When home owners can’t have their cake and eat it too - repetitive defect claims against a builder

In a recent case before the NSW Civil and Administrative Tribunal, the Tribunal made it clear that a home owner often cannot make a second claim for defects in residential building works against a builder after an initial claim has been resolved, even if the second claim is for different defects.  

The claim

The claim made by the applicant home owner was for money orders against the builder relating to prime cost items, and defective and incomplete works. 

This was the second claim which the applicant had made against the builder in the Tribunal under the same building contract (Second Claim).

The Second Claim was supported by lay evidence prepared by the applicant.  An expert quantum report and Scott Schedule were also relied upon, although these documents did not reference the claim for defective works.

Earlier proceedings

In 2018, the applicant had commenced proceedings against the builder, also with respect to defective and incomplete works (First Claim).  The builder cross-claimed in those proceedings for unpaid invoices. 

Bartier Perry acted for the builder in the First Claim and the Second Claim.

The First Claim was resolved by agreement recorded in a deed (Deed) which, among other things, required the builder to undertake certain rectification works. 

Importantly, the Deed also provided a mutual release with respect to all claims arising from the First Claim, the building contract, and the defect reports filed in the First Claim.  The release did not restrict any warranties given by the builder to the owner pursuant to section 18B of the Home Building Act 1989 (NSW) (Act), since the Act provides that the warranties cannot be excluded.

The hearing

At the hearing of the Second Claim, Bartier Perry submitted on behalf of the builder that:

• The claims for prime cost items and incomplete works were known to the applicant at the time of the First Claim but were either not claimed or not pressed in those proceedings.

• The provisions of section 18E(2)(b) of the Act prevented the applicant from making a claim under section 18B for breach of the warranties in circumstances where the defects were known to the applicant at the time of the First Claim.

• The Deed acted as a bar to proceedings since the claims being made did not relate to the rectification work carried out pursuant to the Deed, and had been released.

• The applicant, could not, in good conscience, now renew its claim in the face of the Deed, when the builder had agreed to dismiss its cross-claim against the applicant in return for the release.

An explanation of section 18E(2)

Section 18E(2) of the Act provides that:

(2) The fact that a person entitled to the benefit of a statutory warranty specified in paragraph (a), (b), (c), (e) or (f) of section 18B has enforced the warranty in relation to a particular deficiency in the work does not prevent the person from enforcing the same warranty for a deficiency of a different kind in the work ("the other deficiency" ) if:

(a) the other deficiency was in existence when the work to which the warranty relates was completed, and

(b) the person did not know, and could not reasonably be expected to have known, of the existence of the other deficiency when the warranty was previously enforced, and

(c) the proceedings to enforce the warranty in relation to the other deficiency are brought within the period referred to in subsection (1).

(emphasis added)

Section 18E(2)(b) was relied upon by the builder to ground the submission that the applicant couldn’t bring the Second Claim when he knew of the existence of the defects at the time the applicant entered into the Deed to resolve the First Claim.

Judgment

The Tribunal accepted our submissions on behalf of the builder and dismissed the Second Claim in full, finding among other things that:

• The applicant had conceded the defects were known to him at the time he entered into the Deed.

• The Deed was an enforcement of the warranties under section 18B such that section 18E(2)(b) applies.

• The Deed was a bar to proceedings since the Second Claim did not fall within the exception of the release.

Takeaways

In certain circumstances, a home owner cannot claim under the statutory warranties, even if the claim hasn’t been made previously and is within the statutory time limits to do so under the Act.

Before giving a release, it is important to carefully consider what each party is releasing and what potential future claims might remain.

Navigating defect claims and the Act can be tricky.  Bartier Perry’s building disputes team can provide expert advice and representation.

Author – Sharon Levy

Every month Mondaq publishes hundreds of articles by contributing firms from over 80 countries around the world. Award winners beat off strong competition and Mondaq extends their congratulations for the following award:

Contributor With Most Popular Article In Australia for November 2019 to Sharon Levy, Bartier Perry