Home » Nexus Lawyers Strengthen S18F Defence Precedent for Home Builders in NSW

Nexus Lawyers Strengthen S18F Defence Precedent for Home Builders in NSW

Posted by Marcus McCarthy | 04 December 2019 | Civil Contractors and Construction

Good News for Builders – the Section 18F defence has been expanded

In the Supreme Court case of Strata Plan 83572 v Jackson Teece and Ors [2019] NSWSC 942, in which Nexus Lawyers acted for the builder, a $2.3M defects claim was entirely dismissed and the builder was awarded a full costs order. At the same time, the Court significantly expanded the scope of the defence available under Section 18F of the Home Building Act.

Builders are always under pressure to do what owners and designers want and will often find themselves in a difficult position when being sued for defective works they did not agree with in the first place. The one and only clear defence in this situation is provided by section 18F.

Thanks to the work of the Nexus construction team over many months, there is now real strength in the old adage, ‘In my defence, I told you so’ when it comes to builders who have given a warning to owners when instructed to do works contrary to their advice

The Facts

The defendant was a sole operator builder who came into a large scale commercial and residential development when it was about 98% complete. The building had experienced multiple problems prior to this point, not the least of which was failing external facade panels installed by the previous builder (who had gone into liquidation).

Our client, as the new and final builder for the site, was engaged by the Project Manager to complete some minor finishing works in the sum of approximately $200,000, so that the building could obtain an Occupation Certificate. When new owners began moving into the building it was discovered that water was leaking into the building through the exterior ‘Exotec’ panels, installed by the original builder. It was considered at the time that the leakage was the result of the absence of a header flashing, which would have directed water away from the interior of the building.

The architect suggested the entire façade panels should be removed and proper flashings installed. It was understood this would require scaffolding and be very expensive.

The project manager had suggested that sealing the façade with a flexible sealant to prevent further leaking would be cheaper but not necessarily a complete or permanent solution. Significantly, a portion of the apartments were still owned by the mortgage company (in receivership), who was trying to sell off the remaining apartments as quickly as possible and looking to reduce costs.
Despite the advice provided by the architect, and particularly the new builder that, “it’s still best to replace the sheets with the correct head flashings as instructed in [James Hardie’s] manual” [1], the new builder was still asked to carry out the sealing works.

Even though it was understood by all that this method of ‘preventing’ further leaking was eventually going to fail, sealing the building was preferred by the project manager, as replacing the façade and installing flashings was exponentially more expensive. In fact, the director of the mortgage company, when presented with the cheaper option of sealing works wrote when referring to the sealing, “It is possible the problem could reappear, but the problem needs to be addressed.” [2]

The Proceedings

The Owners Corporation alleged that the new builder performed the sealing option as a method of rectification of the building and therefore provided an implied warranty the that façade would be ‘weatherproof’ or ‘waterproof’, and so should be liable for the full cost of replacement of the façade and other resultant defects in the building, totaling $2.3M.

There was no strict contract in place regarding these works, so the Owners Corporation argued that the sealing works were part of a broad ‘rectification engagement’, the scope of which was to discover the cause of the problem, find the solution and fix it. On that logic, in performing sealing only the builder therefore became liable for ‘weatherproofing’ the building, as the original facade, if installed correctly, would have done. The damages, it argued, was the cost of full replacement of the façade.

This would have made the new builder liable for the entire facade replacement cost of $1.6M when it was only ever engaged to do specifically instructed defect rectification and completion works totaling $200,000.

In other words, it was argued the new builder should be liable for the previous builder’s works, at a sum nearly 10 times its own contract value.

Believe it or not, this is not an unusual situation, as owners can use the system to inflate claims in their desire to get everything fixed and the builder is often the easiest first target, whether they are responsible for the underlying problems or not.

As absurd as this argument sounds, and despite every effort to resolve the matter on sensible terms, the Plaintiff rejected all offers by the new builder and pressed the matter to hearing for the entire sum, despite the having already settled for an undisclosed sum with the architect and project manager for the same defects.

The Plaintiff claimed that the sealant was applied without due care and skill, in breach of s18B of the Home Building Act 1989 but no actual evidence of this was ever presented. It was also accepted that sealing was never going to be a permanent solution and would have required resealing every 2 years, which was never done.

Because section 18F is a relatively new provision in the life of the Act, the Courts have not provided any significant guidance on what the builder’s advice under this section should entail in order to successfully rely on it. Fortunately, this case sheds light on how this is done.

