The Price of Refusal – costs consequences of unreasonably rejecting Calderbank offers

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A Calderbank offer is a special type of settlement offer made in an attempt to resolve anticipated or commenced litigation and derives the name from the case that first established the relevant principles, Calderbank v Calderbank [1975] All ER 333.  It is special in that a valid Calderbank offer may:

  • if you are the successful party in litigation, increase the percentage of legal costs you recover from the unsuccessful party; or
  • if you are the unsuccessful party in litigation, decrease the percentage of legal costs you pay the successful party.

A properly advised litigant will be factoring legal costs into their overall litigation strategy and will use Calderbank offers to strengthen their position by either recovering more costs or paying less costs.  This “costs protection” element differentiates Calderbank offers from standard offers to negotiate or settle litigation.  It also forces a party receiving an offer to give careful thought to the risk involved in not accepting the offer given the potential consequences for legal costs recoverable or payable.[i]

The principles are encouraged by the courts and tribunals because they facilitate the efficient and economic disposal of litigation in accordance with modern case management principles which are directed towards avoiding waste and delay in litigation generally.[ii]

Costs of the proceedings

The costs of the proceedings are typically dealt with after there has been judgment on the substantive issues of the case.  This is because the practical result or outcome of the judgment often determines which party is responsible to pay costs.  This is known as the guiding principle that “costs follow the event” with the event being the practical result or outcome e.g. the plaintiff succeeded in their claim for damages for breach of contract.[iii]

Costs are ordinarily awarded on an “ordinary” basis[iv] but, in special circumstances, may be awarded on an “indemnity” basis.[v]  In simple terms, the indemnity basis (85-95% of actual costs) is a higher percentage of recovery of actually incurred costs compared with ordinary costs (65-75% of actual costs).  In short, the difference will generally be 10-15% higher if recovering on an indemnity basis.

However, costs are always in the discretion of the court or tribunal having regard to various factors. One factor that is weighed in exercising that discretion is the existence of Calderbank offers that were not accepted.  In particular, establishing that you issued a valid Calderbank offer that was a better outcome than the outcome that was obtained by proceeding to judgment may both affect:

  1. the party responsible for paying costs; and
  2. the “basis” on which costs will be assessed.

Examples

The examples below are not automatic or guaranteed outcomes given costs are always at the discretion of the court or tribunal[vi] and there are many competing factors that are taken into account such as delinquent conduct by the party that made the offer in the litigation.  The examples are presented for simplicity and ignoring competing factors that might arise.

Successful Plaintiff that makes an offer

Take the following example:

  • proceedings were commenced on 1 January 2024;
  • a valid Calderbank offer was made on 1 July 2024 by the Plaintiff to settle for $600,000 and rejected (unreasonably) by the Defendant; and
  • judgment was entered on 1 December 2024 in favour of the Plaintiff for $900,000.

As a matter of commonsense, the Plaintiff’s Calderbank offer would have been a better outcome for the Defendant had it accepted the offer rather than proceeded to judgment.

The law recognises this logic and gives effect to it by increasing the percentage of legal costs recoverable by the successful Plaintiff by using the indemnity basis for part of the overall legal costs payable by the Defendant.  Specifically, in our example, the consequence of unreasonably rejecting a Calderbank offer that was better than the ultimate outcome is that the court or tribunal may exercise its discretion to order that:

  • the Defendant pays the Plaintiff’s costs on an ordinary basis between 1 January 2024 to 1 July 2024 i.e. before the offer; and
  • the Defendant pays the Plaintiff’s costs on an indemnity basis between 2 July 2024 and 1 December 2024 i.e. after the offer.

In short, the successful Plaintiff recovers an overall higher percentage of part of their legal costs.

Unsuccessful Defendant that makes an offer

As a variation on that example, let us assume the following facts instead:

  • proceedings were commenced on 1 January 2024;
  • a valid Calderbank offer was made on 1 July 2024 by the Defendant to settle for $600,000 and rejected (unreasonably) by the Plaintiff; and
  • judgment was entered on 1 December 2024 in favour of the Plaintiff for $400,000.

As a matter of commonsense, the Defendant’s Calderbank offer represented a more favourable result for the Plaintiff than the judgment.  In that scenario, the court or tribunal may exercise its discretion to order that:

  • the Defendant pays the Plaintiff’s costs on an ordinary basis between 1 January 2024 to 1 July 2024 i.e. before the offer; and
  • the Plaintiff pays the Defendant’s costs on an indemnity basis between 2 July 2024 and 1 December 2024 i.e. after the offer.

In short, the unsuccessful Defendant manages to recover that part of their legal costs incurred only because the Plaintiff did not settle on reasonable terms.

To Consider

For completeness, the underlying concept of a Calderbank offer has been formalised in Division 4 of Part 20 of the Uniform Civil Procedure Rules 2005 (NSW) as “Offers of Compromise”, however those types of offers are outside the scope of this article.

Noting the costs consequences associated with making and rejecting Calderbank offers, it is crucial that litigants use them in a way that promotes settlement of disputes to achieve their “just, quick and cheap” obligations and, otherwise, to protect their own position on costs.

 

 

[i] Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [24]. Bluth v Boyded Industries Pty Ltd (No 2) [2024] NSWCA 194 at [43].

[ii] See section 56 of the Civil Procedure Act 2005 (NSW) (CPA).

