Residential Construction Law 9781509939237, 9781509939268, 9781509939251

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RESIDENTIAL CONSTRUCTION LAW This is the first book to offer a systematic and analytical overview of the legal framework for residential construction. In doing so, the book addresses two fundamental questions: • Prevention: what assurances can the law give buyers (and later owners and occupiers) of homes that construction work – from building of a complete home to adding an extension or replacing a shower unit – will comply with minimum standards of design, safety and build quality? • Cure: what forms of redress – from whom, and by what route – can residents expect, when, often long after completion of construction, they discover defects? The resulting problems pose some big and difficult questions of principle and policy about standards, rights and remedies, which in turn concern justice more generally. This book addresses these key issues in a comparative context across the United Kingdom, Ireland, Australia and New Zealand. It is an accessible guide to the existing law for residents and construction professionals (and their legal advisers), but also charts a course to further, meaningful reforms of the legal landscape for residential construction around the world. The book’s two co-authors, Philip Britton and Matthew Bell, have taught in the field in the UK, Australia and New Zealand; both have been active in legal practice, as have the two specialist contributors, Deirdre Ní Fhloinn and Kim Vernau. The front cover image is Herons Court in Radlett, Herts (UK), the subject of litigation in 2018–19, discussed in chapter 5 of the book as Case Study 8.

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Residential Construction Law Philip Britton and

Matthew Bell Specialist contributors Deirdre Ní Fhloinn Kim Vernau

HART PUBLISHING Bloomsbury Publishing Plc Kemp House, Chawley Park, Cumnor Hill, Oxford, OX2 9PH, UK 1385 Broadway, New York, NY 10018, USA 29 Earlsfort Terrace, Dublin 2, Ireland HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published in Great Britain 2021 Copyright © Philip Britton and Matthew Bell, 2021 Philip Britton and Matthew Bell have asserted their right under the Copyright, Designs and Patents Act 1988 to be identified as Authors of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/ open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2021. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication data Names: Britton, Philip, author.  |  Bell, Matthew (Writer on construction law), author. Title: Residential construction law / Philip Britton and Matthew Bell ; specialist contributors, Deirdre Ní Fhloinn, Kim Vernau. Description: Oxford, UK ; New York, NY : Hart Publishing, an imprint of Bloomsbury Publishing, 2021.  |  Includes bibliographical references and index. Identifiers: LCCN 2021021415  |  ISBN 9781509939237 (hardback)  |  ISBN 9781509951093 (paperback)  |  ISBN 9781509939251 (pdf)  |  ISBN 9781509939244 (Epub) Subjects: LCSH: Construction contracts.  |  Construction industry—Law and legislation.  |  House construction. Classification: LCC K891.B8 B75 2021  |  DDC 343.07/8624—dc23 LC record available at https://lccn.loc.gov/2021021415 ISBN: HB: 978-1-50993-923-7 ePDF: 978-1-50993-925-1 ePub: 978-1-50993-924-4 Typeset by Compuscript Ltd, Shannon

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FOREWORD It is simply unacceptable that defects in residential design and construction seem inevitable rather than extraordinary. If you live in a home which is dangerous – possibly because it is a fire risk or constantly mouldy with damp, or suffering from structural defects – it ceases to be a refuge, and you live with constant worry. The regulatory regimes in many of the jurisdictions covered by this book are wholly inadequate. The law is complex and there are relatively few professionals specialising in residential construction. Unless agreement can be reached as to a fair resolution, you will find it difficult to resolve the problems and obtain satisfactory redress. The terrible consequences of the fire at Grenfell Tower have at last brought some of the issues to the attention of the public. As the evidence given to the Grenfell Tower Inquiry unfolds, we learn of the scandalous failures at almost every stage of the refurbishment of that building and the callous disregard for the safety of those living there. The Grenfell Tower fire was not the first to result from use of dangerous materials. Over the years there have been similar fires, in residential and commercial buildings, in various parts of the world. These have attracted sufficient publicity for those engaged in residential design and construction to have been aware of the risks of the use of cladding containing combustible materials. People living in dangerous housing do not feel safe. Many also face financial ruin, maybe because of negative equity or the crippling cost of repairs, because of deficiencies for which they are in no way responsible. This much needed and excellent book fills a real gap in the residential construction field. It is a practical, comprehensive guide, packed with highly authoritative analysis and all presented in a most readable form. One the book’s many strengths is that it takes a comparative approach, discussing problems and remedies in Ireland, New Zealand, the different jurisdictions within Australia and the UK. The authors use case studies as practical examples of the types of problem, caused by poor design, defective materials or bad workmanship, commonly associated with dwellings. They identify the possible remedies available in each jurisdiction and have made imaginative use of tables to illustrate these and bring clarity to complex issues. Each main chapter ends with both a useful summary of the essential points covered and a thoughtful evaluation. The book highlights the paucity of protection offered to residential occupiers and of the need for reform. There is a serious gap between the expectations of reasonable people as to the remedies which should be available for shoddy building and design and the reality, namely failure by policymakers to provide a robust regulatory regime and inability of the courts to provide the remedies people need. The authors make practical and imaginative suggestions as to possible reforms. There is thoughtful discussion, for

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Foreword

example, as to the proposition that remedies might run with the land and of the role that insurance might play. In commercial construction, professionals carry in their heads the patterns of relationships in development and construction projects. They understand where the principal risks lie and how these might be managed. But few specialise in residential construction, where the issues can be more complex and more difficult to manage than those in large disputes, yet where the impact on the occupier can be greater. This straightforward and enjoyable book should be widely read. First, the book provides an indispensable guide to all professionals involved with resolution of residential construction problems through what the authors identify as the complex web of commercial arrangements and the gaps in responsibility bound up in that web. This is a practical guide to the remedies available for shoddy or dangerous work. The authors’ wide-ranging review of all possible avenues to relief in all the jurisdictions covered should help practitioners look for possible new remedies in their own jurisdictions. Secondly, policymakers in all the jurisdictions covered by the book should read it and take seriously the issues raised. It would help them understand the very limited options currently available to occupiers, the shortcomings of their own regulatory systems, and what they could and should learn – good and bad – from the experience in other countries or states. It should help them understand both the pressing need for adequate regulation and that compliance measures must be sufficiently robust and properly funded to ensure that people are able to enjoy housing which is safe and secure. Next, the book should be studied by all property lawyers, who will learn so much about the hidden risks involved in renting or buying homes, to enable them to give sound advice to their clients. I hope that this book will be drawn to the attention of all those judges, such as District Judges and County Court Judges in England & Wales, who may have no specialist experience in construction law but who must make decisions in the difficult cases in their courts concerning issues with residential design and construction. The judges must usually find their way through the complexities without the benefit of specialist, or indeed any, party representation. If there were still libraries in court centres, this book should be on the shelves. Finally every person thinking of buying a property – especially those buying a house or flat in a new development – will find this a very accessible and readable guide to the many pitfalls which they would not have imagined. I have really enjoyed reading this book. I hope you do too. And I hope that the book will inspire practitioners to specialise in this fascinating field. I look forward to the next edition. Her Honour Frances Kirkham CBE After a modern languages degree at King’s College London, Frances Kirkham qualified as a solicitor in 1978, becoming a construction and engineering law specialist and a Fellow

