The preferred outcome: The Supreme Court considers the limits of s.48MA
Typically in residential building defects disputes, the owner has lost faith in the builder and will seek an award of damages representing the cost of rectification, whereas the builder, if the defects are found, will argue that a work order is appropriate, allowing it to rectify the defects itself (at lesser cost). The introduction of section 48MA of the Home Building Act 1989 (NSW) (Act) elevated the issue of a work order to a consideration which the Court or Tribunal is to have regard to as the preferred outcome.
Given the powers of the Tribunal under section 48O of the Act to make work orders and the availability of renewal proceedings in the Tribunal, section 48MA (the so-called preferred outcome) has always sat better, in conceptual and practical terms, with proceedings in the Tribunal.
In the recent decision of Ippolito v Cesco  NSWSC 561, the NSW Supreme Court considered, among other issues, the application of section 48MA to proceedings before the Court.
On 13 July 2011, the owner entered into a contract with the builder for the construction of a dual occupancy residential development in Willoughby (Development). Work on the Development commenced in September 2011.
Notice of practical completion of the first house was issued on 10 April 2014, and on 10 September 2014 the second house reached practical completion. The owner and his family occupied the first house since completion. The owner’s parents occupied the second house for around three years after its completion and thereafter the second house was rented.
The owner’s principal complaint related to water ingress, which, despite the builder’s prompt attempts to fix, continued. A report was prepared to which the builder responded. A demand was made to rectify the defects, temporary repairs were made by another builder to make the second house habitable for rental. The owner entered into rectification contracts based on the reports and additional defects were discovered during the course of rectification works.
In addition to the cost of rectification of the defects, there was a claim for lost rent and alternative accommodation.
Application of section 48MA
Section 48MA of the Act provides that a Court or Tribunal determining a building claim involving an allegation of defective residential building work or specialist building work by a party to the proceedings (Responsible Party) is to have regard to the principle that rectification of the defective work by the Responsible Party is the preferred outcome.
In considering this section of the Act, the Court noted that it was common ground that the section does not give the Court power to order the Responsible Party to undertake rectification work. Section 48O(1)(a) gives the Tribunal power to order that one party to the proceedings pay to the other a sum of money. Section 48O(1)(c)(i) gives the Tribunal power to order a party to proceedings to do any specified work or perform any specified service. In that context, the Court found that section 48MA was to be understood as saying that in deciding whether to make a monetary order or an order that certain work be performed, the Tribunal should give preference to orders of the latter type.
While the Court does have power to order specific performance of a building contract, there is normally a reluctance to do so because of the difficulties in formulating an appropriate order and the expectation that the order will require continual supervision by the Court. It is also generally accepted that an owner has an obligation to give a builder a reasonable opportunity to repair defective work, which is often explained as part of the owner’s obligation to mitigate his or her loss. However, the Court found that it was unclear whether and how section 48MA was intended to modify these principles.
The builder submitted that the Court could give effect to the principle stated in section 48MA of the Act in one of four ways:
The Court rejected each path.
In relation to the builder’s first submission, the Court found that clause M of the contract was concerned with bringing the building works to completion. Clause M14 provided that the contractor must rectify defects which were notified by the architect or which were apparent to the contractor from observation during the defects liability period. No relevant instruction was given by the architect, and there was no evidence that any of the defects that it was now said that the builder should rectify were apparent to him by observation. The Court held that therefore, there was no basis for ordering specific performance of clause M14.
A further difficulty with an order for specific performance is that it ignored the nature of the owner’s claim, which was a claim for damages for breach of contract. The Court held that the owner was entitled to that relief as of right if he could make out that claim, and that section 48MA should not be interpreted as seeking to alter the position, as that would constitute a fundamental change in the law. At most, section 48MA should be interpreted as requiring the Court to give preference to a remedy of specific performance where one was sought.
The Court found that similar problems existed with the other alternatives proposed by the builder. The builder’s submission presupposed that he had a right to rectify defects and that he should be given an opportunity to exercise that right. But the Court held that was not the case. Rather, the owner had a right to claim damages for breach of contract and to an award of damages if that claim was made out. The Court held that it did not have discretion to refuse or delay that right, nor was it appropriate for the Court to refer the matter to the Tribunal when the matter has been heard in the Court and the owner had otherwise made out the facts that entitled him to the relief that he claimed.