[iii] See rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR); see e.g. New Island Developments Pty Ltd v New Island Investments One Pty Ltd (No 2) [2024] NSWSC 454 at [29].

[iv] In the courts, section 98(1) of the CPA and rule 42.2 of the UCPR. In the Tribunal, section 60(4) of the Civil and Administrative Tribunal Act 2014 (NSW).

[v] See rule 42.5(b) of the UCPR.

[vi] Section 98(1) of the CPA; see e.g. Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 at [25].

Hedging your debt (certificates) – how much do you really owe?

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When entering into a contract for the performance of building works, the roles and responsibilities of each party are generally defined well enough to ensure the contract can be performed in a mutually beneficial manner. Although, what happens when these responsibilities are affected by the interaction between two pieces of legislation?

In Warrane Design Construct Fit-Out Pty Ltd v Woonona Bulli RSL Memorial Club [2025] NSWSC 123, the Supreme Court of New South Wales considers this question, where payment obligations between a Builder, Principal and Subcontractor changed due to the simultaneous application of the Building and Construction Industry Security of Payment Act 1989 (NSW) (SOPA) and the Contractors Debts Act 1997 (NSW) (CDA).

Key facts

During December 2023, Woonona Bulli RSL Memorial Club Limited (the RSL Club) contracted with Warrane Design Construct Fit-Out Pty Ltd (the Builder) to undertake works to the RSL Club’s carpark and converting the bowling green to another parking space (the Works). Shortly after, to complete the Works, the Builder entered into a subcontract with All Civil Solutions Group Pty Ltd (the Subcontractor). In the following year, the Subcontractor subsequently obtained three debt certificates from the District Court of NSW each valued at $989,183.55, $1,102,958.87 and $464,008.78 for unpaid works which were then served on the RSL Club pursuant to sections 6 and 7 of the CDA.[i] These provisions effectively allow a subcontractor who was not paid and still owed for works that were carried out, to obtain that payment from the principal that engaged the contractor.

At the time, the RSL Club fully paid the first but only partially paid the value of the second certificate. It is important to note that these were monies that would have been paid to the Builder, not the Subcontractor, as the act of issuing the debt certificates effectively assigned the RSL Club’s requirement to pay the Builder under to the contract to the Subcontractor. [ii]

Following this, the Builder obtained an adjudication determination against the RSL Club pursuant to section 22 of SOPA, and successfully sought to enforce it by way of an adjudication certificate and garnishee order for just over $2 million.[iii] Throughout this process, the fact that the RSL Club had made payments to the Subcontractor was not raised as a contentious issue before the adjudicator.

In response to this, the RSL Club filed two separate sets of proceedings to quash the determination by $1,030,281.79, [iv] on the basis that they had already partly paid or at the very least remained liable to pay the Subcontractor under the CDA.[v] The RSL Club also sought to set aside the garnishee order until the conclusion of the first set of proceedings.

What did the Court say?

Justice Stevenson concluded that because the Subcontractors served the debt certificates onto the RSL Club and payments were made pursuant to the CDA, the $2,141,780.83 awarded overstated the amount the RSL Club owed the Builder by approximately $1.2 million. [vi]

His Honour concluded that it was proper for the garnishee order to be set aside as this would undermine the legislative purpose of sections 6 and 7 of the CDA.[vii] Justice Stevenson also affirmed that the interpretation and construction of both SOPA and the CDA should be done in a way that ensures their ‘harmonious interaction’.

What does this mean for you?

Occasionally, certain Acts interact with each other which create new implications for how contractors and principals are required to manage and undertake payments. Given the large role legislation plays in encouraging or requiring parties to fulfil their payment obligations, ensure you can keep track of these obligations or otherwise seek assistance.

[i] Contractors Debts Act 1997 (NSW) ss 6-7.

[ii]  Ibid s 8(1)-(2).

[iii] Building and Construction Industry Security of Payment Act 1989 (NSW) ss 22, 25.

[iv] Warrane Design Construct Fit-Out Pty Ltd v Woonona Bulli RSL Memorial Club Ltd [2025] NSWSC 123 [15] (Stevenson J) (‘Warrane’).

[v] Ibid [15]-[17].

[vi] Ibid [17].

[vii] Contractors Debts Act 1997 (NSW) ss 6-7.

Time’s up!

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In Australia, our Limitation Acts impose strict time limits for commencing legal proceedings.

Time limits vary depending on the type of matter and the jurisdiction.

Limitation periods (often referred to as ‘statutes of limitations’) are a statutory barrier to prevent individuals or businesses from pursing claims after a period of time has passed since the ‘cause of action’ arose. The primary purpose being to balance the rights of parties and the effective administration of justice and, in practical terms, to ensure finality to potential claims.

Civil Claims

Generally speaking, civil claims have a limitation period of 6 years from the date of the cause of action.

What is the relevant limitation period applicable to building claims in NSW?

To work out the applicable limitation period, start with the legislation that gives rise to the action (e.g. defective building work in NSW would be the Home Building Act 1989 (NSW) and/or the Design and Building Practitioners Act 2020 (NSW) (DBPA)). If there is no relevant legislation, look in the limitation act for your relevant state or territory:

  • New South Wales – Limitation Act 1969(NSW) (LA)
  • Australian Capital Territory – Limitation Act 1985 (ACT)
  • Queensland – Limitation of Actions Act 1974(QLD)
  • Victoria – Limitation of Actions Act 1958(VIC)
  • Tasmania – Limitation Act 1974 (TAS)
  • Northern Territory – Limitation Act 1981 (NT)
  • South Australia – Limitation of Actions Act 1936 (SA)
  • Western Australia – Limitation Act 2005 (WA)

These Acts may not apply if the limitation period for a specific cause of action is prescribed by another Act.