Foreword  vii of the Chartered Institute of Arbitrators. In 2000 she was appointed as the Technology and Construction Court judge in Birmingham, where she built up the TCC’s work in the Midlands. During this period she also acted as arbitrator in many construction disputes, and in 2009 was appointed coroner in the inquest after the fire at Lakanal House, where six died and twenty were injured – a local authority residential block in London with combustible panels fitted during a renovation. Since retiring from the Bench in 2011, when she was appointed CBE, she has had a busy practice as a member of Atkin Chambers, mediating and arbitrating in construction and infrastructure disputes, both nationally and internationally. She is also a Justice of the Qatar International Court and Dispute Resolution Centre and a member of the UKA Panel of Adjudicators; also an Honorary Member of the Society of Construction Law, TECBAR, TeCSA and Arbrix.

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ACKNOWLEDGEMENTS This book comes out of a series of happy collaborations over more than 10 years between the four names on its title page: two co-authors and two specialist contributors, directly representing the three different jurisdictions of England & Wales, Ireland and Victoria. We have all worked together at King’s College London, notably in a pioneering one-day conference on Residential Construction Law there in 2016. This specialisation developed out of the gradual inclusion of residential topics within the long-standing King’s MSc in Construction Law & Dispute Resolution. All these developments, and the writing of this book, have been facilitated by both moral and practical support from the outgoing Director of the Centre at King’s, Professor David Mosey, and Manager Sue Hart; and by input from successive cohorts of MSc students, in particular those who chose residential topics for their dissertations. In what now seems technological pre-history, in the 1990s the Nash Professor at King’s, Phillip Capper, collaborated with Philip Britton on video programmes on construction law, recorded with the BBC’s Nicholas Witchell and the late Jill Dando (the resulting programmes were mailed on VHS cassettes to subscribers, with printed study notes). For Philip, this opened the door into this field of law and to a late-stage shift of career to the Old Watch House at King’s. An important parallel role as the book’s catalyst was played about 17,000 km away by the construction stream of the Melbourne Law Masters programme (Co-Directors: Dr Matthew Bell and Wayne Jocic), through its unique Residential Construction Law module. Further away still, the Society of Construction Law New Zealand regularly offered Philip Britton a chance to speak on these topics; along the way, Philip met the current owner of Mr Hamlin’s bungalow in Invercargill and learnt how and why the Land of the Long White Cloud and ‘leaky buildings’ might have something to teach other jurisdictions about both prevention and cure of residential construction defects. All four of us named on the title page have been active in these university contexts in London, Melbourne or both: as MSc student, Visiting Professor, teacher, conference speaker or successful PhD candidate. We have learnt much from our teaching colleagues and students, many of whom are legal practitioners or industry professionals with extensive experience in the residential construction field. And all of us have, or have had, a role in practice, some directly concerned with housing defects issues, including in local and national policy-making, running a provider of insurance-backed latent defect warranties and encouraging statutory reform in Ireland. Though in debt to our specialist contributors, we two co-authors take collective responsibility for the whole of the present book. We offer special thanks to Frances Kirkham CBE for kindly agreeing to write the Foreword above. We also thank all who have supplied us with information, ideas and other forms of help, in particular: (in the UK) Paula Higgins at the HomeOwners

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Acknowledgements

­ lliance, Mark Fairweather of Fairweather Law in Suffolk, Martin Boyd of the LeaseA hold Knowledge Partnership, Tom Weston of In-house Research Ltd, Penny de Quincey, Suzy Powling, Murray Armes of SenseStudio, Katerina Hoey of HKA, Paul Hargreaves from Leeds law firm Walker Morris LLP, A Ross Taylor from Scottish solicitors Wright, Johnston & Mackenzie, Dr Paul Stollard, Sarah Langley of the Consumer Code for New Homes, Steve Turner from the Home Builders Federation, Douglas Cochrane from the New Homes Quality Board and Anthony Moran of Mace; (in New Zealand) the Parliamentary Information Service in Wellington, Gareth Lewis of Auckland law firm Grimshaw & Co, Finn Collins of law firm Gibson Sheat in Wellington, John Green of the Building Disputes Tribunal NZ (Te Taraipiunura Mō Ngā Tautohe Whare) and Orin Lockyer of BRANZ; and (in Australia) Wayne Jocic of Melbourne Law School, Emanuel Confos from law firm Norton Rose Fulbright in Sydney, Melbourne Law School’s Academic Research Service, Tanya Bastick, general counsel at Hacer Group in Melbourne and Deputy President Catherine Aird, Senior Member Margaret Lothian and Deputy President Suzanne Kirton of the Victorian Civil and Administrative Tribunal, all distinguished in their eagerness to explain how residential construction law works in practice. The ten Figures are the work of David Gillingwater of Herring Bone Design in Suffolk. We have had invaluable help in initial content editing and house style checking, as well as drafting the Tables of Cases etc, from Joanna Howard, successor to Philip B ­ ritton and the much missed Frances Paterson as editor of papers published by the Society of Construction Law in the UK. Over a long period, the SCL has in effect encouraged both co-authors to write about residential topics, recognising in several iterations of its annual Hudson Prize essay competition that how homes are constructed is as important, and potentially as legally complex, as larger commercial and infrastructure projects. All four of us also owe thanks to those who share our domestic environments: they have loyally tolerated (but also encouraged) our commitment to the book, as well as our being home for lunch more often than anyone would have predicted. As this hints, most of the book’s development has taken place in the unimaginably altered and monochrome world of the Covid-19 pandemic – though its impact on the legal side of construction is not one of our themes. Some of us have had enforced leisure and extra time for writing, less interrupted by other tasks, but with almost no access – except remotely – to library resources; others have had to combine home schooling with a litigation practice, or the imperative of transforming face-to-face Masters programmes into online offerings. Credit therefore goes to every member of the team whose contributions have made the book possible – including all at Hart Publishing, whose links with Bloomsbury (Harry Potter’s publisher) have clearly given them wizard-enhanced powers – for sticking to the original deadlines. As the world has learnt, technology does facilitate collaboration, contact and effective research at a distance, if distance is all we have. We have regretted being unable to have the face-to-face meetings we imagined between ourselves and with practitioners and judges. Phone, video conferencing, texts and email have filled the gap, so this is still the book we hoped it would be. We have chosen language which we intend to be as straightforward as possible and accessible to non-specialists, recognising that long words, technical terms and complex sentences are hard to avoid when writing about the law. The Glossary at the back of the book explains ideas and terms which may be unfamiliar to some readers. Nor, on the

