Aust Law Symposium. Wednesday, 21 April Park Royal, Darling Harbour

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1 Aust Law Symposium Wednesday, 21 April 2016 Park Royal, Darling Harbour The Home Building Act 1989 (NSW) - recent changes and cases Introduction 1. In late 2014 and early 2015, the NSW legislature passed a series of significant amendments to the Home Building Act 1989 (NSW) (the HB Act). While these amendments have not yet been the topic of judicial consideration, this paper seeks to identify those important changes and to address the impact of the changes on matters of insurance and liability. The statutory scheme in respect of warranties 2. The statutory scheme under the HB Act addresses two fundamental matters: a. the quality of residential building works that are performed and to be performed by reference to the implied statutory warranties; and b. the liability of persons in respect of defective residential building works and the ability of successors in title to obtain relief in respect of works performed whether by a builder, for a developer or by an owner builder. 3. It must be noted that these stipulated provisions are the statutory scheme. It may be that rights and entitlements exist as against persons who perform residential building works (or are engaged in respect of the performance of such works) at common law for example, by reference to express terms of a contract or a common law duty of care. 4. As a consequence, it is always necessary to carefully examine the facts of any particular case to determine what rights, entitlements and liabilities may obtain. The warranties 5. The current scheme, which applies to work performed pursuant to a contract made after the commencement of the section (15 January 2015) provides that the following warranties by the holder of a contractor licence or a person required to hold a contractor licence are implied in every contract to do residential building work: a. a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract; 1

2 b. a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new; c. a warranty that the work will be done in accordance with, and will comply with, this or any other law; d. a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time; e. a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling; f. a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder s or person s skill and judgment. 6. Further, the statutory warranties implied by this section are not limited to a contract to do residential building work for an owner of land. They are also implied in a contract under which a person (the principal contractor) who has contracted to do residential building work contracts with another person (a subcontractor to the principal) for the subcontractor to do the work (or any part of the work) for the principal contractor. Duty to mitigate 7. Section 18BA has been introduced as part of the amendments recently made. By this provision, a party entitled to remedy or relief by reference to a breach of the statutory warranties has a duty to mitigate loss. 8. As is the case at common law, the onus of establishing a failure to mitigate loss is on the party alleging the failure. 9. The following specific obligations with respect to mitigating loss apply to a person who has the benefit of a statutory warranty (without limiting the duty to mitigate): a. when a breach of the statutory warranty becomes apparent (as defined in section 18BA(4) and section 18E(1)(f) of the HB Act), the person must make reasonable efforts to ensure that a person against whom the warranty can be enforced is given notice in writing of the breach within six (6) months; b. the person must not unreasonably refuse a person who is in breach of the statutory warranty such access to the residential building work concerned as that person may reasonably require for the purpose of or in connection with rectifying the breach. 2