The Court found that there was no basis on which it could substitute a remedy which the owner did not seek (a mandatory injunction) for one that he had sought. Further, the Court stated that it was difficult to see that a mandatory injunction would be granted, even if one were sought. The builder sought a restorative mandatory injunction, the purpose of which is to restore the injured party to the position that party was in before the wrongful conduct occurred. However, in this case, there was no question of restoration to a former position in order to undo the consequences of unlawful conduct. The Court held that the order that the builder sought was an order for specific performance of an obligation to rectify which did not exist.
The claim for alternative accommodation and lost rent
The Court held that both claims failed. In relation to the alternative accommodation claim, the Court found that there was no evidence that the owner and his family would need to move out of the first house while the rectification work was undertaken, as the inconvenience was not so great that it would be reasonable for them to move out. Similarly, the Court found that there was no evidence that the tenant would move out during the rectification work, although it was possible that he could seek a reduction in rent while work is carried out. However, the Court noted that during previous rectification works, the tenant did not move out or seek a reduction in rent. In any event, the Court held that a claim for lost rent could not be recoverable as damages because at the time the contract was entered into it was anticipated that the second house would be occupied by the owner’s parents, and it was not anticipated that it would be rented out. A claim for lost rent was not one that flowed naturally from the builder’s breach or one that ought reasonably to have been within the builder’s contemplation at the time the Contract was entered into so as to fall within the principles stated in Hadley v Baxendale (1854) 9 Exch 341.
Section 48MA has long been resented by owners, who will be encouraged by this decision, where possible (having regard to section 48K), to bring defects claims in the Courts, rather than the Tribunal and to narrowly draft the relief sought.
Authors: Christine Jones & Rebecca Weakley
Fears for 800,000 jobs as construction and tourism say there will be no economic 'snap back'
With no "snap-back" in sight, leaders in construction and tourism are warning of swathes of further job losses after JobKeeper expires at the end of September (29 May 2020). More...
HIA: Housing industry seeks greater flexibility
The HIA has asked the Fair Work Commission to consider changes to the Building and Construction General Onsite Award thathelp employers and employees in the residential building industry stay connected despite the impacts of COVID-19 (28 May 2020). More...
HIA: Housing weighing heavily on economy
In a quarter that largely preceded the COVID-19 disruption, residential building activity chalked up the sixth consecutive quarterly contraction in the volume of building work done. The persistent credit squeeze throughout 2019 contributed to home building activity dropping back to levels last seen in 2014 (27 May 2020). More...
RICS: What will industrialised construction mean for the future of work?
We are at an inflection point for the global construction industry. COVID-19 has disrupted operating conditions and brought extreme financial stress to construction firms in the short-term. However, it will also accelerate long-term change within our sector, making innovation essential to confronting longstanding issues such as lagging productivity growth (27 May 2020). More...
Building Tomorrow’s Homes for the post-COVID economy
The ASBEC has called on Australian governments to build better homes and help Australia’s post-COVID economy. Tomorrow’s Homes, a new platform released today, explains that with Australia’s population forecast to reach 41 million people by 2050, we’ll need to build up to 197,000 homes each year (26 May 2020). More...
Construction industry demands stimulus as new projects drop off
As the economic fallout from the coronavirus crisis continues, there’s a new push from Australia’s construction industry for some much needed help (25 May 2020). More...
Builders Call For $13 Billion Stimulus Action Plan
A $13.2 billion building and construction stimulus action will stimulate over $30 billion in new economic activity and create more than 100,000 new jobs across the economy according to new economic modelling commissioned by Master Builders Australia (25 May 2020). More...
Engineers Australia releases COVID-19 recovery plan
Engineers Australia has called for a comprehensive industry policy as part of a plan to help businesses recover from the COVID-19 pandemic (21 May 2020). More...
HIA: New Home Building to Contract in Second Half of 2020
Since the introduction on COVID-19 restrictions, the number of cancellations of projects now exceeds 30 per cent -this is more than four times the typical rate of cancellations. HIA’s Chief Economist, Tim Reardon states the COVID-19 related contraction in building work will see a significant reduction in work hours on building sites in the second half of 2020 (14 May 2020). More...
