When is it unreasonable to refuse to allow the Builder on site to rectify defects?
Updated: Oct 3, 2019
A recent case in the New South Wales Supreme Court (The Owners – Strata Plan 89041 v Galyan Pty Ltd and ACH Clifford Pty Ltd) has provided further guidance on the impact of assessment of costs in circumstances where an owner does not allow a builder to return to site to rectify defects.
 NSWSC 619
New South Wales Supreme Court
The Owners (the Plaintiff / OC) and the two defendants (the Builders) had a dispute about defective building work at the property after subdivision. The parties made an agreement to refer the entire dispute to an independent referee who would make a binding determination. The referee’s decision more strongly favoured the Plaintiff’s opinions of defective work.
The only remaining question regarded costs, for which the agreement stated the Builders would pay, unless they could show that the Plaintiff’s previous refusal to allow them on site to rectify defects was unreasonable.
Stevenson J held that the Plaintiff had not acted unreasonably.
One factor was that the Plaintiff had reasonably lost confidence in the willingness and ability of the Builders to do the rectification works. This was demonstrated by:
- Affidavits from members of the OC expressing that they had lost confidence in the Builders;
- The failure of the Builders to provide a scope of works;
- The poor quality of works actually performed by the Builders;
- The failure of the Builders to attend the property at appointed times;
- Entering the property without permission; and
- Attempts to persuade members of the OC to sign-off on a development application.
Other facts which pointed to this conclusion:
1. The aggressive correspondence by the Builders’ solicitor (alleging ‘bogus’ and ‘frivolous’ claims by the Plaintiff)
2. The referee’s determination contradicted most of the Builders’ export report’s conclusions, and upheld the Plaintiff’s claims, indicating that it was not unreasonable for the Plaintiff to reject: (inc. GST, excluding interest)
o Plaintiff’s claim: $2,668,223 / $1,442,841 (reduced prior to determination)
o Builders’ claim: $318,078
o Referee determination: $1,282,486
Relevant Principles Considered
1. Plaintiff is not entitled to recover losses attributable to own unreasonable conduct;
2. (For building contracts) Owner required to give the builder the opportunity to minimise damages it must pay by rectifying, except where its refusal is reasonable, or the builder has repudiated by refusing to conduct repairs;
3. ‘Reasonable’ depends on the circumstances: one relevant factor is whether the owner has reasonably lost confidence in the willingness or ability of the builder to do the work;
4. The onus is on plaintiff to prove that the plaintiff acted unreasonably; and
5. When reasonableness of plaintiff’s conduct in question: all circumstances relevant to an objective assessment of their position become examinable.