Not an exhaustive remedy for a delay
This article discusses the impact of the statutory warranties under section 18B of the Home Building Act 1989 (NSW) (HBA) on liquidated damages under a construction contract.
Introduction
Generally, liquidated pre-ascertained damages are an express agreement between the parties of the genuine pre-estimate of the loss and damage suffered by a party in the event the other party fails to complete by the date for completion.
There has always been a presumption that when a liquidated damages provision exists in a construction contract, it is the intention of the parties that liquidated damages are the sole monetary remedy for a failure to complete by the date for completion.[1] This may no longer be the case for a residential construction contract where the statutory warranties under the HBA are implied.
Relevant facts
In the case of Cappello v Hammond & Simonds NSW Pty Ltd [2020] NSWSC 1021 (Cappello), Hammond & Simonds NSW Pty Ltd (Builder) entered into a construction contract with Mr and Mrs Cappello (Homeowners).
The works under the contract were supposed to be completed in March 2018 but were only completed approximately 7 months later in October 2018. There was no extension of time claim submitted by the Builder and the Homeowners claimed $30,000 for general delay damages.
The Builder contended that the Homeowners were only entitled to recover $1 per day in accordance with the contractual provisions relating to liquidated damages. The Builder claimed that by making provision for liquidated damages, the parties were taken to have intended to exclude a right to general damages.
Decision
The Court held in this case that:
- having considered the implied statutory warranty that “the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time”[2]; with
- the parties agreed nominal rate of $1 per day for liquidated damages,
the parties did not intend for liquidated damages to be the Homeowners sole monetary remedy for a failure to complete by the date for completion.
The Court noted that the position may well have been different if the parties had agreed to a more substantial rate for liquidated damages.
Key takeaway
A builder should be aware that by stating a nominal rate for the liquidated damages in a residential construction contract it may expose it to a claim for general damages and should (always) carry out its contract administration diligently by submitting extension of time claims.
If you would like to discuss this article with us, please contact Brett Vincent, Partner, or Rebecca Salib, Associate on (02) 9261 5900.
[1] Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30.
[2] Section 18B(1)(d) of the HBA.