3 10. A breach of warranty "becomes apparent" when any person entitled to the benefit of the warranty first becomes aware (or ought reasonably to have become aware) of the breach. In this regard, see Cyril Smith & Associates Pty Ltd v The Owners-Strata Plan No [2011] NSWCA 181 for a consideration of the position at common law. 11. If a failure to comply with a duty under this section 18BA is established in proceedings for a breach of a statutory warranty, the failure is a matter that the court or tribunal may take into account in determining relief (damages). Reasonable refusal 12. This raises the question: Under what circumstances is it reasonable to refuse entry to the builder? That issue was considered in two recent cases in the Supreme Court. 13. In The Owners - Strata Plan No v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067, the builder alleged that the owners had failed to mitigate their loss by not allowing the builder back on to the property to repair his defective work. Section 18BA was not applicable, and was not under consideration by the court. However, leaving aside questions of defects liability periods and the like, the Court did consider whether the Owners acted reasonably in refusing to allow the builder to rectify. 14. Ball J said at [45] and [46]: [45] The question of what is reasonable depends on all the circumstances of the particular case. One relevant factor is what attempts the builder has made to repair the defects in the past and whether, in the light of the builder's conduct, the owner has reasonably lost confidence in the willingness and ability of the builder to do the work: see A Chambers, Hudson's Building and Engineering Contracts, (12th ed, 2010, Sweet & Maxwell) at [4-144]; Eribo v Odinaiya [2010] EWHC 301 (TCC) at [70]. [46] It is for the defendant to prove that the plaintiff has acted unreasonably. It is not or the plaintiff to prove that it acted reasonably. 15. Ultimately, Ball J held that the owners had not acted unreasonably because: a. they had lost confidence in the builder he had tried to fix the defects, but failed and b. because the Owners had formed the view that it was absolutely pointless to try to reach agreement with the builder on the necessary scope of works to repair the defects. 16. More recently, in Owners Strata Plan v- MD Constructions Pty Ltd [2016] NSWSC 162, Hammerschlag J noted that as part of its duty to mitigate damage, an owner is required to give its builder an opportunity to minimise the damages it must pay by rectifying defects, except where its refusal to give that opportunity is reasonable or where the builder has repudiated the contract by its conduct. 17. His Honour held (at [29]): What is reasonable depends on all of the circumstances. One relevant factor is whether the owner reasonably lacks confidence in the willingness and ability of the builder to do the work. The defendant must prove that the plaintiff has acted unreasonably; it is 3

4 not for the plaintiff to prove that it acted reasonably. The matter is one for objective assessment. 18. In that case, the Court held that the owners had not acted unreasonably because it was entitled to have no confidence in the ability of the defendant to do the work competently and the defendant would not take responsibility for the defects. His Honour relied on this evidence in support of his findings: A conversation, reflective of [the builder s] unwillingness to assume responsibility and of an unrealistic position, to the following effect took place: [Owner]: [Builder]: Water is leaking into the second bedroom through the outer wall. The wall is stained and mould is growing. I am not going to fix it. It is not my problem. The staining and mould is caused by your tenant showering too often and not ventilating the unit. 19. It is to be expected that there will be more cases and circumstances where the reasonableness or otherwise of an owner s refusal to allow a builder back to repair defects is a real issue. As a practical matter, it is crucial that there be detailed correspondence that acts as a contemporaneous record of: a. On the owner s side, any attempts to, for example, reach agreement with a builder about the scope of works, including by, for example, providing an expert report; and b. On the builder s side, any offers that are made to in fact return and do the work, and some detailed statement of the proposed methodology for fixing the defects. Other provisions 20. Section 18C remains relatively unchanged and provides that: a. a person who is the immediate successor in title to an owner-builder, a holder of a contractor licence, a former holder or a developer who has done residential building work on land is entitled to the benefit of the statutory warranties as if the ownerbuilder, holder, former holder or developer were required to hold a contractor licence and had done the work under a contract with that successor in title to do the work; b. for the purposes of section 18C, residential building work done on behalf of a developer is taken to have been done by the developer. 21. It is to be noted that there is an exception for multi-storey buildings (per Regulation 56 of the Home Building Regulations 2014 (NSW); see also The Owners SP75903 v Dix & Anor [2011] NSWSC 245. In this exemption, multi-storey building means a building that has a rise in storeys of more than 3, and that contains 2 or more separate dwellings, where: a. rise in storeys has the same meaning as it has in the Building Code of Australia of the National Construction Code Series; and 4