Acknowledgements  xi other hand, do we wish to over-simplify subtle ideas, so further sources to explore are parked in footnotes, including more comprehensive textbooks on whole areas of the law (eg contract) relevant to this book. Current English usage offers no gender-neutral third person singular pronoun, so when we speak in the abstract of a singular person, like ‘the first buyer’ (of a home), we then refer to that person as ‘they’ (hence ‘them’, ‘their’ etc); the corresponding verbs are also in the plural. As alternatives we rejected the presumptively male ‘he’, cumbersome ‘he or she’ and inelegant ‘s/he’.1 We aim to reflect law and practice on New Year’s Day 2021, when the ‘implementation period’ following the UK’s withdrawal from membership of the EU came to an end. For the impact of Brexit on the relations between the many aspects of European law mentioned in the book and the law of the UK, see section [1.11]. A few significant changes occurring as late as April 2021 have been added, but we were too close to publication to include the semi-official New Homes Quality Board’s draft of a New Homes Quality Code for England (June 2021). This aims to replace all existing Consumer Codes and bring in a New Homes Ombudsman; analysis of these proposals would have been included in chapters 6 and 9. Similarly, we cannot include a full analysis of the Building Safety Bill (E&W), whose substantially modified text was introduced to Parliament on 5 July 2021. However, we note here three important aspects of the Bill which – if enacted in the form introduced – would impact on later sections of the book. First, in section [5.10.1], we noted that the original Bill would repeal the never fully implemented Building Act 1984 section 38. In a policy reversal, government now intends finally to bring the whole section into force. Second, and changing the position described in section [5.10.2], the Building Safety Bill clause 125 would extend the limited scope of the Defective Premises Act 1972. A new DPA section 2A would cover renovation or extension work done in the course of a business on a building comprising or containing one or more dwellings (work providing a whole dwelling is already covered by section 1). This would impose liability in damages to the current homeowner (including long leaseholder) if the dwelling/s are not fit for habitation when the work is completed. The person/s subject to the new duty are as under section 1. Finally, modifying the position described in section [10.5.2] (and meeting suggestions in chapter 12), the Bill’s new clause 126 would extend the fixed limitation period (at present 6 years from the completion of construction) to 15 years for a claim under the DPA (including as extended by section 2A) or under the Building Act 1984 section 38. This would operate for future claims, also retrospectively extending a period already running (but giving only 90 days to lodge a claim if the existing time limit is close to expiry), but not automatically revive a claim already dismissed (eg on limitation grounds) or settled. For further analysis of all these recent developments, and of future relevant changes in the UK, see posts on LinkedIn by Philip Britton, the HomeOwners Alliance and the Leasehold Knowledge Partnership. Matthew Bell will similarly endeavour to track developments in Australia via LinkedIn and his Twitter feed @MelbConstrucLaw.

1 Amia

Srinivasan, ‘How Should I Refer to You?’ London Review of Books vol 42 no 13 (2 July 2020).

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TABLE OF CONTENTS Foreword by HH Frances Kirkham CBE�������������������������������������������������������������������������������v Acknowledgements����������������������������������������������������������������������������������������������������������������ix List of Abbreviations������������������������������������������������������������������������������������������������������������xv List of Figures���������������������������������������������������������������������������������������������������������������������xxv List of Tables�������������������������������������������������������������������������������������������������������������������� xxvii List of Case Studies������������������������������������������������������������������������������������������������������������xxix English/Australian Terminology���������������������������������������������������������������������������������������xxxi Currency Conversion at 1 January 2021��������������������������������������������������������������������������xxxi Generic Construction Parties In Numbered Scenarios: Tables 1.1–1.3����������������������� xxxiii Penalty Units in Australia at 1 January 2021�����������������������������������������������������������������xxxv Sources, Abbreviations and Cross-References�������������������������������������������������������������� xxxvii Table of Cases����������������������������������������������������������������������������������������������������������������� xxxix Table of Statutes������������������������������������������������������������������������������������������������������������������ lxi Table of Statutory Instruments���������������������������������������������������������������������������������������lxxxv Table of EU Measures����������������������������������������������������������������������������������������������������������xci Table of Standard Forms of Construction Contract���������������������������������������������������������xciii 1. Introduction���������������������������������������������������������������������������������������������������������������������� 1 2. Residential Construction: Defects in Context������������������������������������������������������������ 32 3. Regulation of Residential Construction����������������������������������������������������������������������� 69 4. Contract Law in Residential Construction����������������������������������������������������������������141 5. Beyond Contract: Other Rights of Legal Action�������������������������������������������������������238 6. Consumer Protection: Other Forms��������������������������������������������������������������������������328 7. Insurance and Third-Party Warranties����������������������������������������������������������������������362 8. Inspections in Residential Construction�������������������������������������������������������������������409 9. Pathways to Individual Redress����������������������������������������������������������������������������������423

xiv Table of Contents 10. Time Limits for Taking Action������������������������������������������������������������������������������������483 11. Multi-Unit Developments: Blocks of Flats����������������������������������������������������������������514 12. Conclusions�������������������������������������������������������������������������������������������������������������������569 Glossary����������������������������������������������������������������������������������������������������������������������������������575 Publisher’s Note���������������������������������������������������������������������������������������������������������������������591 Index���������������������������������������������������������������������������������������������������������������������������������������593

