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Legal Report : The Owners Strata Plan no 76674 V DI Blasio Constructions Pty Ltd

Task:

Draft a Case Note concerning the decision of the Supreme Court of New South Wales in Owners Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067. The Case Note must be concise, methodical and analytical and cover the following:
1.  Summarise the material facts (i.e. parties to the dispute and fact scenario underlying the case)
2.  Identify the main issues considered by the court
3.  Identify the outcome of the court’s decision (i.e. orders / result for parties)
4.  Summarise the prior history of the case in any lower court(s)
5.  Identify and discuss the court’s legal reasoning underpinning the decision (i.e. ratio decidendi, obiter dicta).
Include discussion of any previous seminal cases relevant to the legal reasoning.  
6.  Discuss and analyse the impact of this decision on the relevant aspects of Australian law.
7.  Identify and discuss the practical consequences arising from the decision for design, construction and property professionals and their obligations to clients

Answer

Introduction 

According to the Home Building Act the builder company charged for breaches for any building defect that is identified by the prosecutor. On account of several such building defects which were identified in a residential building The Owners Corporation attempted to sue the subsequent builders. In this legal document several aspects of the case study have been discussed along with the analysis of the undertaken decision of the court. In the course of the study the impact and practical consequences of the undertaken decision have been evaluated as well.


Overview of the case

Summary of the material facts

Di Blasico Construction Pty Ltd, was the developer and the builder of a 9 unit residential strata  housing in Dally Street, Queenscliff. The defendant builder had been sued by the Owners corporation against the charges of breaches of warranties which comes under the implication of Section 18B of the Home Building Act. The charges against the builder’s company was because of several defects associated with the construction which have been found in a particular residential housing.


As far as the builder is concerned, the Builder contested that The Owners Corporation could not act accordingly and failed to take proper orders in order to mitigate the consequent losses. The subsequent enterprise could not pursue any discussions with the Builder. Any important discussion prior to the scope of future works and any fruitful measures in order to rectify the identified defects could not be pursued with the builder. According to the builder the company also refused the builder’s proposal as they were willing to perform accordingly in order to rectify the issues. They also offered performing possible changes in the construction. The builder’s claim was related to the mitigation of the loss that the Owner’s Corporation had failed to commence by not retaining the builders to conduct the rectification work. The fact is, the work that the builder had perform contained several defects and the builder was under the breach of statutory warranties in association with the work that had been carried out by them. Although, this is not the prior issue of argument between the two parties under study. The mentioned defects concerned the guttering and the roof as well as the fire safety of the building. The waterproofing of the bathrooms and the exterior planter boxes were also not constructed accordingly, as the enterprise complained. 


As far as the builder is concerned the main argument circled round two primary statements which are:

  1. The Owner Corporation was reluctant to pursue any further conversation regarding the issue of rectification and deprived the Builder of performing any possible rectification in the construction.
  2. The Owner Corporation was not ready to welcome the builder’s offer to affidavit sworn after they commenced the proceedings. 


Main issue as considered by the court

The court identified the issue to be whether the Owners Corporation in reality fall flat to mitigate the losses. The court examined and scrutinized the conduct of both the parties- the Owner’s Corporation and the Builder. The court also emphasized on detecting the reasonableness of their conduct. Significantly, the case focused on the important principles regarding the duty of mitigation[1] . Along with that this case also raises the question regarding the extent and nature of the duty applicable to both sides regarding the issue of building defect conflict.


Outcome of the Court’s decision

On 11 August Supreme Court of justice delivered his decision regarding this particular dispute associated with building defects and breaches of the builder. Di Blasio had been subjected to a written notice that informed the builders of the defects which have been found in the construction of the building. The written notice reached the subsequent party via corresponding of the solicitors of the Owner’s Corporation over an extended period of time along with the reports of the building. The decision of the Court turned the argument of the builder on its head as the Honour of Justice opined that:

  • A person suffering from loss as the consequence of a breach of an agreement needs to act reasonably in order to mitigate the loss.
  • The prosecutor whose property has been damaged because of the breach of the defendant is generally entitled to the responsibility to recover the cost of restraining the property in order to correspond to the contractual promise.
  • It is important for the owner to give the builder ample opportunity so that they can rectify the damage caused previously. 

His honour further explained that reasonable depends on the specific circumstances of the case and according to the Justice the defendant in particular requires to prove that the plaintiff did not act reasonably.


