the owners issued a ‘show cause’ notice demanding a schedule of works and estimated time for completion.
- 7 March 2019: the owners issued a notice of termination with immediate effect due to the builder’s alleged breach of the contract and statutory warranties contained in section 18B of the Home Building Act 1989 (NSW).
- 4 April 2019: the builder responded noting their intention to rectify the defects and seeking access to the site. The owners did not provide this requested access.
At first instance, the owners alleged that the builder failed to progress the works and exercise due diligence. The owners claimed $215,683 in damages for incomplete works and an additional $130,000 for delay. The builder alleged that the delay was beyond their control for factors including the owners’ direct interference and variations from the initial works.
The NSW Civil and Administrative Tribunal held that the owners did not establish that the builder had breached their due diligence obligation and instead issued a notice which was not in accordance with that required by the building contract. It was found that the owners repudiated the contract in their letter dated 7 March 2019, but the builder had not terminated the contract given their request to return to the site. Repudiation occurs when one party to the contract expressly or implicitly demonstrates that they are either unwilling or unable to perform their contractual obligations (see DCT Projects Pty Limited v Champions Homes Sales Pty Limited).
No damages for delay or incomplete works were awarded as the owners had failed to mitigate the loss and provide the builder with reasonable access to rectify the defects as required by the Home Building Act 1989 (NSW) section 18BA(3). This was upheld by the Appeal panel in the NSW Civil and Administrative Tribunal (Consumer and Commercial Division). The owners’ appeal was dismissed and they were ordered to pay the builder’s costs.
Valid termination for breach of due diligence
Valid termination can occur in circumstances where the owners can prove, on the balance of probabilities, that the builder has not proceeded with due diligence and within the time stipulated in the contract, as this would breach the statutory warranties which are considered to be implied terms of all building contracts. This requirement of due diligence is breached when a “failure to proceed with that degree of promptness and efficiency that one would expect of a reasonable builder who is undertaking a building project in accordance with the terms of the contract in question” occurs (see Re Stewardson Stubbs & Collett Pty Ltd v Bankstown Municipal Council). The length of time considered reasonable must be taken into account if construction is delayed for circumstances outside the builders’ control, such as an exclusion from the site by the owners as in the above mentioned case.
Obligations on the owner
The onus is on the owner to establish this breach of due diligence, but also to take reasonable efforts to mitigate their own loss and allow reasonable access to the site for builders seeking to rectify any defects according to section 18BA of the Home Building Act 1989 (NSW). In the Patel v Redmyre case, the owners merely proved that the builder had not achieved practical completion by the date specified in the building contract, and failed to take into account the rate of progress of the works on site. They then deliberately, and unreasonably, excluded the builder from accessing the site, thereby failing to meet these obligations.
In the event that a builder defaults on an obligation within the building contract, such as not completing the building works in a reasonable time, the building contract will typically include a notice clause. Under this, the owner is obligated to give appropriate notice of termination of the contract, in accordance with the specified terms of the building contract.
In the case study, the owners were found not to be entitled to claim damages for defective or incomplete work, or delay, as a result of their invalid termination. The Tribunal held that the owners’ letter dated 20 February 2019 was not sufficient notice and the builder was not given sufficient capacity to rectify the breach within a reasonable time frame. Failing to strictly follow the requirements of the notice clause within the building contract may result in repudiation by the owner.
How Etheringtons Solicitors can help
A solicitor at Etheringtons Solicitors can provide clarification of the relevant law and its relation to your individual circumstances. Etheringtons Solicitors can assist with if you need further advice or assistance with construction or contractual law matters, please contact one of our experienced solicitors on (02) 9963 9800 or via our contact form.
May 8, 2022 | Building and Construction Law
Construction defects in a strata development can have an overwhelming financial and emotional impact on a unit owner. All industry players are impacted, with the question of blame bouncing between architects, engineers, certifiers, developers and builders. In the meantime, hundreds of unit owners, investors and renters face uncertainty and many occupants are unable to live in their units as the stability and safety of their buildings are scrutinised.