LIST OF ABBREVIATIONS ABCB

Australian Building Codes Board: on behalf of the Commonwealth and each state and territory government, publishes the NCC: www.abcb.gov.au

ABIC

Australian Building Industry Contracts (ABIC): standard forms jointly published by the Australian Institute of Architects and Master Builders Australia; ABIC MW is a suite of forms for Major Works: www.raia.com. au/services/abic

ACCC

Australian Competition and Consumer Commission: www.accc.gov.au

ACL

(The) Australian Consumer Law, in effect from 2011

ACM

Aluminium Composite Material: a building product, typically consisting of sheets of aluminium with a polyethylene core, whose combustibility has contributed to residential building fires, including at the Lacrosse building (Melbourne, 2014) and Grenfell Tower (London, 2017); also known as ACP (Aluminium Composite Panel)

ACP

See ACM

ACT

Australian Capital Territory; hence ACTBA is the Building Act 2004 (ACT) and ACTBR is the Building (General) Regulation 2008 (ACT)

AD

Approved Document(s): published guidance on ‘the building code’ in E&W

ADR

Appropriate (or Alternative) Dispute Resolution: includes mediation, arbitration, adjudication or other methods of resolving disputes short of litigation before a court or tribunal

AI

Approved Inspector (private sector BCB in E&W)

AJA

Acting Justice (or Judge) of Appeal (Aus)

ANB

Adjudicator Nominating Body (UK) (equivalent in Aus and NZ: Authorised Nominating Authority)

APPG

All Party Parliamentary Group: a group of Westminster MPs and others, hearing evidence and producing reports on a specialist topic, eg Excellence in the Built Environment or Leasehold and Commonhold Reform (often serviced by an outside organisation, like the LKP or CIC)

ARB

Architects Registration Board (UK): runs the statutory register of architects, including imposing professional standards and hearing disciplinary actions: www.arb.org.uk

art(s)

article(s) (in a treaty or legislative measure)

xvi

List of Abbreviations

Aus

Australia

B2B

Business-to-Business: a contract under which a person or entity acting in the course of its trade, business or profession supplies (in our case) construction-related services to another party acting in the same capacity

B2C

Business-to-Consumer: a contract under which a person or entity acting in the course of its trade, business or profession supplies (in our case) construction-related services to another party who is not so acting, whom the law therefore treats as a consumer (though often only if an individual, rather than a legal entity)

BC

(In an English case name) Borough Council

BCA

Building Code of Australia, within the NCC (along with the Plumbing Code of Australia); also a Building Consent Authority (NZ) – see BCB

BCB/s

Building control body/bodies (private or public): in this book, all those responsible – whatever their actual title – for checking plans and inspecting construction under statutory authority, with a view to its compliance with ‘the building code’

BCPS

Building Control Performance Standards (E&W)

BCS Ltd

The AI subsidiary of the NHBC

BEIS

Department for Business, Energy and Industrial Strategy (UK): www. gov.uk/government/organisations/department-for-business-energy-andindustrial-strategy

BIA

Building Industry Authority (former NZ regulator)

BII

Building Indemnity Insurance: the SA name for a mandatory form of residential defects insurance (see also DBI, HBC, HII, HWI and RBI)

BIM

Building Information Modelling: the creation of a computer-based model of a building which enables document management, co-ordination and simulation during the entire lifecycle of a project (plan, design, build, operation and maintenance)

BLP

Building LifePlans Ltd (third-party warranty provider – UK): www. blpinsurance.com

BRANZ

Building Research Association New Zealand: www.branz.co.nz

BRE

(formerly) the Building Research Establishment (UK), a Government research centre; privatised in 1997 as BRE Group: www.bre.co.uk

BSD

(Scotland) Building Standards Division of the Directorate for Local Government and Communities of the Scottish Government, successor to the SBSA

BSR

Building Safety Regulator (England) – proposed post-Grenfell

CA

Court of Appeal (Civil Division) (E&W)

CBANZ

Certified Builders Association of New Zealand (now known as NZCB): membership body offering its own Homefirst (now InBuild) 10-year warranty via its builder members and publishing standard form construction contracts

List of Abbreviations  xvii CCAS

Consumer Codes Approval Scheme (UK), run by the CTSI

CCHB

Consumer Code for Home Builders (UK): www.consumercode.co.uk

CCNH

Consumer Code for New Homes (UK): www.consumercodefornewhomes.com

CCNP

Construction Compliance and Notification Plan – building control in Scotland

CCPC

Competition and Consumer Protection Commission (Ire): www.ccpc.ie

CCS

Commonhold Community Statement (E&W)

CDM

Construction (Design and Management) Regulations (UK) – the current edition is from 2015

CDRO

See DBDRV

Ch

Chancery Division (of the High Court, E&W)

ch

chapter (of a statute, also of this and other books)

CIArb

Chartered Institute of Arbitrators: www.ciarb.org

CIC

Construction Industry Council (top level body representing professional bodies, research organisations and specialist business associations in construction in the UK): www.cic.org.uk

CIF

Construction Industry Federation (Ire): www.cif.ie

CIOB

Chartered Institute of Building: www.ciob.org

CIRI

Construction Industry Register Ireland: www.ciri.ie

CJEU

Court of Justice of the EU: see ECJ

cl(s)

clause(s) (in a parliamentary Bill or contract)

CMA

Competition and Markets Authority (UK): www.gov.uk/government/ organisations/competition-and-markets-authority

CMC

Case Management Conference (one or more early hearings in English civil procedure, a judge making orders on the next steps in the case and their timing)

CML

Council of Mortgage Lenders (since 2017 part of UK Finance)

CO

See DBDRV

CPR

Civil Procedure Rules 1998 (E&W)1

CRA

Consumer Rights Act 2015 (UK): consumer protection in relation to services, goods and digital content in B2C contexts, including unfair contract terms

CRD

Consumer Rights Directive (EU)

Cth

Commonwealth (of Australia)

CTSI

Chartered Trading Standards Institute (UK): successor to OFT in running the CCAS: www.tradingstandards.uk