5 b. storey has the same meaning as it has in the Building Code of Australia of the National Construction Code Series. 22. Section 18D concerns the extension of statutory warranties, and provides that: Section 18E a. a person who is a successor in title to a person entitled to the benefit of a statutory warranty under the HB Act is entitled to the same rights as the person s predecessor in title in respect of the statutory warranty; b. a person who is a non-contracting owner in relation to a contract to do residential building work on land is entitled (and is taken to have always been entitled) to the same rights as those that a party to the contract has in respect of a statutory warranty; c. subject to the regulations, a party to a contract, a successor in title, or a non-contracting owner of land, has no right to enforce a statutory warranty in proceedings in relation to a deficiency in work or materials if the warranty has already been enforced in relation to that particular deficiency. 23. Section 18E contains many of the most important revisions and amendments to the HB Act. It provides as follows: a. proceedings for a breach of a statutory warranty must be commenced before the end of the warranty period for the breach, which is six (6) years for a breach that results in a major defect in residential building work or two (2) years in any other case; b. the warranty period starts on completion of the work to which it relates, but this does not prevent proceedings from being commenced before completion of the work; c. if the work is not completed, the warranty period starts on: i. the date the contract is terminated; ii. iii. if the contract is not terminated, the date on which work under the contract ceased; or if the contract is not terminated and work under the contract was not commenced, the date of the contract; d. if the breach of warranty becomes apparent within the last six (6) months of the warranty period, proceedings may be commenced within a further six (6) months after the end of the warranty period, where becomes apparent has the same meaning as per section 18BA(4); e. where a person entitled to the benefit of a statutory warranties has enforced a claim for breach in relation to a particular deficiency in the work, a person may enforce the same warranty for a deficiency of a different kind in the work if: i. the other deficiency was in existence when the work to which the warranty relates was completed, 5

6 ii. iii. 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 the proceedings to enforce the warranty in relation to the other deficiency are brought within the period stipulated; Major defects 24. Under the previous regime, the statutory warranties covered work for six years from completion for structural defects, and two years for other breaches of the warranties. 25. For claims that were brought after the two-year period, the question of whether a defect was a "structural defect" became critical. 26. In the second reading speech for the Bill that gave rise to the latest amendments, the Minister said that "stakeholders on all sides have expressed concerns over the definition of 'structural defect'. In fact, 90 per cent of stakeholders who responded to the 2012 issues paper wanted the term better defined. The main issue was that a significant defect may not be a structural defect but could still be a major defect worthy of the six-year warranty period. Of particular concern was whether water penetration and fire safety non-compliance fell within the two- or six-year warranty period, as there has been considerable variation in rulings on these matters depending on the severity of the defect." 27. Today, there is a two step process: a. Step 1: ascertain whether the defect is in a major element of the building; b. Step 2: assess the seriousness of the consequences of the defect. 28. Turning to the provision, under section 18E(4) a major defect 1 means: a. a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause: i. the inability to inhabit or use the building (or part of the building) for its intended purpose; ii. iii. iv. the destruction of the building or any part of the building; a threat of collapse of the building or any part of the building; or a defect of a kind that is prescribed by the regulations as a major defect; b. major element of a building means: 1 "major defect" also applies for the purposes of s103b (Period of cover). 6

7 i. an internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams); ii. iii. iv. a fire safety system; waterproofing; or any other element that is prescribed by the regulations as a major element of a building. 29. The regulations may prescribe defects in a building that are not a major defects. No such defects have been prescribed to date. Defences 30. Section 18F provides certain defences to claims for breach of a statutory warranty, where it is established that the deficiencies arise from: a. instructions given by the person for whom the work was contracted to be done contrary to the advice of the defendant or person who did the work, being advice given in writing before the work was done; b. reasonable reliance by the defendant on instructions given by a person who is a "relevant professional" 2 acting for the person for whom the work was contracted to be done and who is independent of the defendant, being instructions: i. given in writing before the work was done; or ii. confirmed in writing after the work was done; c. a "relevant professional" is independent of the defendant if s/he was not engaged by the defendant to provide any service or do any work for the defendant in connection with the residential building work concerned; and d. a "relevant professional" is not independent of the defendant if it is established that the relevant professional: i. was engaged on the basis of a recommendation or referral of the defendant to act for the person for whom the work was contracted to be done, or ii. is, or was within 3 years before the relevant instructions were given, a close associate of the defendant. 2 In addition to the matters of independence addressed above, a "relevant professional" means architect, engineer or surveyor, or a person who represents himself or herself to have expert or specialized qualifications or knowledge in respect of residential building work or any particular aspect of residential building work. 7