Roberts Pizzarotti tops out Zurich Tower ahead of schedule
Sydney-based boutique construction company, Roberts Pizzarotti, has officially topped out its ‘Zurich Tower’ project at 118 Mount Street, North Sydney. The FJMT-designed project, developed in conjunction with White & Partners and Generate Property Group, will deliver approximately 20,600sqm of PCA A-Grade office space (27 May 2020). More...
Mascot Towers owners seek $15m from developer of neighbouring building
The state's consumer watchdog is also investigating the certification of the apartment building next to the cracked Mascot Towers (28 May 2020). More...
Urgent need to stimulate NSW private sector construction work before it is too late
The value of private construction activity has dropped sharply in the first three months of 2020 according to ABS data released today. When you look at the value of construction per capita, it is clear that the construction sector in NSW is in freefall and needs urgent support or the NSW economy is in big trouble (27 May 2020). More...
Western Sydney set for a further construction boom
Western Sydney is set for a huge construction boom, with two more projects getting the green light through the NSW government’s Planning System Acceleration Program, adding to the almost 10 others in the tranche of multi-billion dollar ‘shovel-ready’ infrastructure approvals already announced (28 May 2020). More...
More planning projects to propel future of NSW
NSW will lead Australia to economic recovery, with the NSW Government today announcing another 24 priority projects, including a new retail centre, industrial precincts, three new schools and the relocated Sydney Fish Markets, that could inject more than $5.37 billion into the State’s economy (26 May 2020). More...
$1 million asbestos clean up bill to be served to Hunter man
A Hunter man has been told by the EPA he could be held responsible for removing asbestos delivered to his property by a Sydney waste facility (16 May 2020). More...
Australian Bureau of Statistics
27/05/2020 Construction Work Done, Australia, Preliminary, Mar 2020 (cat no. 8755.0)
ABCB: NCC 2019 Amendment 1 proposed changes update
Decisions have been made on the inclusion of the definition of building complexity and the process for documenting Performance Solution (22 May 2020). More...
New NatHERS Software Tool Accredited
The Home Energy Rating Optimisation (HERO) software tool has achieved NatHERS software accreditation to become the Scheme’s fourth accredited software tool (26 May 2020). More...
NABERS Reminder: Auditors, Supervisors, and Trainers Panel Announced
Congratulations to the new Panel Selection for NABERS Auditors, Supervisors, and Trainers, for October 2019-October 2022. More...
Gasfitters: Have your say on proposed changes to Parts 1 and 2 of AS/NZS 5601
Standards Australia invites gasfitters to comment on proposed changes to the standards for gas and LP gas installations. The changes affect: AS/NZS 5601.1: 2013 – Gas installations, Part 1: General installations For further details on the proposed changes, including how to make a submission, visit Standards Australia’s consultation hub.
2020 National Housing Research Program commences
Research is underway for the suite of projects funded by AHURI as part of the 2020 National Housing Research Program (NHRP). The research will be undertaken by collaborative teams from AHURI’s eight national university research partners. For more details of the 2020 NHRP projects please click here. More...
Blackwattle Bay Precinct Planning commences
The consultation program will close 19 June 2020. This work being undertaken by Infrastructure NSW in alignment with the recommendations of the Pyrmont review and the 10 directions document that are being used to shape the Pyrmont Peninsula Place Strategy. More...
NSW Planning Department: Have your say - Draft plans and policies
Draft special infrastructure contributions (SIC) guidelines
Notification start-end date 15/04/2020 - 12/06/2020
The Department is seeking to improve the transparency of the application of SICs. The draft SIC guidelines provide guidance regarding the purpose and function of SICs and their application in the new approach to precinct planning. More...
Proposed amendments to the EP&A Regulation
Notification start-end date 15/04/2020 - 12/06/2020
The Department is proposing amendments to the EP&A Regulation to improve transparency in the infrastructure contributions system through better reporting of contributions received and expended for individual contributions plans and planning agreements. More...
Improving the review of local infrastructure contributions plans - discussion paper
Notification start-end date 15/04/2020 - 12/06/2020
Higher-rate local infrastructure contributions plans are independently reviewed to ensure that they are reasonable. The Department has identified ways to improve the review process of local infrastructure contributions plans to make it more efficient while maintaining its important function. More...