At times, more than two pieces of legislation must be considered to determine a limitation period. In building defect claims, the statutory duty of care is not merely the statutory warranty periods under section 18E(1)(b) of the Home Building Act 1989 (NSW) of 6 years for major defects and 2 years in any other case. Under section 37 of the DBPA a person who undertakes construction work has a duty to exercise reasonable care to avoid economic loss caused by defective construction work.  Section 41 provides that the applicable limitation is 6 years under the LA and subject to the 10 year longstop under section 6.20 of the Environment Planning and Assessment Act 1979 (NSW).

The table below sets out some of the more common causes of actions (COA) and corresponding limitation periods in NSW.

 

Implications for individuals and businesses

Being informed of the limitation period for a cause of action is essential as it can have significant implications on the rights and obligations of individuals and businesses.  If a limitation period expires, it may be difficult or impossible to commence legal proceedings, even if a case has merit.

Understanding the limitation periods for potential causes of action allows claimants to bring a claim within time.

Bradbury Legal is a specialist building and construction law firm. If you or anyone you know requires advice or assistance regarding a potential claim and the application of limitation periods, reach out to us on (02) 9030 7400, or email us at info@bradburylegal.com.au to see how we can assist you.

 

[1] Section 14(1)(a) of the LA 

[2] Section 14A of the LA 

[3] Section 6.20(1) of the EPAA

[4] Competition and Consumer Act 2010 (Cth), Schedule 2 Section 18; section 14(1) of the LA 

[5] Section 14(1)(b) of the LA 

[6] Section 14(1)(b) of the LA 

[7] Section 16 of the LA 

Don’t let escalating losses from defects snowball into an avalanche of avoidable (and unrecoverable) losses

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What is mitigation?

In the context of construction disputes, “mitigation” refers to the obligation of a person suffering loss to not act unreasonably in allowing loss they suffer to worsen and result in additional loss.[1]  It is not about whether there was some better or ideal way in hindsight[2], but whether what was done was reasonable.  The obligation is not overly burdensome and does not require the person suffering loss to go out of their way and against self-interest to avoid loss, merely to have acted reasonably in seeking to prevent themselves suffering avoidable losses.[3]

For example, if the owner of a building is having significant water ingress issues due to defective roof waterproofing installed by their builder, the loss directly caused by the builder is a recoverable loss for the owner.  But if that owner sat on their hands and allowed the water ingress to worsen or cause consequential damage resulting in a greater loss e.g. internal damage of floors, walls, and furniture etc., the failure to avoid that additional loss is a failure to mitigate.

The mitigation obligation will be shaped heavily by any contractual agreement between the parties and override general law principles.[4]

Avoidable losses are not recoverable

In that example, an owner failing to avoid losses that can be avoided by taking reasonable action is exposed to the risk that a court or tribunal may decide the owner themselves caused that additional, avoidable loss and will not be able to recover it.  This is the case even where the original cause of the loss is the builder or one of its subcontractors.

The reason for this is that the compensation principle only requires that the owner is restored (by rectification works or money in our example) to the position they would have been had the builder not performed defective works.[5]  Avoidable loss caused by an owner’s inaction is not caused by the builder, only consequent upon it.

Further, the person who claims the other has failed to mitigate loss is required to prove that failure.[6]  In our example, the builder bears the obligation of persuading the court or tribunal that some parts of the ongoing loss suffered due to the water ingress followed from the owner’s failure to take reasonable steps to halt the water ingress.

Costs of reasonable steps to avoid loss are recoverable

Fortunately, the costs of actions taken by an owner to prevent the suffering of avoidable loss are compensable.  However, such losses must not be too remote which refers to excluding recovery of losses that would not typically arise or would not have been foreseen by the parties at the time of entering their agreement due to the breach.[7]

Recovery is possible even where the costs of the reasonable steps exceed the likely cost of the avoided loss (with the builder having to prove steps were unreasonable).[8]  For clarity, it is not necessary for the reasonable actions taken to have actually succeeded in avoiding the loss for the costs to be recoverable.

Mitigating by allowing the original builder access to rectify

With those general points in mind, this article considers a specific type of mitigation scenario which is an owner’s obligation to allow the original builder to return to rectify defective or non-compliant work before engaging a third party to take over and then claim monetary compensation.  This obligation can exist in the contract between the parties, in statute[9], and otherwise at common law[10].

Determining whether or not an owner has acted reasonably is assessed against the factual circumstances of the dispute.  Helpfully, Justice Rees in Ceerose[11] distilled four key facts that will be relevant in determining the question:

  1. the extent and seriousness of the defects;
  2. the quality of any repairs effected by the builder;
  3. the builder’s engagement with the owner in respect of the suggested defects and proposed method of rectification, in short, has the builder responded in a timely manner, taken the complaints seriously and acted fairly; and
  4. the efficacy or perceived futility of continuing to negotiate with the builder.