8 Construction contracts, insurance and owner-builders 31. There are a number of other changes that have been made to the HB Act concerning the form of contracts, payment, insurance and the position of owner-builders. Construction contracts payments and performance of works 32. A 10% cap on deposits for residential building work is now applicable, notwithstanding the value of the works or the contract sum. 33. Residential building contracts are now required to include details of any progress payments (except where the Building and Construction Industry Security of Payment Act (1999) applies) and a statement as to the termination rights of the owner must be provided. In respect of progress payments, only two types are permitted (although either is acceptable): a. specified amounts or percentages based on the achievement or completion of properly described works (i.e. milestones ); or b. payment for labour, materials and margin, substantiated with copies of invoices, receipts, or other documents. 34. These are called Authorised Progress Payments. A claim cannot be made other than in accordance with these provisions. Penalties apply for making such claim and for entering into a building contract which allows for claims to be made other than as set out above. Insurance 35. The compulsory insurance required under the HB Act is not described as Home Warranty Insurance, but is now identified as Insurance under the Home Building Compensation Fund. 36. Importantly, owner-builders are no longer be required to take out insurance under the "Insurance under the Home Building Compensation Fund", but contractors who perform work for owner-builders are required to obtain this insurance. 37. Previously, an indemnity pursuant to the available insurance was limited to circumstances of the death, disappearance or insolvency of the builder. This has been extended to include suspension of the contractor s licence and, where the contractor was a partnership, if any of the partners become insolvent. 38. There is now a register of insurance certificates issued to evidence contracts of "Insurance under the Home Building Compensation Fund". The register is publicly accessible and has details of claims successfully made. It has also been clarified that the insurance extends to residential building work done by the contractor by way of rectification of the original work (and that a separate contract of insurance is not required in respect of that rectification work). Owner-builders 39. As noted above, owner-builder work is not required to be insured by the owner-builder, but any contractors performing work under a contract with an owner-builder must obtain insurance. 8

9 40. The HB Act now requires that a vendor of land in respect of which an owner-builder permit was issued within the previous 7.5 years must provide a warning where the reasonable market cost of the labour and materials involved was $20,000 or more. This warning is not limited to the construction of new premises, but may relate to any part that is to be transferred on sale. 41. The warning must state that an owner-builder permit issued, noting the date, and that work done under the said permit was not required to be insured for the purposes of the HB Act, other than where the works was performed by a contractor for the owner-builder. 42. The penalty for failing to provide this warning as part of the sale contract is $110,000 (for corporations) and $22,000 for others. Further, the failure to provide the warning makes the sale contract voidable at the option of the purchaser before completion. Some recent cases to consider 43. Although not concerned with the amendments to the Home Building Act addressed above, there are three (3) decisions recently delivered in the area that should be noted. Chan v Acres 44. First, in Chan v Acres [2015] NSWSC 1885 (11 December 2015), his Honour Justice McDougall considered a case brought by a successor in title against an owner-builder pursuant to the Home Building Act and claims in negligence at common law brought against the engineer and the council as the certifying authority. 45. The owner-builder had carried out renovations, mostly at the rear of the property but some at the front of the property. The owner-builder engaged contractors to carry out the work, including an architect, builders and an engineer. 46. The engineer provided (and revised) some structural drawings and inspected the works from time to time. In particular, the engineer inspected the raft slab reinforcement works in June 2008, and the underpinning and ground floor structural framing in December Both were the subject of complaint at hearing. 47. Ku-ring-gai Council was the Principal Certifying Authority. 48. Expert engineering evidence was relied upon by the parties at the hearing. It was the view of those experts that the extensions were structurally unstable and dangerous, to the point where they ought to be used as little as possible. The engineers agreed that it was important for the remedial structural work to be carried out as soon as possible. 49. It was held that as the first defendant was an owner-builder and the plaintiffs were the successors in title, the effect of s18c was "to create what might be called a deemed or statutory contract between the (in this case) owner-builder and his immediate successors in title, for the purpose of the former giving to the latter the statutory warranties in s18b" (para [81]). 50. As the plaintiffs proved that the works were defective, to the extent that the owner-builder was responsible for them, the plaintiffs were entitled to recover damages from the owner builder (paragraphs [86] to [92]). 9

