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Australia’s apartment building crisis: the national focus is now on residential building standards. What happens when the courts take notice?

Gene Schirripa

21 Oct 2019

Topics

  • Building & Construction
  • Business Law

In August 2019, the ABC’s Four Corners program conducted an investigation into Australia’s purported ‘apartment building crisis’. The program covered issues regarding building defects, with a particular focus on the Mascot Towers Apartment Block saga in Sydney. Apartment owners in the building have been forced to evacuate and left with no answers. It was recently reported that the 132-unit complex is at ‘risk of structural failure as new cracks emerge’ (SMH, 16 October 2019).

Closer to home, the program also reported on issues at the Elara Street apartment complex in Bruce, which is the subject of waterproofing issues. In this article Gene Schirripa will discuss this focus on residential building standards, and look at the crisis from a legal perspective.

Shergold Weir Report

On 22 February 2018, Professor Peter Shergold and Ms Bronwyn Weir published their joint report: Building Confidence – improving the effectiveness of compliance and enforcement systems for the building and construction industry across Australia. This report was mandated by the Building Ministers’ Forum, with a view to assessing the effectiveness of compliance and enforcement systems for the building and construction industry across Australia. In carrying out this exercise, a number of recommendations were made, including:

  • Registration of building practitioners
  • Crackdown on private certifiers, with a focus on minimising conflicts of interest
  • Increased powers for monitoring compliance, including the imposition of statutory responsibility on bodies such as the MBA for auditing and disciplining.

The recommendations are likely to be adopted in all jurisdictions around Australia in the near future, to varying degrees.

Increased spotlight

The Shergold Weir Report, pinned against the backdrop of some highly publicised residential building defect sagas, serves as a reminder that the spotlight (more than ever) is on builders and the quality of their work. Building defects are at the forefront of the national conscious. This is bound to have a flow-on effect in the courts, as clients bring claims before the relevant courts/tribunals seeking compensation for damages flowing from building defects.

What would a claim against a builder look like in the eyes of the law?

In the case of building defects, in the ACT clients may have recourse on various grounds in bringing a claim against a builder:

Building Act (ACT) 2004 (‘Building Act’)

Every contract to carry out residential building work to which the builder is a party is deemed to contain a series of statutory warranties. Pursuant to section 88(2) of the Building Act, the following warranties apply in relation to building work:

  • The work complies with the Building Act generally
  • The work has been or will be carried out properly according to the approved plans
  • The use of good and proper materials
  • The build will be completed in reasonably prompt time.

Further, where the owner expressly discusses with the builder the desire for a particular purpose or outcome, and the owner is relying on the builder’s expertise, then the building work and materials must be reasonably fit for that purpose.

Thus, in the case of defects, a claim may be brought under the Building Act on the basis that the defective work constitutes a breach of the statutory warranties contained therein.

Limitation period

The statutory warranties do not apply in perpetuity. The warranties continue for the benefit of success in title of the owner by virtue of section 88(3) of the Building Act, but are limited to the periods set out at section 88(4) as follows:

  • Structural elements: a client has 6 years after the completion date for the works to bring a claim against a builder for breach of statutory warranty with respect to structural elements of the build
  • Non-structural elements: a client has 2 years after the completion day for the works to bring a claim against a builder for breach of a statutory warranty with respect to non-structural elements of the build.

Australian Consumer Law

Clients may also have recourse to the Australian Consumer Law (‘ACL’) – Schedule 2 of the Competition and Consumer Act 2012 (Cth) – and the consumer guarantees set out therein [section 7 of the Fair Trading (Australian Consumer Law) Act 1992 (ACT) applies the ACL in the ACT].

Guarantees are applicable to ‘consumers’, as defined in schedule 3 of the ACL. A person is a consumer for the purposes of the ACL if they purchase goods or services with a value not exceeding $40,000, OR the price of the goods and services exceeds that threshold but are acquired for domestic, household, or personal use or consumption. Services related to residential building satisfy that definition, enlivening the operation of the ACL in the building context.

Part 3(2) of chapter 333 of the ACL sets out the relevant statutory guarantees as follows (as applicable in the building context):

  • Section 60: a guarantee that building services will be rendered with ‘due care and skill’. Although not specifically defined in statute, the words ‘due care and skill’ are examined by Courts on a similar basis as negligence under the common law (examined below). Courts will apply commonsense facts to the matter and will be heavily guided by expert evidence put forward by way of expert building consultant reports.
  • Section 61: where building services are rendered, they will be of such nature and quality, or state or condition that they might be reasonably expected to achieve the desired result.
  • Section 62: building services are provided in a reasonable timeframe. Courts will be heavily guided by timeframes set out in the building contract.

These provisions largely mirror the statutory warranties provided for by the Building Act but provide another basis on which consumers can pursue builders for defects.

In circumstances where statutory guarantees are not met, and cannot be remedied, the consumer may:

  • Terminate the contract for services; and
  • Recover compensation for a reduction in value of the services below the price paid; and
  • Recover damages for any loss or damage suffered.

Negligence

It is also open, in theory, for a client to bring a claim for negligence, pursuant to section 40 of the Civil Law (Wrongs) Act 2002 (ACT).  The client must establish that the builder owes them a duty of care, and there has been a breach of that duty and damages following as a consequence of the breach.

A builder holding themselves out as a person capable of competently performing work will owe a duty of care to the consumer. A failure to meet standards constitutes a breach of such duty. Those standards will be assessed against the backdrop of the Building Act by the courts.

Take home points

Building defects are very much in the national conscious and will come within the purview of state and territory legislators. The Courts will inevitably respond and look unfavourably on defects. Builders must remain conscious of the statutory warranties afforded to clients under the Building Act, and further, additional guarantees applicable under ACL. Of course, a builder owes an overarching duty of care at common law. In the case of defects, clients will have various avenues through which they can pursue a builder, which can mean various ‘bites at the cherry’.

Builders can mitigate their risk by regularly checking in with their clients to ensure that any issues are discussed as they arise and, if needed, defects fixed along the way. Good communication channels with clients can also assist to manage client expectations, and so if an aspect of the works has to vary for practical reasons, the client understands why. This can avoid misguided claims of ‘this not what I asked for’ at the end of the project.

How can we help?

Our Business Law team can help you if you’d like to know more about your responsibilities as an employer or adviser. For advice, please contact us on 02 6285 8000 or by email.