Unik Constructions Pty Ltd v Edirisinghe (Building and Property) [2024] VCAT 49 (17 January 2024)
Background facts
In Unik constructions, the respondents were owners of a property they planned to demolish and rebuild into two townhouses, and the applicant was the builder of the property. Due to conflict throughout construction regarding the builder’s plans, a deed was entered into on 24 October 2017. This deed varied the contract, requiring the builder to complete the works by 14 December 2017 and for the owners to pay the builder certain amounts. Upon the builder’s completion of the works, he issued occupancy permits on 13 December 2017 and invoiced $104,900 to the owners. However, the owners argued against a completion of works, citing multiple defects the builder had made and producing an expert report on such defects on 18 December 2017 (titled the ‘Darbecca’ reports), and did not pay the invoice. The owners subsequently served a notice of substantial breach on 20 December 2017, and threatened termination of contract if the builder did not fix such defects within 14 days. A notice terminating the contract was then issued 5 January 2018.
The issues surrounding this case are as follows:
The builder claimed the $104,900 that it was owed by the owners, and contended that the contract termination was unlawful, or a repudiation of it, while the owners claimed the builder had been in breach of the contract due to the defective works and lack of remedy. Questions that arose during this case were:
- What was the effect of the deed on existing disputes and process at completion of the works?
- were works defective?
- did the builder reach completion by the date due for completion?
- were the owners entitled to terminate the contract for defects in the works or failure to complete the work by the date due for completion?
Discussion
The deed signed between the two parties held that the owners must pay the final claim of $104,900 within 7 days of receipt of the invoice, if the builder has provided occupancy permits for the units and completed the works properly, and the owners must pay this sum regardless of minor defects being present. If there are legitimate defects, the owners can then provide a list of such defects to the builder within 14 days of completion (Clause 5.1(b) of the Deed), and, according to the contract, the builder must fix the items listed within 21 days; if necessary materials are unavailable, then within a reasonable period after receiving the defects list, upon which the owners are to pay the final claim.
Additionally, the issuing of the occupancy permits were not a determinant of the question of defective works. Such permits are issued based on suitability of occupancy, not if the works comply with the relevant building standards set out in the Building Act 1993 (Vic).
Beware of Termination Notice Risks
In Member Feeney’s ruling, he concluded that the builder had completed the works on the 14 December 2017, save for minor defects, and that the owner’s termination of the contract was unlawful. Therefore, the owners were required to pay the invoice within 7 days of receipt – by 21 December 2017. It was ordered that the owners pay the $104,900, and the builders $59,975 to the owners for the defects.
The contract was unlawfully terminated due to the defects being minor, and because, even if they had been legitimate defects, the owners had only abided by the 14-day period, without affording the builder the requisite 21 days afterwards to fix such defects, as the contract was terminated on 5 January 2018. Therefore, any claim from the owners that the builder was neglectful in fixing the defects was false as the time frame in which to attend to the defects had not even passed yet. It was asserted that the builder even had intention to fix the defects, based on his attendance to some of them and a response to the defects list provided to him.
This case underscores the critical need to meticulously review and adhere to all terms and regulations, particularly in scenarios involving multiple documents such as deeds and contracts. In matters of contract termination, utmost caution is paramount to avoid any inadvertent breaches of the agreement.
At Warlows Legal, we specialize in navigating contracts. If you’re considering terminating your building contract, feel free to schedule a complimentary initial consultation with us, and we’ll assist you.
