$1 per day LD’s in residential building contracts no longer rules out claims by owners for general damages for delay

Facts

In Cappello v Hammond & Simonds NSW Pty Ltd [2020] NSWSC 1021, Hammond & Simonds NSW Pty Ltd (Builder) entered into a standard form Housing Industry Association NSW Residential Building Contract for Works on a Cost Plus Basis (Contract) with Mr and Mrs Cappello (Owners) to renovate the ground floor of their house in Haberfield.

The LD’s for late completion was $1 per working day which was consistent with the default position under the Contract.

The works under the Contract were completed approximately 7 months late and the Builder made no requests for any extensions of time.  The Owners made various claims against the Builder, among them, was a claim for general damages for delay in the sum of $30,000.

Builder’s case

The Builder claimed that the Owners were only entitled to recover $1 per working day for delay in accordance with the LD clause in the Contract and that by making provision for LD’s in the Contract, the parties were taken to have intended to exclude a right for the Owners to also claim general damages for delay against the Builder.

Owners’ case

The Owners’ claimed that the LD clause did not provide the only remedy for the Builder’s delay because if it did, it would be void due to section 18G of the Home Building Act 1989 (NSW) (HBA) as it would have the effect of restricting the Owners’ rights in relation to the benefit of the warranty under section 18B(1)(d) of the HBA (that the work will be done with due diligence and within the time stipulated in the Contract).

What did the Supreme Court decide?

The Court found that:

• the LD clause should not be interpreted as providing the only remedy for delay. Rather, by specifying the amount of LD’s so low at $1 per working day, instead the parties intended for the Owners to also have a right to claim general damages for delay (although in this case general damages were ultimately not awarded as the Owners did not meet the test for general damages that applies to breach of contract);
• that an LD clause which limits a party to claiming nominal damages for a breach of a warranty restricts the rights of that person in respect of the warranty and is therefore void under section 18G of the HBA (which says that any agreement that restricts or removes the right of a person in respect of any of the statutory warranties is void); and
• the outcome may have been different if the LD clause provided for the payment of a substantial amount in LD’s.

What does this mean for residential builders?

• builders will be exposed in relation to existing contracts that stipulate $1 per working day (or a nominal amount for LD’s) as owners would be entitled to LD’s of $1 per working day plus general damages for delay by the builder;
• any attempt to limit the builder’s liability for delay (including inserting a nominal amount for LD’s) will be void under section 18G of the HBA;
• if builders wish to exclude general damages for delay in new contracts, they should insert a rate for LD’s that offers the owner a “substantial right” to compensation not just a nominal amount for breach of the statutory warranty (that the work will be done with due diligence and within the time stipulated in the contract); and
• in order to limit the builder’s exposure for not only LD’s but also general damages for delay, builders should ensure that they claim all available EOT’s in relation to extending the contract period