In this mitigation scenario, given the obligation to prove the failure falls on the builder and the standard of what is reasonable conduct for the owner is not high, it will typically be difficult to establish a failure to mitigate with the owner being precluded from recovering the avoidable loss.  Justice Rees in Ceerose remarked on this when considering recent decisions on this specific mitigation scenario.[12]

Economic advantages to both owner and builder of rectification

The advantages to an owner of mitigating their loss by allowing the original builder to return include:

  1. Ordinarily, the original builder will undertake this work at no cost to the owner given contractual and statutory obligations[13] to do so.
  2. If certain defects or non-compliant works are worsening over time, urgent and proactive action by an owner to allow a builder access will generally be a reasonable step to mitigate avoidable loss. As mentioned above, losses that could have been reasonably avoided will not be recoverable by an owner given the true cause of those losses is the failure to avoid them.

Builders often prefer returning for the simple fact it is generally cheaper than paying the equivalent amount in money to an owner.  This is because a knowledgeable builder will have contractual rights to compel subcontractors to rectify issues in their work at no cost, or, if there is a cost, that cost is less in the original builder’s hands compared with a fresh third party builder (which will include contingencies for the cost of unknowns involved in remedial work).[14]

Provided the rectification work is performed in good faith and correctly, the parties’ interests are aligned in this scenario and resolution is achieved without protracted litigation and accompanying costs.

If you’re an owner in a situation where your losses may worsen and you need advice on what steps you can take, or you’re a builder dealing with an owner that is refusing access which is worsening any issues you may have originally caused, please contact our team on (02) 9030 7400 or at info@bradburylegal.com.au.

 

[1] The Owners – Strata Plan No 89074 v Ceerose Pty Ltd [2024] NSWSC 1494 (Ceerose) at [38]-[39] per Rees J and the references therein.

[2] Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452 at [506].

[3] Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [187] per Giles JA.

[4] Ceerose at [37] per Rees J.

[5] Robinson v Harman (1848) 1 Ex 850.

[6] Ceerose at [40] per Rees J and the references therein.  See also section 18BA(3) of the Home Building Act 1989 (NSW).

[7] Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (2012) [2012] FCA 1028 at [988] per Rares J.

[8] Arsalan v Rixon Nguyen v Cassim [2021] HCA 40 at [32] per Kiefel CJ, Gageler, Keane, Edelman and Steward JJ.

[9] For example, section 18BA(3) of the Home Building Act 1989 (NSW).

[10] See generally Ceerose at [53] per Rees J.

[11] Ceerose at [51] per Rees J.

[12] Ceerose at [48]-[50] per Rees J.

[13] For example, in a claim for breach of the statutory warranties contained in section 18B of the Home Building Act 1989 (NSW) or the statutory duty of care contained in section 37 of the Design and Building Practitioners Act 2020 (NSW).

[14] See also Ceerose at [41]-[43] per Rees J and the references therein.

By Slim Majority, the High Court in Pafburn Says No: Developers and Head Contractors Cannot Apportion Liability Under the DBPA!

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In a narrow 4:3 ruling, the High Court of Australia in Pafburn Pty Limited v The Owners – Strata Plan No 84674 [2024] HCA 49 (Pafburn) has dismissed the appeal of a developer and head contractor, ruling that liability for breaches of the statutory duty under section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBPA) cannot be apportioned under proportionate liability legislation. This highly anticipated decision significantly expands liability, holding developers and head contractors accountable for defects arising from the work of consultants or subcontractors.

The Facts

Background

The Owners Corporation of a North Sydney residential complex (the Owners) commenced proceedings against Pafburn Pty Ltd (the Builder) and Madarina (the Developer) for breaching their statutory duty of care under section 37 of the DBPA. The Owners claimed that the Builder and Developer failed to take reasonable care to prevent economic loss caused by construction defects. In response, the Builder and Developer sought to apportion liability for the defects among nine other concurrent wrongdoers involved in the construction, including the waterproofing contractor, the manufacturer and installer of the aluminium composite panels, the architect, the private certifier and even the local council. The Builder and Developer argued that, under Part 4 of the Civil Liability Act 2002 (NSW) (CLA), liability for the defects should be shared. The Owners contended, however, that the statutory duty under the DBPA was non-delegable, meaning the Builder and Developer could not shift responsibility for the defects to other parties that the Builder and Developer had delegated work to during construction.

Application to Strike Out Proportionate Liability Defences

The Owners sought to strike out the Builder and Developer’s proportionate liability defences. They argued that section 39 of the DBPA explicitly states that the statutory duty of care is non-delegable, preventing reliance on the proportionate liability provisions of the CLA. The Owners further contended that, under section 5Q of the CLA, the Builder and Developer should be treated as if they were vicariously liable for the negligence of those performing delegated work, including the alleged concurrent wrongdoers. As a result, the Builder and Developer should not be allowed to apportion liability for the defects to subcontractors or other parties involved in the construction work.

Key issue

The key issue was whether the Builder and Developer’s duty under the DBPA could be apportioned under the CLA, allowing them to share liability with other parties involved in the construction process.

 What did the Court say?

Primary Decision

The Supreme Court of NSW initially found that the Builder and Developer could plead the proportionate liability defences. Rees J rejected the Owners’ argument, determining that a claim for breach of duty under the DBPA was an apportionable claim under Part 4 of the CLA. Her Honour held that vicarious liability under section 5Q of the CLA applied to a defendant’s breach of a non-delegable duty in tort under common law, but not to the statutory duty under section 37 of the DBPA. This meant that the way in which parties led disputes remained largely unchanged.

