Visual Building Construction Pty Ltd v Armitstead (No 2)
[2019] NSWCA 280

Background

In proceedings originally brought in the District Court of New South Wales on 23 March 2017, David Armitstead and Maria-Luisa Patisso (the ‘Owners”) sought damages for breach of a building contract (the “First Contract”) entered into on 11 December 2013 with Visual Building Construction Pty Ltd (the “Builder”) for the construction of two duplex buildings on a block of land in Caddens, NSW.

Variations to the Contract

Throughout the project, the Contract had been varied on 2 separate occasions.  The first of these variations to the Contract arose from a complaint made by the Owners to the Department of Fair Trading in around November 2014 regarding the size of the ensuite and the lack of progression in the works.  As a result of this complaint, the DFT issued a rectification order on 27 January 2015 and the following day, the parties entered into a variation contract in respect of the rectification order.

The second variation of the Contract was entered into on 18 May 2015 (the “Second Contract”) and arose from outstanding, incomplete and/or defective work, set out in clause 13 of this varied version of the Contract.

Termination of the Contract

Leading up to the District Court proceedings, by way of a formal Notice of Termination of the Contract issued on 13 July 2015 (“Termination Notice”), the Owners had purported to terminate the Contract as a result of the Builder:

1. Failing to complete the works by 2 July 2015, being the date for completion under clause 3 of the Second Contract;
2. Failing to obtain the necessary approvals from Penrith City Council (the “Council”) for a Construction Certificate;
   1. As it was at the time of the works, section 109F of the Environmental Planning and Assessment Act 1979 (NSW) provides that a Construction Certificate has no effect if it is issued after the relevant building work or subdivision work to which it relates is physically commenced on the land to which the relevant development consent applies.
3. Failing to rectify the defective works as defined by the Second Contract;
4. Failing to proceed with due diligence; and
5. Breaching the Statutory Warranty Provisions of the Home Building Act 1989 (NSW) in that the work was not done in accordance with and or complied with the Home Building Act or other relevant law.

In defence to the District Court proceedings commenced by the Owners, the Builder put in issue a defence regarding the validity of the termination of the Contract.  The primary judge in the District Court proceedings held that the Owners had validly terminated the Contract, and entered judgment in their favour in the sum of $651,536.00.

Building Certificate

Following on from the District Court proceedings, the Owners submitted an application for a Building Certificate to the Council in respect of the works carried out as at the date of termination of the Contract.  This application was refused on the following basis:

1. The partially constructed building was erected without prior construction certificate approval in a case where a construction certificate is required;
2. An engineer’s report issued for the partially constructed building:
   1. Indicated that the footing slab did not comply with the design drawings in terms of provision of piers, lack of brick joints, reduced internal beams and concrete placement; and
   2. Recommended demolition of the structure.

Further, on 1 March 2018 the Council issued a demolition order in respect of the work which had been unlawfully undertaken by the Builder.

Appeal

The Builder filed an appeal in the Supreme Court of NSW Court of Appeal (“Supreme Court”), contending that the primary judge erred in finding that the Contract had been validly terminated.  The basis of this appeal was that the Owners were said not to have provided 10 business days’ notice prior to termination to the Builder to allow for the defaults to be remedied, as was required under clause 15 of the Contract.

By notice of contention, the Owners argued that there were additional grounds to those relied upon by the primary judge which supported their valid termination of the Contract.

Supreme Court’s decision

The Supreme Court dismissed the appeal with costs and held that:

1. The primary judge did not err in finding that the Contract was validly terminated. To the extent that the Contract imposed any requirement to give 10 business days’ notice prior to termination, such a requirement only applied if the default was capable of being remedied within this period.
2. Even if the Contract had not been validly terminated, the Owners were entitled to damages for breach of contract, on the basis that the Builder had failed to obtain a Construction Certificate prior to commencement of the works, or at all, as required under the relevant Development Consent.

This case notes several important considerations when contracting for building works, including but not limited to:

1. Ensuring that any certificates or authorisations which are required for the works are in place at the appropriate time, i.e. a Construction Certificate being issued prior to the commencement of any works at the site;
2. Understanding the relevant timeframes and dates for each aspect of the project(s) covered under the contract; and
3. Issuing and responding to any notices correctly pursuant to the terms of the contract.