In a recent decision by the Supreme Court, The Owners – Strata Plan No 85561 v Omaya Holdings Pty Ltd  NSWSC 918 (Omaya Holdings), the Court considered the effect of a settlement deed and a remedial contract agreed between parties to a Supreme Court defect claim. The settlement deed required the Developer to provide a HBCF insurance policy and stated that if the rectification works were not complete by the due date or there was default under the settlement deed, the Owners Corporation was entitled to enter to judgment against the Builder and Developer.
Omaya Holdings shows the importance of drafting contracts, especially settlement deeds. It is important for contracts to be clear as to exactly what is required, when it is required, and if there is to be any order of events. Further, a contract should consider what happens if one of the events cannot be achieved.
The Owners Corporation refused to let the Developer carry out the rectification works until a HBCF Policy was in place. As the Developer was unable to procure a HBCF policy, the time for carrying out the rectification works lapsed and the Developer was in default under the settlement deed.
As the settlement deed did not specify whether the HBCF policy was to be procured before the rectification works were completed, the Developer was in default of the settlement deed. As a result, the Court found that judgment could be entered against the Developer for the agreed sum.
The Court considered whether the settlement deed or the remedial contract required the Developer to procure the HBCF policy before it commenced the rectification works. The remedial contract included the Home Building Act 1999 (NSW) Checklist, which includes a check item requiring the contractor to provide a certificate of insurance before the commencement of works. This was sufficient for the Court to find that the Developer was required to procure the HBCF policy before carrying out the works.
Somewhat in passing, Counsel for the Developer and the Builder submitted that the inability to obtain the HBCF policy made it impossible for the Developer to perform its obligations under the settlement agreement (otherwise known as frustrating the contract). The Court considered that it was not the settlement deed, but the remedial contract, which was frustrated and unable to be performed by the Developer. However, as there was an unqualified default under the settlement deed, the Owners Corporation was entitled to seek the remedy under that deed (being judgment entered against the Developer).
Omaya Holdings is a good example in how parties need to consider the drafting of the contracts they enter. Contracts need to be clear as to the parties’ rights and obligations. Thought should be given to what is needed to allow the parties to perform their obligations under the contract, what happens in the event of default, and what contractual mechanisms or provisions are available to the parties to resolve their dispute in a timely and cost-efficient manner. If you or anyone you know needs help with preparing or negotiating contracts, please contact Bradbury Legal.