Court of Appeal

The NSW Court of Appeal overturned the primary decision, ruling that the statutory duty of care under the DBPA is non-delegable. The Court found that section 39 of the DBPA expressly excludes the application of the proportionate liability provisions in Part 4 of the CLA. It also held that sections 5Q and 39(a) of the CLA treat breaches of the non-delegable duty as a form of vicarious liability, meaning the Builder and Developer’s liability cannot be reduced by the liability of others, thereby preventing any apportionment of liability for breaches of the statutory duty under the DBPA.

 High Court

 The Builder and Developer sought to appeal the Court of Appeal’s decision and reinstate Rees J’s orders. However, in a slim 4:3 ruling, the High Court dismissed the appeal, affirming that developers and head contractors cannot apportion liability for defects under the DBPA. The Court held that, under section 5Q of the CLA, they are vicariously liable for defects arising from the construction work, including those caused by subcontractors or consultants. Effectively, the Builder and Developer could not limit their liability by shifting responsibility to other parties involved in the construction process.

What does this mean for you?

Developers and head contractors who delegate construction work may not be able to apportion their liability under the DBPA. Depending on the circumstances, they may be vicariously liable (that is, 100% liable) for any economic loss caused by defects, including those resulting from the negligence of their consultants and subcontractors.

 Implications

 While owners of defective buildings will undoubtedly welcome the High Court’s decision. It will have several practical and potentially onerous implications for developers and builders:

  1. Increased exposure:
  • Developers and head contractors now face greater liability to exposure, leading to higher construction costs.
  1. Rise in cross-claims:
  • Developers and head contractors will need to pursue cross-claims against other parties involved in the construction to seek contribution for defects.
  • This complicates case management of proceedings, as defendants may struggle at the outset to identify other parties’ roles in the project, determine appropriate causes of action and balance the cost risks of joining third parties.
  1. Higher insurance premiums:
  • The removal of proportionate liability defences is expected to lead to higher insurance premiums and increased difficulty in obtaining insurance coverage for construction stakeholders.
  1. Limited scope (for now):
  • The decision currently applies only to developers and head contractors.
  • The High Court primarily focused on whether developers and head contractors can apportion liability, leaving the question unresolved of whether other parties, such as consultants or subcontractors (particularly when they have not delegated any part of construction works), can rely on apportionment defences.
  • Interestingly, the minority raised doubts about whether a certifier or local council, in performing their duties, even qualifies as “a person who carries out construction work” under the DBPA, raising further ambiguity about their potential liability under the Act.

Bradbury Legal is a specialist building and construction law firm. If you or anyone you know requires advice or assistance, reach out to us on (02) 9030 7400, or email us at info@bradburylegal.com.au to see how we can assist you.

Righting the Wrong in Wrongful Termination

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A common reason why an owner may seek to terminate a building contract is that they believe the builder has taken too long to complete the works. They would then claim that the builder has failed to proceed with due diligence under the contract.

For this argument, an owner must be able to show that the builder did not proceed with the works with due diligence within the time stipulated in the contract – which is a breach of the contract and the statutory warranties (as set out in section 18B of the Home Building Act 1989 (HBA)).

This concept of claiming a ‘due diligence breach’ was established in Re Stewardson Stubbs & Collett Pty Ltd v Bankstown Municipal Council [1965] NSWR 1671, which stated that the requirement of due diligence is breached when there is a failing to act with a level of promptness that is expected of a reasonable person undertaking a building project with regard to the contract. However, several cases have since challenged the ease with which owners are able to terminate building contracts by way of alleging a breach of due diligence.

Let’s start with a review of the statutory warranties

Implied into every residential building contract, the HBA states that the works under a building contract will be completed within the time stipulated in the contract or, if there is no time stipulated, within a reasonable time. For example, it must take into account instances that are out of the builder’s control such as third party delays. The HBA also determines that the owners must allow reasonable access to the site for builders who may be seeking to rectify any defects.

Turner Corporation Ltd (Receiver and Manager Appointed) v Austotel Pty Ltd (1994) BCL 378

In this case, Turner appealed the decision in favour of Austotel for the recovery of costs of engaging third parties to rectify defects in Turner’s work without notice and without allowing Turner to rectify the defects. The Court found that the owner did not follow the procedural steps and notice provisions in the contract relating to the defects. Here it is important to acknowledge sections 18BA(3)(a) and (b) of the HBA whereby the owners, through their own conduct, prevented Turner from rectifying the defects and were ultimately unsuccessful as a result.

Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303

In this case, it was decided that practical completion of the building work would be in May 2000, and in July of the same year a notice of default was served on the builder for failing to proceed with the building works with due diligence, and by the date for practical completion. In August 2000, the owners terminated the contract, claiming that the builders had failed to remedy the situation. The Court held that there had been no breach of contract, and the builder’s delay and lack of programme for completion, was not enough to amount to a substantial breach of due diligence.

Patel v Redmyre Group Limited [2021] NSWCATAP 132

In this case, the builder worked on the restoration of a residential apartment terrace which was to be completed within 32 weeks. However, the building was not complete by the time specified in the contract and the owners issued a notice of termination with immediate effect. At the time the notice was issued to the builder, the work was 26 weeks behind schedule. The builder sought to rectify the defects, but the owner did not allow access to the site. NCAT held that the builder did not fail to proceed with due diligence and no damages for delay or incomplete works were awarded as the owners failed to mitigate the loss and provide reasonable access to rectify the defects.