1 For the current text of the Civil Procedure Rules (SI 1998/3132, as heavily amended), see www.justice.gov. uk/courts/procedure-rules/civil, also Rt Hon Sir Geoffrey Vos (Editor-in-Chief), Civil Procedure (The White Book) (London, Sweet & Maxwell, 2020).

xviii

List of Abbreviations

D&B

Design and Build (form of procurement); Australasian equivalent Design and Construct (D&C)

D&C

See D&B

DB 2016

See JCT

DBCA

Domestic Building Contracts Act 1995 (Vic)

DBCR

Domestic Building Contract Regulations 2017 (Vic)

DBDRV

Domestic Building Dispute Resolution Victoria, including CDROs (Chief Dispute Resolution Officer), COs (Conciliation Officers), a DBWD (Domestic Building Work Dispute) and may lead to a DRO (Dispute Resolution Order)

DBI

Domestic Building Insurance: the name in Vic for a mandatory form of residential defects insurance (see also BII, HBCF, HII, HWI and RBI)

DBWD

See DBDRV

DC

(In an English case name) District Council

DC or Div Ct

Divisional Court (of the QBD) (E&W)

DCLG

Department of Communities and Local Government (now MHCLG) (England)

DDI

‘Died, disappeared or insolvent’: the builder’s possible position, one of which usually has to be shown to be the case in order for the policyholder of ‘last-resort’ home building insurance to be able to claim against the insurer (Aus)

DEFRA

Department for Environment, Food and Rural Affairs (UK)

DETINI

Department of Enterprise, Trade and Investment in Northern Ireland

DPA

Defective Premises Act 1972 (E&W, NI)

DRO

See DBDRV

ECJ

Court of Justice of the European Union (informally, the European Court of Justice – Luxembourg): www.curia.europa.eu

E&W

England and Wales, where the relevant position is the same in both these parts of the UK2

EU

The European Union, of which the UK ceased to be a Member State on 31 January 2020

EWCA Civ

Court of Appeal (Civil Division) (E&W)

2 Under the Government of Wales Act 2006, as amended, the National Assembly for Wales (now Senedd) and Welsh government have competence in relation to land use planning, housing and building regulation in Wales, so the situation in those areas is diverging gradually from what used to be a unified England & Wales regime. Under the present sch 7A to the 2006 Act (brought into effect by SI 2017/1179), courts, tribunals, judicial procedures and consumer protection are ‘reserved matters’ for Westminster alone.

List of Abbreviations  xix EWHC

High Court (E&W), with QBD, Ch and Family Divisions; the QBD includes the Commercial Court and the TCC

FCA

Federal Court of Australia, hence also FCAFC (Federal Court of Australia, Full Court)

FCA

Financial Conduct Authority (UK)

FIDIC

Fédération Internationale des Ingénieurs-Conseils (publisher of standard form contracts for B2B engineering and construction projects, widely used internationally): www.fidic.org

FMB

Federation of Master Builders (UK): www.fmb.org.uk

FOS

Financial Ombudsman Service (UK): www.financial-ombudsman.org.uk

FSPO

Financial Services and Pensions Ombudsman (Ire)

FTA

Fair Trading Act 1986 (NZ)

FTT

First-Tier Tribunal (E&W): combines into a single structure many formerly separate statutory tribunals, organised into seven chambers (eg Property)

GDPR

(EU) General Data Protection Regulation of 2016

HBC(F)

Home Building Compensation (Fund): the NSW name for a mandatory form of residential defects insurance (see also BII, DBI, HII, HWI and RBI)

HBF

Home Builders Federation (E&W): represents major housebuilders, together building more than 80% of all new private homes: www.hbf.co.uk

HCA

High Court of Australia: www.hcourt.gov.au

HGCRA

Housing Grants, Construction and Regeneration Act 1996 (E&W, Scotland) – but equivalent rules to the HGCRA Part II are also in force in NI under the Construction Contracts (Northern Ireland) Order 1997, as amended

HHSRS

Housing, Health and Safety Rating System (E&W)

HIA

Housing Industry Association (Aus): represents builders and developers, also publishes standard form construction contracts: www.hia.com.au

HII

Home Indemnity Insurance: the WA name for a mandatory form of residential defects insurance (see also BII, DBI, HBC, HWI and RBI)

HKCFA

Hong Kong Court of Final Appeal

HL

House of Lords (in its then role as final appeal court for the UK, as ‘the Law Lords’; in 2009 succeeded by the UKSC)

HOA

HomeOwners Alliance (pressure group campaigning on behalf of homeowners and home buyers in the UK): www.hoa.org.uk

HSE

Health and Safety Executive (UK)

HVNL

Heavy Vehicle National Law (Aus)

HWI

Home Warranty Insurance: the Qld name for a mandatory form of residential defects insurance (see also BII, DBI, HBF, HII and RBI)

xx

List of Abbreviations

ICW Code

Consumer Code for Homebuilders from International Construction Warranties Ltd (UK): www.i-c-w.co.uk

Ire

Ireland

ISSG

Industry Safety Steering Group (E&W) (post-Grenfell, chaired by Dame Judith Hackitt and reporting to the MHCLG))

J (plural JJ) In the High Court or CA (E&W), the abbreviation for ‘Mr Justice X’ or ‘Mrs Justice X’; in other jurisdictions’ superior courts, the abbreviation for ‘Justice X’; in other courts and tribunals, the abbreviation for ‘Judge X’ JA

Justice of Appeal (in some Australian appeal courts); plural JJA

JCT

Joint Contracts Tribunal (E&W): publisher of standard form contracts for construction, notably the Standard Building Contract With Quantities 2016 (SBC/Q 2016) and the Design and Build Contract 2016 (DB 2016): www.jctltd.co.uk

JSC

Justice of the Supreme Court (UK)

KPIs

Key Performance Indicators

LA

Local authority (local government body in UK)

LABSS

Local Authority Building Standards Scotland (groups all local authorities)

LBC

The Leaky Buildings Crisis: Understanding the Issues (Wellington, Brookers/ Thomson Reuters, 2011)

LBP

Licensed Building Practitioner (NZ)

LDs

Liquidated damages (sometimes LADs – liquidated and ascertained damages)

