The Owners - Strata Plan No 64757 v Sydney Remedial Builders Pty Ltd

Home Building Act

1. It was accepted that the proceedings concern a claim governed by the Home Building Act. The Home Building Act implies certain statutory warranties into contracts for residential building work.
2. On 4 November 2008, when the building contract the subject of the present proceeding was executed, the Home Building Act provided: 18E Proceedings for breach of warranties (1) Proceedings for a breach of a statutory warranty must be commenced within 7 years after: (a) the completion of the work to which it relates …
3. The Home Building Act was amended in 2011 to include s 3B, which has retrospective operation: Home Building Act s 106 of Sch 4.
4. Section 3B provides a statutory definition of when the completion of residential building work occurs: 3B Date of completion of residential building work (1A) This section does not apply to residential building work to which section 3C applies. Note - Section 3C provides for the date of completion of new buildings in strata schemes. (1) The completion of residential building work occurs on the date that the work is complete within the meaning of the contract under which the work was done. (2) If the contract does not provide for when work is complete (or there is no contract), the completion of residential building work occurs on practical completion of the work, which is when the work is completed except for any omissions or defects that do not prevent the work from being reasonably capable of being used for its intended purpose. (3) It is to be presumed (unless an earlier date for practical completion can be established) that practical completion of residential building work occurred on the earliest of whichever of the following dates can be established for the work - (a) the date on which the contractor handed over possession of the work to the owner, (b) the date on which the contractor last attended the site to carry out work (other than work to remedy any defect that does not affect practical completion), (c) the date of issue of an occupation certificate under the Environmental Planning and Assessment Act 1979 that authorises commencement of the use or occupation of the work, (d) (in the case of owner-builder work) the date that is 18 months after the issue of the owner-builder permit for the work. (4) If residential building work comprises the construction of 2 or more buildings each of which is reasonably capable of being used and occupied separately, practical completion of the individual buildings can occur at different times (so that practical completion of any one building does not require practical completion of all the buildings). (5) This section applies for the purposes of determining when completion of residential building work occurs for the purposes of any provision of this Act, the regulations or a contract of insurance under Part 6.
5. It may be seen that subs (1) provides that completion of residential building work occurs on the date that the work is "complete" within the meaning of the contract under which the work was done. If the contract does not provide for when work is complete, the completion of residential building work occurs on "practical completion" of the works, to be determined in accordance with subss (2) and (3) and in particular by reference to the matters in s 3B(3)(a)-(d).
6. As will be seen below, the contract entered into between the parties did not define when the works were "complete", but instead made elaborate provision for "practical completion", in terms which are substantially reflected in s 3B(2). The nub of the proposed appeal is whether, in so doing, the contract is to be regarded as engaging, as the applicant contends, s 3B(1), as opposed to s 3B(2) and (3) as the primary judge held.

Primary Judgment

1. The primary judge explained the legislative history of s 3B of the Home Building Act, including the decisions prior to 2011 where there was no definition of when work was complete in the statute, but when the Home Building Regulation 2004 (NSW) contained a definition on which the obligations to insure residential building work turned, and the confusion expressed in some courts, including by Barrett J in Vero Insurance Ltd v Nicejade Pty Ltd [2010] NSWSC 556 at [15]-[23]. In the form it took after the (retrospective) amendments effected in 2011, the primary judge found that s 3B maintains a distinction between "completion" of residential building work in s 3B(1) and "practical completion" of the work in s 3B(2) and (3).
2. The primary judge found that the contract did not identify when the residential building work was complete. The relevant clauses only provided for practical completion. Accordingly, her Honour proceeded to consider ss 3B(2) and 3B(3). In identifying the date upon which practical completion of the work occurred, the referee answered the question of when the work under the building contract was completed by reference to cl 26 of the contract, rather than by addressing s 3B(2) and (3) of the Home Building Act.
3. The primary judge found that the referee's conclusion that the proceedings were commenced within time, where the referee did not also consider whether the presumptions in s 3B(3) had been established, was an error.
4. The primary judge, at the invitation of the parties, then went on to determine the question of whether the proceedings were commenced within time. The primary judge found, applying s 3B(3)(b), that the date when the builder was likely last on the site was 3 March 2012, although it was possible that the builder returned to the site on 8 March 2012. After that date, any further work was additional work beyond the scope of the building contract. Since the proceedings were commenced on 16 March 2019, more than 7 years later than either of these dates, the proceedings were out of time.

