Does an Owner Fail to Mitigate Loss By Refusing a Builder Access to Recitfy Defective Works? 

In The Owners – Strata Plan No 89074 v Ceerose Pty Ltd [2024] NSWSC 1494 Rees J has set out a detailed summary of the principles for when refusing a builder’s offer to rectify defects will be a failure to mitigate. See at [38]-[53].

The proceeding involved a claim by a home owner aganst a builder for a breach of the statutory warranties under the Homes Building Act 1989 (NSW). The proceeding was on foot for 8 years and before the Court on 52 ocassions.

The owner refused the builder access to rectify defects requiring Rees J to consider the home owner's obligation to act reasonably and whether the home owner owned a duty to the builder to minimise its damages.

At [38] Rees J found:

"While it is frequently said that the plaintiff is subject to a ‘duty’ to mitigate, this is apt to mislead; there is no positive duty to mitigate but a ‘duty’ not to act unreasonably:"

In summary, Rees J considered the principle set in The Owners - Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067 which held:

“In the case of building contracts, it is also generally accepted that the owner must give the builder a reasonable opportunity to rectify any defects. … the owner is required to give the builder an opportunity to minimise the damages it must pay by rectifying the defects, except where its refusal to give the builder that opportunity is reasonable”

Rees J clarified that there was an obligation upon the home owner to act reasonably in mitigation by notifying the builder of defects and allowing reasonable access to the builder to rectify such defects.

Rees J also went on to identify four factors which would assist in determining whether an home owner had acted unreasonably when dealing with the builder such that the home owner’s loss may be disregarded:

(a) the extent and seriousness of the defects;

(b) the quality of any repairs effected by the builder;

(c) the builder’s engagement with the owner in respect of the suggested defects and proposed method of rectification; and

(d) the efficacy or perceived futility of continuing to negotiate with the builder.

(03) 9088 2106
eric@brixtonlegal.com.au
LinkedIn