LFB

London Fire Brigade

LJ/LJJ

Lord (or Lady) Justice/Lords (or Ladies) Justices (usually in the CA, E&W)

LKP

Leasehold Knowledge Partnership (pressure group campaigning for reform in E&W): www.leaseholdknowledge.com

LLP

Limited Liability Partnership

M

Member (of VCAT, NCAT etc)

M&E

Mechanical and electrical (systems, or specialist subcontractors)

MBIE

Ministry of Business, Innovation and Employment (NZ)

MHCLG

Ministry of Housing, Communities and Local Government (successor to DCLG) (England): www.gov.uk/government/organisations/ministry-ofhousing-communities-and-local-government

MLC

Maximum Liability Cap (on the policyholder’s recovery under a third-party warranty)

MMC

Modern methods of construction: off-site fabrication and assembly of major parts of a new building, typically highly automated and leading to a shorter period of construction overall

MR

Master of the Rolls: President of the EWCA Civ

NCAT

NSW Civil and Administrative Tribunal: www.ncat.nsw.gov.au

List of Abbreviations  xxi NCC

National Construction Code (Aus), from the ABCB; it contains the BCA and Plumbing Code of Australia

NEC

New Engineering Contract (UK-drafted all-purpose standard form contract for construction and other activities, widely used in public sector projects): www.neccontract.com

NHBC

National House-Building Council (mutual third-party warranty provider, offering Buildmark in the UK and the Isle of Man), with AI subsidiary BCS Ltd: www.nhbc.co.uk

NI

Northern Ireland (a devolved part of the UK), hence also NICh (High Court in NI, Chancery Division)

NPD

Non-Profit Distribution: a revised version of PFI, used in Scotland

NSW

New South Wales; hence NSWCA (Court of Appeal) and NSWSC (Supreme Court); NSWHBA is the Home Building Act 1989 (NSW)

NT

Northern Territory (Aus); hence NTBA is the Building Act 1993 (NT)

NZ

New Zealand, hence also NZCA (Court of Appeal), NZDC (District Court), NZHC (High Court) and NZSC (Supreme Court)

NZCB

New Zealand Certified Builders Association: membership body offering its own Homefirst (now InBuild) 10-year warranty via its builder members and publishing standard form construction contracts (formerly CBANZ)

OFT

Office of Fair Trading (UK): government agency, whose functions were transferred in 2014 to eg CMA and CTSI

OMC

Owners’ Management Company (Ire)

OR

Official Referees: the specialist formation of the QBD (E&W) dealing with construction cases, in 1989 transformed into the TCC

PC

Privy Council (Judicial Committee of the PC as final court of appeal, sitting in London, for some overseas jurisdictions): www.jcpc.uk

PCC

Professional Consultant’s Certificate (on build quality, for a residential construction project not offering a third-party warranty) (E&W)

PFI

Private Finance Initiative (method of financing provision of a new facility for a public body, including a building)

PI or PII

Professional Indemnity (Insurance): a policy offering cover against the liability of a professional person or entity (often required by law as a condition of practice)

PPP

Private–Public Partnership (method of financing provision of a new facility for a public body, including a building)

pt

Part (of a statute)

PU

Penalty Unit (Aus): the way the amount payable as a penalty for a regulatory offence may be calculated, the value of each PU being varied for inflation according to the applicable statutory scheme

QB or QBD

Queen’s Bench Division (of the High Court, E&W), including the TCC

xxii List of Abbreviations QBCC QCAT

Qld Building and Construction Commission, hence QBCCA is the Qld Building and Construction Commission Act 1991 (Qld): www.qbcc.qld.gov.au Qld Civil and Administrative Tribunal: www.qcat.qld.gov.au

Qld

Queensland

r(r)

rule(s)

reg(s)

regulation(s)

RBI

Residential Building Insurance: the ACT and NT name for a mandatory form of residential defects insurance (see also BII, DBI, HBC, HII and HWI)

RIBA

Royal Institute of British Architects (professional association of architects, also publisher of standard form contracts for construction and professional services): www.architecture.com

RMC

Residents’ Management development) (E&W)

RMI

Repair, Maintenance and Improvement

RTM

Right-To-Manage (company) (of a multi-unit residential development) (E&W)

s(s)

section(s) (of a statute or other legal document)

SA

South Australia; hence also SASCFC (the Full Court of the Supreme Court) and SASC (the Supreme Court); SABWCA is the Building Work Contractors Act 1995 (SA)

SBC/Q 2016

See JCT

SBCC

Scottish Building Contract Committee Ltd: publisher of standard form contracts for construction, mostly for use in Scotland, notably SBC/Q/ Scot 2016 Standard building contract with quantities for use in Scotland and HO/C/Scot 2015 Building Contract for a Homeowner/Occupier: www. sbcconline.com

SBSA

Scottish Building Standards Agency (2004–08), now the BSD

sch(s)

schedule(s) (of a statute)

SCL

Society of Construction Law: professional society started in the UK and Ireland in 1983; now with many sister societies worldwide, encouraging knowledge of and debate about construction law issues among lawyers and construction professionals, with regular meetings and publications of papers on topical subjects: www.scl.org.uk

SERC

Senate Economic References Committee (Aus)

SGCA

Singapore Court of Appeal

SI

Statutory Instrument: [year]/[number] (UK); [number]/[year] (Ire)

SM

Senior Member (of VCAT, NCAT etc)

SPV

Special Purpose Vehicle: a short-life company formed for a specific project

Company

(of

a

multi-unit

residential

List of Abbreviations  xxiii SSI

Scottish Statutory Instrument: [year]/[number]

TA Tas

Territorial Authority (local government body in NZ) Tasmania

TCC

Technology and Construction Court (E&W): specialist part of the QBD (High Court), member of the Business and Property Courts: see www. gov.uk/courts-tribunals/the-business-and-property-courts; some County Courts also deal with TCC business

TFEU

Treaty on the Functioning of the European Union

TMO

Tenant Management Organisation (E&W): organisation running public sector social housing on behalf of the landlord

TRBWCA Residential Building Work Contracts Act 2016 (Tas); hence also TRBWCR: Residential Building Work Contracts and Dispute Resolution Regulations 2016 (Tas) UCP

Unfair Commercial Practices Directive (EC)