10 51. With respect to the claim against the engineer, who had been engaged by the owner-builder to provide limited services with respect to the works, it was held (following review of the relevant authorities) that: a. the engineer owed a duty of care to the owner-builder the anterior duty of care based on the authorities concerning the known reliance of the owner-builder on the exercise of due care and skill by the engineer, and the assumption of responsibility by the engineer to exercise of due care and skill in those circumstances (para's [202]- [204]). b. It is important to assess the scope of the anterior duty because any duty owed by the engineer to the successor in title could not be wider or more onerous than the duty owed to the owner-builder - to impose a wider duty would be disproportionate, introduce disconformity of obligations and "would reduce the common law to incoherence" (at [202]); c. under the contract with the owner-builder, the engineer was required to, and did report as to the suitability of the existing building to accommodate the proposed extensions and produce a structural design for a safe and serviceable extension; d. further, the engineer must have appreciated that: i. an owner-builder was at greater risk than a competent and experienced builder of failing to undertake the works in accordance with the design (and the engineer visited the works, in addition to performing formal inspections, apparently to check the progress of the works); and ii. a subsequent purchaser could not obtain evidence of structural defects, except by observing problems such as severe cracking, water penetration, etc, from which the existence of structural defects could be inferred, or by invasive and destructive testing. e. while the engineer knew or ought to have known of those matters: i. it is an entirely different matter to say that the engineer should be taken thereby to have assumed responsibility to use reasonable skill and diligence in performing its obligations in the interests of subsequent purchases of the property; and ii. it is also an entirely different matter to say, in this particular case, that the purchasers did in fact rely on the engineer in this regard. 52. In this case, there was no cross examination of the engineer on these matters and no evidence from the purchasers to show that they relied on anything the engineer did (or did not) do. As such, there was no evidentiary basis to conclude that any common law duty of care existed (paras [222]-[255]). His Honour Justice McDougall (at [240]) observed that the Court should not infer reliance when: a. a witness who was called, and who could have given evidence of reliance, gave no such evidence; and 10

11 b. another person who could have been called, and who could have given such evidence, was not called. 53. Ultimately, the absence of any express evidence of assumption of responsibility by the engineer in respect of the successors in title, and of any evidence of known reliance by the successors in title on the skill of the engineer, the Court held that the plaintiffs were not "vulnerable" to the engineer s conduct. 54. As to the claim against the Council, it was held that it did owe a duty of care with respect to the performance of functions as the independent certifier under the Environmental Planning and Assessment Act 1979 (NSW). 55. The statutory provisions for principal certifying authorities and the issue of an occupation certificate (sections 109E and 109H of the Environmental Planning and Assessment Act 1979 (NSW)) established the obligations and duties of the Council for the purposes of the claim. 56. Further, it should be noted that the Council relied on the statutory defence and provisions under section 43 and section 43A of the Civil Liability Act 2002 (NSW) in respect of the alleged breach of the statutory duty, which provide, inter alia, that an act or omission of the authority does not constitute a breach of statutory duty unless the act or omission was, in the circumstances, so unreasonable that no authority having the functions of the authority in question could properly consider the act or omission to be a reasonable exercise of its functions. 57. It was held that the salient features of the relationship between the Council and the plaintiffs were distinctively different from those of the relationship between the plaintiffs and the engineers (para s [348]-[349]), in particular: a. the statutory scheme under, and for the purposes of which, the Council performed its functions as PCA; and, b. the Council s knowledge of reliance by purchasers (such as the plaintiffs) and its assumption of responsibility towards such purchasers. 58. Further, it was held (at para [350]) that it was reasonable for purchasers (including the plaintiffs) to rely on the Council properly to discharge its functions, for the following reasons: a. the independence of the Council; b. the content of the statutory scheme pursuant to which it acted; and c. because it was not reasonably practicable for the purchasers to undertake the kind of testing that would be necessary to uncover the defects that the Council should have picked up, but did not. 59. As to "vulnerability", the Court held (para [363]) that: a. the plaintiffs (to adapt the words of McHugh J in Perre v Apand Pty Ltd (1999) 198 CLR 180 at [126]) were specially vulnerable to the... conduct of the Council, because to the knowledge of the Council, they relied on it to perform its functions as PCA with appropriate care and skill; 11

