Major Projects & Construction 5 Minute Fix 115: further defects, payment claims and adjudication, quantifying damages

The Major Projects and Construction team
19 May 2023
5 minutes

Statutory warranties under NSW Home Building Act: new defects but the same cause of action

In Parkview Constructions Pty Ltd v The Owners – Strata Plan No 90018 [2023] NSWCA 66, the NSW Court of Appeal has provided insight into the procedural nature of causes of action for breaches of the statutory building warranties under the Home Building Act 1989 (NSW).

Parkview appealed a decision by Justice Stevenson to permit the Owners Corporation to add three further alleged breaches of the Home Building Act to those originally pleaded (including one relating to non-compliant façade materials).

At issue was whether separate causes for breaches of statutory warranties in section 18B of the Home Building Act arose for each defect constituting a breach of the warranties or whether breaches of the statutory warranties gave rise to a single cause of action. The developer and builder favoured the separate cause of action construction because it would mean that the Owners Corporation's claim in respect of the three new alleged defects would be out of time.

Delivering the judgment for the Court dismissing the appeal, Justice Leeming expressed his conclusions:

"where a successor in title is suing a builder or a developer on the statutory warranties in section 18B of the Home Building Act, the proceeding is for breach of the single contract… against that party."

As a result, his Honour noted that, "ordinarily, an amendment which does nothing more than introduce further departures from the building as promised will not give rise to a new cause of action which would otherwise have been out of time, to which section 65 is addressed, because the cause of action is for breach of the same contract." His Honour further noted that this would not be the case if, for example, "a plaintiff sues a developer and then, out of time, applies to bring proceedings against the builder, but that is because there is a different cause of action on a different contract. Nor will it be the case if the plaintiff introduces a new cause of action such as negligence."

No shadows cast on referee's findings of fact

A recent NSW Supreme Court decision illustrates that the courts will not readily interfere with findings of fact by an expert referee where the referee has based their conclusions upon a choice between conflicting evidence.

In The Owners - Strata Plan No 97315 v Icon Co (NSW) Pty Ltd [2023] NSWSC 363, the court-appointed referee had to determine the builder's (Icon's) liability for defective sunshades on the façade of Sydney's beleaguered Opal Tower building and the proper rectification methodology. In his report, the referee concluded that the existing sunshades were defective and in breach of the statutory warranties in section 18B of the Home Building Act 1989 (NSW). The referee concluded that on the evidence before him Icon's proposed "C-Bracket Solution" was the proper methodology for rectifying the defective sunshades. He formed the view that this method would constitute only a minor non-conformance compared to the sketches and drawings in the Principal's Project Requirements (PPR) and the construction certificate relied upon by the Owners.

Unsatisfied with the referee's finding, the Owners filed a notice of motion to have the referee's report rejected or varied because the referee had misconstrued Icon's obligations under the building contract by making a finding inconsistent with the sketches and drawings. The Owners argued that only the "Hidden Bracket Solution" would achieve conformity with the building contract and the PPR. The Owners relied upon sketches and drawings in the PPR and the construction certificate that showed no visible supporting bracket for the sunshades.

The NSW Supreme Court rejected the Owners' challenges and concluded that the referee had made no error of principle, and his findings of fact were "clearly open" to him and should not be re-agitated in the Court. Accordingly, it was not appropriate to exercise the Court's discretion to reject or vary the referee's report.

NT Supreme Court confirms a party can "re-set the clock" for an adjudication application by submitting another payment claim

In Costojic Pty Ltd v Whatareya Pty Ltd & Anor [2023] NTSC 32, the NT Supreme Court confirmed that a party can "re-set the clock" for an adjudication application by submitting another payment claim so long as the construction contract allows a repeat claim to be made.

The Construction Contracts (Security of Payments) Act 2004 (NT) requires a party to prepare and serve an adjudication application within 65 working days after a payment dispute arises.

Whatareya applied for adjudication on a subsequent payment claim that included unpaid amounts from an earlier payment claim. The subsequent payment claim was within the timeframe prescribed by the Act. However, the unpaid amounts from the earlier payment claim were outside the prescribed timeframe.

