Artboard 1Icon/UI/CalendarIcons/Ionic/Social/social-pinterest

Residential Focus

10 February 2021

#Property, Planning & Development, #Construction, Infrastructure & Projects

Published by:

Krishneel Kumar

Residential Focus

The devil (or saviour) is in the detail of a scope of work

Scopes of work are often drafted generically for similar types of work, without consideration to the unique requirements of a project. They may not be reviewed comprehensively, and even then, only at a late stage.

The recent case of Oikos Constructions Pty Ltd trading as Lars Fischer Construction v Ostin & Anor [2020] NSWCA 358 demonstrates the implications this can have on the content of a builder’s obligations under a construction contract and the bargain that is in fact entered into.

Background

Owner-builder Amodeo built a house which had waterproofing defects. Amodeo sold the house to Simons. Ostin agreed to purchase the house from Simons, but on the condition that Simons arrange for remedial works to address the waterproofing defects, which would need to be completed before the sale. Simons engaged Oikos Constructions Pty Ltd (Oikos) to do this work (Works Contract), and the sale was completed following Oikos’ completion of the works.

The Works Contract referred to the scope of work as provided by Oikos to Simons in an email dated 13 May 2011. This email broadly set out the work that Oikos proposed to do, which was expressed to be the “necessary rectification works” in respect of the “most likely causes for the defects” (Rectification Works).

Following Oikos’ completion of the Rectification Works, the waterproofing issues continued. Ostin sued Oikos in the District Court of NSW, claiming that Oikos had breached the statutory warranties implied into the Works Contract under section 18B of the Home Building Act 1989 (NSW) (Act). Under section 18D of the Act, these implied statutory warranties also extended to Ostin.

Relevantly, section 18B of the Act provides that:

“(1)  The following warranties by the holder of a contractor licence…are implied in every contract to do residential building work—

(a)  a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract,

(b)  a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated… those materials will be new,

(e)  a warranty that, if the work consists of…the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling,

(f)  a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence… the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder’s or person’s skill and judgment.”

Decision at first instance

At first instance, the District Court of NSW found that:

  • the warranties in section 18B(1)(e) and (f) should be applied as follows:
    • section 18B(1)(e) – that the Rectification Works would result in a dwelling that was reasonably fit for occupation as a dwelling
    • section 18B(1)(f) – that the Rectification Works would be reasonably fit for the specified purpose made known to Oikos by Simons as the person for whom the work was done.
  • as the 13 May email set out the water penetration problems caused by the existing defects, followed by a description of the Rectification Works recommended by Oikos (which were drafted broadly), the stated purpose of the Rectification Works was to fix the defects
  • on this basis, the effect of sections 18B(1)(e) and (f) was that Oikos had warranted that the Rectification Works would fix the defects
  • although Oikos had properly completed all the works specifically referred to in the 13 May email, this had not fixed the defects and Oikos had therefore breached the contract.

Ostin was awarded damages of $168,885.92, which the District Court assessed as the cost of properly fixing the defects, together with Ostin’s costs. 

Basis for the appeal

Oikos appealed to the NSW Supreme Court of Appeal. In particular, Oikos claimed that the warranties implied by section 18B of the Act could not expand the scope of the work contracted to be done and that on this basis it had not breached the Works Contract.

This was rejected by the Court of Appeal. The Court of Appeal found that builders are not able to contract out of the section 18B warranties by agreeing to a narrower scope of work. For example, the Court of Appeal pointed out that a builder could not avoid the operation of the warranty in section 18B(1)(b) that materials supplied by the builder be “good and suitable” by specifying sub-standard materials in the scope of work in the contract.

