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Residential Focus

16 December 2020

#Property & Real Estate

Published by:

Divya Chaddha

Residential Focus

The Appeal Panel takes a broader approach to ‘major defects’

In the recent decision of Ashton v Stevenson; Stevenson v Ashton [2020] NSWCATAP 233, the Appeal Panel has broadened its approach towards ‘major defects’.

The decision is the latest in a series of decisions in the dispute between the owner and the former owner-builder, including a successful judicial review application[1] by the owner from the earlier decision of the Appeal Panel[2] (First Appeal Panel Decision) which resulted in the Supreme Court remitting the matter back to the Appeal Panel for re-hearing. 

The dispute

This dispute concerned alleged defective building work undertaken by the former owner-builder, who completed the works in May 2014 and thereafter sold the relevant property to the owner. The alleged defects concerned water penetration, including through the balcony, roof, rear courtyard, cladding, windows and plumbing.

Proceedings were commenced in November 2016, beyond the enforcement period for breach of statutory warranty under the Home Building Act 1989 (NSW) (HBA) for defects which are not “major defects”.

The former owner-builder advanced a defence that a significant portion of the alleged defects did not constitute “major defects” within the definition in the HBA, and to that extent should be dismissed.

This required the Tribunal (and the Appeal Panel, the Supreme Court and the Appeal Panel again) to consider whether the alleged defects were in a “major element” of the building, namely “waterproofing” and otherwise satisfied the requirements of the definition of “major defect”.

What is a major defect?

The definition of a “major defect”, as set out in section 18E(4) in the HBA, is onerous. There is a three-part definition and for an alleged defect to qualify as a “major defect”, all three parts must be met.

The first part of the definition requires that a defect is in a “major element” of the building. The definition of “major element” relevantly includes “waterproofing.” This inclusion does not, however, mean that any and all ingress of water to a residence is a “major defect” and subject to a six-year statutory warranty period.

The other requirements of the definition are that the defect:

  • is attributable to defective design, workmanship, materials or failure to comply with the performance requirements of the National Construction Code (NCC)
  • causes or is likely to cause:
    • inability to use or inhabit the building or part of the building for its intended purpose
    • destruction of part or whole of the building, or
    • threat of collapse of whole or part of the building.

Conclusions in the previous decisions

At first instance, the Tribunal held that a number of the defects related to “waterproofing” and constituted a “major defect”, including:

  • water build up on the balcony due to an inadequate step-down and lack of flashing
  • cladding that had been installed with a vapour impermeable backing or sarking (and without appropriate spacers).

The First Appeal Panel Decision held that the Tribunal were in error in concluding the abovementioned defects constituted “major defects”, although it agreed that they related to a “waterproofing” element. The Appeal Panel was concerned that the Tribunal had reached conclusions as to what might occur in the future as to the “inability to inhabit” or “destruction” of the property, in the absence of sufficient evidence. 

On appeal from that decision, the Supreme Court held that the Appeal Panel misconstrued the provisions of the HBA by emphasising the need for evidence as to the consequences of the defects.  This would be contrary to the HBA, which permits a “major defect” finding if there is evidence that a defect is likely to cause one of the consequences considered by the HBA. The matter was accordingly remitted back to the Appeal Panel for re-hearing.

Having regard to the Supreme Court’s decision, the Appeal Panel on remitter held the following defects constituted a “major defect”, in effect reversing its previous decision:

  • water build up on the balcony due to an inadequate step-down and lack of flashing
  • cladding that had been installed with a vapour impermeable backing or sarking (and without appropriate spacers).

Plumbing related defect held to be a “major defect” by the Appeal Panel

Separately, the Tribunal held at first instance that “waterproofing” does not extend to mechanisms designed to control water to prevent it from coming into contact with the building. Accordingly, the Tribunal was not persuaded that the “plumbing related” defects were in a major element of the building.

On remitter, the Appeal Panel re-considered whether the failure to install an overlaid surface water flow path from the external enclosed areas on the rear terrace was an integral part of the building’s “waterproofing” systems. The Appeal Panel held that in circumstances where the purpose of the drainage on the rear terrace was to control and prevent entry into the premises, it would be part of the “waterproofing” system and therefore a major element. The Appeal Panel held the defect was likely to cause the premises to become uninhabitable in the event of flooding, and therefore major for the purposes of the HBA.

Implications

This series of judgements have been the leading authority on the characterisation of water entry defects as “major defects”. Although the earlier decisions were consistent in characterising a number of elements as “waterproofing”, including the balcony, roof, rear courtyard, cladding and plumbing, there was greater scrutiny as to the other limbs of the definition, in considering a qualification as “major defects”. 

This decision confirms a broadening of the approach to the other limbs of the decision, in particular as to what is required to demonstrate the “likely” consequences of the defect. Conclusive evidence on the prescribed consequence of the defect was not required.   

Authors: Christine Jones & Divya Chaddha

[1] See Stevenson v Ashton [2019] NSWSC 1689.
[2] See Ashton v Stevenson [2019] NSWCATAP 67.

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 newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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NSW 

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The Australian and New South Wales Governments’ accelerated $398 million investment in road safety improvements through the Safer Roads Program is starting to make a big difference in regional communities, with works under way across the state and many more soon to kick off (10 December 2020).  More...