UCTA

Unfair Contract Terms Act 1977 (E&W and NI; separate but closely similar provisions for Scotland): makes terms in contracts and notices unenforceable which limit or exclude liability; for B2C contracts, now overtaken by the CRA

UDC

(In an English case name) Urban District Council

UK

United Kingdom of Great Britain and Northern Ireland (not including the Channel Islands, the Isle of Man or other dependent territories); Wales, Northern Ireland and Scotland are in differing ways separate jurisdictions, partly as a result of devolution in the 1990s and after

UKSC

Supreme Court (UK): www.supremecourt.uk

VBA

Victorian Building Authority: www.vba.vic.gov.au

VCA

Court of Appeal (Victoria)

VCAT

Victorian Civil and Administrative Tribunal: www.vcat.vic.gov.au

VCC

Victorian County Court

VSC

Victorian Supreme Court

Vic

Victoria (Australian state)

VMIA

Victorian Managed Insurance Authority: www.vmia.vic.gov.au

WA

Western Australia; hence WAHBCA is the Home Building Contracts Act 1991 (WA) and WAHBCR are the Home Building Contracts Regulations 1992 (WA)

Zurich

Third-party warranty provider in the UK, with its own AI subsidiary ZBC; left the market in 2009

xxiv

LIST OF FIGURES 1.1  Scenarios 1 and 2................................................................................................................ 4 1.2  Hamlin v Invercargill........................................................................................................ 27 2.1  Quality as the Interaction of Conflicting Interests...................................................... 49 5.1  Scenario 6 in England & Wales....................................................................................240 5.2  Scenario 6 in Australia..................................................................................................243 5.3  Rendlesham Estates v Barr.............................................................................................293 5.4  Herons Court...................................................................................................................298 11.1  Scenarios 7 and 8 in England & Wales......................................................................525 11.2  New Lawrence House..................................................................................................542 11.3  Australian Statutory Regime......................................................................................555

xxvi

LIST OF TABLES 1.1  Scenarios and Issues I������������������������������������������������������������������������������������������������������� 3 1.2  Scenarios and Issues II����������������������������������������������������������������������������������������������������� 5 1.3  Scenarios and Issues III���������������������������������������������������������������������������������������������������� 6 1.4  This Book’s Scope�������������������������������������������������������������������������������������������������������������� 7 2.1 ‘Defects’?��������������������������������������������������������������������������������������������������������������������������� 34 2.2  Defects in New Homes: Direct Causes������������������������������������������������������������������������� 36 2.3  Defect-Free Construction���������������������������������������������������������������������������������������������� 45 2.4  Residential Construction: Defects in Context������������������������������������������������������������ 67 3.1  Residential Construction: External Regulation���������������������������������������������������������� 72 3.2  Building Regulations (E&W): Parts and Main Topics����������������������������������������������� 92 3.3  Local Authority Building Control: Innovations��������������������������������������������������������102 3.4  Regulation of Residential Construction���������������������������������������������������������������������138 4.1  Contract Pitfalls������������������������������������������������������������������������������������������������������������154 4.2  Statutory Warranties under State-Based Australian Schemes���������������������������������203 4.3  Client’s Remedies in NZ Residential Construction Contracts��������������������������������218 4.4  Contract Law in Residential Construction����������������������������������������������������������������232 5.1  Robinson v Jones������������������������������������������������������������������������������������������������������������254 5.2  Murphy v Brentwood DC in the House of Lords�������������������������������������������������������276 5.3  Hunt v Optima: Parties and Claims����������������������������������������������������������������������������284 5.4  Herons Court: Parties and Claims�������������������������������������������������������������������������������299 5.5  Civil Claims for Construction Defects�����������������������������������������������������������������������322 6.1  Unfairness under the 2005 Directive��������������������������������������������������������������������������331 6.2  UK Consumer Codes: Main Provisions���������������������������������������������������������������������342 6.3  Consumer Protection���������������������������������������������������������������������������������������������������359 7.1 Third-Party Warranties in the UK������������������������������������������������������������������������������382 7.2  Residential Building Work in Australasia: Mandatory Insurance��������������������������389 7.3  UK (Buildmark) and Aus (Victoria) Compared�������������������������������������������������������392 7.4  HomeBond Cover in Ireland����������������������������������������������������������������������������������������396

xxviii

List of Tables

7.5  Insurance and Third-Party Warranties����������������������������������������������������������������������402 7.6  Warranty Claim Levels: Significance?������������������������������������������������������������������������403 8.1  Pre-Construction: Plans and Specifications��������������������������������������������������������������410 8.2  During Construction����������������������������������������������������������������������������������������������������412 8.3  On Completion of Construction��������������������������������������������������������������������������������417 8.4  A Recently Built Home�������������������������������������������������������������������������������������������������419 8.5  Selling an Existing Home���������������������������������������������������������������������������������������������421 9.1  Pathways to Individual Redress�����������������������������������������������������������������������������������479 10.1  Litigation: When does Time Start to Run?��������������������������������������������������������������494 10.2  Time Limits for Taking Action����������������������������������������������������������������������������������510 11.1  Zagora in the Court of Appeal����������������������������������������������������������������������������������549 11.2  Multi-Unit Developments������������������������������������������������������������������������������������������566

LIST OF CASE STUDIES 1  Foundations Too Shallow�������������������������������������������������������������������������������������������������� 26 2  Under-Design and Slab Heave����������������������������������������������������������������������������������������� 59 3  ‘Is it a Leaky Building?’����������������������������������������������������������������������������������������������������147 4  A Residential Construction Claim in Glasgow������������������������������������������������������������229 5  Faulty Gas Flues in Cheshire������������������������������������������������������������������������������������������252 6  A New Garden in London N6����������������������������������������������������������������������������������������258 7  PCCs in Peterborough�����������������������������������������������������������������������������������������������������279 8  Defective New Flats in Radlett���������������������������������������������������������������������������������������297 9  When the Roof in Docklands Blew Off�������������������������������������������������������������������������499 10  Lifts, Lighting and Rubbish Chutes�����������������������������������������������������������������������������520 11  Original Defects, Warranty Limits and Deceit............................................................540

xxx

ENGLISH/AUSTRALIAN TERMINOLOGY ENGLISH

AUSTRALIAN

Claimant

Plaintiff

Completion (of the legal side of the sale of a home or other building)

Settlement

Contract Supervisor (sometimes ‘the Engineer’)

Superintendent

Design and build (D&B)

Design and construct (D&C)

Employer (sometimes Client) (for construction)

Principal (sometimes Owner)

Main contract(or)

Head contract(or)

Off-plan

Off-the-plan

Show home

Display home

CURRENCY CONVERSION AT 1 JANUARY 2021 £

A$

NZ$

€

–

A$1.78

NZ$2.08

€1.13

A$1

£0.55

–

NZ$1.17

€0.63

NZ$1

£0.49

A$0.85

–

€0.55

€1

£0.90

A$1.58

NZ$1.84

–

£1

xxxii

GENERIC CONSTRUCTION PARTIES IN NUMBERED SCENARIOS: TABLES 1.1–1.3 EXPLANATION

WHICH SCENARIO/S?