However, the Court of Appeal found that in Oikos’ case, section 18B did not have the effect of expanding the warranties in the Works Contract to include a warranty that the Rectification Works would fix the waterproofing defects. In particular, the Court of Appeal determined that:

  • section 18B(1)(e) implied a warranty that the Rectification Works would, to the extent of the work conducted (or to be conducted) under the Works Contract, result in a dwelling that was fit for occupation as a dwelling
  • section 18B(1)(f) implied a warranty that the Rectification Works would be reasonably fit for the specified purpose for which the work was required, or the result that the person for whom the work was done (Simons) wanted to achieve, if that purpose or result was made known by Simons to Oikos
  • sections 18B(1)(e) and (f) could therefore expand the scope of work required to be done, but only if Simons had expressly made it known to Oikos the particular purposes for which the work was required or the result that Simons desired the work to achieve
  • there was no evidence that Simons had made it known to Oikos that the purpose of the Rectification Works was to fix the waterproofing defects. On the contrary, the email on 13 May had stated that the Rectification Works were in Oikos’ opinion the “necessary rectification works” for the “most likely causes for the defects” ─ not for each and every possible cause of the defects so as to ensure that the house would become free of water penetration. The fact that the 13 May email was drafted broadly and not very detailed did not necessarily indicate that Simons was relying on Oikos to work out what additional work needed to be performed to fix the defects and to then carry out these works. The Court of Appeal emphasised that Ostin was suing Oikos for breach of contract, not in negligence for breach of a duty of care
  • Ostin’s intention had ostensibly been that the Rectification Works would fix the waterproofing defects, but Ostin was not the party who contracted with Oikos
  • the only other relevant warranties implied by section 18B were the warranties that the Rectification Works would be done with due care and skill and in accordance with the plans and specifications set out in the Works Contract (section 18B(1)(a)), and that all materials used in the Rectification Works would be good and suitable for the purpose for which they were used (section 18B(1)(b)), neither of which expanded the scope of work required to be carried out as claimed by Ostin
  • Oikos had therefore not breached the Works Contract because of the implied statutory warranties under section 18B of the Act.

Implications

This judgment is a timely reminder about the importance of a clear, thoughtfully drafted and tailored scope of work in a construction contract. Scopes of work are often drafted quickly, and sometimes copy and pasted from previous projects, without consideration to the specific purpose for which the works are required.

It is common to see drafting which ties fitness for purpose warranties to “the purpose for the works as stated in, or as reasonably inferable from, the contract documents” to offer some protection.

However, if the intention is that the works must achieve a specific purpose, parties should ensure that this purpose is clearly stated. Reasonable minds may differ as to what purpose is “reasonably ascertainable from the contract documents”, and in any case, the contract documents would need to sufficiently detail the background to, and nature of, the works to allow the purpose to be so ascertained.

In a residential context, owners, and indeed subsequent purchasers, should not assume that the statutory warranties in section 18B of the Act will have the effect of implying into the contract the purpose for the works that they desired or that they thought was self-evident.

Authors: Christine Jones & Krishneel Kumar

In the media

Detached building approvals reach record high
ABS Building Approvals data for detached houses rose for the sixth consecutive month in December, to reach the largest number of approvals since the series began in 1983. Detached house approvals increased in the December 2020 quarter to be 43.7 per cent higher than at the same time the previous year (03 February 2021).  More...

Residential land in high demand in September quarter 2020
Demand for residential land jumped by 27.7 per cent in the September 2020 quarter to be 62.7 per cent higher than at the same time last year, reflecting the surge in demand following the announcement of HomeBuilder in June, according to HIA Economist (02 February 2021).  More...

HIA: Loans for new home building continues to set records
As foreshadowed by HIA’s New Home Sales data, the number of loans for the construction of a new dwelling rose in December, for the sixth consecutive month, to reach a new record (01 February 2021).  More...

HomeBuilder leads to spike in material and labour costs, stinging home buyers
HomeBuilder has provided a shot in the arm to the housing sector, with households taking on record levels of debt to fuel the nation’s economic recovery. But increased demand has already pushed up the price of materials and labour, squeezing the budgets of home buyers and renovators (28 January 2021).  More...

Why blockchain just might be the answer to better construction
Blockchain could unlock desperately needed modernisation in Australia’s construction industry, according to Professor Srinath Perera from Western Sydney University’s Centre for Smart Modern Construction (28 January 2021).  More...

