July 15, 2019

In The Owners – Strata Plan 89041 v Galyan Pty Ltd [2019] NSWSC 619, the Supreme Court of New South Wales considered the circumstances in which an Owner can reasonably refuse to allow a Builder to return to a property to rectify defects.

The proceedings concerned an Owners Corporation for a residential apartment building on the NSW Central Coast and the Builder and Developer of the property. The Owner made repeated requests to the Builder to return to the property to rectify a number of defects. Following the Builder’s failure to do so, and the parties’ inability to agree on the scope of rectification, a dispute arose.

The Owner filed proceedings against the Builder for defective work in the New South Wales Civil and Administrative Tribunal. At around the same time, the Owner took the stance that the Builder was not allowed to return to the property to rectify the defects unless the parties could agree on a scope of works.

The proceedings were transferred to the NSWSC where the parties settled a number of issues in dispute. The parties also agreed to appoint a referee to determine the scope and cost of the rectification works and for the costs of the proceeding to be determined by the Court.

On 22 February 2019, the NSWSC adopted the referee’s expert report and awarded the Owner the sum of $1,282,486.59. The only question that remained before the NSWSC was whether the Owner was entitled to its costs of the proceeding. This required a finding as to whether the Owner had acted unreasonably in not allowing the Builder to return to the property.

Stevenson J found that the Owner’s refusal to allow the Builder to return to the property to rectify the defects was not unreasonable, as the Owner had reasonably lost confidence in the willingness and ability of the Builder to undertake rectification works. He cited a number of factors which made the Owner’s decision reasonable: the failure of the Builder to propose a practicable scope of works; the fact that the rectification work eventually proposed by the Builder’s expert fell far below the standard which the referee stated was necessary; and the breakdown of the relationship between the Owner and Builder, as evidenced by letters from the Builder’s solicitors to the Owner, in which the Owner’s defects claims were described as having “bogus” and “frivolous” elements.

This decision highlights the need for parties to carefully consider their conduct in disputes regarding alleged defects.

The full decision can be found here.

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