In a win for Owners Corporations (and home owners) in NSW, a recent Supreme Court decision has validated the right of the Owners Corporation, in certain circumstances, to refuse an offer by the original builder to conduct remedial work where there are agreed building defects.
The case arose after the builder met with the Owners Corporation’s expert on site. Although the builder agreed to repair some items, including some bathrooms, the builder did not admit there was a systemic defect involving the construction of the bathrooms. Nor did the builder, despite requests by the Owners Corporation’s expert and lawyer, provide a detailed programme of works for the remedial repairs that was acceptable to the Owners Corporation’s expert. The Owners Corporation sought rectification orders through the NSW Office of Fair Trading and these orders were made. Unfortunately, the orders did not provide for a detailed scope of remedial work. Following the orders being made, the builder contacted the Owners Corporation directly and sought access to the property to conduct works. Despite further requests for a detailed scope of remedial works none was forthcoming until after commencing of legal proceedings although the builder argued it was ready, willing and able to conduct the remedial work under a new contract for $1.00.
At the final hearing (some six years later) the builder argued that the Owners Corporation’s claim should either be dismissed or the amount claimed be limited to the amount for which the builder could have conducted the work.
The Court found for the Owners Corporation and ordered damages be paid. While there is a legal principle that a plaintiff must mitigate its loss, there is also a principle of acting reasonably. This means a plaintiff is able to recover its estimated costs of rectifying the damage except to extent it was unreasonable to insist on reinstatement. The Court stated that in building contracts “it is also generally accepted that the owner must give the builder a reasonable opportunity to rectify any defects … except where its refusal to give the builder that opportunity is reasonable or where the builder has repudiated the contract by refusing to conduct any repairs”.
In providing this opportunity, the Owners Corporation is not mitigating its loss but mitigating the builder’s damages. What is reasonable depends on the circumstances of the case but it includes whether or not the builder has attempted to repair the defect and if owner had reasonably lost confidence in the willingness and ability of builder to do the remedial work: The Court found the onus was on the builder to prove that the Owners Corporation acted unreasonably. In this instance the builder’s scope of works was deficient, early attempts at rectification were unsatisfactory & it was appropriate for Owners Corporation to commence proceedings. Although the Owners Corporation had rejected the builders offer to conduct the works this was reasonable as it had lost confidence in Builder by this time.
Author: Allison Benson
Office: Sydney & Newcastle
Date: 31 August 2014
Case: The Owners – Strata Plan No 76674 v Di Blasio Constructions Pty Ltd  NSWSC 1067