Homeowner successful in claim against Builder for Breach of Statutory Warranties despite claim by Builder to have a Defence to the claim under Section 18F of the Home Building Act

05/07/2021

We received instructions to act on behalf of the Owners of a luxury multi-storey residential property.  The Owners engaged an Architect to design a luxury home.  This included engaging with consultants including for example, Engineers.  Thereafter the Owners obtained Development Consent.

In 2010 the Owners entered into a Contract with a Builder to construct the dwelling.

In 2011 with the consent of the Owners, the Builder assigned the original Contract to a related Builder (“the Builder”).

In December 2011 the Owners obtained possession of the property. 

In this case the Owners had the benefit of the statutory warranties under the Home Building Act (HB Act) for a period of 7 years from the date of completion of the works.

Shortly before the expiration of the statutory warranty period in accordance with our instructions proceedings were commenced on behalf of the Owners issued out of the New South Wales Civil and Administrative Tribunal (NCAT) claiming losses for the breaches of statutory warranties.  The most serious defects related to water ingress to the new home in numerous areas.

The Builder from 2012 until about 2015 carried out additional works at the property in an attempt to rectify the defects and the Builder claimed that the defects had been rectified. 

Also the Builder claimed that the defects relating to the water ingress were as a result of defective design by the Architect engaged by the Owners to design the building.

The Owners’ claim was based on breach of statutory warranties pursuant to Section 18B of the Home Building Act (HB Act).

Defence pursuant to Section 18F of the HB Act?

The Builder in its defence to the claim, claimed a defence pursuant to Section 18F of the Home Building Act. 

18F of the HB Act provides to the Builder a defence (subject to compliance with Section 18F of the HB Act) to a claim for breach of a statutory warranty. 

At that time Section 18F provided:

(1)      In proceedings for a breach of statutory warranty it is a defence for the Defendant to prove that the deficiencies to which the Plaintiff complains arise from:

(a)      instructions given by the person (the owners) for whom the work was done contrary to advice in writing of the Defendant (the Builder) or person who did the work.

For Contracts that have been entered into since 15 January 2015, Section 18F has been amended and expended to allow the Builder to rely on written instructions from a relevant professional such as an architect acting for the person for whom the work was contracted to be done and who is independent of the Defendant.  This amendment did not apply to the current case, the subject of this article.

Section 18F of the HB Act provides to the Builder a basis for defending a claim by an Owner or subsequent Owner for breach of statutory warranty.  For such a defence to apply it requires the Builder to be alert to the provision and to take steps during the building works and before undertaking the particular works to give the right to a defence to a later claim by an Owner or a subsequent Owner for breach of statutory warranty.  It is important for a Builder (and for an Owner) to understand this defence to take the appropriate steps during the construction period.

The Evidence

The evidence that was filed on behalf of the Owners included:

1. Expert evidence by a Building Consultant who had inspected the property on numerous occasions; and
2. The evidence of the Homeowners. 

This matter involved detailed analysis throughout the period and the preparation of the detailed factual elements including leaking and water ingress over many years in a manner that could be presented to the Tribunal in a 2 day hearing. 

The Owners’ evidence was detailed with photographs and emails over many years showing the water ingress in many rooms of the 4 level home.  The form of the evidence as prepared by us on behalf of the Owners made it clear and easy for the Tribunal to understand the history of the matter including the history of the defects in each particular room within the residential building including defects relating to the water ingress issues.  It was clear from the evidence that the defects continued in 2015 being the date that the Builder claimed to have rectified the defects.

The Builder’s evidence included evidence by a Building Consultant briefed on behalf of the Builder and evidence of the Builder.

Hearing

The matter was listed for hearing for 2 days in early 2020. 

During the hearing the Builder attempted to introduce further evidence in an attempt to support the Builder’s claimed Defence under Section 18F in relation to the Owners’ claim relating to the water ingress issues and the method of construction for example, of doorways and windows which leaked.  This “evidence” relating to the claimed Section 18F defence was strongly disputed by the Owners. 

The Builder sought to introduce additional evidence in support of Section 18F defence on the second day of the two days allocated for the hearing.  As it happened, the hearing was unlikely to be completed on the second day and in accordance with the procedures of NCAT was likely to be adjourned for a significant period for the third and final day of hearing to complete the case.  This gave the Builder an opportunity to ask for leave to file for the further evidence relating to the Section 18F defence.  The lawyers for the Builder claimed that the lateness of the additional “evidence” would not be prejudicial to the Owners. 

Eventually the Senior Member did not accept the evidence on behalf of the Builder and rejected the claimed Section 18F defence.

One difficulty for the Owners was the significant extra expenses of taking issue with the claimed evidence in support of the Section 18F defence and to defend these proceedings.  The evidence should have been filed many months before the hearing which would have allowed the Owners to deal with the evidence in a timely and less expensive manner.  Notwithstanding the Senior Member hearing the matter, allowed the Builder to proceed with the application to adduce the extra evidence.

If the evidence had not been disputed by the Owners, the Builder would have been successful in its defence under Section 18F of the HB Act.  Such a result would have been devastating for the Owners.  There would have been the possibility or likelihood that if the Builder succeeded in such a defence, an order would have been made requiring the Owners to pay the Builder’s costs.

It was critical to the Owners to respond to the claimed evidence in support of the defence by the Builder under Section 18F.

If the evidence had been provided at an early stage in the proceedings as it should have been, the Owners would have adopted a different position; and issued various summons for documents and other related actions to establish the Owners’ response to the Builder’s claimed Section 18F defence.  Thereafter having regard to the result of the further enquiries, the Owners could have considered their options including the extent of risks as to costs.  The Owners would have considered the risks based oin the evidence available.

Decision of NCAT

Eventually the Tribunal gave a decision in the latter part of 2020 and ordered that the Respondent Builder pay the Homeowners a significant sum over $300,000 and further to pay the cost of the Owners (as agreed or assessed).

The Builder appealed the Tribunal’s decision and was unsuccessful in the Appeal.

The Builder made various applications to delay the payment of the sum awarded.  One Application was an Application to Pay by Instalments.  However which having regard to the approach that was adopted by us, the Builder could not proceed with and would have been successful in any application to pay by instalments.

Resolution - agreement

Eventually agreement was reached with the Builder to pay a sum in excess of the amount awarded however insufficient to cover the whole of the Owners’ Costs.

The Owners accepted the final amount having regard to the insolvency position of the Builder and the maximum that would be allowed under a claim under the Home Owner’s Warranty.

If you have issues in relation to any building works in particular in relation to residential building works contact the experienced Lawyers at Watson & Watson by contacting Richard Watson an Accredited Specialist in Commercial Litigation in the Building and Construction Stream or his Personal Assistant Shereen Da Gloria to discuss your matter with us and to obtain initial advice which will allow you to make decision as to how to proceed in relation to any potential dispute or issue relating to any building works.

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