Application for leave to appeal

1. The draft notice of appeal contained the following grounds: Issue 1: application of section 3B of the Home Building Act 1989 1 The primary judge erred in law by interpreting the phrase "completion" in s.3B(1) of the Act as excluding "practical completion". 2 The primary judge erred [in] finding that the building contract did not provide for when the work is complete within the meaning of s.3B(1) of the Home Building Act 1989 (NSW) ("the Act"). (Reasons: [33]) 3 The primary judge should have, and erred by not so doing, found that the provisions in the building contract concerning "Practical Completion" provided for the completion of the residential building work within the meaning of the building contract within the terns of s.3B(1) of the Act. 4 The primary judge erred in finding that the date of completion was to be determined by application of sections 3B(2) and (3). (Reasons: [34]) 5 The primary judge erred a holding that the referee made an error of law or applied the wrong test in determining the correct date that the works were complete and in consequence could not stand (Reasons: [43], [47], [48]) 6 The primary judge erred in finding that the referee did not turn his mind to whether an earlier date of practical completion was established by the presumptions in section 3B(3). (Reasons: [46]; [48]) Issue 2: date of completion of the residential building work at the property 7 The primary judge erred in making a finding that the date on which the builder last attended the site to carry out work, other than work to remedy any defect that did not affect practical completion, was either 3 or 8 March 2012. (Reasons: [65]; [66]) 8 The primary judge erred in making a finding that the proceedings were commenced more than seven years after completion of the work and are out of time. (Reasons: [66])
2. The applicant seeks leave to appeal from the decision of the primary judge declining to adopt in full the report of the referee. It was common ground that leave was required. That is because the appeal is from an interlocutory decision: Supreme Court Act 1970 (NSW) s 101(2)(e); Bitar Pty Ltd v Hebbel Constructions Pty Ltd [2019] NSWCA 39 at [1] (Gleeson JA, McCallum JA agreeing).
3. The applicant's written submissions contended, without elaboration, that there were unidentified "errors" involving "matters of statutory interpretation and construction." It was also submitted that an issue of principle arose as this Court has not previously addressed the operation of the tests in s 3B(1), (2) and (3) of the Home Building Act. It was submitted that proceedings involving statutory warranties are regularly litigated and that the time limitation in s 18E of the Home Building Act is contingent upon completion of the work, "enlivening either ss 3B or 3C" of the Home Building Act.
4. In proposed ground 7 of the draft notice of appeal, the applicant appeared to challenge the entire factual basis of the decision of the primary judge. However, its written submissions did not identify any particular factual error. Nor did it provide in the White Folder any of the evidence adduced in the Court below which bore upon the question.
5. Finally, the applicant submitted that leave should be granted on the basis that the matter concerned whether it could recover $850,000 for significant building defects.
6. At the commencement of the hearing, Mr Sirtes SC candidly acknowledged that the written submissions fell short of "actually articulating in any great detail" the questions said to be involved if leave were granted. The acknowledgement was properly made. One reason for the requirement in UCPR r 51.12(4) for the summary of argument to state the questions involved is to permit the Court to determine whether there should be a concurrent hearing or, as occurred in the present case, a hearing of the application for leave before the Court constituted by two Judges of Appeal. Another is to permit the merits of the application for leave to be fully and fairly ventilated at a relatively short hearing for leave. A third is to enable the respondent to know the case it is called upon to meet, as well as to determine whether the White Folder is to be supplemented.
7. The White Folder supplied by the applicant contained nothing more than the judgment below, the summons seeking leave to appeal, the draft notice of appeal, and the economically drafted written submissions. On the day before the matter was listed for hearing, the applicant advised that it wished to take the Court to the building contract, which was permitted to occur without objection by the respondent. But it should not be thought that it will invariably be possible to conduct the hearing as occurred here, based on materials supplied the preceding day, and on the basis of submissions advanced for the first time in any detail on the day. That this application for leave to appeal was heard fully on the day set down was a consequence of the constructive approach adopted by both sides' counsel in their oral address. But that will not always be the case, and there will be times when a party's deficiencies in preparing the material it relies on in support of a grant of leave may not be curable, with the result that leave is refused, or a special costs order is made, or both.
8. Mr Sirtes acknowledged that the first six proposed grounds of appeal amounted to a single point. He also acknowledged, properly, that that point was at the forefront of his application, and did not seek to develop proposed ground 7.
9. The essence of that single point was that the elaborate provisions in the building contract concerning practical completion should be regarded as, in substance, identifying a date for "completion" of the residential building work for the purposes of s 3B(1). As it was put orally: [W]e say that the error is to read into subcl (1), the notion that completion cannot occur if it's identified as practical completion. That, we say, is a substance over form issue. We say that really what subcl (1) is concerned about, and what parliament, we say, was concerned about, was if there was a contract between parties that had a mechanism within it that provided for completion, irrespective of what it was called, then that's what determines whether or not subcl (1) is engaged.
10. It was said that the gravamen of s 3B was that where the parties had agreed a method for determining practical completion of the work, their agreement should determine the issue of completion of the work for s 3B(1) purposes, with s 3B(2) and (3) addressing the circumstances where the contract was silent about a method of determining practical completion. The submission relied on the obligation upon the builder to "carry out and complete" the building works in accordance with the contract in cl 2.1, the allocation of risk between the parties before and after the date of practical completion and the obligation to insure by reference to that date in cll 23 and 25, and in particular the regime governing practical completion in cl 27, including final payment and handing over possession. It was said that s 3B(1) was to be applied having regard to matters of substance, rather than form, and that as a matter of substance the provisions concerning practical completion must be regarded as an identification of the parties' agreement as to when the contract was "complete".
11. It was also said that, the parties' having contracted on the basis of the standard form 2004 Housing Industry Association contract, the primary judge's decision had the potential for consequences beyond the particular case.
12. It is unnecessary to summarise separately the submissions advanced by Mr Muddle SC who appeared for the respondent. Broadly speaking we accept them, and they are substantially reflected in our reasons below.

