Building Disputes

The success of a home build, for home owners and builders alike, ultimately depends on a well drafted home building contract. Unfortunately, it is common practice for parties to enter into a poorly considered standard form home building contract and simply assume that their interests will be sufficiently protected.

In reality, standard form contracts are often a good starting point, but do not of themselves have sufficient detail to protect the interests of either party. They are often only as good as the description of the works which they have been drafted to contain. There is considerable scope for such standard form contracts to be ambiguous, imprecise and unfairly favour the interests of one party over the other. Standard form contracts often have sections that need be filled in by the parties and how they are filled in can radically affect your interests. Disputes often arise in the course of a build due to a failure to complete, or precisely complete, these sections of the contract.

Equally important to a home building contract are the documents which are attached to it. The parties need to ensure that those documents are sufficiently precise in order to know exactly what constitutes the works under the contracts. Do the architectural drawings include everything the home owner wants? Are the list of specifications, finishes and fixtures sufficiently detailed? Sometimes parties may have completely different ideas about what constitutes the work, which is why it is important that attachments to the contract are sufficiently precise.

Before entering into a home building contract, both parties should be aware of their rights and obligations under the Home Building Act. Builders in particular should be aware of the minimum requirements for home building contracts under the Act as any contravention will disentitle a builder from seeking damages or enforcing any remedy in a respect of a breach of the contract by the home owner.

We see parties get caught up in the excitement and adventure of embarking on a home building project without properly taking the time to understand the significant legal ramifications of the process. If you are contemplating entering into a home building contract, please contact our team on 9411 4466.

1.Know your obligations, know your rights:

It is common for parties to a home building contract to take a ‘big picture’ approach. Our clients will typically have a fair idea of what is going to be built, but they often do not give the contractual ‘fine print’ much thought. This applies equally to builders and home owners alike.

Is the contract sufficiently detailed to know precisely what you are getting? What is the procedure for variations? What is the procedure for credit? When can you withhold payments under the contract? What obligations does a builder have to fix defective work (and when)? What are the builder’s powers to compel payment? Is there a dispute resolution procedure? Is there provision for binding arbitration?

The answers to these questions are important in understanding what you can, and can’t do under a home building contract. Misunderstanding them commonly leads to disappointment and dispute. You wouldn’t enter into an employment contract without knowing what it obliges you to do, and you should take the same approach to home building contracts.

2.Variations:

Under the Home Building Act, and under any decent contract for home building work, it is mandatory for variations to a home building contract to be confirmed in writing, including the scope of the variation and its cost.
This is routinely not done. Builders often neglect to do it, and home owners often neglect to demand it. This “she’ll be right” approach is charming, but it can be disastrous:

• Firstly, as a builder, if you do not confirm variations properly in writing, then you cannot claim the value of the variation under the contract, and you may be subject to regulatory penalties for failing to comply with section 10 of the Home Building Act.
• A builder may be able to seek compensation on a quantum meruit basis, but this is typically more difficult, more expensive, and more time consuming to do.
• Secondly, failure to confirm variations can result in a disconnect between what a builder ultimately charges, and what a home owner expects to be charged. It is not uncommon to see a builder issue an invoice for all variations at the end of the job, to the surprise and dismay of the home owner. This is precisely the sort of disconnect that leads to disputes.

Any builder will be familiar with the Building and Construction Industry Security of Payment Act (the SOP Act), or its various interstate equivalents.

Before the SOP Act, large construction jobs could be delayed as a consequence of relatively minor disputes between principals and contractors over progress payments, and when a building job grinds to a halt, costs can start to pile up (equipment hire, liquidated damages etc).

The SOP Act provides for a ferocious mechanism to get money moving on construction jobs to ensure that these sorts of costly delays don’t occur. In extreme brevity, it does this in the following way:

1. A contractor issues an invoice under the SOP Act (known as a payment claim);
2. The principal has 10 business days (or less, if stated in the contract), to put on a response (known as a payment schedule). If the principal proposes in the response to pay less than the amount claimed, they must give reasons.
3. If the principal fails to serve the payment schedule in time, then the contractor has two options:

A. The debt can be pursued through a court, and the principal is barred from pleading any objections to the claim other than jurisdictional objections (in other words, the claim is a free kick!); or

• B. The contractor can issue a notice of an intention to have the matter adjudicated under the SOP Act.

