The judgment in The Owners – Strata Plan 80867 v Da Silva [2024] NSWDC 263 provides a fresh reminder of some basic concepts in construction law that every industry participant should know, namely, oral variations are not allowed under residential building contracts and claims under section 37 of the Design and Building Practitioners Act 2020 are not apportionable.
The Owners – Strata Plan 80867 v Da Silva [2024]
The dispute
In 2014, Mr Da Silva was contracted by the Owners Corporation to remove and replace the tiles on the common balcony terrace of some units in a residential building. Disputes arose, and the Owners Corporation complained that the work performed by Mr Da Silva was defective (i.e., there was water ingress that only occurred after Mr Da Silva did the remedial work).
The Owners Corporation started proceedings claiming damages for breach of contract or, alternatively, for breach of duty to exercise reasonable care to avoid economic loss caused by defects arising under section 37 of the Design and Building Practitioners Act 2020 (DBPA). One of Mr Da Silva's arguments was that he was not bound by the agreement signed with the Owners Corporation. Furthermore, Mr Da Silva argued that the Contract was varied to allow him to perform work without complying with the Building Code of Australia.
These arguments were all rejected by the Court.
The binding contract
Uniquely, Mr Da Silva signed two different agreements for the same work. The first agreement was a subcontract with the builder of the residential development, signed in May 2014 by Mr Da Silva on behalf of his company, Tile Projects Pty Ltd. The second agreement was executed in July 2014 between the Owners Corporation and Mr Da Silva himself, without any reference to his company.
Mr Da Silva contended that the second agreement should be void on the basis of non est factum (i.e., the second agreement was invalid because he was in error as he signed the agreement personally instead of signing on behalf of his company). However, the Court found such a defence unsuccessful, pointing out that Mr Da Silva did not prove that the second agreement was radically different from what he intended to sign1 and that such defence has very limited application.2
This is a reminder for every contractor to check carefully what is to be signed and make abundantly clear in the document whether you are signing in your own capacity or as a representative of a corporation.
Variations must be in writing
Mr Da Silva admitted that the work was not compliant with the Building Code of Australia3. However, he argued that this lack of compliance was due to an oral variation that dispensed with the need to comply with the code.
Justice Waugh SC found that there was no evidence that such a variation was ever instructed by the Owners Corporation.
Furthermore, applying the Court of Appeal's interpretation of sections 6(1)(b), 7 and 7E of the Home Building Act 1989 (HBA) and Schedule 2 (Part 1, item 1) of the Home Building Regulation 2004 (HBR) in Xu v Jinhong Design & Construction Pty Ltd [2011] NSWCA 277, the Court affirmed any variation to the scope of residential building work must be in writing and signed by the parties in order to be contractually effective.4
A duty of care under DBPA is not apportionable
Justice Waugh SC followed the Court of Appeal's decision in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301 and affirmed that the liability for a breach of a duty of care under section 37 of the DBPA is not apportionable, which means that the builder cannot reduce its own liability to the owner for the loss by contending that other concurrent wrongdoers contributed to the loss. The builder can only bring cross-claims against these concurrent wrongdoers.5
Key takeaways
This case provides a good summary of some fundamental principles of building defects disputes.
First, read carefully what you sign and be mindful of the capacity in which you act (i.e., in your personal capacity or on behalf of a company).
Second, for residential building work, any variation must be in writing.
Finally, a claim for breach of duty under section 37 of DBPA is no longer apportionable.
Footnotes
1. At [123]-[124].
2. The Court applied the principles in the High Court's decision in Petelin v Cullen (1975) 132 CLR 355 that such defence is only available to a very limited class of persons, like those who are unable to read or those who are unable to understand the document. Mr Da Silva did not fall within this class of people.
3. At [176.6].
4. At [172].
5. Must be kept in mind that the judgment in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301 is currently under consideration by the High Court of Australia.
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