Sub-Contractors’ Liabilities Under the Home Building Act

A recent decision in the matter of Macquarie Grove Homes Pty Ltd (“Macquarie”) v Tony Alott and Glenn Alott  trading as T&G Bricklaying (“T&G”), by the

New South Wales Civil and Administrative Tribunal Appeals Panel (“Panel”) confirmed that the statutory warranties implied under the provisions of Section 18B of the Home Building Act 1989 (the “Act”) not only applied into the contract between a builder and an owner, but are also implied into the contract between a sub-contractor and the builder.

In its ground for appeal, T&G argued that there was no statutory warranty implied into the contract between Macquarie and T&G, however, T&G dropped this argument when the Panel reminded T&G of the Panel’s previous decision in Lee v Ace Innes New South Wales Pty Limited [2016 NSW CATAP 29] (“Lee”) where the Panel held that the warranties were “implied into the contract between a subcontractor and builder.”

 The Statutory Warranties

Amendments to the Act which came into force in March 2015 added to the statutory warranty provisions in S 18B, the following:

The statutory warranties implied by the Section are not limited to a contract to do residential building work for an owner of land, and are also implied in a contract under which a person (“the principal contractor”) whose contract to do residential building work contracts with another person (“a sub-contractor”) to (“the principal contractor”) for the sub-contractor to do the work (or any part of the work) for the principal contractor.”

The purpose of this amendment was to provide a clearer definition of the application of implied statutory warranties provided by a sub-contractor to a principal contractor in residential building work.

This meant that the sub-contractor warrants its building work for a period of six years for structural work and two years for any other work.  This implied warranties will override any provision in the contract which limits a sub-contractor’s liability to rectify defective building work to the usual twelve months defect liability period or any other period less than provided under the statutory warranties.

The Panel decision, in Lee, applied to a contract entered into before these amendments and, therefore, arguably, if the warranties were implied before the amendments it was now even more certain that the warranties apply.

 The Proceedings

In the case of Macquarie Grove Homes, Macquarie Grove Homes agreed to settle with the owners of a property where Macquarie Grove Homes had erected a residential dwelling and to pay them an amount considered by the experts as reasonable to rectify defective brickwork.

T&G were the company who had undertaken to provide the brickworks and Macquarie Grove Homes subsequently sued T&G for the amount Macquarie Grove Homes had settled with the owners to pay for rectification of defective brick work.  The Tribunal in the first instance found that T&G were liable for the amount that Macquarie Grove Homes paid the owner for the rectification works.

T&G appealed the original decision on a number of issues, one being that the s18B warranties were not implied into the sub-contract between T&G and Macquarie.

The Panel dismissed the Appeal and the original decision stood, however, as mentioned above it was not necessary for the Panel to set out the submissions for either party on the specific issue of the implied statutory warranties as T&G withdrew that argument.

In the matter of Lee , “the Appellant asserted that the amendment to the Act had been made because parliament had recognised that without such a provision, the head contractor could not sue a sub-contractor in the manner in which it was occurring in the proceedings.  The Panel, after considering the relevant second reading, speech and explanatory memoranda, noted that the memoranda stated that “the relevant amendment is to clarify the rights and obligations of licensed contractors and consumers by providing that although the principal contractor is primarily responsible for consumer for breach of statutory warranty (even when the work is undertaken by sub-contractor), sub-contractors are also responsible for statutory warranties”.

The Panel found that even without the explanatory note, the warranties did in any event affect sub-contractors as section 18B imposed warranties by way of an expressed  statutory implication upon “the holder of a contractor licence or a person required to hold a contractor licence before entering into a contract”.  This indicated that such warranties were implied in every contract to residential building work including subcontracts.  The warranties were also remedial and contained in beneficial legislation so that there is no reason to give them a particularly restrictive operation.

Sub-contractors undertaking residential building work should therefore be aware that they are providing in all their contracts, whether written or oral, an implied warranty to warrant the building works for six years for structural defects and two years for any other defect.

 Kelvin Keane is a Senior Associate on the Kreisson Construction team.

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