Home Building Act Statutory Warranties Update – Developer and Builder Responsible for design defects Court of Appeal Decision

11/09/2018

We refer to our article “Commentary on Statutory Warranties under the Home Building Act” dated 30 January 2018 on this site.

In August 2018 The Owners – Strata Plan 66375 v King the NSW Court of Appeal made findings and decisions in relation to the obligations of the Developer and the Builder under the statutory warranty regime under the Home Building Act.

Section 18B of the Home Building Act at that time included amongst others:

(a)      A warranty that the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract;

(b)      A warranty that all material supplied by the builder will be good and suitable for the purpose for which they are used and, unless otherwise stated in the building contract, will be new;

(c)       A warranty that the work will be done in accordance with, and will comply with, any law.

In the King case the Owners Corporation was a subsequent purchaser having purchased from the Developer. The New South Wales Supreme Court of Appeal held that each of the Builder and Developer were responsible for works that did not comply with the Development Approval.  Those works related to “design issues” even though the plans which were prepared by the Developer’s Architect they did not show designs relating to handrails, thermal detectors and fire compliance issues that arose. 

The initial proceedings commenced by the Owners Corporation were also against the Builder, Beach Constructions Pty Limited to which a Liquidator was appointed during the case.  Thereafter the Owners Corporation resolved its claim against the Home Owners Warranty Insurer.

The original case in the Supreme Court proceeded against the Developer and Mr and Mrs King.

One of the issues in that case was who entered into the Contract with the Builder, however it is not relevant to the matters, the subject of this article.

The statutory warranties provided for under Section 18B of the Home Building Act are similar now as was applicable to the King case.

The question that arose was essentially whether the Builder was responsible for the “design issues”.  This question is determined having regard to the requirements of the Home Building Act under Section 18.

We are aware that many Lawyers including Senior Counsel had taken the view that the Builder would not be responsible for breaches as a result of the design defects if the builder carried out the works in accordance with the plans and specifications supplied by the Owner/Developer to the Builder even if the plans and specifications were deficient in relation to design matters.

The Supreme Court of Appeal of New South Wales confirmed the law required the compliance with each of the separate warranties within Section 18B.

Previously Lawyers debated how one deals with inconsistencies between the plans and requirements of the law.

The Supreme Court of Appeal decided that fundamentally the Builder must comply with the law and even if the plans did not specify (or incorrectly specified) what works had to be carried out.  It was fundamental that the works carried out must be in accordance with the requirements of the law.

In that case under Section 76A of the Environmental Planning and Assessment Act 1979 (as it was then known) required as a matter of law that developmental work be carried out in accordance with the conditions of the Development Consent.  In those circumstances if the work was not carried out in accordance with the Development Consent then the work was not carried out in accordance with the law.

The Supreme Court of Appeal held that even though the plans and specifications did not only provide the requirements for certain handrails, thermal detectors and sprinklers in certain locations the Development Consent (and accordingly in accordance with the law) required those handrails, thermal detectors and sprinklers and the Builder was required to undertake those works as required by the Development Consent even though they were not set out in the plans and specifications.

Depending on the terms of the Contract between the Builder and Owner, the Contractor may have been entitled to a variation to the Scope of Works and additional payment if the Builder had carried out those additional works.

The failure by the Builder to comply with the DA conditions was a failure at law and a failure to comply with the statutory warranties.

If the plans and specifications required works to be undertaken that was contrary to the law, then the Builder must take steps to ascertain what is required by the law and the Builder must comply with that obligation.

The defences that are available to a Builder in a claim for breach of statutory warranties are limited.  The defences have been expanded since the defences that were available in relation to the work the subject of the King case.

The defences available to a Builder in response to a claim by an Owner for breach of the Statutory Warranties are set out in Section 18F of the Home Building Act namely:

(I)        In proceedings for a breach of a statutory warranty, it is a defence for the defendant to prove that the deficiencies of which the plaintiff complains arise from:

(a)       instructions given by the person for whom the work was contracted to be done contrary to the advice of the defendant or person who did the work being advice given in writing before the work was done, or

(b)       reasonable reliance by the defendant on instructions given by a person who is a relevant professional acting for the person for whom the work was contracted to be done and who is independent of the defendant, being instructions given in writing before the work was done or confirmed in writing after the work was done.

The Home Building Act provides further information as to whether a relevant professional is independent and the meaning of the relevant professional. 

The defence relating to relying upon the instructions of a relevant professional is a new defence which was not available in the King case.

However the King case is very important in that it clarified the situation that the Builder could not rely upon the plans and construct the work in accordance with the plans and ignore all other statutory warranties.

The basis of this finding by Supreme Court of Appeal is essentially that the Home Building Act does not allow the parties to contract out of the obligations of the Home Building Act, including compliance with the Statutory Warranties.

It is clear that if the overriding obligation was to carry out the works in accordance with the plans then all that an owner or builder would need to do is insert in the Contract, a plan that did not comply with the requirements of the law.

The Court of Appeal has recognised this and upheld the law as it was intended.

If you are a Builder or Developer and find that there appears to be inconsistencies between the construction requirements for example, the DA conditions, the Building Code of Australia and the plans and specifications, we suggest you seek our advice as there are different options and alternatives available to overcome these difficulties.

The King case also has other clear references to the law in relation to Developers and other issues that will be relevant in determining the legal rights of the parties in such a case.

Having regard to the change in the defences recently one needs to consider each case separately to ascertain the:

1.        Firstly the statutory warranties as they apply; and

2.        The defences to a claim for breach of statutory warranty; and

3.        Importantly the time limits relating to claims for statutory warranties.

Our experienced solicitors at Watson & Watson have been advising and conducting cases for many years having regard to the nuances of the various Acts about which there still remains significant debate.

If you have previously received advice that a Builder will not be responsible for losses associated with “design issues”, we suggest you reconsider and obtain further legal advice having regard to the recent decision of the Supreme Court, Court of Appeal in the case of The Owners – Strata Plan 66375 v King.

If you have any queries please contact Richard Watson Accredited Specialist Building & Construction or his Personal Assistant Shereen Da Gloria to discuss this very important aspect of building and construction.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.