Michael Sukkar says the cost of the scheme reflected the interest in it
The cost of the Government's HomeBuilder scheme has blown out. It is now likely to cost more than double the originally anticipated $920 million (20 January 2021).  More...

PCA: HomeBuilder the workhorse of economic recovery
The success of the Federal Government’s HomeBuilder grants program demonstrates the power of residential construction in supporting jobs and driving economic activity. According to new figures from Treasury, more than 75,000 households have applied for the HomeBuilder grant with around 80 per cent of these for new construction (20 January 2021).  More...

HomeBuilder the star of economic recovery driving $50 billion boost to economic activity
The overwhelming success of the Federal Government’s HomeBuilder scheme in driving economic recovery is confirmed by new data released. Denita Wawn, CEO of Master Builders Australia said the HomeBuilder will support $18 billion in new home construction and $50 billion in economic activity across the wider economy (20 January 2021).  More...

New app streamlines application process for Green Star rating
Green Building Council of Australia (GBCA) announces the launch of the first phase of Green Star Online, a new platform that allows projects to easily apply for a Green Star rating. Green Star Online streamlines the application process and improves customer experience for project managers and GBCA members (19 January 2021).  More...

New home sales go through the roof in December
New home sales reached remarkable heights in December, nearly doubling compared to the number of sales recorded in November, according to the latest HIA New Home Sales report. This is the second strongest month of new home sales in the 20 year history of the survey, only exceeded by March 2001 (19 January 2021).  More...

Record level of lending for new home building in November
HIA New Home Sales data suggests that detached housing finance approvals will continue to be strong over the coming months. The extension of HomeBuilder at the end of November is not a factor in this month’s result but will see the strength in housing finance data extend into 2021 (15 January 2021).  More...

Chinese company withdraws bid for Australian builder after Government flags security risk
A $300 million offer by a Chinese company to buy an Australian builder is withdrawn on the back of advice that Treasurer Josh Frydenberg and the Foreign Investment Review Board will declare the transaction a risk to national security and contrary to Australia's interest (12 January 2021).  More...

HIA: Detached building approvals go from strength to strength
ABS Building Approvals data for detached houses rose for the fifth consecutive month in November. While HomeBuilder was the catalyst for improving consumer confidence in the housing market, the strength of detached building approvals is due to several factors including low interest rates (07 January 2020).  More...

‘Holy grail’ of taxing land owners who profit from ‘stroke of a pen’ proves elusive
The NSW Planning Minister Rob Stokes said some of the uplift in land values due to government-funded projects should go toward paying for the infrastructure required to support the extra development (02 February 2021).  More...

The community is also being reminded to have its say on the Beaches Link Environmental Impact Statement which is on public exhibition until 1 March 2021. Click here for more information and to see the interactive portal.

HomeBuilder – a testament to the job creation power of the property construction sector – lessons for NSW
NSW saw a significantly lower take-up of HomeBuilder than other states (given the relative size of the populations of the states and territories). This was firstly because early on the thresholds were too low. But secondly, it was because the performance on planning approvals has been appalling since 2019 and fell by more than any other state during COVID-19 (20 January 2021).  More...

Published – articles, papers, reports

Australian Bureau of Statistics
03 February 2021 Building Approvals, Australia
03 February 2021 Media release: Private house approvals reach record high in December
Building Approvals, Australia, December 2020

Australian Bureau of Statistics
21 January 2021 – Functional Classification of Buildings
The primary application of the Functional Classification of Buildings is to classify buildings according to their predominant function or purpose.  More...

Practice and courts

HIA Submissions
National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 inquiry (165KB) 03 February 2021.

ABCB: A new look for NCC 2022
As part of the ABCB's commitment to delivering an NCC that is user-friendly and modern, some important changes are being implemented in NCC 2022. The ABCB will be releasing a range of supporting material and useful resources prior to the 2022 Public Comment Draft.  More...

ABCB: Improvements to the code’s structure and format will be implemented for NCC 2022
To guide users through the changes, the ABCB has developed a range of supporting resources that will be released in stages leading up to the publication of the NCC 2022 Public Comment Draft on 10 May 2021.  More...