12 b. the Council was aware that there was a class of purchasers, to which the plaintiffs belonged, who would rely on it; c. the Council must have therefore recognised, had it turned its mind to the point, that purchasers would be likely to suffer economic loss if, contrary to the state of affairs certified in the occupation certificate, the property was not fit for use as a dwelling house (at least, as to the extensions); and d. in those circumstances, and by reference to the conclusions of McHugh J in Perre at [126] and also Meagher JA in Dansar Pty Ltd v Byron Shire Council (2014) 89 NSWLR 1 at [172], known reliance is the appropriate test for determining whether the plaintiffs were vulnerably exposed to harm from the Council s acts or omissions in its performance of its duties as PCA, so as to justify imposing on the Council a duty of care in respect of that performance. 60. As to breach, it was found that as to waterproofing of wet areas, there is an element of discretion in the performance of the PCA's duty and it is a question of judgment, whether to require the work to be uncovered or whether to rely on certification by the contractor. 61. It was held, in this case, that it was reasonably open to the certifier to rely upon the contractor s certification, but that this may not have been so if Council had been notified that the waterproofing membranes had been applied and could be inspected, and the certifier had simply failed to do so. 62. As to the balance of the matters the subject of complaint (except for one item), the Council admitted facts which show that the inspections were simply not carried in an appropriate and professional way, and it was obvious from the evidence that the certifier simply did not look at, or did not notice, what must have been obvious non-compliances. In these circumstances, the Council as the PCA was liable for damages. The Owners SP74602 v Brookfield Multiplex & Ors 63. The second decision that has been recently delivered is The Owners SP74602 v Brookfield Multiplex & Ors [2015] NSWSC 1916 (16 December 2015). Although it addressed numerous issues, the aspect of the judgment to be considered here concerns claims upon subcontractors. 64. The Owners Corporation asserted that, pursuant to section 18D(1A) of the HB Act, it was entitled to sue a subcontractor of the builder directly. Relying on sections 18C, 18D(1) and 18D(1A), the Owners corporation claimed that: a. the developer (Eastmark) was a "non-contracting owner" vis-à-vis the subcontract; b. the effect of s18d(1a) of the HB Act was to provide Eastmark, as a non-contracting owner, the same rights against the subcontractor as the builder (Brookfield) had in respect of the s18b warranties implied into the subcontract; and c. by reason of s18d(1) of the HBA, the Owners Corporation, as successor in title to Eastmark, is entitled to the same rights. 65. It was held that this would be a dramatic result (para [50]): 12