Criteria to request a higher s7.12 percentage - discussion paper
Notification start-end date 15/04/2020 - 12/06/2020
The Department is seeking feedback on the proposal from key stakeholders and the community. Your feedback will help inform critical improvements to the infrastructure contributions system in NSW. More...
Building Information Modelling (BIM) for WHS management
What is the best practice and implications of using BIM in WHS management?
Timeline of project; Project completion: Mid 2021. More...
Jannis v Ant-Hassa Pty Ltd
1) The orders made on 10 October 2019 in application HB 19/26920 are set aside and the proceedings are remitted for rehearing by a differently constituted Tribunal.
ADMINISTRATIVE LAW – breach of procedural fairness - failure to allow party opportunity to cross-examine - error of law. Australian Consumer Law (NSW); Civil and Administrative Tribunal Act 2013 (NSW); Consumer, Trader and Tenancy Tribunal Act 2001 (NSW); Fair Trading Act 1987 (NSW); Home Building Act 1989 (NSW) Home Building Regulation 2014 (NSW)
Morrison v Moss (No. 4)  NSWDC 243
COSTS – building and construction dispute – builder claim for non-payment – owner claim for defective works – operation of set-off – whether owner practically successful overall – whether conduct of builder warrants order for indemnity costs
Nanevski Developments Pty Ltd v Slaveski  NSWSC 617
CIVIL PROCEDURE — Pleadings — Form and content of pleading — Pleading material facts — Defects —Striking out — Tendency to cause prejudice, embarrassment or delay — Amendment — Late application for amendment. Civil Procedure Act 2005 (NSW), ss 56, 57, 58, 64; Civil Procedure Act 2010 (Vic) Competition and Consumer Act 2010 (Cth), Sch 2; Conveyancing Act 1919 (NSW), s 66G Home Building Act 1989 (NSW); Protection of the Environment Operations Act 1997 (NSW)
D Constructions Pty Ltd v Walsh  NSWCATAP 91
(2) The appellant is to pay the respondents’ costs of the appeal as agreed or assessed in accordance with s 60(4)(b) of the NCAT Act.
COSTS – costs on appeal – appeal withdrawn by appellant without a hearing on the merits – principles applicable to costs where no hearing on the merits – withdrawal effectively a surrender
Civil and Administrative Tribunal Act 2013 (NSW), s 55(1)(a), 60; Civil and Administrative Tribunal Rules 2014 (NSW), rr 38, 38A
Cohen v Zanzoul trading as Uniq Building Group  NSWSC 592
BUILDING AND CONSTRUCTION – residential building work – whether plaintiff principals repudiated their obligations under the contract – whether defendant builder thereby exonerated from any liability for defective work – accrued rights of parties
CONTRACTS – residential building work – whether plaintiff principals repudiated their obligations under the contract – whether defendant builder thereby exonerated from any liability for defective work – accrued rights of parties
RESTITUTION – whether restitution on the basis of a quantum meruit available where there is an enforceable contract and rights have accrued under that contract
Rockwall Homes Pty Ltd Ayoub  NSWCATAP 87
APPEAL – costs - exercise of discretion to award costs under r 38(2) of the Civil and Administrative Tribunal Rules 2014 where proceedings are withdrawn – failure to prosecute appeal - contract with Minerva Khoury trading as Sungary Services to complete plumbing work on the site which had been commenced by another plumber.
In the matter of Glenvine Pty Limited  NSWSC 642
CORPORATIONS — Application by voluntary administrator to adjourn winding up proceedings — proposed deed of company arrangement – transfer of company’s sole asset to wife — legitimacy of Family Court consent orders in issue — Whether in interests of creditors — Opposed by 96% of third party creditors by value — Adjournment application refused — Company wound up in insolvency.
Betta Build Group Pty Ltd v El Baba (No. 2)  NSWDC 238
BUILDING AND CONSTRUCTION – referral of question of rectification costs for defective works to referee – whether referee’s approach should be wholly or partly adopted – whether referee denied natural justice by closing his mind to the Builders’ evidence and contentions – whether apprehended bias – whether referee failed to give adequate reasons for its findings
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.