Adoption of NCC 2022 to be delayed
The delayed adoption will also see adjustments to key dates in the amendment cycle process for NCC 2022 to allow stakeholders time to participate. These adjusted dates include:
May – July 2021: NCC 2022 Public Comment Draft released for public consultation
May 2022: NCC 2022 Preview published here.
If you have any questions regarding the delayed adoption of NCC 2022, please submit an online enquiry.

ABCB Consultation RIS: Lead in plumbing products in contact with drinking water
As part of the ABCB’s Lead in Plumbing Products Project, a Consultation Regulatory Impact Statement on lead in plumbing products in contact with drinking water was opened. The ABCB invites comment from all stakeholders using the online consultation form until 1 March 2021.  More...

ABCB consultation: Independent third party review
A discussion paper for independent third party review is now open for public consultation. Recommendation 17 of the Building Confidence Report proposes that ‘each jurisdiction requires genuine independent third party review for specified components of design and/or certain types of buildings’. Responses to questions on the discussion paper, outlined in the consultation form, are invited until 28 February 2021.  More...

ABCB Discussion paper: Mandatory on-site inspections for building work is now open for public consultation
Recommendation 18 of the Building Confidence Report proposes that ‘each jurisdiction has mandatory on-site inspections of building work at identified notification stages’. Responses to questions on the discussion paper, outlined in the consultation form, are invited until 28 February 2021.  More...

RICS cost prediction professional statement, global 1st edition
This professional statement provides an overview of global best practice in cost prediction and the implementation of international construction measurement standards for cost management professionals. The standard becomes mandatory for RICS professionals and RICS-regulated firms on 1 July 2021.  More...

ABCB: Consultation on the draft Auditing and Compliance Publication Framework closes soon
The Model Code sets out the minimum expectations of building surveyors performing statutory functions (18 January 2021).  More...

Auditing and Compliance Publication Framework
The Building Confidence Report, published in 2018, identified there were regulatory and compliance deficiencies in the regulatory oversight of the construction of commercial buildings in Australia. The draft Framework is targeted at state and territory building regulators with primary responsibility for the regulation of the construction of Class 2 – 9 buildings. Closes 31 January 2021.  More...

Discussion paper: Building Design Acceptance - A response to the Building Confidence Report
In 2017, Building Minsters authorised an assessment of the effectiveness of compliance and enforcement systems for the building and construction industry across Australia. Amongst other recommendations the resulting Building Confidence Report recommended that there be a statutory duty.. Responses to questions on the discussion paper, are invited until 7 February 2021.  More...

Conflicts of interest – savings and transitional arrangements
Clause 71 of the Regulation introduces savings provisions for certain conflict of interest situations where the certifier was appointed before 1 July 2020 and the work will be completed before 1 July 2022. The provisions relate to council-certified developments and to developments where the certifier gave advice on how to comply with the BCA deemed to satisfy provisions.  More...

The draft Design and Building Practitioners Regulation 2020
The NSW Design and Building Practitioners Act 2020 provisions of the Act will commence on 1 July 2021.
The draft Design and Building Practitioners Regulation includes registration schemes for design and building practitioners and engineers who work on multistorey, multi-unit residential apartment buildings.
The Government will finalise the Regulations in early 2021, ready to be implemented on 1 July 2021.  More...

New mandatory standards for building rectification
The standard will be reviewed and updated prior to the 1 July 2021 commencement of the Government’s game changing building reform agenda underpinned by the Design and Building Practitioners Act 2020.
The first Practice Standard will initially apply to certifiers working on residential apartment buildings, where the majority of problems and complaints have been received. The Practice Standard for registered certifiers is available on the Fair Trading NSW website.