4. If the principal does serve a payment schedule in time but proposes to pay less than the amount claimed, then if the contractor disagrees with that lesser amount they can apply to have the matter adjudicated under the SOP Act.  Adjudication is a cheap and dirty process.  The SOP Act provides an extremely short timeframe for submissions, and is utterly ruthless in terms of what is allowed and what is not allowed. The principal cannot raise any matters at adjudication that were not raised in the payment schedule, so their hands are tied by a position which was reached in at most, 10 business days, and likely under considerable stress of competing commitments. Adjudicators are under significant pressure to make quick decisions with limited information, no face time, and with very limited input from the parties. The effect of all this is that both sides to a dispute under the SOP Act need to make quick decisions on extremely short notice that can drastically affect their rights and entitlements down the track. While adjudicated decisions are only interim (that is, once money has moved and the construction job is back on track, the parties can go through the much more thorough and forgiving court process to establish their rights in a final sense), they often represent the practical end of disputes having regard to the costs associated with court. An in-depth knowledge of the SOP Act, its procedures, and the case law that surrounds it is absolutely mandatory to gaining a good result. A technical slip might invalidate your claim altogether (if you are a contractor), or leave you with no choice but to pay a claimed amount without dispute (if you are a principal). The solicitors at AV know the law, can maximise your chances of success at adjudication, and take the pressure off you during the crucial but brutally short time periods imposed by the SOP Act.

Unfortunately for both builders and home owners alike, things don’t always go to plan when building a home. You can minimise the risks of a dispute by being careful during negotiation of the contract and as work progresses, but you can never eliminate it altogether.

Common disputes involve disputes over variations (was it quoted? Was it approved? Is the cost reasonable?), delays (is a delay the builder’s fault? Does the homeowner have a right to liquidated damages?) and payments (can a home-owner withhold or offset payment due to defective works).

If a dispute does arise, you should not take any action, such as suspending the works or terminating the contract, without seeking advice from an experienced home building lawyer.

Termination of a building contract is a crucial part of securing your right to bring a damages claim, but if you do it incorrectly you will be exposing yourself to a counter-claim. One wrong decision at the early stages of a dispute could severely limit the remedies available to you later.

If the parties to a dispute cannot settle the matter, proceedings are often commenced in the NSW Civil and Administrative Tribunal, which has jurisdiction to determine home building claims up to $500,000.

The process before the Tribunal would typically include:

• Preparation and exchange of evidence (including lay evidence from the builder/home owner, and importantly, expert reports);
• An expert conclave (where the experts from both sides produce a joint report in which they seek to achieve common ground);
• Mediation; and
• A final hearing.

Depending on the complexity of the dispute, these proceedings can take anywhere from three months to one year to be resolved.

For more serious disputes (in excess of $500,000), the parties will find themselves in the District or Supreme Courts.

The stakes are often high: A builder will often not have the funds to pay an award for damages in the order of hundreds of thousands of dollars, and the home owner will be motivated to place them into insolvency/bankruptcy (a necessary pre-requisite to enable reliance on the Home Owners Warranty insurance policy). As such, it can be a battle for financial survival for a builder. For home owners, the claim will represent the one chance they have to complete their dream home (which may, as a result of poor building work, have turned into a nightmare).

Building disputes rarely have ‘all or nothing’ outcomes, and a mixed outcome is the most common (that is, where a plaintiff is partially successful and a defendant is partially successful).

Obtaining the right representation, establishing a good understanding of your prospects of success, and entering into reasonable negotiations early is usually the best way to minimise the cost and risk of proceedings.

Our team at Atkinson Vinden has successfully defended, and settled home building disputes in the Tribunal and the Courts.