THINGS TO CONSIDER

In summary, whether you are a builder or an owner, there are some useful points derived from these cases that may be helpful in understanding if there has been a failure on the part of the builder to proceed with the works with due diligence:

  1. What is the reasonable and relevant time period for a diligent builder to complete the works?
  2. Whether the works are incomplete and, if so, whether there are any circumstances preventing the builder from performance of the works, as well as the pace of performance. This may include any disputes in relation to payment, lack of instructions, a change in scope, request(s) for variations, all of which would cause delay;
  3. Whether there is a lack of activity on the project for a significant period of time that cannot be satisfactorily explained;
  4. Whether the owner mitigated his/her/its loss by allowing reasonable access to the site for the builder to rectify its defects; and
  5. Whether the builder issued extension of time claims and updated programmes if required by the contract.

Terminating a contract based on the failure to proceed with due diligence is a risky one and this is why it must be approached carefully. Otherwise, the owners claiming a breach of due diligence could be found to have repudiated the contract and be liable for damages.

Legal advice should always be sought before terminating a contract.

If you have questions or would like to discuss this article, please contact us.

Think twice! The NSW Supreme Court’s take on Generative AI in practice

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Following its introduction in 2022, ChatGPT paved the way for other generative artificial intelligence (Gen AI) platforms, making them a force to be reckoned with, capable of streamlining any task with the help of data extrapolation and language learning processes.

Gen AI is considered a subset of artificial intelligence that operates by producing written responses (including images) when prompted. To produce these responses Gen AI relies upon the datasets it is fed, but these datasets can often be traced back to websites or other unverified sources of information.

In response to this, the NSW Supreme Court in conjunction with the NSW Land and Environment Court have developed a set of considerations, ensuring lawyers and other key players within the legal industry think twice before outsourcing key responsibilities to any open or closed source Gen AI models.

What do you need to know?

Commencing on 3 February 2025, Practice Note SC Gen 23 – Use of Generative Artificial Intelligence (Practice Note) contains a set of guidelines outlining where Gen AI is considered acceptable for litigants to use[1], as well as corresponding amendments contained within Uniform Civil Procedure (Amendment No 104) Rule 2025 (NSW) (Amended Rules).

The Practice Note does not apply to search engines, transcription or translation software, generic editing software like Microsoft Editor or legal research platforms supported by AI.[2]

Following a set of amendments published on 28 January 2025, the Supreme Court has outlined that Gen AI has limitations that both practitioners and unrepresented litigants should be aware of, including:

  • the production of inaccurate or incorrect responses including false citations or fabricated sections of legislative instruments;
  • the potential for spreading misinformation as the datasets fed to AI may contain irrelevant, out of date or ‘selective’ information; and [3]
  • information provided by Gen AI programs may not be relevant to the NSW legal jurisdiction.

Moreover, a host of ethical concerns arise when considering that many Gen AI platforms lack any inbuilt safeguards to maintain professional privilege over correspondence or other documents that may be uploaded in an attempt to make certain repetitive or administrative tasks more efficient.

Tips for Practitioners

Generally, Gen AI must not be used in generating the content of any ‘affidavits, witness statements, character references’ or other material that is intended to reflect the deponent or witness’ evidence and/or opinion without leave of the court.[4]

It is essential that practitioners include disclosures for deponents specifying that “generative artificial intelligence was not used to generate the content of the [affidavit/witness statement]” within the body of the affidavit/witness statement.[5]

Further, legal practitioners cannot enter information that is subject to non-publication orders, suppression orders, or Harman undertakings (documents obtained in proceedings can only be used for a litigious purpose) or produced by subpoena to Gen AI platforms.[6]

As an exception, provided specific criteria are met[7], practitioners can use Gen AI for the preparation of chronologies, to assist with the review of documents and to prepare written submissions.[8] In relation to written submissions, the writer must manually verify in the body of the document that the citations and academic authorities and references exist, are accurate and have relevance to the proceedings on foot.[9]

Considering the range of strict prohibitions, practitioners should consciously:

  • include the necessary disclosure in all witness statements/affidavits;
  • ensure they are familiar with the contents of the Practice Note so leave is sought for the use of Gen AI, where appropriate;
  • direct the attention of any expert witness being relied upon to abide by the guidelines set out in the Practice Note (see below), and noting Schedule 7 of the UCPR has been amended as part of the Amended Rules;
  • maintain confidentiality over all privileged documents, by storing them on secure document management systems and not uploading them to Gen AI platforms; and
  • where the use of Gen AI is permitted by the Practice Note, review all work produced to ensure accuracy.

Advice for Experts

The Practice Note also highlights the obligations of expert witnesses engaged to produce reports that state their opinion/s and reasoning as evidence.

As part of these obligations expert witnesses should now note that:

  • using Gen AI to produce an expert report is now prohibited without prior permission from the court[10];
  • where permission or leave has been granted by the courts, experts must now disclose and identify the parts of any report that have been produced with the assistance of Gen AI; and
  • reports prepared between 21 November 2024 and 3 February 2025 must identify which parts of the report (if any) have been produced with the assistance of Gen AI.

If at any point in the drafting process Gen AI has been used, the prompts provided to the AI tool and a record of how the outputs were used within the draft or final report must be annexed to the final report. [11]

What’s next?

