A recent decision by the Supreme Court of New South Wales, The Owners – Strata Plan 89041 v Galyan Pty Ltd  NSWSC 619, considered whether it was unreasonable for the owners corporation (OC) to refuse the builder entry to premises to rectify defects.
The decision is relevant to all owners (and not just to owners corporations) who raise a defects claim with a builder because it provides guidance on whether and, if so, in what circumstances an owner should let the builder rectify (or attempt to rectify) building defects.
The proceedings concerned the OC of a residential apartment building in Ettalong, NSW and the builder and developer of the property. In February 2014, defects were first noticed and the OC engaged a licensed builder to prepare a report on the defects (completed 28 April 2014).
After numerous failed attempts to have the defects rectified, with 19 of the 30 defect items still outstanding and with only a short time until the defect liability period expired, the OC filed proceedings against the builder for defective work at the NSW Civil and Administrative Tribunal (NCAT).
The OC had previously decided to prevent the builder from attending the property and continuing with the rectification of defects until an appropriate scope of work could be agreed between them.
The proceedings were transferred from NCAT to the NSW Supreme Court, where the parties agreed to appoint a referee to determine the existence of defective works, the scope of work to rectify those defects, the cost of undertaking such works and a detailed construction program.
The Supreme Court adopted the referee’s expert report and awarded the OC the sum of $1,282,486.59, being damages for the cost of rectifying certain defects.
The question as to whether the OC was entitled to recover their costs (including legal costs) was decided on the question of whether the OC behaved unreasonably by refusing to allow the builder access to the property to rectify the defects.
Stevenson J found that the OC had behaved reasonably. In doing so, His Honour had particular regard to whether the OC had reasonably lost confidence in the willingness and ability of the builder to undertake the rectification work. The court accepted and adopted affidavit evidence from the OC’s representatives, which provided that the OC had lost confidence in the builder’s ability or willingness to carry out the necessary rectification works based on:
- the failure by the builder (or its subcontractor) to provide an adequate scope of work and other information;
- when the builder did provide a scope of work, it fell ‘far short’ of what the OC’s expert considered necessary to rectify the defects;
- the builder’s approach to the OC’s claim, which was seen by His Honour as ‘unnecessarily aggressive’ (given the content of certain correspondence);
- the poor quality, to their observation, of the rectification work that the subcontractor had performed previously;
- the subcontractor’s failure to attend the property and individual units at appointed times to carry out work;
- the subcontractor’s conduct in entering the property without permission or authority; and
- the subcontractor’s attempts to persuade the OC’s representatives to sign–off on a development application with respect to replacing a roof structure at the property.
The court considered the relevant authorities on this question, which are summarised as follows:
- A plaintiff is not entitled to recover losses attributable to its own unreasonable conduct.
- In cases involving building contracts, the owner is required to give the builder an opportunity to minimise the damages it must pay by rectifying the defects, except where its refusal to give the builder that opportunity is reasonable or where the builder has repudiated the contract by refusing to conduct any repairs.
- The question of what is reasonable depends on all the circumstances of the particular case — one relevant factor is what attempts the builder has made to repair the defects in the past and whether, in light of the builder’s conduct, the owner has reasonably lost confidence in the willingness and ability of the builder to do the work.
- It is for the defendant (in this case the builder) to prove that the plaintiff (in this case the OC) has acted unreasonably — it is not for the plaintiff to prove that it acted reasonably.
- Once a defendant puts in issue the reasonableness of the plaintiff’s conduct, all circumstances relevant to an objective assessment of the plaintiff’s position become examinable — the plaintiff is not limited to reliance on facts or circumstances actually known at the time, but may rely on facts that come to its attention afterwards, but that pertain to the defendant’s conduct at the relevant time.
In some circumstances it is not unreasonable for an owner or owners corporation to prevent a builder from coming back onto the premises to complete rectification of defects. However, owners should not reject offers by a builder to rectify defects without proper consideration of the relevant circumstances. To that end, owners / owners corporations should seek advice before making a decision to reject a builder’s offers to come back to rectify defects because adopting this approach is not without risk if the matter proceeds to a court or tribunal. The risk is that rejecting a builder’s offer to repair defective and / or incomplete works may backfire on the owner and prevent the owner from recovering costs (and possibly damages) if the rejection of the builder’s offer is shown to have been unreasonable.
This decision highlights the need for both parties to consider their conduct in defect disputes on an ongoing basis, as and when new defects or incomplete works come to light, and to seek legal advice where appropriate.
This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.