Cabramatta Loop Project design and construct tender released
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Published – articles, papers, reports

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This research examines the impact of the COVID-19 pandemic on marginal and informal housing and short-term rental accommodation to establish any health and housing risks, and investigates any changes to the demand and supply of informal housing during COVID-19 (1 December 2020).  More...

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ABCB Consultations

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Cases

NSW

Ericon Buidings Pty Limited v The Owners Strata Plan No 96597 [2020] NSWCATAP 265
APPEAL – HOME BUILDING – ancillary order – offer of consent judgment – tribunal's discretion (1) leave to appeal is refused.
(2) The appeal is dismissed.
(3) The appellants are to provide to the Appeal Panel and to the respondent, any submissions in response to the respondent's cost submissions dated 6 November 2020, by 17 December 2020.
(4) The respondent is to provide to the Appeal Panel and to the appellants, any submissions in reply to appellants' cost submissions, by 24 December 2020.
(5) Costs will be determined on the papers, unless either party seeks to be heard in person, in which case they should advise the Registry by 4 January 2021, setting out the reasons why, and the Appeal Panel will advise the parties of its decision on whether there will be a further hearing in person as soon as possible thereafter.

Dyldam Developments Pty Ltd v The Owners – Strata Plan 85305 [2020] NSWCA 327
ADMINISTRATIVE LAW – jurisdiction – Civil and Administrative Tribunal – whether the Tribunal has jurisdiction to review an occupation certificate whilst exercising its jurisdiction under the Home Building Act 1989 (NSW) – whether review of the occupation certificate collateral to the proceedings – capacity of the Tribunal to engage in collateral review of administrative action – where statutory scheme provides Land and Environment Court jurisdiction to remedy or restrain a breach of the Environmental Planning and Assessment Act 1979 (NSW).
BUILDING AND CONSTRUCTION – Occupation Certificate – whether document purporting to be an interim occupation certificate authorised use and occupation of the whole of the building – where running of limitation period for breach of a statutory warranty under the Home Building Act contingent on such authorisation – whether occupation certificate issued in contravention of s 109H(2) of the Environmental Planning and Assessment Act invalid.

Falamaki v Council of the City of Ryde [2020] NSWLEC 1636
APPEAL – change of use and internal alterations for purpose of dual occupancy – dwelling approved as complying development – application made for affordable housing pursuant to State Environmental Planning Policy (Affordable Rental Housing) 2009 – breach of minimum road frontage for dual occupancy developments – adequacy of cl 4.6 request – whether compatible with character of local area – breach of local planning controls for setbacks and hardstand areas – public interest in allowing the development.

Zhang v Georges River Council [2020] NSWLEC 1625
APPEALS – two development applications – change of use of outbuildings to secondary dwellings – conciliation conference – agreement reached – orders made.

GC NSW Pty Ltd v Galati [2020] NSWCA 326
CONTRACTS – formation – intention to create legal relations – uncertainty and incompleteness – owners of three contiguous parcels of land dealt with development group in relation to proposed sale of land for redevelopment – where put and call option deeds entered into – where one owner entered into separate deed for the purchase back of five developed lots – where agreement reached on various matters between parties’ agents at later meeting – whether intention to create legal relations at later meeting – whether terms of agreement at meeting were void for uncertainty and incompleteness.
CONTRACTS – formation – whether deed which provided for purchase back of five lots abandoned by parties – whether purchaser entitled to damages for breach of deed – where primary judge left undetermined possible basis for finding damages for breach of deed – damages claim remitted for the determination.

Legislation

Regulations and other miscellaneous instruments
Building and Construction Industry Security of Payment Amendment (Trust Account Annual Report) Regulation 2020 (2020-714) – published LW 11 December 2020
Electricity Supply Amendment (Energy Savings) Regulation 2020 (2020-711) – published LW 9 December 2020
Environmental Planning and Assessment Amendment (Construction Certificate Applications) Regulation 2020 (2020-715) – published LW 11 December 2020
Paintball Amendment Regulation 2020 (2020-716) – published LW 11 December 2020
Residential Tenancies Amendment (Declaration by Competent Person) Regulation 2020 (2020-717) – published LW 11 December 2020
Water Sharing Plan for the Hastings Unregulated and Alluvial Water Sources Amendment Order 2020 (2020-718) – published LW 11 December 2020
Water Sharing Plan for the Hunter Unregulated and Alluvial Water Sources Amendment Order 2020 (2020-719) – published LW 11 December 2020

Environmental Planning Instruments
Campbelltown Local Environmental Plan 2015 (Amendment No 28) (2020-720) – published LW 11 December 2020
Canterbury Local Environmental Plan 2012 (Amendment No 21) (2020-721) – published LW 11 December 2020
Marrickville Local Environmental Plan 2011 (Amendment No 4) (2020-722) – published LW 11 December 2020
Parramatta Local Environmental Plan 2011 (Amendment No 58) (2020-723) – published LW 11 December 2020
State Environmental Planning Policy Amendment (Arts and Cultural Activity) 2020 (2020-724) – published LW 11 December 2020
Wentworth Local Environmental Plan 2011 (Amendment No 17) (2020-725) – published LW 11 December 2020

Bills revised following amendment in Committee
Electricity Infrastructure Investment Bill 2020

Bills passed by both Houses of Parliament
Appropriation Bill 2020
Electricity Infrastructure Investment Bill 2020
Payroll Tax Amendment Bill 2020

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 newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Divya Chaddha

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