10 February 2021
24 min read
#Property, Planning & Development, #Construction, Infrastructure & Projects
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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:
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:
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
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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),
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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
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Johnson v Kiama Municipal Council [2021] NSWLEC 1036
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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)
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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.
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