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.
