BUILDER’S RESPONSIBILITY CONFINED TO THE AGREED SCOPE OF WORKS
Written by Anthony Herron & Johnathan Glinatsis
In the recent decision of Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin & Anor  NSWCA 3581 the Court of Appeal considered the question of whether a building contract should be confined to the negotiated scope of works or expanded to include other works by virtue of the implied statutory warranties under the Home Building Act 1989.
- The Owner (Ostin) purchased a residential property in Queenscliff NSW by contracts exchanged on 10 June 2011.
- The property was plagued with waterproofing issues. Prior to contracting to purchase, the Owner obtained a building inspection report on 25 March 2011. The Owner contracted the Builder, (Oikos Constructions Pty Ltd) who undertook preliminary testing works with a building consultant.
- The Builder prepared a scope of remedial works for the Owner, which was annexed to the contract for sale. The scope of works specified the most likely causes of the defects and necessary rectification works which were intended to address waterproofing issues at the respondents’ residence arising from defects in its construction by the original owner/builder.
- The scope did not include cavity flashing rectification.
- On 1 August 2011 the Builder completed the rectification work. However, the work did not prevent the entry of water into the property.
- Later investigations by another building consultant revealed that faulty cavity flashing was a major cause of water penetration. This fault was not rectified by the Builder.
- The consultant’s report also showed that the builder’s works would have been insufficient to prevent the ingress of water as there were defects requiring remediation beyond those identified in the scope of works.
- The Owner argued that the Builder should have rectified the cavity flashing and sued the Builder for damages.
- The Builder appealed against a District Court judgment that it pays for breaches of the implied warranties under the HBA.
- The District Court found that the contract between the previous owners and the Builder was for the purpose of preventing water ingress as opposed to being confined to rectifying the issues identified in the scope of works.
The Court considered whether the contract and statutory warranties under s18B of the Home Building Act 1989 (NSW) (the HBA) 2 was confined to the negotiated scope of works or was expanded by virtue of the implied statutory warranties.
The Owner relied on s18B(e) and (f) of the HBA to claim that these sections operated to expand the Builder’s scope of works, so that it would include rectification of the faulty cavity flashings.
The key findings made by the Court of Appeal are:
- the statutory warranty in s18B(e) requires that remedial work will result in a dwelling that is reasonably fit for occupation, to the extent of the work conducted. The continued waterproofing issues due to the inadequate flashings were caused by reasons outside the extent of the work conducted or agreed to by the Builder. s18B(e) was not breached and did not operate to extend the expressly agreed scope of works.
- Also, the court noted that additional work incidental to the agreed works would be required under 18B(e). For example, the installation of appropriate flashings is incidental to the construction of windows in a building. However, in this case, the cavity flashing rectification works were not found to be necessarily incidental to the work the Builder agreed to perform.
- S18B(f) provides a further warranty, namely that construction work be reasonably fit for the specified purpose or result if that particular purpose is made known to the contractor. If the person for whom the work was done expressly makes known a particular purpose for which the building work is required, or a particular result that was desired to be achieved, this warranty could potentially expand the scope of work. However, there was no evidence that the owner at the time made any such specified purpose or result known to the Builder.
- The court held that the particular purpose specified in the contract was to address the most likely causes of water penetration as was understood at the time, not to achieve a property free of water penetration.
- The Owner was only entitled to damages for the cost of rectifying the defective work for which the Builder was responsible, which would put the Owner in the same position as the Owner would have been if the contract had been performed.3
- Damages did not include the cost of rectification of the faulty cavity flashings, as the Builder was not responsible for that work. The Builder was successful in significantly reducing the damages for which it was liable in the District Court proceedings.
Firstly, a contract for remedial work should carefully itemise the items to be repaired and the purpose of the work required in a documented scope of works prepared by an appropriately qualified contractor or building consultant. This is especially so where there may be evidence of longstanding building defects in respect of which previous building work has failed to address.
Secondly, the statutory warranties under the Home Building Act will only apply in respect of the work conducted or agreed to by the contractor, and do not operate to extend the expressly agreed scope of works.
Thirdly, the measure of damage for an owner claiming defective work is that the owner is entitled to damages for the cost of rectifying defective work for which the contractor was responsible under the contract, had the contract had been performed.3
1 Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin & Anor  NSWCA 358.
2 Home Building Act 1989 (NSW).
3 Bellgrove v Eldridge (1954) 90 CLR 613.
* “Flashing” is a waterproofing method that involves the installation of a sheet of waterproofing material which diverts water out through weeping holes at the foundation of a building.
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