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Residential Focus

29 July 2020

#Property & Real Estate

Published by:

Divya Chaddha, Rebecca Weakley

Residential Focus

Can owners recover damages for defects after the property is sold?

On 17 July 2020, the NSW Civil and Administrative Tribunal’s Appeal Panel handed down its decision in Taylor v Clientel Development Pty Ltd [2020] NSWCATAP 136, an appeal concerning:

  • an owner’s entitlement to compensation for the builder’s defective building work, in the context of having sold the property to a third party without having carried out defect rectification nor having an obligation under the sale contract to do so; and concurrently
  • the builder’s entitlement to outstanding money under the building contract.

The Appeal Panel affirmed the basic principle on awarding damages – that is to put the party in the same position they would have been in but for the breach. Here, the Owner failed to demonstrate any actual loss and therefore should not be entitled to compensation.

The Tribunal at first instance

The Owner brought proceedings against the Builder under the Home Building Act 1989, seeking to recover damages for rectification of the Builder’s defective and incomplete work. This is despite the fact that the Owner had sold the property to a third party without having carried out defect rectification and without being obliged to do so under the contract of sale. The Owner did not claim that there had been a diminution in the sale price of the property as a result of the defects. 

The Tribunal at first instance dismissed the Owner’s application on the basis that it would be unreasonable for the Owner to recover the cost of rectification work she did not intend to carry out. As the Owner had not demonstrated that any actual loss was suffered, the Tribunal held that to award compensation in those circumstances would create an unjust enrichment for the Owner.  

The Owner’s late attempt to adduce evidence of actual loss incurred had failed to adequately identify the work allegedly carried out.

With respect to the Builder’s claim, the Owner ran a set-off defence, being that any amounts owing to the Builder ought to be set off, and consequently extinguished or reduced by the cost to rectify the defective work.

The Tribunal ordered the Owner to pay the Builder’s unpaid work plus the Builder’s costs of the proceedings.

The Appeal Panel

The Owner appealed. The Appeal Panel affirmed the reasons of the Tribunal. In affirming the decision of the Tribunal below, the Appeal Panel followed Westpoint Management Pty Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253.

One aspect has been remitted for hearing by the Tribunal, arising from the Tribunal below's failure to consider the set off defence and ordered that this issue be remitted. This leaves open the possibility that the cost of the work allegedly carried out by the Owner may operate as an offset against amounts owing to the Builder.

Implications

Proceedings for breach of statutory warranty can be lengthy. Whilst this can be a frustration for all participants, it particularly affects those owners who have built to sell as it interrupts their business model. The decision serves as a reminder that owners should exercise caution before selling an asset subject of a pending statutory warranty claim as both a defect and a loss must be demonstrated.

Authors: Christine Jones, Divya Chaddha & Rebecca Weakley

In the media

Building efficiency for jobs and growth
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AIA survey reveals need for economic stimulus as pandemic stalls pipeline
The COVID-19 pandemic has resulted in a significant stalling of construction projects, finds a new survey by the Australian Institute of Architects. It identifies energy efficiency incentives, public building upgrades and investment in social and affordable housing as priority areas for stimulus (21 July 2020).  More...

Will phoenixing finally be stamped out in Australia’s construction industry?
When a known loophole isn’t closed, you can expect wide-scale exploitation. This is what has occurred for decades with the issue of illegal “phoenixing”, which has become a common and terrible blight on the construction industry in Australia (17 July 2020).  More...

HIA: JobTrainer package provides certainty for apprentices
HIA has welcomed the announcement by the Federal Government of the $2 billion JobTrainer package, which includes an extension of the vital Supporting Apprentices and Trainees wage subsidy until March 2021 (16 July 2020).  More...

Construction: great expectations for economic recovery
Unifying global themes are emerging from differing government construction recovery plans. These themes provide insight for RICS professionals to fully embrace new recovery opportunities (15 July 2020).  More...

Build community housing to help beat the COVID-19 recession, Federal Government urged
The nation's largest community housing advocacy group is urging the Government to invest in more social housing not only to help those in need get a roof over their heads, but as a major boost to the economy during the COVID-19 recession (15 July 2020).  More...

HIA: Pressure on home building prior to COVID
There was a modest lift in dwelling starts in the March 2020 quarter but new starts were still eclipsed by completions. There were more new homes completed than new projects getting underway and as a consequence there are now fewer active building sites around the country (15 July 2020).  More...

Building boom as people take advantage of government incentives
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HIA: New Home Sales Soar in Response to HomeBuilder
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Published – articles, papers, reports

Australian Bureau of Statistics
15/07/2020 Building Activity, Australia, Mar 2020 (cat no. 8752.0)
15/07/2020 Construction Activity: Chain Volume Measures, Australia, Mar 2020 (cat no. 8782.0.65.001)

Industry Update – 15 July 2020

The July edition of Industry Update features the latest information from the ABCC about wages and entitlements, our upcoming webinar, must-know changes to the construction awards, court outcomes and more.  More...

