Failure to Follow Defect Rectification Regime not a Bar to Damages

In the recent decision of Hacer Group Pty Ltd v Euro Façade Tech Export SDN BHD [2022] VSC 373, the Victorian Supreme Court found that failure to comply with the provisions governing notification and rectification of defects did not preclude a party from relying on its common law rights to recover costs arising from rectification works.

Hacer Group Pty Ltd (Builder) engaged Euro Façade Tech Export SDN (Subcontractor) to design, engineer, procure, manufacture, fabricate and supply a façade system. The Builder commenced proceedings against the Subcontractor alleging (amongst other things) that the Subcontractor’s works were defective, and that the contractual indemnity entitled the Builder to remedy the breach and recover the costs from the Subcontractor as a debt due.

The Subcontract required the Builder to notify the Subcontractor of any defects and provide it with the opportunity to rectify. If the Subcontractor failed to rectify within the requisite timeframe, the Builder was entitled to engage others to complete the rectification works at the Subcontractor’s cost.

In relation to certain defect claims, the Subcontractor argued that the Builder had failed to notify it of the defect and denied it the opportunity to rectify. The Subcontractor contended that the Builder’s entitlement was limited to recovering the cost the Subcontractor would have incurred to remedy the defect had the contractual process been followed.

In determining this issue, Justice Stynes relied upon the following:

•   a broad indemnity provided by the Subcontractor, which was not qualified by reference to the defect rectification provisions. Specifically, the Subcontract stated that Subcontractor would indemnify the Builder against “any and all costs, expenses, loss or damage of whatsoever nature … [which is] in any way connected with any breach by [the Subcontractor] …”; and
•   the fact the Subcontract did not contain clear words excluding the Subcontractor’s liability for damages.

Having regard to these factors, her Honour found that this case was to be distinguished from the factual scenario in Turner Corporation Ltd v Austotel Pty Ltd (1994) 13 BCL 378 where it was held there was no entitlement to recover costs for third-party rectification work due to procedural missteps. That is, her Honour held that the Builder could rely on its common law rights to damages even in circumstances where it had failed to comply with the contractual provisions regarding the notification and rectification of defects.

This decision serves as a reminder to parties when negotiating contractual indemnities to carefully consider how those indemnities will operate in relation to contractual regimes in the event of a breach of contract.

The full decision can be found here.