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Building Claim with Complications

30/09/2021

In late 2018 Watson & Watson Lawyers received instructions to act on behalf of the Builder who had just received an Application by the Owner issued out of the NSW Civil and Administrative Tribunal (“NCAT”).

In June 2013 the Builder entered into a Contract with the Owner to undertake renovations and an extension including an upper floor to a residential building for an agreed Contract Sum of approximately $350,000.

The Owner in her NCAT Application claimed in excess of $250,000 for claimed costs of rectification of alleged defective work.

After receiving instructions, we investigated the matter and ascertained that there were many issues that could arise.

Extra Work undertaken by Builder in late 2015 at request of Owner’s Building Consultant

In October 2015 more than 1 year after the date of Practical Completion, the Owner engaged a Building Consultant who prepared a Report as to requirements to rectify claimed defects to the upper floor addition.  The Builder did not agree with all the matters that were set out in the Report however, in an effort to resolve the matter with the Owner without litigation, the Builder negotiated with the Owner’s Consultant as to the work the Consultant required and the Builder undertook the work as required by the Building Consultant in accordance with the Owner’s Consultant’s directions. 

In early 2016 the Building Consultant agreed the works were constructed in accordance with the Consultant’s instructions and requirements.  In addition, the Builder paid a sum of money to the Owner to cover other incidental matters claimed by the Owner which were disputed by the Builder.  As far as the Builder was concerned, the dispute had been settled.

A Claim in 2018 in excess of $250,000

In late 2018 the Owner obtained a Report from a further Building Consultant and claimed in excess of $250,000 for rectification of claimed defective work. 

In December 2018, the Owner filed the Application at NCAT making the claim.  The claim was essentially based on alleged claims of breach of Statutory Warranties essentially on the basis that part of the building work was not carried out in a proper and workmanlike manner. 

The Builder disputed the Owner’s claim.  The Builder advised us that the Builder had returned and undertook work in late 2015 (at the Builder’s costs) which work was requested by the Building Consultant engaged by the Owner (Owner’s Building Consultant) who had signed off on the work.  That work was undertaken by the Builder notwithstanding, that the Builder did not believe the whole of the work was necessary. 

The Owner’s claim at NCAT was supported by a Building Report from the same Building Consultant who had overseen the work in early 2016 and had signed off that work.

Statutory Warranty – Limited Period

Having regard to the date of Practical Completion of the work (September 2014), the claim made in December 2018 for breach of Statutory Warranties would be limited to structural defects.  Other defects which are not within the category of structural defects as defined by the Home Building Act were not covered for more than 2 years after the date of completion of the works. 

Some of the claims in the NCAT proceedings related to water ingress issues which may have been as a consequence of a structural defect.

Building Consultant on behalf of the Builder

As recommended by us, we engaged a Building Consultant (Builder’s Building Consultant) specialising in water ingress issues who inspected the property with us and thereafter prepared a Report. 

In effect, the Builder’s Building Consultant disputed the claims by the Owner’s Building Consultant and further, indicated that there were relatively inexpensive rectification solutions that could have been undertaken to resolve the issues.

Extent of Scope of Works

Some of the difficulties in relation to this property related to the scope of works which were included in the original scope of works to be undertaken by the Builder for the Owner.  This occurs on occasions in relation to renovations and extensions of old existing homes.  It is very important at the time of entering into the Contract, to clearly state what works are included in the Contract scope of works and if there is any doubt, what works are excluded from the contractual scope of works. 

The Contract as prepared in this case, was not absolutely clear on these aspects.   Also care is required having regard to the Statutory Warranties under the Home Building Act. 

The Builder’s position was that some of the defects claimed in the NCAT proceedings were in fact, defects in the old part of the house which was not the subject of the scope of works to be undertaken by the Builder.

Issues for Consideration

On our review, it appeared that issues arose in relation to:

  1. Was the dispute (or any part of it) settled previously.
  2. Whether the works undertaken by the Builder specifically at the request of the Owner and the Owner’s Building Consultant, additional works outside the original scope of works for which a claim for payment could be made by the Builder; and
  3. Whether the claim in relation to the items claimed, were within the time allowed to make a claim for breach of the Statutory Warranties.

The case was complicated as a consequence of the Builder attempting to please the Owner by doing the works as required by the Owner’s Building Consultant.  We have seen the Builder’s wish to please and assist the Owner outside of the terms of the Contract without appropriate documentation caused significant issues for the Builder at a later date.

In hindsight it would have been better at that stage, for the Builder to engage his own Building Consultant and try and resolve the matter once and for all at that stage. 

Offers of Settlement

The matter progressed and numerous offers were made by the Builder in response to the Owner’s claim which was in excess of $200,000 plus costs.

After the matter had been listed for hearing, there was a Mediation in an attempt to resolve the disputes, prior to the matter being heard by the Court.  Offers were made.  The Builder on our recommendation, made a ‘without prejudice’ offer immediately following the Mediation. 

This had two alternative purposes; namely:

  1. Hopefully the matter could resolve; or
  2. In the event that the matter was not resolved and had to be determined by the Court; the offer may have had a bearing on the Costs order following the Court hearing.  If the Builder’s offer was more favourable to the Owner than the final decision of the Court, then as from the date of the offer, the Builder would likely receive an order that the Owner pay the Builder’s costs.

Those costs would likely be considerable.

Application for Adjournment of the Hearing

As it happened, the matter did not proceed smoothly.  Approximately one week before the hearing was to commence, the Owner made an Application for the Hearing date to be vacated and sought to make further substantial claims.  The Court allowed the adjournment on the basis that the new claims should be considered, notwithstanding the lateness of the claims. 

The problem with this was that the case had to be reconsidered completely at significant costs to each party. 

The Owner had the benefit of a Building Warranty Insurance formerly known as Home Warranty Insurance to cover the Owner for the sums sought (to a maximum of $340,000) in the event that the Builder was unable to pay the amount ordered following the Hearing. 

The Owner’s position simply seemed to be that the Owner would pursue the matter to finality.  This was at great cost to the Owner, and also the Builder who engaged Watson & Watson Lawyers and Consultants to defend the claim. 

Adjourned Hearing

As it happened, the Court listed the case for Hearing 6 months later. 

Settlement

After the adjournment of the original hearing date, the Owner’s position changed in that as far as we perceived, her Lawyers accepted our proposition that the Owner was at risk in relation to costs since the date of the offer made by the Builder (which was a reasonable offer), which had been rejected by the Owner.

Eventually the matter was settled effectively for the amount offered in the earlier settlement offer by the Builder to the Owner months before.

The Builder was satisfied with the outcome which was substantially better than any other outcome that would be possible, especially if the Builder had not made an early offer to settle the matter.

Watson & Watson experienced Building and Construction Lawyers can assist you with all matters relating to building and construction.  Even those disputes which appear straight forward can sometimes become difficult and expensive. 

Please contact the experienced Lawyers at Watson & Watson by contacting Richard Watson Accredited Specialist Commercial Litigation in the stream of Building and Construction or his Personal Assistant Shereen Da Gloria to discuss issues you face.

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

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