Australia: Civil contractors legal guide: Quality

Last Updated: 23 December 2017
Article by Murray Thornhill

Standard of Workmanship

Most standard-form contracts provide that a contractor's works are to be carried out in a "proper and workmanlike manner". Different words may be used but the general concept is the same.

Even if the contract does not describe the standard of workmanship, the common law (that is, the law that develops over time through precedents set by the courts) says that this standard of workmanship is implied into every works contract.

Because it is the contract that sets the standard, the law treats work which falls below this standard as a breach of contract.

Your rights if a Subcontractor does defective work

Under the common law, this breach of contract will entitle the contractor's principal or employer to be compensated for the loss and damage suffered as a result of poor workmanship.

Such loss and damage will usually include one or more of the following:

  • the cost to engage other contractors to rectify the faulty workmanship;
  • the delay and disruption costs incurred while the contractor's principal or employer waits for those defects to be rectified;
  • if the works are part of a production process (for example, a factory or a power plant), the contractor's principal or employer may suffer loss of profits while the building cannot be used for its intended purpose; and
  • if the contractor is engaged in a landmark project or a project that has received a lot of public attention (for example, Elizabeth Quay or the new Burswood Stadium), the contractor's principal or employer may suffer loss of reputation.

Traditionally, the law only allowed principals to sue for a sum of money to compensate them for the loss and damage caused by a contractor's poor workmanship.

However, in WA and in some other Australian states, specialist tribunals have been created with the power to order the contractor to go back on site and remedy defects.

Other rights under WA legislation

In WA, the Building Commissioner and the State Administrative Tribunal ("SAT") share this power.

However, their power to order rectification of building defects is limited.

Who can deal with defect claims?

The Building Commissioner can only order rectification that costs up to $100,000.

The SAT can only order rectification that costs up to $500,000.

If the defects will cost more than $500,000 to rectify, the affected principal or employer must sue for compensation in a court or take the dispute to arbitration (provided that the contract requires or allows arbitration, or the parties agree to refer the dispute to arbitration).

How is compensation for defects worked out?

The amount of compensation is generally either:

  • the cost to bring the workmanship up to a proper and workmanlike standard; or
  • the difference between the market value of the works "as is" and the market value the works would have had if they had been done properly; or
  • in extreme cases, where there is no way to make the defective works fit for their intended purpose, the courts may award an amount in compensation reflecting the cost of demolishing and redoing either the affected part of the works or, if necessary, the whole of the works.

When are experts needed?

Judges and lawyers are not experts in how construction work is done and therefore often need the help of expert witnesses, to explain:

  • how the works were done;
  • how the works should have been done and why;
  • why the works are defective; and
  • what needs to be done to fix the works and bring them up to the required standard.

These experts may include:

  • geotechnical engineers;
  • structural engineers;
  • mechanical/electrical/hydraulic engineers;
  • quantity surveyors/estimators;
  • experienced builders and contractors;
  • property valuers; and
  • forensic accountants.

Obtaining and using expert evidence

There are strict rules in relation to the kind of expert evidence a court will consider. For this reason, you should not attempt to brief an expert yourself, without first taking legal advice, even in simple cases.

The other reason to instruct experts through lawyers is that if an expert instructed by a lawyer writes something down that you do not want disclosed or that turns out not to be helpful to your case, then that report is protected from being disclosed to the other side. This is because of a special duty that your lawyer owes to you, called lawyer-client privilege. Privilege is like a bond of secrecy, whereby communications which take place between you and your lawyer and in some cases, your lawyer and third parties on your behalf, are never to be seen by anyone else (including a court or tribunal). You will not have any right of privilege if you instruct an expert directly, rather than through a lawyer.

Time limits for defect claims

Most but not all claims arising from faulty or defective workmanship must be made within a certain period of time. Otherwise, they become barred by statutes of limitation. In most cases, these claims need to be made within six years of the date of practical completion of the works that are said to be defective.

There is one important exception to this rule. That exception specifically concerns latent defects. These are defects that at the time of practical completion and for some time afterwards, are hidden from plain view and only show up later. Common examples include:

  • excessive settlement of building foundations laid on poorly compacted ground;
  • more civil-oriented works: eg, incorrect levels, excavation faults, water table engineering;
  • damage to concrete and other porous structures caused by moisture ingress;
  • rusting of ungalvanised metal components under the surface of a structure;
  • slow leakage of chemicals and contaminants from components of mechanical parts; and
  • termite damage.

Such defects may not show any signs for many years after the works have been practically completed. In these circumstances, the six-year period that the principal has to take legal action for defective workmanship against the contractor may start to run from the time when the defect was or should have become known to the principal.

For example, a principal took legal action about 15 years after the affected structure had reached practical completion in Brookfield Multiplex Ltd (ACN 008687063) v Owners Corporation Strata Plan 61288 [2014] HCA 36.

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.

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Authors
Murray Thornhill
 
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