Author: baron + associates

The recent case of Harris v Morabito Holdings [2018] NSWSC 912 is just one of an increasing number of construction disputes in which the courts have relied on the reports of a special referee to make a decision. Special referees are an independent third party who are not bound by the usual rules of evidence and can make their own inquiries about the questions they have been assigned.

In this case, a dispute between the developers and their builder revolved around the builder’s defective works, so the special referee decided to inspect the site himself. He came to the conclusion that the builder was required to pay $328,000 to the developers. However the developers were unhappy with this amount and strongly argued against the report being accepted. McDougall J held that the court had the discretion to accept, vary or reject a special referee’s report, and in this case the court found no reason not to accept it.

The NSW government is set to introduce new legislation that will stop real estate agents from requesting or accepting a gift or benefit that may lead to a conflict of interest. The main conflicts of interest happen when real estate firms receive commission from other service providers in exchange for customer referrals. While the expansion of the Property, Stock and Business Agents Act 2002 is set to prohibit such behaviour, no mention is made of other benefits real estate agents may still enjoy, such as gifts from their clients.

The NSW government has announced changes to the Conveyancing Act that will increase the protections for home buyers purchasing residential properties off-the-plan. Off-the-plan purchases are those made before the property has been built, and may expose purchasers to associated risks.

The reforms will affect disclosures, cooling off periods, the holding of deposits and sunset clauses by

• allowing buyers to terminate the contract or claim compensation if they are materially impacted by any changes to the plan that was disclosed,
• imposing a requirement that buyers be provided with a copy of the proposed plan, proposed by-laws and a schedule of finishes,
• extending the cooling off period to ten business days

A creditor has successfully defended an unfair preference claim in the recent case of Heavy Plant Leasing [2018] NSWSC 707 by arguing they did not have reasonable grounds to suspect the insolvency of a subcontractor. Unfair preference claims occur where a creditor has been given an advantage over other creditors by receiving payment for their outstanding liabilities in circumstances where they knew, or ought to have known, that the company was insolvent. But s588FG(2) of the Corporations Act 2001 provides a defence to such a claim if a creditor could not have reasonably suspected that the business was insolvent.

In this case, the defendant argued that the nature of the construction business meant late payments were not enough of an indication that that the subcontractor might be facing insolvency. The court agreed with the defendant and noted that in the construction industry late payments are a common issue, as subcontractors are often reliant on progress payments from head contractors for cash flow.

Retail and commercial leases often have make-good clauses that oblige tenants to return the premises to their original condition at the end of the lease. However these clauses can easily lead to disputes when the parties have different understandings of what their exact obligations are, especially when costly fit-outs have to be removed or installed.

The consequences of failing to comply with such a clause were discussed in James v Hutton and J Cook & Sons Ltd [1950] 1KB9, where the court held that the landlord will normally be entitled to recover the amount it would cost to carry out the repair works. In order to avoid such a dispute, the lease should clarify what the exact make-good obligations are, including the state of the premises when it was taken over, what state the premises should be returned to and what fixtures and fittings the landlord wants removed or kept.

A disclaimer is a contractual clause that seeks to limit the application of some of the terms of a contract or is otherwise a denial of a party’s right or liability under a contract. While they may sound good, a disclaimer is not necessarily enough to defeat a claim in all circumstances, particularly if a party has provided incorrect information or engaged in misleading and deceptive conduct, as was found in Havyn Pty Ltd v Webster [2005] NSWCA 182.

Disclaimers can act as a mitigating factor, but it will only be one of the many factors that the court will consider when determining any liability for misrepresentation including the nature of transaction, sophistication of the parties, the nature of the representation and the expertise of the person providing the representation.

A recent decision in the Land and Environment Court has provided an important reminder to developers that an order for an easement of necessity, such as the right of carriageway when a lot is potentially landlocked, will not always be granted. In Acorp Developments Pty Ltd v HWR Pty Limited [2018] NSWLEC 68 the court refused to grant an easement of necessity for a 6m wide right of carriageway, and instead held it was not reasonably necessary for the effective use or development of the site.

In coming to this decision the court held that access was directly available from the site’s street front, and also considered the fact that the owner of the lot in question had plans for his own development of the land. The court came to this decision despite the fact that a Commissioner of the Court granted consent to development based on the right of carriageway being available.

A recent case in the NSW Supreme Court has highlighted the importance of clarifying what is a gift and what is an investment when it comes to family property purchases. In Dunphy v Russell [2018] NSWSC 721 a daughter disputed whether a $200,000 payment by her father towards her first house constituted a gift or was made with the intention to create a trust.

While the daughter insisted that the money was a gift given because of the father’s guilt over his absence from her life, the court ultimately held that the father’s contribution to the purchase of a $562,000 home was given in return for a one third interest in the property, and that the interest was held by her on trust.

The NSW Supreme Court recently held in the case of Ku-ring-gai Council v Ichor Constructions Pty Ltd [2018] NSWSC 610 that where an arbitrator wants to take on the role of mediator, they must carefully follow the law or risk the arbitration be invalid. The Commercial Arbitration Act 2010 allows arbitrators to act as mediators under s27D(1), as long as all parties in the arbitration have given their written consent. In this case the arbitrator was given this consent and proposed that both parties withdraw their claims and bear their own costs – this was quickly rejected and the mediator proposed to continue with the arbitration.

However under s27D(6) this switch back to arbitration also needs the written consent of both the parties, and this was not sought. After a further four days of arbitration, Ichor Constructions protested and it was ultimately held that because of the lack of written consent the arbitration could not continue.

The Australian Consumer Law extended its unfair contract terms to small businesses in 2016, which may have since affected the way builders and head contractors use standard form contracts to engage subcontractors or independent contractors. Some recurring terms in standard construction contracts that might be deemed unfair when contracting with a small subcontractor could include:

• Indemnity clauses that excessively extend liability to the subcontractor beyond what would reasonably be necessary to protect the head contractor against loss or damage.
• Liability clauses that exclude or disproportionately limit the liability of the main contractor even if they are partially at fault.
• Termination clauses allowing for the head contractor to cancel the agreement at any time ‘for convenience’
• Time bars that may give onerous time frames and notification procedures for subcontractors to make claims for any time variations