Warranties for building work
As with all residential building work, a newly-built strata unit comes with various implied statutory warranties, even if these are not stated in the building contract.
These warranties not only apply between the builder/developer and original owner but, subject to time limitations, may pass onto subsequent owners. They cannot be avoided by contrary provisions in a building contract.
The Home Building Act 1989 (NSW) implies specific warranties into every contract for residential building work, namely that:
- The work will be completed with due care and skill and in accordance with any plans and specifications provided in the contract;
- All materials supplied will be good and suitable for the purpose for which they are used and, unless otherwise stated, will be new;
- The work will be done in compliance and accordance with applicable laws;
- The work will be done with due diligence and within the time set out in the contract and, if no time is stipulated, within a reasonable time;
- If the work is the construction of a dwelling or comprises alterations, additions, repairs or renovations to a dwelling, the work will result in the dwelling being reasonably fit for occupation as a dwelling; and
- The work and materials used to do the work will be reasonable for the specified purpose or result.
What is a building defect?
It is important to distinguish between major defects and minor defects as the warranty period differs between each. Major defects are covered by a six-year warranty and other ‘general’ defects (those not classified as a major defect) have a two-year warranty period.
A major defect is defined as:
‘A major element of a building (such as a fire safety system, waterproofing or structures critical to the building’s stability such as foundations, footings, walls, roofs, beams or columns) which causes or is likely to cause all or part of the building to be uninhabitable or unable to be used for its intended purpose, or which threatens or is likely to cause the collapse or destruction of the building as a whole, or part of it.’
Responsibilities for repairing defects
The holder of the contractor licence (or person required to hold a contractor licence) under the building contract is the party responsible to repair any defects. Generally, this will be the developer or builder of the project.
The statutory warranties extend to defective work that has been undertaken by a subcontractor on behalf of a principal contractor. For example, if the defective work concerns tiling that was carried out by a subcontractor of the principal builder, then the principal builder remains responsible to the property owner for the defective work (however they may in turn rely on the warranty between the principal and tiler).
Defects in a strata scheme
Defective work in a strata complex may relate to the unit itself and/or the common area. Identifying and acting on defects and potential defects before they escalate is essential to ensure that action can be taken within the warranty limitation periods.
The owners’ corporation is responsible for alerting a developer or builder to defects concerning the common property and for arranging repairs and maintenance. This involves requesting maintenance schedules, manuals and warranty documents for various facilities and equipment, carrying out regular maintenance activities, prioritising defects and agreeing on and appointing an expert to carry out defect inspections. Strata owners should stay informed regarding the management of common property and the progress of any defective work claims by attending regular strata meetings.
The longer time goes on, the more difficult it is to distinguish whether a building issue is a true defect or stems from poor maintenance and/or wear and tear. Indeed, the latter may well be argued by a developer should proceedings become necessary.
Get Legal Advice
If you believe your strata unit or the common areas in your strata building have defective building work, you should act quickly. Knowing your rights and the relevant time limitations in pursuing a claim for defective work will empower you to take the appropriate steps to have the work rectified.
If you need more information, assistance, or advice on how to proceed please call us on (02) 9963 9800 or email [email protected]. To learn more about how Etheringtons Solicitors can assist you please see our blog here.
Apr 16, 2022 | Building and Construction Law
In most construction projects it is likely that at some stage issue will be taken with some or all of the work and a defect complaint will arise. It is therefore important to understand exactly what is meant by the term ‘defect’, how a contractual ‘defects liability period’ works in practical terms and whether there is any right to claim damages for covering the costs of rectifying a defect.
What exactly is a ‘defect’?
Ordinarily, where the term ‘defect’ is used in a construction contract it refers to work that has not been performed in accordance with the standards and requirements of the particular contract.
Matters to take into consideration in determining if there is a defect may include:
- the quality of any work and the standard of workmanship;
- whether design directives have been followed and correct materials have been used; and
- whether the works have been performed in accordance with contractual specifications and drawings.