Judgment – Case dismissed, and builder awarded costs

The Court found that despite the lack of a formal written agreement and defined scope of works with the new builder, it was clear that it was given instructions to seal joints only, not instructions to fix the façade of the building generally or remedy the issue of the missing flashings.

The Owner had contended firstly that it was the new builder’s responsibility to remediate all defects and the decision to seal the building to achieve this was its own. The Court held, in essence, that there was absolutely no evidence the new builder had actively suggested that sealing the building was the full solution or that it had been engaged under an open contract to ‘rectify all defects’.

It was also found that the architect and new builder had provided written advice, following the engagement of a James Hardie representative, that the building would need to be re-scaffolded and the sheets replaced.

This advice was given within a much larger email dealing with a number of issues and suggestions about sealants and sealing methodology. The Plaintiff argued that this email was evidence of the new builder’s positive driving of the sealing solution, whereas the Court found a particular line constituted a notice under section 18F.

Why is this significant? Because the builder had not given definitive statements that strictly met the wording of section 18F or even referenced the clause.

Even though it was arguably an ‘off the cuff’ statement as part of broader emails that could have been read in favour of the solution, the Court found that the builder was simply facilitating his instructions in the broader context of the matter and had in fact given “the clearest possible warning” [3] that the sealing of the building would not be appropriate by that single line.

Therefore, the Court has taken an expansive view that any statement that can reasonably be read in that light, should be. It follows that advice under Section 18F does not need to be formally stated in order to be effective.

It should be noted that in the absence of the Court finding this particular evidence (which was only obtained under subpoena from the Receivers’ records) the builder could have easily found itself without the section 18F defence, and therefore responsible for a major defect it did not cause, simply because it inherited a poorly built site.

So you can understand how critical this email, from some 9 years ago became. Not every builder keeps such records for that length of time to call upon for such an occasion. In this case the builder was lucky these email correspondences were discovered under subpoena.

There was also no finding that the works conducted by the new builder were defective in any way or caused any actual loss or damage to the Plaintiff. To quote the Court “There is a further problem, and that is that there is no evidence of what damage, if any, the Owners Corporation has suffered as a result of any want of due care and diligence…” 

It held that even if the works were defective, there was “the clearest possible warning” that these works “were not ideal”, yet the new builder was instructed to carry out these works regardless. As such, the Court found that the defence under section 18F of the Home Building Act 1989 was available to the new builder.

As a result, the Owners Corporation’s Case was dismissed, and our client builder awarded costs.

Take-home points

This case can be cited as authority that the Court should take an expansive view on the applicability of Section 18F to statements made by a builder regarding instructions for works it does not agree with. There does not need to be a strict form of statement for it to be effective. It just needs to be made and ‘be clear’.

However, it is still vitally important that the advice by the builder:

  1. is in writing (whatever form that may take); and
  2. broadly states the builder’s contrary position to the proposed rectification method; and
  3. that records be kept for as long as possible (at a minimum 7 years to accord with the statutory warranty period).

When a builder is faced with instructions for works that are not ideal, it is imperative to have the above in mind, and act on it immediately and issue a notice under section 18F, as it could be their only salvation in a dispute that may come years later.

Whenever taking over existing incomplete or defective sites a builder should make sure of the following:

  1. Get a contract with a clearly defined scope.
  2. Make sure that contract has specific exclusions and clearly states that:
    1. there is no liability for underlying or preexisting defects; and
    2. the builder is not engaged to perform any ‘rectification work’ that is not specifically included in the stated scope.
  3. Have a standing and clear 18F statement template ready for any situation where it is instructed to perform ad-hoc works that the builder does not believe is using the correct or best methodology.
  4. Don’t offer design solutions.
  5. Keep good records of contracts and contract notices, especially under 18F – Courts will find in your favour if you give them the evidence they need to do so!

If you require any more information about the operation of section 18F or are involved in a civil or residential construction dispute, call us.

Nexus is one of the most experienced construction law and SOP practices in Australia. We operate a retainer service for its clients for ongoing contractual advice and contract management services, so they can get ahead of the curve on construction law issues and build successful businesses.

Footnotes

[1] The Owners – Strata Plan 83572 v Jackson Teece Chesterman Willis Pty Ltd & Ors [2019] NSWSC 942 [70].

[2] Ibid at [94].

[3] Ibid at [71].

This publication is © Nexus Law Group and is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues

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