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Residential Focus

07 September 2022

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

Published by:

Nicholas Achurch

Residential Focus

Limiting liability in residential building contracts – what are the limits?

Including a contractual limitation on liability is a tempting proposition to manage risk. A recent decision considered whether such a term unwittingly restricted or removed an owner’s rights under the Home Building Act 1989 (NSW) (Act) and serves as a reminder that if contractual terms restrict or remove the rights of the owners, they may be read down or held to be void.

Background

The application to the Tribunal involved allegations defective work including in roof decking, which resulted in water ingress.

The contract relevantly provided, at clause 36.2:

The builder is not responsible for:

(a) loss or damage to the owner’s property or property for which the owner is responsible that is left on the site

(b) subject to Clause 36.2(c) any defect, structural deficiency, settlement or deterioration in the existing building except to the extent that it is caused by the builder failing to take reasonable care in carrying out the works

(c) damage to ceilings in the existing building except to the extent that it is caused by the builder failing to take reasonable care in carrying out the building works, but then only to the extent of repairing and excluding any repainting

(d) damage to paths, gardens, driveways, trees, lawns and other landscaping

(e) the restoration of areas affected by the building works to their original condition.  

In making an order for damages, including in relation to the cost of rectification or replacement of damaged floors and furniture, the Tribunal below found that:

  • defective work in respect of the roof decking was a cause of internal damage
  • inadequate sealing of the flue caused damage to the plasterboard ceiling
  • clauses 36.2(c) and (e) of the contract were to be read down by reference to s 18G of the Act.

Section 18G of the Act provides that a provision of a contract that purports to restrict or remove rights of a person in respect of the operation of the statutory warranties under section 18B, is void.

Appeal

The Builder appealed on the following grounds:

  • the Tribunal erred on a question of law by reading down the term of clause 36.2(c) and (e) be reference to section 18G of the Act
  • the Tribunal erred (on a question of law) in a process of reasoning regarding causation
  • in the alternative, the findings made were against the weight of the evidence
  • the Tribunal erred on a question of law, by awarding damages in respect of water damage to the floor when the relevant claim had been abandoned.

The focus of our article will be the first ground, the s. 18G issue.

Application of s 18G of the Act

The Builder argued that the Tribunal erred in determining that the effect of clause 36.2 was to restrict the rights of the owner to damages for breach of the statutory warranties under s. 18B(1) and that the clause had a legitimate basis in freedom of contract.

The Appeal Panel held that the Tribunal below correctly found that clause 36.2(c) and (e) did restrict the operation of the statutory warranties under s. 18B(1) of the Act. 

The restriction in clause 36.2(c) was found to operate in three ways:

  • to confine liability to a failure to take reasonable care (also the reason given for clause 36.2(b) operating as a restriction), which is not a requirement of the statutory warranties
  • to confine any order to repair, which disentitles replacement
  • by excluding repainting.

The restriction in clause 36.2(e) appeared to restrict a right under s. 18B(1) of the Act in circumstances where replacement rather than repair is considered appropriate.

The contract allowed clause 36.2 (b), (c) and (e) to be read down to the extent they are impermissible, however clause 36.2(a) could restrict or remove the right provided by a statutory warranty and may thus be rendered void by s. 18G of the Act.

Implications

Section 18G is powerful in its protection of the statutory warranties under the Act, which cannot be ‘undone’ in contract, regardless of whether relevant contractual terms are agreed in ‘freedom of contract’.

Builders should consider whether standard terms and in particular, their favourite special conditions, operate to restrict or remove the rights of owners under s.18B(1).

Given that offending terms will be either read down or rendered void, builders should consider pricing in the risks they are seeking to exclude, so that their bargain reflects the deal they may be held to have made, if their contract is reviewed by the courts or the Tribunal.

Authors: Christine Jones and Nicholas Achurch

In the media

Interest rate hikes hit home lending
“Loans for the construction or purchase of new houses fell by 4.0 per cent in July, highlighting the impact of the recent increases in the RBA’s cash rate,” stated HIA Economist, Tom Devitt (1 September 2022).  More…

National construction code changes to add thousands of dollars to cost of new homes, builders say
From October next year, all new homes will need to meet accessibility and energy efficiency requirements in many parts of Australia. Queensland's peak industry body, Master Builders, said they anticipated the changes would add an extra $30,000 to an average build (29 August 2022).  More…

NSW Government announce BASIX changes
Following the announcement of changes to the NCC 2022 energy efficiency provisions last week, the NSW Government has today announced the equivalent changes for NSW that will apply under BASIX (29 August 2022).  More…

Recycling COVID PPE for the construction industry (Audio)
Face masks, shields and other PPE have become a feature of everyday life in recent years because of the COVID pandemic. Now a team at Melbourne's RMIT University have devised a means of using what is currently consigned to landfill, to develop stronger and more durable concrete for the construction industry (25 August 2022).  More…

Time to attract women to construct
Construction is one of Australia’s largest and most highly skilled industries, and it is also a bastion of male domination. Just 12 per cent of the construction workforce are women, meaning the industry is missing out on employing half the working population—and this is at a time when a massive 105,000 additional construction workers are needed to deliver Australia’s project pipeline (2 September 2022).  More…

Wollongong high-rise apartment construction sites fail safety inspections
A snap inspection of high-rise apartment buildings under construction in Wollongong has uncovered a number of safety and structural issues. NSW Fair Trading, Safework NSW and the NSW Building Commissioner carried out the inspections this week uncovering safety issues at a number of work sites (2 September 2022).  More…

In practice and courts

Have Your Say: More compliant and fire-safe buildings
The NSW Government is working to increase confidence in our building and construction industry. They are asking for your views on changes that will improve building design, construction and fire safety. They want to hear from builders, specialist tradespeople, building professionals, developers, building owners, certifiers, strata managers, fire safety practitioners and members of the public. Responses are invited until 7 October 2022. Read more here.