NSW Fair Trading: Cert Alert
Building and Development Certifiers Regulation (the Regulation) was amended recently to include changes identified as necessary since it commenced in July 2020. Key changes are summarised below.
Practice Standard is a condition of registration
Clause 9 of the Regulation requires all certifiers to work in accordance with chapters 1 and 2 of the Certifiers Practice Standard. Clause 9 also requires certifiers registered as a ‘building surveyor – unlimited’ or ‘building surveyor – restricted (all classes of buildings)’ to work in accordance with the entire Certifiers Practice Standard.
You can access the Certifiers Practice Standard here.
Fire engineers can do ‘regulated work’
Clause 64 of the Regulation authorises registered fire engineers to prepare a performance solution report under cl.130 or 144A of the Environmental Planning and Assessment Regulation as 'regulated work'.

Engineers Australia
Now is your opportunity to provide feedback on new laws requiring statutory registration for professional engineers, plus a range of reforms to the process of designing and constructing buildings.
Engineers Australia have compiled information compiled information on what's happened so far and a policy paper.  

Land Tax Build to Rent
The NSW Government is introducing a land tax discount for new build-to-rent housing projects until 2040 and a new Housing Diversity SEPP to provide more housing options, greater surety for renters, boost construction and support jobs during the COVID-19 recovery.  More...

Extension to HomeBuilder Grant
On 29 November 2020 the Australian Government Announced an extension to the HomeBuilder program until 31 March 2021.  More...

Cases

Ashton v Stevenson; Stevenson v Ashton (No 2) [2021] NSWCATAP 6
BUILDING AND CONSTRUCTION – Home Building Act 1989 (NSW) – major defect – assessment of damages COSTS – award based on issues

Decon Australia Pty Ltd v TFM Epping Land Pty Ltd (No 2) [2021] FCA 32 
CORPORATIONS – application to set aside Deeds of Company Arrangement (DOCAs) pursuant to s 445D of the Corporations Act 2001 (Cth) – where plaintiff is a creditor for a judgment debt under the Building and Construction Industry Security of Payment Act 1999 (NSW) against two single purpose companies in relation to a property development – where both companies entered into numerous financial agreements and facilities with related and unrelated entities after completion of the development – where both companies contest the plaintiff’s judgment debt and seek to fund a cross-claim through the DOCAs – whether the companies’ administrators’ reports contained materially misleading information – whether omissions from the administrators’ reports were material to the decision whether to support the DOCAs – whether the terms of the DOCAs are oppressive, unfairly prejudicial or unfairly discriminatory – whether the DOCAs are contrary to the interests of creditors as a whole – whether the DOCAs are detrimental to commercial morality – in circumstances where it was not demonstrated that further investigation into certain transactions by liquidators under a winding up would provide a better return to creditors than the DOCAs
CORPORATIONS – application to set aside creditors’ resolutions to approve DOCAs pursuant to s 75-41 of the Insolvency Practice Schedule – where but for the votes of related creditors approval of the DOCAs would have been decided by the casting vote of the administrators – where the administrators gave evidence that they would have cast their vote to approve the DOCAs in any event – in circumstances where the administrators’ reports had recommended the DOCAs on the basis that they would achieve a better return to creditors than a winding up
Corporations Act 2001 (Cth) ss 256B(1), 257A, 435A, 440D, 445D, 445D(1), 445D(1)(a), 445D(1)(b), 445D(1)(c), 445D(1)(e), 445D(1)(f), 445D(1)(f)(i), 445D(1)(f)(ii), 445D(1)(g), 446AA, 447A, 459A, 459P, 459T, 544FB, 503, 553C, 588FB, 588FC, 588FDA, 588FE(3), 588FE(4), 588FE(6A), 600A, Pt 2J; Pt 5.3A, Pt 5.7B, Div 2
Corporations Act 2001 (Cth) Sch 2 (Insolvency Practice Schedule) ss 75-41, 75-41(1)(a), 75-41(1)(b), 75-41(1)(c), 75-41(1)(d)
Insolvency Practice Rules (Corporations) 2016 (Cth) s 75-115
Building and Construction Industry Security of Payments Act 1999 (NSW) ss 14(4), 32, 32(1), 32(2), 32(3)(b),
Home Building Act 1989 (NSW) Pt 2C

Falzon v Evans [2021] NSWCATAP 25
BUILDING AND CONSTRUCTION –proof of loss for incomplete and defective building work APPEALS – extension of time in which to lodge appeal – no error of law – no error warranting leave to appeal

Hope v Hutchings; Hutchings v Hope [2021] NSWCATAP 19
HOME BUILDING – time limitation, building claim, sham contract, against the weight of evidence, subjective intention.

