The NSW Supreme Court has confirmed that a decision to release a strata building bond does not finally determine whether the identified work is defective or whether the developer is legally liable for it. Importantly for developers, the Court also identified a pathway to recover bond money from an owners corporation if later proceedings establish that the money was not required for rectification.

The decision in Peninsula Point Frederick Pty Ltd v Secretary, Department of Customer Service [2026] NSWSC 476 is therefore significant at both ends of the building bond process. It strengthens a developer’s right to have material objections considered before a bond is released, while confirming that a payment to an owners corporation is provisional rather than a windfall.

What happened?

Peninsula Point Frederick Pty Ltd was the developer of a residential strata development at Point Frederick. On 11 August 2022, it lodged a building bond of $797,235.84 under Part 11 of the Strata Schemes Management Act 2015 (NSW) (Act).

The building inspector’s final report identified a substantial number of items as unrectified defective building work. A quantity surveyor appointed by the Secretary estimated the rectification cost at $1,329,820 plus GST. As that estimate exceeded the bond, the Secretary determined that the whole bond should be released to the owners corporation.

The developer applied for internal review. It provided 20 pages of submissions, detailed commentary on particular defects and a 93-page competing quantity surveyor’s report, which assessed the amount realisable under the bond at between $120,829 and $552,668. The internal reviewer affirmed the original decision, and the developer sought judicial review in the Supreme Court.

The bond process does not finally decide the defects dispute

The Court rejected the developer’s principal argument that the Secretary or internal reviewer had to determine whether each item was in fact defective and precisely assess the reasonable cost of rectification.

The Court held that the statutory scheme is intended to provide a quick, inexpensive and non-final mechanism for securing rectification funding. The Secretary may take the final inspection report at face value and is not required to look behind it to decide whether the identified work actually breaches a statutory warranty. The Secretary may also adopt a broad-brush estimate representing a reasonably likely upper limit of the amount in dispute or the owners corporation’s prima facie case.

The existence of defective work, the cost of rectification and the parties’ ultimate legal rights remain matters for NCAT or Court.An inspection report must be considered if placed before that forum, but is not binding.

Why did the developer nevertheless succeed?

Although the reviewer was not required to conduct a trial of every alleged defect or choose between competing expert reports, the reviewer was required to give active intellectual consideration to the developer’s substantial and clearly articulated objections.

Those objections included the absence of reasoning for line-item estimates and percentage uplifts for overheads, consultants’ fees, escalation and contingencies.The reviewer could have rejected those criticisms, but could not fail to grapple with them. That failure denied the developer procedural fairness and amounted to jurisdictional error. The Court quashed the review decision and remitted it for redetermination.

The practical distinction is important. A developer is unlikely to succeed by asking the reviewer to determine the merits of every defect allegation. A focused challenge identifying material errors in the quantity surveyor’s methodology or calculation must, however, be genuinely considered.

Can a developer recover money after the bond has been paid?

Yes, in an appropriate case.

Section 210(1) of the Act requires an owners corporation to use bond money, within a reasonable time, for or in connection with rectifying the defective building work identified in the final report, or for costs related to that rectification. Section 210(2)(a) of the Act requires the owners corporation to repay the developer any amount that is not required for those purposes.

The Court explained that this provision operates as a back-end adjustment to the provisional bond process. If later litigation establishes that some or all of the money is no longer needed because, for example, there was no defect or the builder has rectified it, the owners corporation must repay the unnecessary amount. NCAT has express power under s 48O(1)(a) of the Home Building Act 1989 (NSW) to order restitution or a refund in determining a building claim. In Peninsula Point Frederick, Emmett J considered that an action for money had and received would appear to lie because the basis on which the owners corporation received the money had failed.

The position may extend to money already spent, but this is less certain. The Court observed that s 210 may need to be read as subject to a right of recoupment if an alleged defect is later proved not to be defective building work, or if there is another reason why the owners corporation should not retain the funds, or the benefit of work done without paying for it. Sections 215(3) and (4) of the Act provide a textual basis for that construction. However, the Court did not finally determine the existence or precise scope of that right. Recovery of money already spent will therefore depend on the evidence and the way the substantive claim is framed.

This should also be distinguished from a finding that defective work exists but the developer is not personally liable for it. Section 215(1) permits the bond to be paid notwithstanding the developer’s lack of liability. In that situation, s 215(2) allows the developer to pursue a person against whom it has a cause of action concerning the defective work. A finding that there was no defect at all instead supports recovery from the owners corporation under s 210(2)(a) and, potentially, an action for money had and received.

Takeaway

For developers, the safest course remains to prevent an excessive payment before it occurs:

• Engage early with the interim and final inspection process. The Secretary will not ordinarily revisit whether an item identified in the final report is truly defective.
• Apply for internal review within 14 days after notice of the decision. A decision to claim or realise a bond is no longer internally reviewable after the amount has been paid.
• Direct submissions to identifiable errors in the quantity surveyor’s scope, methodology and arithmetic, rather than attempting to convert the review into a full defects trial.
• If payment has already occurred, obtain evidence of the owners corporation’s proposed scope, actual expenditure and remaining funds. A live dispute about whether the work is defective or whether the amount is required will inform what constitutes a “reasonable time” for the owners corporation to spend the money.

For owners corporations, a bond payment should be separately accounted for and applied only to the statutory purposes. Receipt of the money does not conclusively establish the defects or confer an unrestricted entitlement to retain it.