The Practice Note will be subject to continued review as the capabilities of Gen AI expand beyond simple drafting assistance. Therefore, it is essential that practitioners, expert witnesses, and others periodically review the Practice Note for any updates to maintain best practice when using Gen AI.

Practice Note SC Gen 23 can be read here, but if you or anyone else you know is concerned about how these new guidelines may impact you, please contact Bradbury Legal on (02) 9030 7400 or at info@brabdurylegal.com.au to see how we

[1] Practice Note SC Gen 23 – Use of Generative Artificial Intelligence.

[2] Ibid [6].

[3] Ibid [7].

[4] Ibid [10] and [15].

[5] UCPR rules 31.4(3B) and 35.3B(2).

[6] Ibid [9A]. Also Harman v Secretary of State for the Home Department [1983] 1 AC 280.

[7] Practice Note SC Gen 23 – Use of Generative Artificial Intelligence at [9A].

[8] Ibid [9B and 16].

[9] Ibid [16].

[10] Ibid [20].

[11] Ibid [22(b)].

Case Study – Architect’s Adjudication

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In December, Bradbury Legal acted for a Queensland architecture firm in preparing an adjudication application against a builder for unpaid payment claims and variations claims. The architect was engaged to design an aged care facility in the New South Wales area. The builder sought to withhold over $200,000 from our client’s payment claim, citing back charges, defects, and unapproved variations.

In late October, our client submitted its payment claim for approximately $335,000. After issuing the section 17(2) notice, the builder certified just under $103,000, a difference of over $200,000. The Adjudication Application involved numerous late nights (including an all-nighter by Vinesh, Frankie, and Lachy), reviewing various documents, and drafting submissions and statutory declarations so that the Adjudication Application would be served before the Christmas shutdown period. In the end, the Adjudication Application totaled six folders worth of documents substantiating our client’s right to payment. This was a phenomenal effort by the Bradbury Legal team given the quantity of documents involved, the complexity of the issues, and the strict timeframes under the Security of Payment Act.

The Adjudicator awarded an Adjudication Amount of over $240,000 in favour of our client, representing an incredible result which the client was incredibly thankful for. The Adjudication Amount represented more than double the scheduled amount by the builder, promoting greater cashflow for the architecture firm.

Bradbury Legal is highly experienced in preparing and responding to adjudication applications. If you or anyone you know is struggling to be paid from a head contractor or developer or you have received an adjudication application, please contact Bradbury Legal.

The West Gate Tunnel leads to arbitration

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The D&C JV contractors on the West Gate Tunnel (Project), CPB Contractors and John Holland (Subcontractors), have won the first round in their dispute against Transurban (Project Co) over the presence of contaminated “PFAS” soil in the tunnel area and subsequent purported termination of their contract due to force majeure.

In Transurban WGT Co v CPB Contractors Pty Ltd [2020] VSC 476, Victorian Supreme Court (VSC) refused applications designed to prevent the disputes from proceeding through arbitration.

Facts

The Subcontractors purported to terminate their contract with Project Co on 28 January 2020 due to the discovery and persistence of “PFAS” contamination, which it claimed was a “Force Majeure Termination Event” under the contract.[1] Since this time, the Subcontractors and Project Co have been engaged in disputes on the validity of the termination and various related matters.

By notice dated 2 March 2020, the Subcontractors sought to initiate a “downstream” arbitration with Project Co in relation to various claims.[2] Some 3 months later, Project Co initiated its own “upstream” arbitration in relation to various claims which it had passed upstream via its head contract with the State of Victoria.[3]

Project Co claimed the disputes were “Linked Disputes” under the contract with the Subcontractors. Project Co argued that clause 44A.3(a)(ii) operated to suspend the downstream arbitration while the upstream arbitration progressed (suspension clause).[4]

The Subcontractors sought to refer their various disputes with Project Co to arbitration. Project Co made an application for:

  1. a declaration that the suspension clause was enforceable; and

 

  1. an interlocutory injunction to restrain the Subcontractors from taking steps to progress the downstream arbitration until such time as the upstream arbitration was determined.[5]

The Subcontractor argued that the arbitral tribunal should decide whether to grant such relief to Project Co, not the court. The Subcontractor pointed to ss 5, 8, 9 and 17J of the CAAs which provide only limited powers for court intervention.[6]

The Subcontractor made a referral application to the VSC relying on s 5 and / or 8 of the Commercial Arbitration Act 2011 (Vic) (CAA), requesting the court refer Project Co’s query in relation to the operation of the suspension clause to the arbitral tribunal.[7]

Decision

Lyons J:

  1. found that the court had no power to make a declaration of the kind sought by Project Co;

 

  1. refused Project Co’s application for interlocutory injunctions; and

 

  1. granted the Subcontractor’s application to refer to the arbitral tribunal the question of whether the suspension clause was inoperative.[8]

Lyons J considered in detail the relevant law on the nature of arbitration and the limited ambit given to the court under the CAA. Some of His Honour’s key conclusions included that:

  1. the question whether the suspension clause is valid and enforceable was a matter ‘arising in connection with’ the contract between the parties and, therefore, it was a type of dispute the parties had agreed under their contract would be arbitrable;[9]

 

  1. the arbitral tribunal had the power to make orders relating to the validity, enforceability and/or applicability of the suspension clause of the kind sought by Project Co in court;[10]

 

  1. under the CAA the court’s power to grant interlocutory relief to matters which the CAAs apply derives from s 17J[11]. Accordingly, the court’s power to intervene is limited; and

 

  1. Project Co had failed to establish that the circumstances of the case were exceptional or objectively urgent such that court intervention was required.[12]

As a result, the Subcontractor’s claims in relation to the contract will be heard and determined by an arbitrator. The arbitrator will need to determine whether the suspension clause is enforceable and, if so, operates in the circumstances to pause the downstream arbitration.

