Construction contracts commonly provide that a builder is to rectify defects and include a defects liability period for the benefit of the builder. The consequences of denying the builder the opportunity to rectify defects were evidenced in the recent Supreme Court of South Australia Court of Appeal decision of Bedrock Construction and Development Pty Ltd v Crea [2021] SASCA 66.

The owner of Antica Pizzeria e Cucina Restaurant on Morphett Street in Adelaide engaged the builder to perform renovation and fitout works under a standard form ABIC SW-2008 (Simple Works) contract with an interior designer engaged as the architect to administer the project.

The works commenced in January 2016, and on 22 April 2016 the owner took possession of the site and started operating the restaurant. This meant that practical completion of the works was deemed to have occurred, which in turn triggered the commencement of a six month defects liability period. Under the contract the builder was required to rectify any defects notified to it within the agreed time stated in an instruction or if no time was stated within 10 working days.

The architect issued the builder with three defects lists in April and May. Whilst some initial defects works were performed and the builder sought to obtain access to the site to perform further rectification works, the relationship between the builder, owner and architect deteriorated following a meeting on 3 May 2016. On 11 May 2016 the owner emailed the builder and told him not to perform further works on the site.  When the owner was asked if he had any objection to the builder performing rectification works he stated “well we chose the litigation side to deal with it.”

The owner subsequently brought proceedings against the builder for the cost of rectifying the defects and the builder cross-claimed for unpaid progress claims and variation and delay claims.  During trial at first instance, the Court upheld the claim for defects and relying on the common law principles relating to mitigation of loss set out in Owners – Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067 found that the owner acted reasonably in prohibiting the builder from rectifying the defects  and the builder had lost the right to perform defects rectification.

On appeal, the Court of Appeal found that the trial judge erred in overlooking the contractual defects rectification procedure, and found that the contract provided the builder with at least 10 working days to rectify defects before incurring any liability to the owner.

This finding presented the Court of Appeal with some difficulty, as it was not straightforward to determine the effect of the builder losing its right to rectify defects within 10 working days.  Ultimately it accepted the builder’s evidence that it could have rectified some 33 items within this timeframe and (after considering the evidence) took a broad approach and reduced the owners’ defects claim by $35,000 (plus GST) to account for these works.

Defects are an anticipated part of any construction project and contractors/builders need to ensure they are ready, willing and able to rectify defects in accordance with the contract in order to prevent claims or at least minimise losses. However, this decision highlights that owners also need to ensure that contractors/builders are afforded their contractual rights to perform defects rectification as a failure to do so could result in owners being liable for rectification costs.

If you have any queries about how to structure your building or construction contracts to prevent claims or minimise losses, please do not hesitate to contact us or a member of our National Construction & Infrastructure team.

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