The primacy of the preferred outcome

Three recent cases of the New South Wales Civil and Administrative Tribunal Appeal Panel (Appeal Panel) reinforce the primacy of section 48MA of the Home Building Act 1989 (NSW) (the Act), that is, that rectification of defective work is the preferred outcome.

Section 48MA of the Act provides:

A court or tribunal determining a building claim involving an allegation of defective residential building work or specialist work by a party to the proceedings (the responsible party) is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome.

Thacker v Bonham [2017] NSWCATAP 217

In Thacker v Bonham [2017] NSWCATAP 217, a handwritten settlement agreement was signed by the owner, the builder and the Fair Trading inspector onsite. The relevant part of the settlement agreement read:

Variation regarding incomplete work and defective work discussed and observed [the builder] will provide a sum of $30,000 to be paid by 24/12/15 to [the owner]. No further work is to be conducted as per agreement. I am aware if I don’t pay [the owner] will make a claim of $50,000 at the Tribunal.

The Tribunal made a work order for rectification of the defects as the builder had not been given a defects notice as required under the contract, the builder had indicated he was ready, willing and able to complete the work order and should be given the opportunity to do so.

The owner appealed this decision to the Appeal Panel, which dismissed the appeal. The Appeal Panel held that the settlement agreement did not vary the contract so as to effectively substitute the terms of the settlement agreement for the contract. Additionally, the Appeal Panel found that the form of the settlement agreement did not restrict, but expressly provided for, further work by the builder. As a result, the settlement agreement was found to be no barrier to a work order being made under section 48MA.

White v Sunrise Pools Australia Pty Ltd [2017] NSWCATAP 216

In White v Sunrise Pools Australia Pty Ltd [2017] NSWCATAP 216, the Tribunal found the owner had repudiated the contract and, consequently, the builder had accepted that repudiation and terminated the contract. The Tribunal then made orders that the owner pay the builder a sum of money.

The owner claimed for defects. The Tribunal held that the builder was only liable for two items. In relation to the first (regarding protruding piers), the Tribunal ordered the builder to pay the owner $726. In relation to the second (regarding unsightly finish in the concrete), the Tribunal ordered that the builder return to the site and remedy the defect.

The owner appealed the Tribunal’s decision on a number of grounds, including, relevantly, that the Tribunal made an error of law in directing the builder to return to rectify defects when the contract had been terminated.

In dismissing the appeal, the Appeal Panel held:

There is nothing in s 48MA which indicates that the provision cannot apply after a contract has been terminated. We find that it applies in such circumstances. The Tribunal correctly applied the principle in s 48MA of the Home Building Act. No error of law has been demonstrated.

Leung v Alexakis [2018] NSWCATAP 11

In Leung v Alexakis [2018] NSWCATAP 11, the respondent was the former owner who had carried out residential building work under an owner builder permit. The property was sold to the appellants, who brought an application in the Tribunal seeking to enforce statutory warranties to fix a water leak issue in the basement and surrounding areas.

Importantly, the respondent’s husband, Mr Alexakis, was a licensed plumber and was therefore able to do any plumbing and drainage work, and supervise others to do that work. The Tribunal made orders that the respondent at her own cost engage appropriately qualified and licensed trade persons to demolish the stormwater works and reconstruct them in accordance with the approved plans and specifications. The appellants appealed this decision.

On appeal, the Tribunal was required to consider, firstly, whether the word “party” used in s 48MA includes the holder of an owner builder permit and, secondly, to what “work” s 48MA applies.

The appellants submitted that a “party” was limited to a “builder”. The Tribunal dismissed this argument, holding (among other things) that there is no definition of the word “builder” in the Act and that the wording of s 48MA refers to a “party to the proceedings”; therefore there is no reason why “the word party should be given any meaning to limit the expression to a particular, undefined, class of parties called ‘builders’”.

The Tribunal held that “work” to which s 48MA applies includes both work done personally by a party to the proceedings and work done on their behalf or for which they were responsible.

As a result, the Tribunal allowed the appeal in part, varying the original orders as follows:

  1. The respondent at her own cost is to engage appropriately qualified and licensed trade persons to demolish the stormwater works the subject of the proceedings and reconstruct them in accordance with the approved plans; and
  2. All persons who are to carry out the specialist work are to provide written evidence to the appellants that they are suitably qualified, licensed and insured prior to any works commencing.

Commencement of strata building bond and inspection regime on 1 January 2018

The new strata building bond and inspection scheme commenced on 1 January 2018. The scheme is intended to incentivise developers to address building defects early and quickly. It requires developers to pay a building bond equivalent to 2% of the contract price in order to secure funding for the rectification of any building defects. Click here for further details on the scheme.

The scheme only applies to building contracts for residential or mixed strata properties of four storeys or more entered into from 1 January 2018.

Commencement of Home Building Compensation Scheme on 1 January 2018

The reformed Home Building Compensation Scheme (Scheme) also commenced on 1 January 2018. The Scheme is said to reform the Home Building Compensation Fund to better protect owners against incomplete and defective works. The Scheme provides builders with a wider choice of both insurance providers and products. More details on the Scheme can be found here.

Importantly, from 1 July 2018 all builders will be required to disclose the cost of their home building compensation cover in their building contracts. Owners will be able to confirm the validity of their builder’s policy (including any previous claims on the policy) through the HBC Check.