13 If a developer is a "non-contracting owner" vis-à-vis its builders subcontractors, it would also be a "non-contracting owner" vis-à-vis that sub-contractor s sub-contractors, and that sub-contractor s sub-contractors, and so on ad infinitum. It would mean that an Owners Corporation, as successor in title to a developer, would be entitled to pursue for breach of s18b warranties not only the builder that contracted with the developer, but the builder s sub-contractors, the sub-contractor s sub-contractors and so on. 66. The Court held that the "non-contracting owner" provisions are concerned with the building contract (let s call it the head contract) and not with subcontracts. 67. The definition of "non-contracting owner" directs attention to the entity that is the owner of the land, and includes any successor in title to that entity. The land referred to is the land on which the contract to do residential building work relates. This entity (and thus its successor in title) is a non-contracting owner it if is not a party to that contract; that is, the contract to do residential building work on the land owned by that entity. 68. Section 18D(1A) concerns a person who is a non-contracting owner "in relation to a contract to do residential building work". That contract must be the same contract referred to in the definition of "non-contracting owner"; namely, the contract to which the "non-contracting owner" is not a party. That must be the contract to do residential building work on that party s land, i.e. the building contract, rather than any and all subcontracts to the building contract. 69. Had a joint-venturer of Eastmark, rather than Eastmark itself, been party to the building contract (as happened in Ace Woollahra Pty Ltd v The Owners Strata Plan No (77 NSWLR 613)), the effect of section 18D(1A) would be to give Eastmark, as the owner of the land, and the Owners Corporation as its successor in title, the benefit of the section 18B statutory warranties vis-à-vis Brookfield. Indeed, section 18D(1A) and the definition of "noncontracting owner" were introduced into the HB Act to achieve just that result. 70. In short terms, where the owner of the land is a party to the building contract, section 18D(1A) has no work to do and it does not give owner of the land (or its successors in title) any right against subcontractors of Brookfield (para [57]). Strata Plan v Nazero Constructions Pty Ltd 71. The third case is Strata Plan v Nazero Constructions Pty Ltd [2016] NSWSC 231 (15 March 2016), in which his Honour Justice Meagher, sitting at first instance, considered the question of whether an Owners' Corporation is entitled to the "consequential costs" of a proposed remedial scope of works. Ball J had earlier found the first defendant to be liable to the Owners, with damages to be assessed. The hearing before Meagher J was for the assessment of damages. 72. The Owners Corporation originally claimed almost $92,000 for the costs of removalists and alternative accommodation for a period of 12 weeks to allow rectification work to be carried out. However, that claim was abandoned. The Court nevertheless addressed that aspect of the claim. 73. Importantly, the claim of the Owners Corporation was not asserted to be on the basis that it was suing pursuant to section 227 of the Strata Schemes Management Act 1996 (NSW) (the 13

14 SSM Act) - i.e. on behalf of the owners of the lots in the strata scheme who were jointly entitled to claim against the defendants. 74. As such, the claim was confined to liability for loss or damage suffered by the Owners corporation itself, rather than the lot owners. The costs would not be incurred in respect of "any damage to a lot or any of its contents caused by or arising out of the carrying out" of the proposed rectification work and the Owners Corporation therefore had no liability for such costs pursuant to section 65(6) of the SSM Act. 75. It was held that: Conclusion a. the costs of moving furniture and finding alternative accommodation are costs which would be expected to be incurred by the owners and occupiers, rather than the Owners' Corporation; b. no statutory provision was identified as giving rise to such a liability on the part of the Owners Corporation; c. without any basis for holding that the Owners' Corporation was or is liable for such "consequential costs" - whether by incurring them directly, or by reimbursing or indemnifying owners or occupiers for them in the carrying out of repairs to common property - the Owners' Corporation has no entitlement to such costs as damages; d. it was initially argued that the Owners' Corporation could be liable to reimburse the owners for those costs was as damages for breach of its obligation under section 62 of the SSM Act to maintain and repair the common property, although that contention was not pressed. In obiter, Justice Meagher observed that: The relevant breach was said to be the existence or continuance of the defects which are the subject of the claim against the first defendant. However the existence of those defects was not the result of any breach by the plaintiff and their continuance, which could only involve delay in the performance of any obligation to repair, does not in this case give rise to the need for the owners or occupiers to vacate their units. Had it been pressed, I would have rejected this claim for consequential costs. 76. The suite of amendments made to the Home Building Act and which have been in force now for approximately one (1) year made significant changes to the contract arrangements for the works, insurance and liability. 77. In particular, the changes concerning the time frames for liability for breach of statutory warranties and the regime applicable to owner-builders must be always carefully considered. 78. It should also be remembered that these provisions substantially concern statutory warranties implied into a construction contract (per section 18B). There may still be claims at common law available for breach of express terms or other obligations concerning the works performed and/or to be performed. 14

15 79. As is always the case, the nature and extent of liability in any particular set of circumstances is determined on the facts and the agreement(s) made between the parties. Frank Hicks Barrister Greenway Chambers 15