Take Home Tip

Parties who agree to arbitration as their preferred dispute resolution forum should note that the courts are increasingly minded to allow arbitral tribunals to rule on their own jurisdiction or “competence” under the CAA. A party should closely consider whether their set of circumstances are truly urgent or exceptional to warrant intervention by the court. If not, it would be better to apply its resources in ventilating preliminary issues in the arbitration first, then challenging the arbitrator’s determination on those issues if necessary and as permitted by the CAA.

Importantly, Lyons J considered that he was bound by Hancock v Rhodes[13], being ‘a decision of an intermediate appellate court in circumstances applying sections of a uniform commercial arbitration act in force in each state in Australia.’[14] This reinforces the relevance of the current decision of the VSC to parties in all States and Territories in Australia.

[1] At [10(1)].

[2] At [12].

[3] At [12].

[4] At [14].

[5] At [23].

[6] At [115] and [128].

[7] At [20].

[8] At [208].

[9] At [170].

[10] At [174].

[11] At [147] and [191].

[12] At [192] to [203].

[13] Hancock Prospecting Pty Ltd v DFD Rhodes Pty Ltd [2020] WASCA 77.

[14] At [147].

What is the amount of damages available to an owner for late completion of work on a residence that the owner does not intend to live in or rent?

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In Leeda Projects Pty Ltd v Yun Zeng [2020] VSCA 192, the Victorian Court of Appeal (VSCA) was required to answer this question.

The case demonstrates that the court will look at the intention of the owner in ascribing a value, if any, to the use of the residence which was unable to be enjoyed as a result of a builder’s breach by late delivery of works.

Facts

In March 2011, Mrs Zeng and her husband purchased the penthouse of the Eureka Tower in Melbourne. On 24 September 2013, Mrs Zeng and Leeda Projects Pty Ltd (the builder) entered into a contract for fit out of the property as a private art gallery with a residential component consisting of two bedrooms with ensuites, a lounge, kitchen and laundry.

Mrs Zeng and her husband intended to use the property as a non-profit private art gallery and potentially spend some time residing in the property. They had access to several other Victorian premises to live in (when they were not travelling internationally), and their primary residence was in Shanghai. There was no intention to rent out the property.[1]

A dispute arose between the builder and Mrs Zeng. The builder made a claim to the Victorian Civil and Administrative Tribunal (VCAT) for progress payments and release of retention. Mrs Zeng counter-claimed for substantial damages on account of the delay in completing the works.

By the time the matter had reached the VSCA, it was not controversial that the builder had breached the contract as there was a delay period of 130 weeks between the date when the works should have been completed and the date when practical completion was achieved. Accordingly, Mrs Zeng was unable to occupy the apartment for those 130 weeks.

However, Mrs Zeng was not required to rent an alternative residence because she continued to live in Shanghai and had other Victorian residences available to her. Mrs Zeng did not lose:

  1. the opportunity to rent the property, as it was never intended to be a rental investment property; or
  2. takings from the art gallery, as it was intended to be a non-profit gallery.

Decision

The VCAT’s award of $100 nominal damages was not the correct measure, nor was the award of $357,500 plus interest by the trial judge for lost rental income at the rate of $2,750 per week.[2]

The VSCA[3] held that case authorities recognised the possibility of the loss of use of a property as being an available compensatory claim.[4] In ordinary cases, this might result in a financial loss to the owner of rent for an alternative residence.[5]

However, in this case, the proper award of damages to Mrs Zeng was $283,802.17 which Mrs Zeng spent on owners corporation charges, council rates and utilities during the 130 weeks.[6] These amounts were spent without benefit to her, but in respect of the property which the builder retained for its own use, being the completion of its works and were a reasonably foreseeable consequence of the breach of contract.[7]

Take Home Tip

If parties want to ensure certainty in the measure of damages payable by the builder in the event of delay, a mechanism for payment of a rate of liquidated damages for such a breach should be included in the contract. However, in doing so, parties must be mindful that a clause for liquidated damages may be challenged where the pre-estimated loss is found to be a penalty clause because it was not based on a genuine estimation of the loss that would result from the builder’s breach.[8]

In the absence of a liquidated damages clause, a builder faced with a claim should check whether the amount claimed is truly compensatory – i.e. does it put the owner in the position in which it would have been if the builder had not breached the obligation to complete on time?

[1] See [86] and [143].

[2] Per McLeish JA at [184].

[3] Comprised of Tate, Kaye and McLeish JJA. We note that McLeish JA gave the lead judgment on the ground dealt with in this case note, with Tate JA agreeing. Kaye JA agreed with the orders proposed by McLeish JA, yet His Honour gave a separate analysis of the authorities.

[4] Per McLeish JA at [174] and [175].

[5] Per McLeish JA at [179].

[6] Per Kaye J at [58] and McLeigh JA at [187].

[7] Per Kaye J at [57] and McLeish JA at [191].

[8] See Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35.