History of the case

In August 2008 a solicitor was engaged by the Owners Corporation namely Ms. Broome. One of the directors of the building Mr. Sam Di Blasio was informed of the defects on 8 September 2008. Mr. Evans was engaged to prepare a technical report regarding the emerging technical problems of the building. On 16 October 2008 a meeting had been held on site between Mr. Di Blasio and Mr. Evans. During this meeting the builder was made aware of the defects as Mr. Evans pointed out all the problems emerging from the building defects. On 19 November the builder was again reminded through an email by Mr. Evans that although it has been three months he did not take any measures to rectify the problems. The very next day the builder replied that he would take possible measures to compensate the emerging issues but the Owners Corporation did not hear from the builder after that. Till March 2009 the builder did not commence any active measures after which on March 18, 2008 Ms. Broome sent an official letter Vero Insurance Ltd who provided insurance according to section 92 of the act. After a gap of a substantial time, after 10th March 2011 the Owners Corporation commissioned Integrated Building Consultancy Norwest in order to inspect the building and provide a report accordingly. After many unclear occurrences between the two parties the Owners Corporation commenced the proceedings in the District Court. Mr. Di Blasio promised to provide an affidavit under Trader and Tenancy Tribunal. But in March 2013 the report was submitted that stated Owners Corporation failed to mitigate its loss.


The legal reasoning of the court underpinning the decision

Significantly, this particular case puts forth important principles regarding the importance of the duty of mitigation. The Court of Justice confirmed the following principles regarding the issue of duty of mitigation:

  • The inability of an owner to recover the subsequent losses that are attributed to their unreasonable conduct.
  • An owner who is facing the damage of his or her property is in general entitled to recover the cost of damage of the property in order to meet the contractual promise.
  • The builder needs to provided with ample opportunity by the owner so that the builder can minimize the damage.
  • It depends on the builder to show that the owner has acted unreasonably.
  • The builder had not been reasonable enough in his conduct regarding his response to the repeated written notifications. 

This case significantly points out the importance of the regular written communication between the owner and the builder [2] . The content, regularity and depth of the written documents dent by the Owners Corporation to the Builders as well as its lawyers that brought into light the undone allegations from the part of the builder and proved that their notifications have been dealt unreasonably by the builder.


Findings of the court

The court identified that 

  • The move of the Owners Corporations to engage experts was reasonable enough.
  • The function and the work procedures of the experts were reasonable enough.

The experts provided enough scopes to mitigate the emerging problems and these were reasonable enough.

  • It was reasonable for The Owners to expect that the builders to act accordingly in order to mitigate the defects.


The court found the builder’s submissions unacceptable and announced the verdict in favour of the Owners Corporation. Such decision was made under certain circumstances that are:

  • Evidently the defects continued to generate and the Owners Corporation granted active measures and engaged technical expert in order to prepare a report in order to identify the defects and also took the position to provide the builder enough opportunity in order to rectify the identified defects. The court opined that the builder’s response to the expert report was not adequate and reasonable.
  • The reports that the experts provided were commissioned by the Owners Corporation and the complete procedure was prior to the commencement of the court proceedings. The builder was well aware of the subject matter of the report as the report was served on the builder.
  • The builder was provided with enough opportunities by the Owners Corporation and they have had enough scope to confirm whether it is possible for them to rectify the identified defects accordingly the submitted report.


It is important to read the decision in the light of the incoming section 18BA which implicates “ Duties of person having benefit of statutory warranty,” as it was introduced by the Home Building Amendment Act of 2014. This amendment was subject to implementation from 1 December, 2014 onwards.

As per section 18BA states it is an important requirement to have an owner in order to mitigate its loss and it is considered to be a statutory duty [3] . This statutory duty is extended to both the involved parties- the contracting owners and the successors-in-title who enjoy the benefits of the warranty. In order to enjoy the facilities of the statutory warranty the owner requires to abide by certain guidelines such as:

  • It is important for4 the owner to make reasonable efforts and inquiries in order to notify the builder of the subsequent breach within a time period of six months after the breach apparently comes under the light of information.
  • It is significant to allow reasonable access to the involved builder.


This particular act also inaugurates a new section 48MA in order to bring parity to the existing act. Due to this new section it is clear that a Tribunal or a Court  needs to have due regard to the fact that the proposed rectification of the defective construction by a reasonably responsible person is the expected rather prefered result that is being claimed by a party who is against the builder because of the defects in construction of the residential building.

The new statutory duty that implicates the duty of mitigation will only apply to the contracts that was entered into after commencing the Home Building Amendment Act of 2014 and it was to be activated from December.


Proposed way and implications

This particular case has significantly affirmed the duties of the owner that he or she supposed to perform in order to mitigate the subsequent losses due to any kind of breach of the duty and effectively practice the Common Law principles regarding the mitigation in order to claim the application under the Home Building Act.


This decision has also provided guidance to the builders and the owners as well regarding the issue of their duty and the expectation that they are bound to meet which includes the duty of mitigation as well [4] .