Our vast experience, as well as our network of highly qualified building experts and specialist barristers, will give you the best chance of achieving a good outcome.

If you require legal assistance or representation in a home building dispute, please contact our team on 9411 4466.

A question we often hear from clients is whether the original builder of a development should be allowed to return to the project to rectify the work. Quite often clients are dissatisfied with the builder and doubt the builder’s ability to properly rectify the work. The builder, when confronted with evidence of defective work, will often offer to carry out the rectification work but it is unlikely to meet the thorough standards required by the owner.

In a recent NSW Supreme Court case, the Court considered the legal principles that apply in a situation where the builder has offered to carry out some works and the Owners have insisted on complete rectification. The Court’s decision has outlined several important principles to be considered by parties to a dispute over defective works:

• An owner whose property is damaged/defective as a consequence of a builder’s breach is entitled to recover the costs of reinstating the property, except to the extent it is unreasonable to insist on reinstatement.
• It is generally accepted that the owner must give the builder a reasonable opportunity to rectify any defects even if the contract does not expressly require this. However, this does not apply where the owner’s refusal to give the builder that opportunity is reasonable or where the builder has repudiated the contract by refusing to conduct any repairs.
• What is reasonable depends on the circumstances. One relevant factor is what past attempts the builder has made to repair the defects and whether, in light of such past attempts, the owner has reasonably lost confidence in the willingness and ability of the builder to do the work.

In this case, the owner acted reasonably in the circumstances as it had provided the builder with expert evidence as to what needed to be done to rectify the work but the builder failed to follow the expert’s recommendations. As the builder refused to implement the reasonable recommendations of the expert, it was found liable for the cost of having the rectification work performed by another builder. This decision confirms that a builder has a right to rectify defective works but that right can also be lost.

If you are a party to a dispute over rectification works and require assistance, please call us on 9411 4466.

For residential building works where the contract price exceeds $20,000, builders are required to obtain and provide the homeowners with a certificate of insurance prior to commencing the work and accepting any money.

The insurance provides protection to the home owner, as well as subsequent purchasers, for losses arising from defective and incomplete work in circumstances where:

• the builder becomes insolvent,
• the builder dies or disappears, or
• the builder’s license is suspended for failure to comply with a money (compensation) order in favour of the home owner made by a Court or Tribunal.

Once it becomes apparent that there may be a claim against the builder for incomplete and/or defective work, homeowners should immediately notify the insurer of their loss. Failure to do so within the notification periods set out in the insurer’s policies may lead to the insurer reducing, or possibly denying, its liability under the policy.

However, homeowners cannot make a claim with the insurer at the first instance. Homeowners must first take action to have the builder finish any incomplete work and rectify any defective work before it can possibly make a claim with the insurer. Such action includes lodging a complaint with NSW Fair Trading and, if so required, pursuing the builder through the Court or Tribunal.

If a homeowner fails to take action against the builder at the first instance, then the insurer may reduce its liability or the amount paid under the claim to the extent that its interests have been prejudiced as a result of that failure.

If you require assistance in a dispute you are having with your builder over incomplete and/or defective work, please give us a call on 9411 4466.

Whether you are a property developer, builder or sub-contractor, the Building and Construction Industry Security of Payment Act 1999 will have a big impact on your day-to-day business. The Act provides contractors with a cheap and quick way to recover progress payments throughout the job without the need to halt the work or get involved in court proceedings.

Recent amendments to the Act have brought nearly all claims made in connection with construction contracts under its operation. This means that any Payment Claim, or response to a payment claim (called a Payment Schedule), needs to be prepared with proper consideration of the Act. A failure to do so could limit your rights to recover a progress payment, or successfully defend a claim, in the adjudication process.

The toughest element of the Security of Payment Act process is the extremely short timeframes in which steps have to be taken, and the potentially catastrophic consequences for those involved if the timeframes are not adhered to. Failure to meet a deadline could result in you losing the ability to defend a claim even if the claim lacks merit. While you might be able to claw back such payments at a later date and after a more arduous court process, you can be obliged to part with very substantial sums of money in the immediate term.

