Background

In December 2015, Crea (Owner) engaged Bedrock Construction and Development Pty Ltd (Contractor) to perform a renovation and fit-out of a restaurant in the Adelaide CBD (Works), pursuant to a standard form “Simple Works Contract – ABIC SW-2008” (Contract).

The Contract provided that that the Contractor was required to carry out the Works in accordance with the construction drawings provided by the Owner. The Contract also included a defects liability period (DLP), within which the Contractor was required to rectify any defects or finalise any incomplete work, within 10 working days after receiving written instruction to do so. The DLP commenced from the Date of Practical Completion and ran for a period of six months.

During the DLP, the Owner identified various defects in the Works, which were presented to the Contractor by the contract administrator, the architect (Architect). The Contractor performed rectification works in relation to a number of the defects. However, the Owner eventually refused the Contractor further access to the Site and issued a notice of termination under the Contract.

Decision at Trial

In December 2019, the Owner commenced proceedings against the Contractor in the District Court of South Australia seeking damages for the allegedly defective works and the cost of engaging a third party to perform the rectification works.

The Trial Judge considered that the Owner had a common law right to damages on this basis, provided that the Contractor had been given a reasonable opportunity to rectify the defects. It was clarified however, that there was no such requirement where it was reasonable in the circumstances to refuse that opportunity or where the Contractor repudiated the Contract by refusing to undertake the rectification work.

Against this backdrop, the Trial Judge held that the break-down in the parties’ relationship constituted a reasonable justification for the Owner’s failure to provide an opportunity to the Contractor. Accordingly the Owner was awarded the damages sought. The Contractor contested the decision at first instance and sought leave to appeal at the South Australian Court of Appeal (Appeal).

Decision on Appeal

On appeal, the Contractor argued that the Trial Judge erred in finding (among other things) that:

• the Contractor had no right to attend the Site to carry out rectification work on and from the date on which the Owner refused its access; and
• the Owner provided the Contractor with adequate opportunities to rectify all defects but the Contractor failed to do so.

The Court held that the Contract expressly provided a minimum period of 10 working days within which to rectify defects after the provision of written instruction to do so. This was held to be a condition precedent, which was not ”constrained by any notion of reasonableness”. Accordingly, the Court held that notwithstanding that the Owner afforded some other ”reasonable” opportunity to the Contractor to rectify the defects, such opportunity was insufficient on the face of the Contract.[1]

The Court therefore held on appeal that the Trial Judge erred in overlooking the significance of the contractual regime for addressing the rectification of defects. The Contractor’s appeal was allowed on this basis.[2]

The Court concluded that the appropriate approach was to reduce the Owner’s damages by removing the items which the Contractor could have rectified if it had been provided with the contractually required time period.[3]

Conclusion

This decision serves as a caution to parties to take particular care in ensuring that defective and incomplete works are addressed within the agreed contractual framework. Failure to do so may prejudice an owner’s right to have rectification work undertaken by others, or affect their measure of damages if this occurs.