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In Australia, construction defect claims are on the rise, especially within multi-unit and high-rise residential buildings.

For some time issues such as leaky buildings and non-compliant, fire-hazardous cladding, have been prevalent but a broader array of defects now drives claims. These include structural deficiencies, cladding that does not meet safety standards, and poor-quality finishes that compromise building safety and longevity.

Defects often stem from non-compliance with the National Construction Code (NCC), negligent certification by building surveyors, flawed designs, and poor workmanship. Systems installed without adequate capacity, such as underpowered air conditioning units, also contribute to the issues at hand.

For owners corporations, these claims underscore the importance of swift and strategic action to address, manage, and rectify such defects comprehensively.

Common Types and Causes of Construction Defects

Construction defect typology varies but some types are particularly impactful in multi-residential buildings:

• Structural Failures: Deficiencies in construction methods or the use of subpar materials can lead to structural issues like cracks, sagging, or stability concerns, which compromise both safety and the building’s longevity.
• Cladding Issues: Combustible cladding materials present significant fire risks, making cladding compliance critical. Non-compliant cladding has prompted municipal building surveyors to issue rectification orders, and the financial impact of addressing these defects can be substantial.
• Balcony and Planter Box Defects: Poor waterproofing in areas exposed to the elements, like balconies and planter boxes, can lead to water ingress that affects the underlying structural components, accelerating deterioration and increasing maintenance costs.
• Poor-Quality Finishes: Workmanship issues result in aesthetic and functional deficiencies like uneven surfaces, peeling paint, and improperly installed fixtures.
• Inadequate Systems: Insufficiently power reliant systems, such as air conditioning units installed without considering the building’s demands, lead to poor functionality and can create conditions that fail to meet occupants’ expectations.

Challenges in Managing Construction Defect Claims

Handling defect claims effectively presents several challenges due to the multifaceted nature of construction issues, which often involve poor workmanship, flawed design, and negligent certification. Successfully navigating these claims requires a multi-disciplinary approach, often requiring the engagement of a variety of expert witnesses to diagnose each defect and attribute responsibility accurately:

• Fire-Related Defects: A fire engineer’s expertise is essential in assessing fire safety risks and determining the necessary remediation steps.
• Subsoil Movement and Structural Integrity: For slab or structural movement due to subsoil issues, geotechnical engineers can investigate and pinpoint the cause.
• Certification and Compliance: Building surveyors examine the certification process to determine whether negligence occurred or if the certification met NCC standards.
• Waterproofing Issues: Specialized waterproofing consultants can diagnose water ingress problems, offer effective solutions, and provide expert testimony.
• Structural Issues: Structural engineers play a critical role in analyzing the root causes of structural defects and allocating responsibility to the correct parties.
• Financial Assessment of Losses: Quantity surveyors calculate the financial losses associated with the defects, providing a comprehensive view of the damages incurred.

Selecting credible experts is essential, as they must be able to provide accurate, defensible assessments that withstand cross-examination in court. Accurate expert valuations, rather than inflated claims, are key to establishing realistic expectations and facilitating settlements.

Essential Steps in Running a Successful Defect Claim Against a Builder

Several steps are crucial in maximizing the likelihood of success in defect litigation:

• Competent Body Corporate Management: The body corporate manager is essential for coordinating support among owners, managing communications, and ensuring prompt action on defect claims. Awareness of limitation periods is vital, as they vary by jurisdiction and impact the timing for initiating claims.
• A Strata Community that is on the same page: Sometimes easier said than done as not all unit owners experience the same degree of defects.
• Engagement of Expert Consultants: The involvement of relevant specialists—such as structural engineers, cladding experts, and quantity surveyors—provides foundational reports that underpin the case and support demand letters or legal claims.
• Careful Expert Selection: Choosing credible experts with deep knowledge of the specific issues not only strengthens the case but ensures that the findings are defensible under scrutiny.
• Realistic Valuations: Experts must provide frank, realistic valuations to avoid setting unrealistic expectations that could hinder the negotiation process or impede settlement.
• Procedural Adherence: Ensuring the body corporate’s actions align with procedural requirements prevents costly setbacks. This includes following governing legislation, the passing of the necessary resolutions in a manner that complies with apposite state and territory owners corporation statutes, and adhering to relevant procedural rules. Adversaries are prone to leveraging off breaches of the finer points, this type of litigation can become very, very technical.
• Insurance and Warranty Review: Home warranty insurance and statutory insurance coverage, if applicable, can significantly impact claims, and reviewing coverage and the statutory tenure of the warranty periods is essential to fully explore avenues for recovery and recompense.

Respondents Common Responses to Defect Claims

Once the strata community’s lawyer has all of the ducks in a row, is armed with expert evidence that speaks to the cause of the defect and the cost of rectification a letter of demand will be issued.

Once served with a letter of demand, contractors may use various strategies to reduce liability. Some refer to it as the practice of ‘kicking the can down the road’, the avoiding of the inevitable or more cynically a methodology that is designed to wear down the adversely affected.

