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A recent Supreme Court decision illustrates the risks of settling a building dispute by requiring a builder to "remedy defects" rather than paying money. Even where the obligation to remedy defects is contained in a formal settlement deed, the Court will rarely compel specific performance of building works.
In Grech v Biltar Pty Ltd [2025] VSC 636, the owner sought orders compelling the builder to specifically perform its obligations under a settlement deed to carry out rectification works. The deed required the builder to fix defects identified by an independent expert and to complete those works to that expert's satisfaction. When the builder delayed and sought an extension, the owner refused, citing concerns about the builder's cash-flow position and reliability, and applied to compel specific performance of the deed.
The Court's approach
Associate Justice Efthim reaffirmed that specific performance of building contracts is an exceptional remedy. Courts are reluctant to supervise construction work and will only order specific performance of a building contract where:
- The work is clearly defined by the contract.
- The owner has a substantial interest in performance that cannot be adequately met by damages.
- The builder is in possession of the site.
The deed and the right to specific performance
The case was unusual in that the deed of settlement itself expressly contemplated specific performance as a remedy. Clause 7.4(b) provided that if the builder materially defaulted in its obligations under clause 5 (that is, to complete the rectification works identified by the expert to the expert's satisfaction), the owner could:
"commence proceedings in a court of competent jurisdiction against the Builder seeking specific performance of the terms of this Deed plus interest and costs."
The owner argued that this clause demonstrated the parties' intention that the Court should compel specific performance if the builder defaulted. The Court accepted that the clause entitled the owner to seek such an order, but emphasised that it did not bind the Court to grant it. The equitable discretion to refuse specific performance still applied.
Unclear scope of works
The rectification process under the deed relied on an independent expert's reports, but those reports left the scope of work uncertain. Items such as balcony compliance, glass panel holes and brickwork cleaning were expressed in open-ended terms, leaving questions unresolved.
His Honour found that this lack of precision made the obligations unsuitable for enforcement. Even though the deed established a mechanism for resolving disagreements, it still required ongoing cooperation and judgment calls that the Court could not sensibly supervise.
Damages and practical alternatives
The owner argued that damages were inadequate because hiring another builder in a regional area would be costly and difficult, and because the builder appeared financially weak. The Court accepted that the builder had experienced cash-flow problems but emphasised that those concerns did not automatically justify compelling specific performance.
The builder was insured with the Victorian Managed Insurance Authority (VMIA), which provided cover up to $300,000. There was no evidence that the cost of rectifying the defects would exceed that cap. Without such evidence, damages remained an adequate and practical remedy.
Importantly, the existence of VMIA insurance significantly reduced the solvency risk relied upon by the owner. That statutory cover is triggered if a builder dies, disappears, becomes insolvent, or fails to comply with a VCAT or court order to remedy defective works.
Associate Justice Efthim observed that many of the owner's concerns, such as expense, delay and the inconvenience of engaging a new builder, were common to most building disputes and did not warrant an order compelling specific performance.
Conduct and relationship
Past hostility between the parties reinforced the impracticality of forcing cooperation under court order. The Court was not prepared to compel a working relationship that had already broken down. This was a further reason to deny the equitable relief sought.
The result
The application to compel specific performance was dismissed. The Court held that damages, supported by the VMIA warranty cover, provided a sufficient remedy and that the rectification mechanism under the deed was too uncertain to enforce, notwithstanding that the deed expressly contemplated specific performance.
Key lessons for owners
- Be cautious about "remedy defects" settlements. A promise to carry out rectification works can be worth little if the scope is undefined or the builder's financial position is uncertain.
- A clause allowing for "specific performance" does not guarantee that the Court will compel it. The equitable discretion to refuse such an order still applies.
- Consider taking money instead. A financial settlement based on an agreed or estimated cost of rectification provides finality and avoids future disputes about workmanship or compliance.
- Ensure proper costing. If the cost of rectification is not established, it is difficult to argue that damages are inadequate or that specific performance is necessary.
- Keep insurance limits in mind. If the likely cost of the defects is within the VMIA or other statutory insurance cap, the Court will usually consider damages adequate.
- Think about relationships, not just remedies. Once trust has broken down, it is rarely in anyone's interests to have the builder return to site. Court-ordered cooperation in a hostile environment almost guarantees further delay and conflict.
What it means in practice
This decision is a reminder that in the majority of situations the best settlement is one that ends the relationship, not one that tries to patch a broken one back together. Even where a deed expressly provides for specific performance, the Court will be slow to compel it. Where obligations are vague, the builder's solvency uncertain and the working relationship strained, a promise to "remedy defects" can prolong the dispute instead of resolving it. In most matters, taking money and moving on will produce a cleaner, quicker and more enforceable outcome.
If you do settle on a "remedy defects" basis, consider structuring the settlement deed to provide for payment of the costed value of the defects in the event of default.
This ensures the owner retains a practical monetary remedy without the need to seek specific performance or re-litigate the underlying issues.
Please contact Carl Millington with any queries regarding this article.
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.