Published – articles, papers, reports

Australian Building and Construction Commission Industry Update – August 2022
This release from the ABCC provides an overview of their work in and out of the Australian courts since June. Read more here.

Building Approvals, Australia
The ABS has provided the number of dwelling units and value of buildings approved for July 2022. 6 September 2022: Release

Construction Work Done, Australia, Preliminary
The ABS has provided preliminary estimates of value of total construction work done, building work done and engineering construction work done for June 2022. 31 August 2022: Release

Interim Consultation Report: Responses to Consultation RIS on proposed NCC 2022 residential energy efficiency provisions
In 2019, Building Ministers tasked the ABCB with updating the energy efficiency provisions for residential buildings in NCC 2022, informed by the ‘Trajectory for Low Energy Buildings’ policy. The ABCB developed options for improving the energy efficiency of new residential buildings (houses and apartments). This interim report addresses the responses of stakeholders to these options (June 2022). Read more here.

Cases

Capitalink Pty Ltd v Whitnall [2022] NSWDC 396
CIVIL PROCEDURE – costs - security for costs – plaintiff as trustee company – suit against guarantor arising from the principal builder’s alleged failure to complete construction works - plaintiff’s reliance upon right of indemnity and proposed arrangements to secure right of indemnity through proposed charge and deed of priority – whether security adequate as alternative to ‘cash’ security ordered by the Court – consideration of quantum

Nu-Stone Building Pty Ltd v McInerney [2022] NSWCATAP 285
BUILDING AND CONSTRUCTION – calculation of damages

Shoostovian v Commissioner for Fair Trading [2022] NSWCATOD 93
HOME BUILDING ACT – Fit and Proper person – whether person of good repute – disqualification – consumer protection – seriousness of offending

The Owners - Strata Plan No 47383 v McCullum [2022] NSWCATAP 283
LAND LAW – Strata title – By-laws – Whether installation of structure permitted by by-law

The Owners - Strata Plan No 90018 v Parkview Constructions Pty Ltd [2022] NSWSC 1123
BUILDING AND CONSTRUCTION – residential building work – whether separate causes of action for each breach of the statutory warranties under the Home Building Act 1989 (NSW) – whether single cause of action for all breaches of those statutory warranties or for each individual statutory warranty – application of Onerati principle

Trinvass Pty Ltd and Anor v Connect Infrastructure Design Pty Ltd [2022] NSWDC 394
BUILDING AND CONSTRUCTION – Contract – Implied terms – Australian Consumer Law – CONSUMER LAW – False or misleading representations – Representations about goods or services

Legislation

Regulations and other miscellaneous instruments
Associations Incorporation Regulation 2022 (2022-522) – published LW 31 August 2022
Conveyancing (Sale of Land) Regulation 2022 (NSW) – commenced 26 August 2022
Biosecurity Order (Permitted Activities) Amendment Order 2022 (No 2) (2022-529) – published LW 2 September 2022
Building and Construction Industry Long Service Payments Regulation 2022 (2022-523) – published LW 31
August 2022
Environmental Planning and Assessment Amendment (Notice Requirements) Regulation 2022 (2022-530) – published LW 2 September 2022
Environmental Planning and Assessment Amendment (Sustainable Buildings) Regulation 2022 (2022-520) – published LW 29 August 2022
Explosives Amendment (Exemptions) Regulation 2022 (2022-531) – published LW 2 September 2022
Independent Pricing and Regulatory Tribunal Regulation 2022 (2022-524) – published LW 31 August 2022
State Environmental Planning Policy (Transport and Infrastructure) Amendment (Intertrade Industrial Park) 2022 – commenced 26 August 2022
Subordinate Legislation (Postponement of Repeal) Order (No 2) 2022 (2022-525) – published LW 31 August 2022
Surveillance Devices Regulation 2022 (2022-526) – published LW 31 August 2022
Treasurer’s Direction TD22-27 - Amendment to TD 21-04 (2022-538) – published LW 2 September 2022
Water Sharing Plan for the Murray Alluvial Groundwater Sources Amendment Order 2022 (2022-537) – published LW 2 September 2022

Environmental Planning Instruments
Campbelltown Local Environmental Plan 2015 (Map Amendment No 7) (2022-532) – published LW 2 September 2022
State Environmental Planning Policy (Exempt and Complying Development Codes) Amendment (Change of Use) 2022 (2022-528) – published 1 September 2022
State Environmental Planning Policy (Sustainable Buildings) 2022 (2022-521) – published LW 29 August 2022
State Environmental Planning Policy Amendment (Inner West) 2022 (2022-527) – published LW 31 August 2022
Sydney Local Environmental Plan 2012 (Map Amendment No 1) (2022-533) – published LW 2 September 2022
The Hills Local Environmental Plan 2019 (Map Amendment No 1) (2022-534) – published LW 2 September 2022
Tweed Local Environmental Plan 2014 (Map Amendment No 1) (2022-535) – published LW 2 September 2022
Woollahra Local Environmental Plan 2014 (Amendment No 25) (2022-536) – published LW 2 September 2022

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:

Nicholas Achurch

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