Australia: Court of Appeal Clarifies Scope of Statutory Warranties
Ace Woollahra Pty Limited v The Owners-Strata Plan 61424 & Anor [2010] NSWCA 101

Introduction

In this case, the New South Wales Court of Appeal decided unanimously that an owner which was not a successor in title to a party to the original building contract (or to an owner-builder or developer who did residential building work other than under a contract) was not entitled to enforce statutory warranties against the original builder.

The facts

The appellant builder ('the builder') completed the construction of 38 strata titled aged person units under a building contract with Wallis Street Developments Limited ('Wallis'). Wallis was not the registered proprietor of the land on which the building work took place but it had entered into a joint venture agreement with the registered proprietor, PRC Limited.

When construction work was completed all of the apartment dwellings were owned by PRC Limited. On 15 December 1999, the strata plan for the property was registered and the common property vested in the respondent to the appeal, The Owners- Strata Plan 61424 ('the owner').

The owner then sought to enforce statutory warranties, implied in the building contract by s18B of the Home Building Act 1989 (NSW) ('HB Act') against the builder in respect of defective work.

Section 18D of the HB Act provides that a person who is the successor in title to a person entitled to the benefit of a statutory warranty is entitled to the same rights as the person's predecessor in title, in respect of the statutory warranty.

The arguments

It was common ground between the parties that the owner was not a successor in title to Wallis.

The owner said that this did not matter and,on a purposive construction of s18D of the HB Act, it was entitled to the benefit of statutory warranties against the builder. It placed some reliance upon s99 of the HB Act which provides, relevantly, that a domestic building warranty policy must insure 'a person on whose behalf work is being done' against the risk of loss from breach of statutory warranties. The owner argued that the work in this case was done on behalf of PRC Limited and that it could be inferred from s99 of the HB Act that PRC Limited and its successors in title (including the owner) were entitled to enforce the statutory warranties.

The builder argued that the proprietor was not a successor in title to Wallis and thus simply could not bring itself within the language of s18D of the HB Act. Accordingly, said the builder, the owner was not entitled to enforce the statutory warranties against it.

The decision at first instance

The primary judge noted that the owner had to 'find a bridge' from Wallis, the contracting party, to PRC Limited, the first registered owner, to take advantage of the statutory warranties and that, for this purpose, the owner had relied on s99 of the HB Act.

His Honour took the view that the scheme of the HB Act favoured the owner's position: that is, that the circumstances which entitle a person to the benefit of a statutory warranty under s18D are satisfied when the work is done on behalf of that person within the meaning of s99 of the HB Act which, he said, was not intended to be a technical expression but which raised a factual enquiry.

The decision of the court of appeal

Sackville AJA, with whom Tobias JA and McColl JA agreed, overturned the judgement below and held that the owner was not entitled to enforce statutory warranties against the builder.

His Honour rejected what he described as the 'dubious assumption' that the expression 'on whose behalf the work is being done' in s99 of the HB Act embraced persons who were not parties to a building contract. Whilst acknowledging that the expression is capable of many different meanings, he found that there were 'good reasons' for confining it in this context to the case where residential building work was undertaken by one party on a contractual basis for another party.

His Honour noted that, even if this view was wrong, it was 'a large step' to move from the proposition that a contractor's insurance policy must insure a person on whose behalf residential building work was being done (even if not a party to the building contract), to the proposition that scope of the words 'person entitled to the benefit of a statutory warranty' in s18D of the HB Act must be similarly extended.

The structure of Part 2C of the HB Act, he held, was such that a person was entitled to the benefit of a statutory warranty for the purposes of s18D 'only if s18B or s18C so provides'. Section 18B provides that certain warranties are to be implied into every contract to do residential building work and thus entitles the party contracting with the builder to enforce the warranties. Section 18C creates what His Honour described as a 'deemed contract' where residential building work is done without a contract in place or, if there is a contract, a developer is not a party to it. A contract is ,'deemed to exist between the person who has done the work or the developer (as the case may be) and the immediate successor in title to that person or the developer'. Section 18D then extends the benefit of the statutory warranties implied in the building contract (s18B) or included in the deemed contract (s18C), to a successor in title of the person originally entitled to the benefit of those warranties.

Conclusion

The decision provides a useful clarification as to the parties who are entitled to the benefit of statutory warranties. Whilst there have been some changes to the relevant legislation since the events which gave rise to the proceedings (principally, the introduction of the last resort insurance scheme), the form of sections 18B to 18D has not altered materially and it is likely Sackville AJA's reasoning would apply equally to those provisions in their present form.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.