Costojic argued that the time limit in the Act operated such that if a subsequent payment claim includes an unpaid amount from an earlier payment claim, the time limit runs from the date the earlier payment claim is due. Otherwise, a claimant can "re-set the clock" for adjudication application by submitting another payment claim, defeating the purpose of having a statutory time limit. On that basis, Costojic argued that Whatareya's adjudication application was out of time. Costojic also argued that it was denied procedural fairness when the adjudicator awarded interest at 18% per annum on a basis that was not put to him by either party. In fact, the contract provided that no interest was payable and it was not disputed that the adjudicator had misconstrued the contract by awarding interest at 18% per annum.

The NT Supreme Court held that if a construction contract allows a repeat claim to be made such that a fresh payment dispute arises in respect of each unpaid payment claim, then the Act permits an adjudication application to be made in relation to the subsequent payment claim. Applying this reasoning, the Court concluded that Whatareya's subsequent payment claim (which included unpaid amounts from a previous claim) could be adjudicated under the Act, as the contract in question permitted repeat claims to be made. The Court also rejected Costojic's argument that it was denied procedural fairness because it had the ability to raise the issue of interest in its adjudication response but had failed to do so.

Certainty and particularity are key for quantifying damages

Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 96 [2023] NSWSC 343 illustrates the importance of certainty and particularity when establishing damages.

Oxford (NSW) Pty Ltd (the Builder) and KR Properties Global Pty Ltd and AS Coaching Pty Ltd (together, the Owners) were parties to a contract in which the Builder agreed to construct a six-unit apartment building. After the Owners failed to pay nine outstanding invoices, the Builder brought proceedings against the Owners to recover the amounts claimed in the invoices. The Owners denied that they owed any money to the Builder because the works performed by the Builder were defective or incomplete. The Owners also filed a cross-claim seeking damages for defective and incomplete works against the Builder and its Director.

The NSW Supreme Court rejected the Builder's claim and agreed with the Owners' claim that the works performed by the Builder were defective and incomplete. However, when considering the damages payable to the Owners, the Court noted that the Owners had listed invoices and allocated those invoice costs to either incomplete work or rectification work without explanation. The Court also observed that the Owners failed to explain by what process of reasoning or analysis they had come to the conclusions stated concerning allocation of the costs incurred by them to completion works on the one hand and rectification of defective works on the other.

The Court reiterated the general principle concerning proof of damage that the courts insist upon as much certainty and particularity as is reasonable. Applying this general principle, the Court found that the Owners' reason for allocating costs as either rectification or completion costs was unclear. This finding was pivotal to the Owners because the Owners' claim against the Director was under the Design and Building Practitioners Act 2020 (NSW), which meant that damages could only be sought against the Director in respect of defective works. As the Owners had not clearly established the costs of rectification work, the Owners' claim against the Director failed.

NSW Security of Payment roundup

"Without prejudice" email not a payment schedule: In Rodrigues v customOz Services Pty Ltd [2023] NSWSC 379, Justice Rees rejected challenges to an adjudication determination by homeowners on the basis that their "without prejudice" email was, in fact, a payment schedule for the purpose of the NSW Security of Payment Act. Justice Rees determined that the homeowners' without prejudice email did not satisfy the requirements for a payment schedule under the NSW Security of Payment Act and rejected the homeowners' claim. In doing so, the Court observed "the fact that a communication is marked without prejudice tells strongly against it being construed as a payment schedule" for the purposes of the NSW Security of Payment Act.

Adjudicator's determination on fees and expenses set aside: In Ceerose Pty Ltd v A-Civil Aust Pty Ltd (No 2) [2023] NSWSC 401, the NSW Supreme Court held that an adjudicator's determination on fees and expenses is based, at least in part, upon the adjudicator's assessment of the relative successes and failures of the parties on the various issues the subject of the adjudication. In this case, no specific challenge was made to the adjudicator's determination on fees and expenses. Further, this determination was not the subject of the findings of jurisdictional error made by the Court. Nevertheless, the Court set aside the adjudicator's determination on fees and expenses on the basis that the relative successes and failures of the parties had changed as a result of the Court's earlier judgment, in which the Court held that parts of the adjudication decisions had been affected by jurisdictional error.

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