Huang v The Owners – Strata Plan No 7632 [2020] NSWCATAP 278
STRATA TITLE- appeals from orders of Tribunal requiring appellants to remove work carried out by them on common property without authority and to pay legal costs of body corporate - finding that work was carried out on common property upheld-adverse costs order upheld- appeals dismissed.

Hudson Resources Limited v AceA Resources Pte Ltd [2021] NSWSC 41
COSTS – plaintiff’s case failed at every level – whether costs should be on an indemnity basis –whether plaintiff maintained a case that had no reasonable prospects of success

Kat v Waverley Council [2021] NSWLEC 1051
APPEAL – building information certificate – conciliation conference – building erected without development consent and not in compliance with the Building Code of Australia – non-compliance with fire regulations – performance compliance with deemed to satisfy provisions of the Building Code of Australia – agreement between the parties – orders made

Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin & Anor [2020] NSWCA 358
BUILDING AND CONSTRUCTION – contract – Home Building Act 1989 (NSW) – statutory warranties – whether contract confined to negotiated scope of works or expanded to include other works by virtue of the implied statutory warranties – whether building in breach of statutory warranties
CONTRACTS – remedies – damages – where loss claimed would have been suffered if contract had been properly performed

Paterson v BRK Projects Pty Ltd [2021] NSWCATAP 1
COSTS – Calderbank offers – whether offer provided better result than ultimate outcome – whether unreasonable to reject – significance of absence of agreement to pay costs – significance of entitlement to renew proceedings if rectification work not completed

Vitogiannis v Commissioner for Fair Trading, Department of Customer Service [2020] NSWCATOD 157
ADMINISTRATIVE LAW – administrative review – licensing – whether applicant meets requirements for issue of builders licence - application of Instrument - “wide range of building construction work” - experience requirements met

Votano v Building Professionals Board [2021] NSWCATOD 7
ADMINISTRATIVE REVIEW – building certifier – application for accreditation – experience requirements – whether applicant has required experience

Johnson v Kiama Municipal Council [2021] NSWLEC 1036
APPEAL – swimming pool child resistant barrier exemption – pool constructed prior to 1990 – impracticable or unreasonable – physical nature of the premises – orders

Rice v JR & SD Farmer t/a Urban Bespoke Homes; (No 2) [2021] NSWCATAP 2
COSTS---Rule 38A Civil and Administrative Tribunal Rules 2014---amount claimed or in dispute in appeal proceedings---whether special circumstances must be established

Rudas and Andrassy v Eid [2021] NSWCATAP 4
BUILDING AND CONSTRUCTION – whether the owners terminated the building contract by accepting the repudiation of the builder – whether the Tribunal erred in holding that the building contract remains on-foot – what order should be made for damages.

SafeWork NSW v Aceline Plumbing Group Pty Ltd [2020] NSWDC 774
CRIMINAL LAW – prosecution – work health and safety – duty of persons undertaking business – risk of death or serious injury
SENTENCE – objective seriousness – mitigating factors – aggravating factors – plea of guilty – general deterrence – specific deterrence – capacity to pay – appropriate sentence
OTHER – failure to notify SafeWork of a notifiable incident – failure to consult, co-operate and co-ordinate activities with other persons who had a duty under s 19(1) of the Work Health and Safety Act 2011 (NSW)

Taylor Construction Group Pty Ltd v The Owners - Strata Plan No 92888 [2020] NSWCATAP 277
COSTS – No issue of principle

Legislation

Environmental Planning Instruments
State Environmental Planning Policy (Exempt and Complying Development Codes) Amendment (Miscellaneous) 2021 (2021-16) — published LW 29 January 2021

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Krishneel Kumar

Share this