Consideration

1. We should say at the outset that while we have not sought to summarise the entirety of the careful reasons of the primary judge, the large majority of which were not challenged at all, we have been assisted by them. Her Honour applied s 3B of the Home Building Act in accordance with its terms. Her Honour in our view correctly identified that the terms "completion" of the building work and "practical completion" of the building work are deployed separately within the section. The section draws a distinction between those terms. The essential difficulty with the applicant's submissions is that they conflate those terms.
2. We agree with the applicant's submission that "completion" under s 3B is not determined solely by the form of the contract. In principle the parties could choose another word to define something which amounted to "completion" for the purposes of s 3B(1). However, as the primary judge said at [29] and as the respondent emphasised, that theoretical possibility is well removed from the facts of this case and does not assist the applicant. Here the contractual definition of "practical completion", namely, "when the building works are complete except for minor omissions and defects that do not prevent the building works from being reasonably capable of being used for their usual purpose", is substantially equivalent to the definition in s 3B(2). There is no basis for concluding that when making elaborate provision for "practical completion" and the consequences thereof, the parties are to be regarded as having made provision for the different concept of "completion". To the contrary, this is a case where when the parties' contract referred to "practical completion", those words should be understood as bearing their ordinary meaning, as opposed to "completion".
3. We did not understand that the balance of her Honour's reasoning, to the effect that if s 3B(1) were not engaged, then the analysis required by s 3B(2) and (3) applied, was criticised.
4. That is sufficient to dispose of the submission advanced that the issue had some general interest transcending this particular case. But in any event, we would add that although the question arises on the construction of a standard form contract, it may be doubted that there are many such contracts entered into prior to the retrospective enactment of s 3B, where the operation of s 3B(2) and (3) leads to a different determination of "completion" and where that difference matters for any purpose. It is to be borne in mind that the present case concerns a contract entered into 16 years ago, where there is a minor divergence between "practical completion" under the contract and pursuant to s 3B(2) and (3), and where proceedings were not commenced until approximately the very end of the 7 year limitation period so that the minor divergence mattered.
5. Finally, proposed ground 7 challenged a factual finding made by the primary judge. It was not elaborated in the written submissions. The failure to do so was noted in the respondent's written submissions. No oral submission was developed in support of this ground. Thus nothing has been put forward to warrant a grant of leave in respect of her Honour's conclusion, applying s 3B(2) and (3), by reference to the contemporaneous documents. For completeness, we note that in the absence of the identification of any arguable error, the fact that the proceedings involve whether the applicant can recover $850,000 for significant building defects does not provide any basis for the grant of leave to appeal.
6. Leave will ordinarily only be granted when the proposed appeal raises an issue of principle, a question of public importance, or seeks to address a reasonably clear injustice going beyond something that is merely arguable: Be Financial Pty Ltd as trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]-[38]; Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [28].
7. We are not satisfied that the proposed appeal raises an issue of principle, a question of public importance or seeks to address a reasonably clear injustice going beyond something that is merely arguable. Accordingly, the Court makes the following orders: 1. Leave to appeal refused. 2. Applicant to pay the respondent's costs of the application for leave to appeal.

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