Practice and courts

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Build Australia discussion paper: Draft National Registration Framework for Building Practitioners
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GBCA Reminder: Transitioning to Green Star – Design & As Built v1.3, Green Star – Interiors v1.3 and Green Star – Railway Stations v1.1
As the new section J provisions are now mandatory in most of the country,  GBCA will be closing down registrations under Green Star – Design & As Built v1.2, Green Star – Interiors 1.2, and Green Star – Railway Stations v1 at the end of September 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...

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...

AIBS: NSW/ACT Member Update - Legislative Changes and Code Updates
1 July 2020 - Please find information below concerning the adoption of new legislation and amendments for the low rise medium density housing code.  More...

Security of Payment Regulation
From: 26 June 2020 to 24 July 2020. NSW Fair Trading is seeking feedback on the new Building and Construction Industry Security of Payment Regulation 2020.  More...

Housing Strategy for NSW
From: 15 June 2020 to 24 July 2020. The Department of Planning, Industry and Environment is seeking feedback from the community, council and industry to help shape the future of housing in NSW.  More...

Draft Greener Places Design Guide
The draft guide provides strategies, performance criteria and recommendations to assist planning authorities, and design and development communities to deliver green infrastructure. The exhibition closes 7 August, 2020.  More...

NSW Revenue: HomeBuilder program
HomeBuilder will provide eligible owner-occupiers (including first home buyers) with a grant of $25,000 to build a new home or substantially renovate an existing home where the contract is signed between 4 June 2020 and 31 December 2020. Construction must commence within three months of the contract date.  More...

Cases

Syed v Metricon Homes Pty Ltd [2020] NSWCATAP 147
APPEAL-COSTS-appeal withdrawn-costs jurisdiction under Rules 38 and 38A-costs follow the event-application for costs order against solicitors declined-application for indemnity costs declined – costs order made.
A Home Building application in the same Division seeking an order inter alia that certain building defects be rectified. Both applications came on for hearing on 25 March 2020 before a Member of this Tribunal who dismissed the appellant’s claim and ordered the appellant to pay the respondent the sum of $12,253.47 on the respondent’s claim (the appellant having by then paid the final progress payment claim

AJC Portables Pty Ltd v Muras [2020] NSWCATAP 150
CIVIL PROCEDURE – hearings – ex parte – procedural fairness – appellant wrongly assuming the hearing would be conducted by telephone – no reasonable basis for that assumption – futility of a new trial – even on the appellant’s evidence the same decision would have been given – portable building contracts
Australian Consumer Law NSW, ss 54, 55, 259(3), 260, 263(4)
Civil and Administrative Tribunal Act 2013 (NSW), s 36(3); Civil and Administrative Tribunal Rules 2014 (NSW), r 35; Fair Trading Act 1987 (NSW) ss 79D, 79E, 79G, 79K, 79L

Lepcanfin Pty Ltd v Lepfin Pty Ltd [2020] NSWCA 155
1.Grant leave to appeal but dismiss the appeal with costs on the Mandate Issue, as identified in the reasons for judgment. 
2. Refuse leave to appeal with costs in respect of the Guarantee Issue, as identified in the reasons for judgment.
 CONTRACT – dispute resolution clauses – expert determination clause – separate Expert Determination Agreement entered into – whether expert exceeded her mandate in determining that clause in a Development Deed was a penalty – construction of ambit of separate Expert Determination Agreement – when one party to dispute initially accepted that penalty issue fell within scope of Expert Determination Agreement and then resiled from that fact – whether party estopped from resiling from initial position – whether other issues sought to be raised in Commercial List proceedings but which had not been the subject of expert determination could be litigated – whether primary judge erred in staying litigation of those issues.
Under cl 3.3 of a Development Deed relating to the development of a home estate on land situated in Leppington, NSW, Lepcon Pty Ltd (Lepcon) was required to make payments to Lepfin Pty Ltd (Lepfin) in the sum of $3.9million, yet only $1,143,332.56 was paid. 

Nyunt v North Shore Homes Pty Ltd [2020] NSWCATAP 143
APPEAL - Home Building Act - residential building contract - delay - suspension or abandonment of works - home warranty insurance - structural and non-structural works cover - quantum meruit - just and equitable - repudiation - termination - statutory warranty and intermediate contract terms - defective works - expert evidence - costs to complete - loss of rent
COSTS - provisional costs order

Taylor v Clientel Development Pty Ltd [2020] NSWCATAP 136
APPEAL – Assessment of damages when residence sold before hearing and defects not rectified – Failure to exercise jurisdiction – Failure to deal with a claim for set-off

Stepanoski v Aslan (No 6) [2020] NSWSC 900
DAMAGES — Quantification of damages to which the plaintiffs or defendant would be entitled — Variation of earlier judgment — Reformulation of quantum after reopening of case granted to read and tender additional evidence on damages
The sixth judgment in the resolution of the dispute between the plaintiffs, Mr Tony Stepanoski and Mrs Sonia Stepanoski (the Owners), and the defendant, Mr Jamal Aslan (the Builder), arising out of a building contract made between the Owners and the Builder

Freixas v Commissioner for Fair Trading, Department of Customer Service (No 2) [2020] NSWCATOD 78
PROFESSIONAL DISCIPLINE – review of decision of Building Professionals Board to discipline an accredited certifier - unsatisfactory professional conduct – appropriate action

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, Rebecca Weakley

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