Introduction

A frequent source of debate in disputes over defective building work is whether the original builder should be allowed to return to the project to rectify the work.  This issue most commonly arises in domestic building disputes when the owner has become disillusioned with the builder and doubts its ability to properly rectify.

On the other hand, the builder, when faced with evidence of defects, will often offer to carry out the rectification work but perhaps not to the same radical extent as the owner requires.

The cost to the original builder of rectifying work is invariably less than would be charged by a new builder asked to undertake the rectification work.  The new builder has to allow for the risk that other hidden work may also be defective.

The NSW Supreme Court recently considered this scenario and has provided some useful guidelines[1].

Background

In 2005/6, Di Blasio Constructions (“Builder”) built a 3 storey apartment building in Queenscliff, NSW.  The build developed leaks from the roof and problems with the waterproofing in some bathrooms and external planter boxes.

Individual unit owners complained to the Builder and some attempts were made to rectify the issues.  In mid 2008, the Owners Corporation for the apartments (“the Owners”) engaged an expert, Mr Evans, to inspect and report.  Mr Evans found a systemic failure in the way all bathrooms had been constructed. He also found the waterproof membrane in the external planter boxes was inappropriate and there were defects in a roof box gutter.  The Owners engaged a lawyer who contacted a director of the Builder and then forwarded a copy of Mr Evans’ report to the Builder.

In October 2008, the Builder met with Mr Evans on site and went through the report together. Only three of the showers in the building were leaking.  However, Mr Evans expressed his view that the remaining showers suffered from the same lack of compliance with waterproofing and required rectification. The Builder said it would provide a response with a program of works.

About a month later, in the absence of any response from the Builder, Mr Evans emailed the Builder.  The Builder then responded but agreed only to rectify the three leaking showers, saying if and when the others leaked, they would be rectified.

By mid December, nothing further had been heard from the Builder. The Owner’s lawyer wrote saying unless the Builder agreed in writing within 14 days to rectify all the defects to the reasonable satisfaction of Mr Evans the Owners would take action without any further notice.

The Builder then emailed Mr Evans saying it would repair the three bathrooms.  However it was not clear what type of repair the Builder had in mind as there had been suggestion verbally that the tiles could be coated with a waterproofing rather than a full re-waterproofing of the showers as required by Mr Evans.  The Owner’s lawyer wrote back saying this was not an adequate response and all bathrooms needed rectification.  The Owners required the Builder to provide a schedule of the remedial works before they allowed the Builder to commence the works.

Similar correspondence was exchanged over the next six months before the Office of Fair Trading was asked to intervene.  An order was made by the Office to the effect that the Builder should rectify the leaks to the showers.  However, the Builder complained the Order was unclear as to the cause of the leak and whether the issue was the waterproof membrane or the shower frame.  The Office declined to specify the remedial work in more detail. Further correspondence was exchanged but no agreement was reached.

The Owners goes to Court

In February 2011, the Owners commenced legal proceedings. In May 2011, the Builder applied to transfer the proceedings to the Consumer, Trader and Tenancy Tribunal and filed a supporting affidavit in which it said it had offered to carry out the remedial works but been denied access. Subsequently when the dispute was transferred back to the District Court, the Builder filed a further affidavit offering to carry out remedial works for $1.

Further expert reports were filed and the experts on both sides agreed as to the scope of the required works on the bathrooms but remained in disagreement about the planter boxes.

When the dispute came before the Court, the Builder said its offer to carry out the works for $1 meant the Owners were not entitled to compensation above that amount, or alternatively, were only entitled to the cost the Builder would have incurred if it had been allowed to carry out the works.

The Court considers the principles

The Court considered the legal principles that apply where a Builder has offered to carry out some works and the Owners have insisted on a complete rectification.  In particular, the Court looked at what damages the Builder is liable to pay.

The Court said the following principles apply:

  1. An owner is not entitled to recover losses attributable to its own unreasonable conduct.
  2. An owner whose property is damaged or defective as a consequence of the builder’s breach is generally entitled to recover the costs of reinstating the property so that it corresponds to the contractual promise, except to the extent it is unreasonable to insist on reinstatement.
  3. In the case of building contracts, it is generally accepted that the owner must give the builder a reasonable opportunity to rectify any defects even if the contract does not expressly require this.
  4. However, this does not apply where the owner’s refusal to give the builder that opportunity is reasonable or where the builder has repudiated the contract by refusing to conduct any repairs.
  5. The question of what is reasonable depends on all the circumstances of the particular case.
  6. One relevant factor is what attempts the builder has made to repair the defects in the past and whether, in the light of the builder’s conduct, the owner has reasonably lost confidence in the willingness and ability of the builder to do the work.
  7. It is for the builder to prove the owner has acted unreasonably.
  8. The owner’s obligation not to act unreasonably does not come to an end once court proceedings have commenced. But the existence of court proceedings is relevant to the content of the obligation.
  9. Once there is a dispute concerning whether an owner has failed to mitigate its loss, or failed to act reasonably in some other respect, the owner is entitled to have that question tested in court; and the mere fact it does so is not itself evidence it has failed to act reasonably.

The Court’s findings in this case

The Court said the defects in this case were significant and the Builder had made some inadequate attempts to rectify. The Owner’s expert had correctly identified systemic defects in the showers and bathrooms. The Court rejected the contention that the Builder had been denied access and pointed out the insistence of the Owners on a schedule of works prior to commencement was not unreasonable.  The Court said the Owners were compelled to commence the Court proceedings and the Builder had defended the proceedings at least until March 2013. On that basis, the Court said the Owners were entitled to the full estimated cost of the rectification works and the Builder’s arguments as to failure to mitigate were rejected.  The Builder was ordered to pay the Owners $481,405.

Conclusion

The case confirms that a builder has a right to rectify remedial works but that right can be lost.  The owner here acted reasonably by providing expert evidence as to what needed to be done and insisted on the recommendations of the expert.  A builder who refuses to implement the reasonable recommendations of such an expert will be found liable for the cost of having the work performed by others.

[1] The Owners – Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067