The most recent battleground for control of legal strategy between builders and Owners Corporations has taken place in the recent decision Owners Corporation Strata Plan 72357 v Dasco Constructions Pty Ltd & Ors [2010] NSWSC 819.

Blackstone Waterhouse Lawyers, on behalf of the first defendant, successfully argued that the proportionate liability defence can be used by builders defending defects actions under the Home Building Act 1989 (NSW) (HBA).

This is because, under Part 4 of the Civil Liability Act 2002 (NSW) (CLA) a defendant in a case for most types of negligence or breach of contract can join other parties that it considers to be jointly responsible for the alleged damage done to the plaintiff.

The question before the Court was whether this defence applied to a claim based on the HBA warranties.

Unless overturned on appeal, Einstein J’s decision will have far reaching effects for both builders and Owners Corporations throughout NSW. 

His Honour has confirmed that Owners Corporations are limited in their ability to target a single party for any recovery action for the costs of defects and builders are able to continue to plead proportionate liability where unsatisfactory work was carried out through no fault of their own.

The Facts

The matter involves a dispute as to alleged building defects in the Whitecrest Apartments, Concord.  The defects related, insofar as proportionate liability is concerned, to fire safety and the concurrent wrongdoers alleged were the certifiers and the engineer. 

The builder and first defendant, relies on the proportionate liability defence in its response to the plaintiff’s claim.  The plaintiff objects to the use of this defence, arguing that the HBA warranties were not intended to be included in the provisions of the CLA.

The plaintiff recently sought to settle this matter once and for all by applying to the Court to strike out those parts of the  first defendant’s defence that raised the proportionate liability defence.

The Issues

In its application, the plaintiff submitted that section 39 (c) of the CLA provides that Part 4 does not affect the operation of any other Act "to the extent that it imposes several liability on any person in respect of what would otherwise be an apportionable claim".  

Therefore, according to the plaintiff’s argument, given that Part 2C of the HBA is entitled “statutory warranties”, the warranties should be accorded the status of statutory causes of action and thus excluded by operation of section 39(c).

In the alternative, the plaintiff argued that there are good policy reasons for excluding the HBA from the operation of Part 4 of the CLA including the fact that the HBA warranties provide an important remedy against builders who engage in negligent building practices.

The first defendant argued that the Part 2C HBA warranties are merely contractual terms, even if mandatory for every home building contract.

Furthermore, if Parliament had wanted to specifically exclude the HBA from the operation of Part 4 of the CLA, it would have done so, as it has with other statutes.

The Decision

Einstein J found for the first defendant on the basis of both arguments progressed by it.  In His Honour’s view, “section 39(c) of the CLA does not assist the plaintiff as the HBA does not impose liabilities. It implies warranties in certain contracts and gives certain non-contracting parties the benefit of those warranties.” (paragraph 21)

What does this mean for you?

Builders can continue to plead CLA proportionate liability defences where it is available in defects claims (eg where all the defects relate to services provided by consultants).  Builders will continue to be able to include parties that have produced defective work.

For Owners Corporations the effects of the decision will be that actions to recover the costs of rectifying defects will be subject to the proportionate liability defence and a careful evaluation of the wrongdoers will be required. 

For many procedural reasons the decision also means that many cases run by Owners Corporations in the CTTT will have to migrate to the Local, District or Supreme Courts.  In these courts the formal rules of evidence apply and any evidence prepared will have to be in accordance with those rules.

Both of these factors will make Owners Corporations cases more complicated and expensive to administer and ultimately affects the chances of full recovery for the cost of any defects.

Winds of legislative change

Will the Owners Corporations convince the legislature to act with speed to “plug” this perceived legislative gap?  The legislature has certainly proven itself to be able to act with alacrity in the past where perceived “gaps” in this area have arisen. 

Alternatively will the builders be able to retain the defences currently available to them at law? 

This contest is still up for grabs and the rumour is that the winds of legislative change may be blowing as a result.  However the opportunity for Parliament to implement any changes to the existing law is limited as there are only 24 sitting days to the next election.

This newsletter does not, and is not intended to, offer professional advice in any form.  The purpose of the newsletter is to provide information and general guidance, and does not constitute legal advice. There has been no consideration given as to whether any information or material contained or otherwise referred to in this newsletter is appropriate for you. You should not act upon the matters or comments contained in this newsletter without first taking specific advice on your own particular circumstances.  Blackstone Waterhouse Lawyers is more than happy to assist you in that regard.