Ball J Held regarding this particular issue stated that in cases of building the contracts, it is considered to be the duty of the owner to provide ample scope to the builder so that he can rectify and make subsequent changes to the identified defects that have emerged the problems of the inhabitants of the building. Even if it is not possible for the builder to rectify the identified damages then at least the builder needs to put effort to minimize the damage or the defects.


The question of reasonable is dependent on all the circumstances that are to be affecting the current scenario of the case. Another relevant factor is that the attempt of the builder in order to perform the rectification needs to be taken under consideration. It is important to record the fact whether the builder’s conduct is somehow responsible for the reluctance of the owner and lost faith and confidence on the work of the builder.

The Court of Justice considering the background and the conduct of both the Owner and the Builder concluded that the act of the plaintiff has been unreasonable to a great extent. 


Analysis of the impact of the decision 

The case under consideration reflects the present scenario regarding the position of the Common Law and its measures associated with the issue of mitigation. After this particular case in the case of Owner Strat Plan 78465 -v- MD Constructions Pty Ltd 2016, it has been noted that as part of of the duty of mitigation of the damage the owner has observed a requirement in order to provide the builder with the opportunity to minimize the damage and it was imposed that the builder need to pay by rectifying the defects [5] .


Impact of the decision

This is an significant decision as it discusses the reasonableness of the conduct of the owner. Also,the reasonableness of the conduct of the owner in order to mitigate the defects of the construction and their conduct in mitigating the losses after the subsequent builder breaches the contract of its building and the warranties that fall under the section 18B of the act. Such reasonableness is depended on the specificity of each case and the subsequent circumstances of each case [6]. It also acted as the guideline for the builders regarding the issue of their appropriate conduct regarding the owner’s attempt to gain the rectification from the builder because of the building defects. Several changes came to be forced to the Home Building Act on 1 March, 2015. Some significant changes include:

  • The statutory warranty have been modified and implied to every agreement of performing residential building work  that it is important for the builders to perform in a proper, workmanlike manner and effectively associate the construction with necessary skill and care.
  • It does not prevent both of the parties from agreeing to the additional clauses of termination. Although, there are several implications regarding the progress of the payable amounts under the clause of the agreement. It has been stated that the contract is subjected to the termination under the implementation of the general law.
  • It increased the maximum allowable deposit from 5% to 10% of the price of the contract.
  • It also provided the specifications and the plans that are borrowed from the sections of the contract.
  • Lastly, it attempted to prescribe the “authorized” progress of the payments under a contract that is signed for the building work of a residential apartment.

Other changes in relation to the small scale jobs of the subcontractors have also been implemented.


Practical consequences of the decision

This decision has provided an excellent opportunity for all the owners and the builders involved in the work of residential building to review the existing contract in order to make sure their compliance with the Revised Act [7] . The transgressions of the act implies the penalty and the non compliance suggests that the parties under such contract need to paid accordingly and the validity of the contract itself plays a major role in the implementation of any kind of possible penalty because of any kind of breaches occurred under the agreement [8]


The practical consequences of this particular act can be discussed both of the positive and negative aspect. In dealing with a defective building work the owners can charge the builders to do certain unnecessary changes and it can prove to be hazardous for the builders to perform the liabilities due to the imposition of this act. It is true that the owner always requires to prove that the construction defects are the outcome of the breaches acted by the builder [9] .


On the positive side it can prove to be instrumental in the breaches associated with the construction and it also implicates a safer habitat for the residents of the buildings because they are the ones who suffer ultimately because of such construction errors. The new implementations significantly distinguish between the construction error and breaches of the agreement. It is important to note that the obligation to act reasonably to a builder is not extended to provide the recalcitrant builder the opportunity to respond accordingly to the requests of the owner regarding repairing the defects of which the builder was not aware of for a long time. Rather it emphasizes on the written communication between the owner and the builder and stresses upon the importance of the official conduct that both the parties need to maintain in order to formulate the activity properly. In this case Di Blasio can not considered to be a builder who has been wronged by the conduct of the owner. Overall the consequences can be considered to be advantageous as it wills to set a code of conduct and maintaining the legal document of the contracts for future references[10] . But it certainly affects the owner-builder relationship but at the same time it reduces the possibility of the breaches of the building contracts. It makes the owners aware of the enlarged duties of mitigating the loss when encountered the defective building works and also informs the builders of their rights of accessing the opportunity to rectify the defects when they are identified by the owner.


Conclusion 

The suite of revisions that have been implemented to the home Building act has made significant changes to the contract agreements that have been arranged for the works including the issue of insurance and liability. As per the section 18B the provisions can substantially be the cause of the statutory warranties but the applicable regime needs to be considered carefully. From above study it can be stated that there can be a scope for the application of the common law but the circumstances of each case need to be scrutinized accordingly in order to avoid possible meticulous misuse of the applicable laws.


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