The ‘defects liability period’ and how it works
Most experienced builders and contractors would be familiar with the term ‘defects liability period’, as it commonly appears in construction contracts. A defects liability period is the time period specified in the contract during which a contractor is legally required to return to a construction site to repair any defects which have appeared in that contractor’s work since the date of completion. Usually a defects liability period will start either at practical completion or upon reaching standard completion.
Even if you are familiar with the term, it is important to check each new contract carefully to ensure you understand how long the defects liability period is and what is expected of both parties during that period.
A contract will specify the length of any defects liability period. Anywhere from 12 to 24 months is a fairly common period, although longer or shorter periods are also possible.
The length of any defects liability period will depend on the nature of the build, the type of work a particular contractor carries out, and whether it is likely that any inherent defects may take time to become apparent. For example, it is not uncommon for contracts involving complex builds, or large government contracts to specify longer defects liability periods than a simple domestic building contract.
Why specify a defects liability period in a contract?
A defects liability period gives both principals and contractors a degree of certainty as to the process that will be followed for making good any defects which may not be apparent at the date of practical completion.
In addition, a defects liability period can also be useful in providing a means of making good any defects that are apparent at the time of practical completion but which either do not need to be rectified prior to practical completion or perhaps cannot be easily rectified due to the presence of other contractors and trades still working on the build.
Wherever possible, it also makes practical sense to have the contractor who carried out the original work return to fix any defect as this contractor will be familiar with the site and the work in question. This is likely the most cost effective approach to any rectification work. Also, a contractor may prefer to be the sole party authorised to carry out any rectification work within a given period as the quality of the work and any subsequent repairs will potentially affect a contractor’s reputation.
Once a defect is fixed does a new period restart?
Whether a new defects liability period applies to rectified work will depend on the terms of each particular construction contract. It is important that both the principal and contractor are clear on this point prior to entering into a contract.
What right to damages exist for covering the costs of rectifying a defect?
Ordinarily any defect would be a breach of contract. There have been several cases where the courts have considered whether the existence of a defects liability period in a contract alters or removes the need for a common law right to damages with individual cases appearing to turn on their particular facts and the behaviour of the parties to the contract.
Generally, damages for any defects will cover the amount needed to ensure that the work is brought up to the standard that a contractor was initially required to provide under the contract.
Help is available
It is always prudent to seek advice prior to entering into any contract to ensure that you fully understand your rights and responsibilities. If you have already entered into a contract or carried out work and a complaint has now been made that your work is defective, you may be concerned about both your professional reputation and any potential financial implications for your business.
If you find yourself in a situation where this could be an issue we recommend you seek legal advice as soon as possible. If you or someone you know wants more information or needs help or advice, please contact us on (02) 9963 9800 or send us a message via our form.
Apr 6, 2022 | Building and Construction Law
When you discover a building defect on your property, your first reaction may be to pursue an action against the builder contracted to complete the work. If your builder goes into liquidation, you become eligible to access the Home Building Compensation Fund (HBCF). However, compensation provided from the HCBF is capped at $340,000. What if your loss is double that?
A decision by the Court of Appeal in the ACT reaffirmed that certifiers may also be liable for building defects. They have a duty of care to ensure that building works, at the completion of each stage, meet the required standard.
Case Study: Asset Building Certifiers v Hyblewski [2020]
In the case of Asset Building Certifiers Pty Ltd v Hyblewski [2020] ACTA 21, the Court held that the appellant (the certifier of the building) was responsible for building defects which he failed to recognise during inspections.
Construction started on the block of land purchased by the respondent in 2012. On 9 November 2012, the appellant issued a certificate at the “pre-slab” stage inspection and a second at the “pre-sheet” stage in February 2013. However, at both stages of construction, the works were defective.