Our team at Atkinson Vinden are specialists in preparing documents and handling disputes under the Act. We can help you draft your Payment Claim or Payment Schedule in order to maximise your chances of success in any subsequent adjudication process. We also have experience in preparing comprehensive adjudication applications and adjudication responses within the very short timeframes provided for under the Act.

If you require legal assistance in a Security of Payment Act matter, please contact our team on 9411 4466.

1. To what types of construction work does the Act apply? The Act applies to all types of construction work except for drilling for (or extraction of) oil or natural gas, the extraction of minerals (including incidental work for that purpose), as well as any other works prescribed by the regulations from time to time.
2. Does the construction contract need to be in writing? No, it also applies to oral contracts, as well as contracts that are partly written and partly oral.
3. Does the Act apply to residential building work? No, the Act does not apply to residential building work provided that the party for whom the work is to be carried out resides in, or proposes to reside in, the premises.
4. Can you contract out of the Act? No, you cannot contract out of the Act. A provision of any agreement that excludes, modifies, restricts the operation of the Act, or may reasonably be construed as an attempt to deter a person from taking action under the Act, is void.
5. Does a Payment Claim need to state that it is made under the Act? No, a payment claim no longer needs to state that it is made under the Act unless it is made in connection with an exempt residential contract (in which case it must state that it is made under the Act).

Strata Schemes can be a microcosm for life. Under strata law, a group of people who would otherwise never associate with one another are required to live together, spend money together, make decisions and cooperate for the greater good, within a strict regulatory framework that many owners are not particularly familiar with.

In the best case scenario, this will result in simple and decisive decision-making, and hassle-free living for residents. However, a badly managed strata scheme can be an utter nightmare for people living in it. On the other side of the equation, it takes just one disgruntled owner to make life difficult for the rest.

Disputes routinely arise where there is disagreement over what the obligations of the strata corporation are, or alternatively what the obligations of an individual owner or owners are. We commonly see these arising as follows:

• Where there is a dispute over common property obligations (or indeed, whether certain property is common property at all).
• Where an owner takes issue with a by-law, proposes a new by-law, or seeks to have an old by-law revoked.
• Where a building defect is negatively impacting the lot of a single owner, and the remaining owners are reluctant to incur expense in a repair from which they gain no (perceived) benefit.
• Where the executive committee is dominated by strong-willed individuals with whom certain other owners take issue.
• Where there are personal disputes between individual owners, who seek to use the mechanisms of strata law to pursue or escalate that dispute.

Fortunately, strata disputes can typically be resolved without costly litigation. However, such resolution is usually reached through the parties gaining a detailed understanding of the rights and obligations of the various interest holders, and this often requires legal advice. For example, what specifically constitutes common property? What is the extent of an owners corporation’s obligation to repair and maintain common property? To what extent must an executive committee act ‘reasonably’ in considering and making by-laws? When will they be deemed to have acted unreasonably? When will an executive committee be considered dysfunctional? When can an executive committee be forcibly replaced? What powers does the NCAT have to resolve disputes? How are these powers generally exercised?

Our team at Atkinson Vinden can advise you on your rights if you find yourself in strata dispute. We have experience advising unit owners, strata corporations, and strata managers of their respective rights, as well as successfully bringing and defending proceedings in the NSW Civil and Administrative Tribunal.

We are also specialists in the area of building disputes involving strata schemes. Recent amendments to the Home Building Act 1989, which applies to strata schemes, make it more difficult for strata schemes to seek compensation for defective building work (and also insurers). As a result, owners corporations need to be more vigilant than ever to enforce their rights. We are often requested to advise on the breach of the implied statutory warranties, the operation of home warranty insurance and to appear in proceedings before the NSW Civil and Administrative Tribunal in respect of those issues.

If you require legal assistance or representation in a strata dispute, please contact our team on 9411 4466.