• Partial Repairs: Contractors may propose temporary or partial fixes, which do not fully address the underlying defect, leading to further disputes.
• Delay Tactics: Some contractors might delay in hopes that the limitation period will expire, or warranty terms lapse, which can bar claims. Owners corporations must counter these tactics by taking prompt legal action and adhering to procedural timelines.

Choosing Between Court and Tribunal Proceedings

In this firm’s experience, it is rare to find a respondent that will make good that which is required in the letter of demand, so the strata community will be confronted with the ‘High Noon’ decision of either funding the repairs out of its own pocket or litigating. 

When addressing unresolved defects, owners corporations may find that court proceedings are preferable to tribunal processes, particularly when tribunals lack the resources to handle complex cases. Specific legislative acts, such as the Domestic Building Contracts Act, the Home Building Act 1989 (NSW), and Victoria’s Water Act, may also influence proceedings, highlighting the importance of engaging a legal team knowledgeable in both body corporate law and jurisdictional nuances. The deployment of lawyers experienced in these laws is critical.

In most building disputes a number of actors will be responsible and the consulting experts will be tasked with allocating responsibility for compromised outcome. If their diagnostics reveal a combination of factors and actors such as poor workmanship, negligent design and approval then the likes of builders, engineers, architects and building surveyors will be joined to ensure that under the proportionate liability regimes those responsible are caught within the co-defendant net.

Establishing a Fighting Fund for Litigation

Complex construction defect cases entail high costs, often ranging from $6,000 to $15,000 per day to cover fees for solicitors, barristers, and expert witnesses. A fighting fund, typically raised through a special levy following a resolution, is crucial to ensure financial readiness. Although most cases settle at mediation, substantial costs are usually incurred before reaching a settlement stage.

The Litigation Critical Path

The litigation process typically follows the following road map:

• Statement of Claim Preparation: A construction lawyer prepares and a barrister settles the statement of claim, ensuring all responsible parties are included.
• Filing Pleadings: The pleadings are filed and served in court or a tribunal. A directions hearing follows where timelines for filing defences are set. This may include allowing time for defendants to join third parties or cross-claim.
• Expert Witness Reports and Discovery Orders: Orders for expert reports and discovery are issued to ensure that all relevant documents are disclosed and accessible.
• Mediation: Once pleadings close, mediation is scheduled, and parties prepare position statements. All parties are required to attend.
• Trial Preparation and Readiness: If mediation fails, another directions hearing will be held to set a trial date. A certificate of trial readiness may be required, confirming that the case is prepared for trial and a court book will be prepared, filed, and served. Typically, the plaintiff prepares the Court book.

Trial

Complex defect cases, especially those involving multiple defendants, can take two to five years to reach trial. Depending on the jurisdiction and the case’s complexity, the trial itself may last from one to three weeks or significantly longer. Although costs may follow the outcome, and the prevailing party may be awarded costs, this outcome is not always assured.

Key Takeaways for Managing Construction Defect Claims

• Timely Diagnosis and Expert Engagement: Engaging relevant experts promptly is crucial to diagnosing and resolving defects effectively.
• Effective Body Corporate Management: A competent manager helps secure financial backing and maintains progress on the claim.
• Financial Preparedness: A well-funded fighting fund is necessary to cover daily litigation expenses.
• Awareness of Legal Complexities: Knowledge of limitation periods, insurance coverage, and relevant legislation impacts the scope and validity of claims.
• Realistic Valuations: Accurate expert valuations support fair settlements and maintain credibility.
• Countering Contractor Tactics: Contractors may attempt partial fixes or stalling tactics, so proactive legal strategies are necessary to ensure a full and timely resolution.
• Official Communication Channels: Sometimes members of the owners corporation committee unilaterally contact the solicitors on record rather than going through the chair or the body corporate manager. Although the trials and tribulations of trials and the litigation journey often take a toll on members of the strata community it is best to go through the official and sanctioned channels to avoid overloading the solicitor on record and imparting contradictory instructions.

Conclusion

The successful management of construction defect claims requires a coordinated, strategic approach that involves accurate diagnosis, securing credible expert witnesses, and ensuring financial preparedness. By aligning realistic valuations with robust legal and technical support, owners corporations can navigate the complexities of defect claims more effectively. Achieving a fair and comprehensive resolution depends on well-founded claims, credible evidence, and financial readiness.

About Lovegrove & Cotton

Lovegrove & Cotton Construction and Planning Lawyers, established in 1993, has handled thousands of cases in Victoria, the ACT, and NSW. The firm has represented body corporates and strata communities in disputes involving values ranging from half a million to fifteen million dollars. Justin Cotton and Tsigereda Lovegrove bring seasoned expertise in this area, with Justin presenting as a lawyer with 22 years of construction law experience.

Disclaimer:

The information provided in this article is for general informational purposes only. It does not constitute legal advice. For specific legal advice please consult a construction lawyer.