Once the building was complete, a dispute arose over various defects resulting in the owner suing the certifier in the Supreme Court of ACT. The Court held that there was an implied term in the contract between the owner and the certifier which required the certifier to carry out the work with due care and skill. The Court found that the certifier had breached this obligation by issuing the certificates and failing to identify the various defects.
Identification of a Causal Connection
The key issue that arose in the Hyblewski case was whether there was a causal connection between the certifier’s breach and the owner’s loss. This meant that the actions of the certifier in failing to recognise the defects during the course of construction must have caused the owner’s loss.
The certifier argued that there was no causal link, as the builder’s defective work already existed at the time the certificates were issued. This argument was unsuccessful as the Court found that had the certifier issued a written notice to the builder rather than issue certificates, the builder most likely would have fixed the defects. Therefore, the Court found that the defects were caused by the certifier’s breach of duty.
When assessing the causal link between an action and the damages, the Court will consider what the various parties (such as the certifier, the owner and the builder) would have done had the certifier exercised reasonable care and skill. The Court will also look at whether the owner would have suffered the loss and damage as a result.
In some circumstances, certifiers can be found liable for defective building work (in addition to the builder). In this instance, the Court found that there was a causal link, as the certifier is responsible for assessing a builder’s work for compliance and allowing work to either continue or stop.
Determining the Existence of a Duty
There have been cases in NSW where the courts have been reluctant to find that principal certifying authorities owe a duty to take reasonable care when issuing occupation certificates. In Chan v Acres [2015] NSWSC 1885, the Supreme Court of NSW placed significant weight on the need to establish actual reliance and the owner’s vulnerability, to the extent that an absence of vulnerability may be determinative against the existence of a duty.
In this case, an owner builder renovated his property and obtained an occupation certificate. The renovation contained structural defects. The property was sold to the plaintiffs who sued the certifying authority, the vendor and the structural engineer. At the first instance, the Supreme Court held that the plaintiffs were vulnerable because it was reasonably foreseeable to the certifying authority that a purchaser would suffer loss if defects were not identified and rectified before sale.
The certifying authority appealed and the appeal was allowed as the Court of Appeal found that the plaintiffs failed to establish the relationship of “vulnerability” and “reliance” between themselves and the certifying authority. The Court held that the plaintiffs could have protected themselves by negotiating the terms in the contract of sale with the vendor.
It was also noted that the role of a certificate is to show suitability of a building for occupation and this “does not require that all of the building work… has been carried out in accordance with approved plans and specifications, and in a proper and workmanlike manner.”
Pursuing an action for building defects
A defect in construction law refers to work that has not been performed in accordance with the standards and requirements of the particular contract.
Matters that will be taken into consideration in determining if there is a defect may include:
- The quality of any work and the standard of workmanship;
- Whether design directives have been followed and correct materials have been used; and
- Whether the works have been performed in accordance with contractual specifications and drawings.
If you believe that defective building work has occurred on your property, you should act quickly. Knowing your rights and the relevant time limitations in pursuing a claim for defective work will empower you to take the appropriate steps to have the work rectified.
If you need more information, assistance, or advice on how to proceed please call us on (02) 9963 9800 or via our contact form. To learn more about how Etheringtons Solicitors can assist you, please visit our blog here.
Mar 28, 2022 | Building and Construction Law
Parties to commercial building disputes may utilise Security of Payment (SOP) legislation in their jurisdiction to resolve payment claims and recover money owed under a construction contract. The relevant legislation for NSW is the Building and Construction Industry Security of Payment Act 1999 (‘the Act’).
Disputes are resolved by an adjudicator and any amount determined as owing must be paid within the statutory timeframe. The determination is enforceable but without prejudice to the common law rights of either party. Due to the limited time in which an adjudicator must determine a payment dispute, it is not surprising that a determination may come before the court for judicial review.
The grounds for review have been visited by various courts with the following cases providing insight as to what might (and might not) justify having an adjudication determination quashed.
No review avenues for non-jurisdictional error
The High Court in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 confirmed that parties to an adjudication determination under the Act may not seek judicial review for non-jurisdictional error of law.
