Building and Construction Law - Defects case. What happens if you sue the Builder but he claims someone else was the Builder? – Question of Agency

19/03/2019

In NSW a person who enters into a House Building Contract with a Builder can in certain circumstances, sue that Builder if the house has building defects.  In those circumstances, the Owner must bring the case within a certain time frame, which is the Limitation Period.

An example of such a case is where a person says that he is a Builder and provides a Quote in his name to build a house to an Owner.  Following this, the Builder and the Owner enter into a written Contract in which the Builder says he is the Builder and will undertake the work.

But what happens if the person who says that he was the Builder and signed the Contract did not build the house, but instead signed the Contract on behalf of someone else? Can the Owners sue that signing party or can they only sue the person who actually did the building work?

The answer is that the responsible party depends on the law of agency. The law of agency came up in just such a case in NSW in the case of Cincotta v Russo, a NSW Supreme Court decision of 2019. In that case Mr and Mrs Cincotta obtained a Quote from Mr Russo for Mr Russo to build a house. Mr Russo told the Cincottas that he was a licensed Builder and that he could build the house for them. This however was untrue.

Mr Russo was not a licensed Builder. Mr Russo was in fact a supervisor under a Contractor’s licence and as such, was forbidden by law from entering into a Building Contract. He was also a shareholder of a company called Bespeak 3 Pty Limited which did have a Contractors licence. Mr Russo’s wife was the director of Bespeak 3 Pty Limited.

Mr Russo’s plan was that Bespeak 3 Pty Limited would carry out the building work. However, Mr Russo did not tell this to the Cincottas.

After receiving the Quote, the Cincottas entered into a building Contract with Mr Russo for him to undertake the building work.

Mr Russo’s company then carried out the building work for the Cincottas, with Mr Russo as the supervisor. When the work was completed, the Cincottas became aware that the work was defective and that they would have to pay for the defects to be rectified. Bespeak 3 Pty Limited then went into liquidation and so the Cincottas could not proceed with a claim against that company.

Accordingly, the Cincottas held Mr Russo responsible for the costs of the defects and they lodged a claim in court against Mr Russo. During the case it became apparent that Mr Russo was infact the agent of the actual Builder, which had been Bespeak 3 Pty Limited.

Since Mr Russo was only the agent, the question arose as to whether the Cincottas could succeed against Mr Russo to recover the cost of the building defects. In the case the Court considered the law relating to agency.

That law states that ‘where a person signs a Contract on behalf of, or as agent of someone else, and does not disclose the agency relationship, then the agent is personally liable under the Contract’.  

This is the scenario in which the Cincottas found themselves. Mr Russo was the agent of his company, Bespeak 3 Pty Limited. Mr Russo signed the Building Contract with the Cincottas as agent of Bespeak 3 Pty Limited. He did not disclose to the Cincottas that he was the agent of Bespeak 3 Pty Limited and as a result the agent Mr Russo, was liable under the Building Contract for all the responsibilities that flow under that Contract.  One of those responsibilities was the promise to build a house in accordance with the statutory warranties under the House Building Act.

The Court held that Mr Russo was liable for breaching the Statutory Warranties for the building work.  Mr Russo was held responsible and he had to pay the cost of rectification or damages of the breach of the Statutory Warranties by Bespeak 3 Pty Limited.

There are also other obligations on the Builder such as obtaining Builders Warranty Insurance also referred to as Home Owners Warranty Insurance.

Watson & Watson are experts in building and construction litigation and can assist you in all matters concerning building issues, in conducting cases or advising you on Building Contracts.  If there is an issue as to whom the parties to a Building Contract are or have any concerns regarding the identity of the Builder undertaking the construction of your house, please contact Richard Watson Accredited Specialist Building & Construction or Shereen Da Gloria his personal assistant to discuss your concerns sooner rather than later.

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