Limiting liability in NSW residential building contracts – what are the limits?

Including a contractual limitation on liability is a tempting proposition to manage risk. A recent decision considered whether such a term unwittingly restricted or removed an owner's rights under the Home Building Act 1989 (NSW) (Act) and serves as a reminder that if contractual terms restrict or remove the rights of the owners, they may be read down or held to be void.


The application to the Tribunal involved allegations defective work including in roof decking, which resulted in water ingress.

The contract relevantly provided, at clause 36.2:

The builder is not responsible for:

(a) loss or damage to the owner's property or property for which the owner is responsible that is left on the site

(b) subject to Clause 36.2(c) any defect, structural deficiency, settlement or deterioration in the existing building except to the extent that it is caused by the builder failing to take reasonable care in carrying out the works

(c) damage to ceilings in the existing building except to the extent that it is caused by the builder failing to take reasonable care in carrying out the building works, but then only to the extent of repairing and excluding any repainting

(d) damage to paths, gardens, driveways, trees, lawns and other landscaping

(e) the restoration of areas affected by the building works to their original condition.

In making an order for damages, including in relation to the cost of rectification or replacement of damaged floors and furniture, the Tribunal below found that:

  • defective work in respect of the roof decking was a cause of internal damage
  • inadequate sealing of the flue caused damage to the plasterboard ceiling
  • clauses 36.2(c) and (e) of the contract were to be read down by reference to s 18G of the Act.

Section 18G of the Act provides that a provision of a contract that purports to restrict or remove rights of a person in respect of the operation of the statutory warranties under section 18B, is void.


The Builder appealed on the following grounds:

  • the Tribunal erred on a question of law by reading down the term of clause 36.2(c) and (e) be reference to section 18G of the Act
  • the Tribunal erred (on a question of law) in a process of reasoning regarding causation
  • in the alternative, the findings made were against the weight of the evidence
  • the Tribunal erred on a question of law, by awarding damages in respect of water damage to the floor when the relevant claim had been abandoned.

The focus of our article will be the first ground, the s. 18G issue.

Application of s 18G of the Act

The Builder argued that the Tribunal erred in determining that the effect of clause 36.2 was to restrict the rights of the owner to damages for breach of the statutory warranties under s. 18B(1) and that the clause had a legitimate basis in freedom of contract.

The Appeal Panel held that the Tribunal below correctly found that clause 36.2(c) and (e) did restrict the operation of the statutory warranties under s. 18B(1) of the Act.

The restriction in clause 36.2(c) was found to operate in three ways:

  • to confine liability to a failure to take reasonable care (also the reason given for clause 36.2(b) operating as a restriction), which is not a requirement of the statutory warranties
  • to confine any order to repair, which disentitles replacement
  • by excluding repainting.

The restriction in clause 36.2(e) appeared to restrict a right under s. 18B(1) of the Act in circumstances where replacement rather than repair is considered appropriate.

The contract allowed clause 36.2 (b), (c) and (e) to be read down to the extent they are impermissible, however clause 36.2(a) could restrict or remove the right provided by a statutory warranty and may thus be rendered void by s. 18G of the Act.


Section 18G is powerful in its protection of the statutory warranties under the Act, which cannot be 'undone' in contract, regardless of whether relevant contractual terms are agreed in 'freedom of contract'.

Builders should consider whether standard terms and in particular, their favourite special conditions, operate to restrict or remove the rights of owners under s.18B(1).

Given that offending terms will be either read down or rendered void, builders should consider pricing in the risks they are seeking to exclude, so that their bargain reflects the deal they may be held to have made, if their contract is reviewed by the courts or the Tribunal.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.