The Court reiterated the nature of the Act which, amongst other things, was intended to ‘reform payment behaviour in the construction industry’ by ensuring prompt recovery of payment for work carried out under a construction contract.
Accordingly, an adjudicator is sanctioned to make a determination and a court is not empowered to quash that decision for non-jurisdictional error, even if based on an incorrect interpretation of the subject contract.
An adjudication determination may only be set aside on grounds of jurisdictional error – an error going to the authority or power of the adjudicator, such as non-compliance with procedural requirements under SOP legislation.
Minimum standards required when assessing an adjudication determination
Nuance Group (Australia) Pty Limited (Nuance) v Shape Australia Pty Limited (Shape) [2018] VSC 362 provides guidance as to when a Court might quash an adjudication determination.
Shape served a payment claim on Nuance for over $3.5 million for demolition and associated works at Melbourne International Airport. Nuance responded with a payment schedule stating the amount payable as nil. Shape applied for adjudication for the sum of $2,243,105.55. An amount of $1,400,007.12 was determined payable, which after an adjudication review instigated by Nuance, was reduced to $1,216,715.72.
Nuance challenged the validity of both the original and reviewed determination in the Supreme Court of Victoria.
Nuance submitted that the adjudicator had not determined the amount of the progress claim as required by SOP legislation, which at a minimum necessitated a finding of whether the work identified in the relevant claim had in fact been performed and the value of that work. Rather, the adjudicator had deducted what he considered were excluded amounts from Shape’s claim to arrive at the revised figure and, in doing so, failed to comply with ‘basic and essential requirements’ of the Act.
Nuance was successful, and the adjudication determination was quashed.
Whilst acknowledging the tight time frames under which adjudicators are required to operate, Justice Digby nonetheless conceded that the adjudicator had:
‘…failed to undertake the required task of addressing the payment claim and payment schedule and, consider those parameters of the dispute between the claimant and the respondent as to what claimed work … had been carried out under the Contract and what the value of that work … was.’
An adjudicator’s reasons must be considered in context
Southern Cross Electrical Engineering (Southern Cross) v Steve Magill Earthmoving (Magill) [2018] NSWSC 1027 considered another appeal of an adjudication decision.
Southern Cross disputed Magill’s payment claim, which comprised additional amounts for excavation work based on trenching some areas of the subject site that were wider than stipulated in the contract. Southern Cross submitted that the adjudicator had erred by requiring it to prove that there had been no variation to the contract and that the earthmoving works had been over-claimed.
Southern Cross claimed that the adjudicator was required to ‘examine all the material for himself, and to come to a conclusion, based on that material as to what amount (if any) is payable.’
Justice McDougall acknowledged the processes set out by Justice Vickery were applicable to a determination however rejected any requirement for them to be ‘applied serially and mechanically in every case.’ Rather, the adjudicator’s reasons must be considered in context which included ‘the content of the dispute as established by the payment claim and the payment schedule, and the parties’ elaboration of that dispute.’
Further, the reasoning must be assessed considering the interim nature of an adjudicator’s determination under SOP legislation, the voluminous material to be dealt with, the strict timeframe and the fact that adjudicators are not usually lawyers.
Cross Engineering’s appeal was dismissed, Justice McDougall concluding that:
‘Factually, the adjudicator’s approach may have been (and probably was) incorrect. It is no doubt something that could have been improved upon if the adjudicator had “world enough and time”. But looking at his approach … I am far from persuaded that it was unreasonable to the extent that it must be taken to invalidate his determination’.
Conclusion
An adjudicator must apply certain minimum standards when assessing an adjudication application, and their reasoning will be considered in the context of the purpose and intent of the legislation, that being for the timely resolution of payment disputes under a construction contract. A decision that emanates from an error of law not associated with a jurisdictional error, will generally not entitle the Court to intervene.
If you or someone you know wants more information or needs help or advice, please contact us on (02) 9963 9800 or via the contact form here.
