In early January 2024, a subcontractor served a creditor’s statutory demand upon the builder seeking, inter alia, a release of the retention monies withheld by the builder to secure the subcontractor’s obligations, which included rectification of any defects in the subcontractor’s works.
Our commercial litigation lawyer, Jason Koh, acted for the builder in this case.
The subcontract stipulated that the remaining retention is to be released when there has been “proper rectification as determined by the [builder] of all defects as notified to the [subcontractor]”.
The subcontractor argued that when the builder unsuccessfully sued the subcontractor previously for certain defects in its works (Builder’s Previous Claim), the builder has had the opportunity to investigate, identify and argue defects; by the dismissal of the Builder’s Previous Claim, all issues relating to defects became determined to finality, the builder no longer had any right to argue any further issue of defects, and accordingly it should be deemed that all defects have been rectified or resolved.
The builder argued that:
- The Builder’s Previous Claim did not determine the issue of defects to finality, because since the Builder’s Previous Claim was argued and failed, many more defects became discovered by various third parties (the individual owners, the owners corporation, Fair Trading NSW, the developer and the Building Commission) and the builder is entitled to sue for those.
- Whether the issue of defects was determined to finality does not have any bearing on whether the condition for the release of the remaining retention is satisfied – here, what is required is the builder’s acknowledgment that there has been proper rectification of all defects.
The builder adduced evidence of the notices it gave to the subcontractor of various defects and argued that not all defects were determined in the Builder’s Previous Claim and in relation to those defects that have not been argued and dismissed, there was no determination by the builder that all those defects were rectified, whether the builder can sue is a different issue and claim altogether, and the wording of the subcontract should be given their full meaning.
The Supreme Court agreed with the builder’s argument and set aside the statutory demand, ordering the subcontractor to pay the builder’s legal costs. You can view the court’s judgment here: https://www.caselaw.nsw.gov.au/decision/18f31f9bae561a1cd91f3de4
This case highlights that careful consideration should be given to and legal advice obtained about:
- The precise terms of any contract, as the different wording of a term, whilst seemingly of no different consequence, may have a significant consequence in protecting or advancing your legal position in the event of a dispute.
- Administering the contract, to ensure that you discharge all of your obligations which can go a long way to preserve your rights (in this case, a notice of defects having been issued to the subcontractor within the time limits was crucial).