A

Architect

B1

First buyer (of a new home), from a developer (X or Y) – may be freehold or long leasehold

2–5, 7

B2

Second buyer (of a home) from its first owner B1 – direct successor to B1

5–6, 8

B3

Current owner (of a home) bought from B2 – indirect successor to B1

6

C

Consultant, eg architect, quantity surveyor – if more than one, then C1, C2 etc

1

L

Lender (typically a bank or building society): ­providing finance to B1 in return for security (a mortgage or equivalent) over the home

2

M

Main contractor (head contractor) – if more than one, then M1, M2 etc

P

Plumber, doing work for B1

S

Subcontractor, eg groundworks specialist, heating and ventilating engineer – if more than one, then S1, S2 etc

1, 6

W

Private sector commercial provider of a third-party warranty: insurance-backed protection against developer insolvency and post-completion structural defects

1

X

Developer – sells individual new home (perhaps off-plan) to B1

Y

Developer of multi-unit block of flats – ‘sells’ B1 a flat, in fact granting a long lease

7

Z

Property investor – buys freehold of block of flats from Y, becomes landlord of all leaseholders of units (ground rents etc)

7

6

1, 6 3

1, 2, 4

As in this book in general, unless the context specifies otherwise, ‘buyer’ and ‘owner’ refer to outright purchasers of a home, including of a unit in a multi-unit development, on a freehold basis (or equivalent) but also on a long lease; and to a mortgagee in possession (or equivalent).

xxxiv

PENALTY UNITS IN AUSTRALIA AT 1 JANUARY 2021 1 PU = Cth*

A$222

ACT*

A$160 (individuals) A$810 (companies)

NSW

A$110

NT

A$158

Qld*

A$133.45

SA

n/a

Tas*

A$172

Vic*

A$165.22

WA

various

* = figures automatically updated (intervals vary)

xxxvi

SOURCES, ABBREVIATIONS AND CROSS-REFERENCES In footnotes, and elsewhere, we follow the current version of OSCOLA (the Oxford University Standard for the Citation of Legal Authorities).1 This gives priority to ‘neutral citations’ of post-2000 reported cases (judgments), as in the form [2019] UKSC 46; the abbreviations for all relevant courts and tribunals are in the List of Abbreviations.2 In line with OSCOLA, references in footnotes to individually numbered paragraphs of judgments in reported cases are added, between square brackets, after the reference to the judgment itself, as in the form [2020] EWHC 1241 (TCC) [44], [46]–[51] or [55]ff; where the case does not have numbered paragraphs, individual page numbers (not in square brackets) follow the judgment’s main reference. We follow the square bracket practice for all other primary sources organised into numbered paragraphs or subdivisions. We do likewise in order to cross-refer, in the main text or in footnotes, to other numbered sections within this book, as in the form ‘On [topic X], see also section [N.N.N]’. In general, where usage differs between Australasia and the UK, we opt for the UK version (so ‘off-plan’, rather than ‘off-the-plan’); but we acknowledge the alternatives and cross-reference them in the Glossary, as well as putting them in a separate table (above). Similarly, we do not follow the Australian general practice of putting the short titles of statutes (legislation) in italics, save where a quotation from an Australian statute uses that convention to refer to another Australian statute. With all due respect to every Australian judge, we do not refer to them as ‘his [or her] Honour’, as would be the norm in Australia. Nor do we follow the Irish tradition of putting a comma between the text of the short title of a statute (or set of Regulations) and the year in which the measure was adopted. Where possible, we abbreviate a judge’s formal title to one or more initials after their name, as in Jackson LJ, Sackville AJA or Lord Reed JSC; all these are also explained in the List of Abbreviations above. Where we refer to the short title of a statute (or equivalent), we add the abbreviated name of the relevant jurisdiction in the main text or footnote, as appropriate. This will make clear, for example, which sets of rules apply in just England & Wales (E&W), England, Wales and Northern Ireland (E&W, NI) or in the whole of the UK (UK).

1 See www.law.ox.ac.uk/research-subject-groups/publications/oscola. 2 Almost all judgments which have a ‘neutral citation’, in a form like [2020] EWHC 1523 (TCC), are easily and freely available in full text online, from www.bailii.org for the UK; www.irlii for Ireland; www.austlii.edu. au for Australia; and www.nzlii.org for New Zealand. The conventional abbreviations of courts’ and tribunals’ names which figure in such identifying references are all included in the List of Abbreviations.

xxxviii

Sources, Abbreviations and Cross-References

We do not do so where the statute’s short title makes its geographical reach o ­ bvious, eg the Building (Scotland) Act 2003. Individual states and territories of Australia are similarly added as bracketed conventional abbreviations (Vic, WA, NT etc) against footnote mentions of their legislation, regulations or other sources of law. These shortened names of all our subject jurisdictions are also included in the List of Abbreviations.

TABLE OF CASES Privy Council (on appeal from another jurisdiction) Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988��������������������������������������������������������������������������������������������������������164 Attorney General of the Virgin Islands v Global Water Associates Ltd [2020] UKPC 18, [2020] 3 WLR 584���������������������������������������������������������������������������244 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC)�����164 Invercargill City Council v Hamlin [1996] AC 624 (PC), 78 BLR 78, 50 Con LR 105 ����������������������������������������������������������������������������������������������������������������29, 31 Pau On v Lau Yiu Long [1980] AC 614 (PC)��������������������������������������������������������������������163 Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80 (PC)�����������������252 The Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1984] UKPC 39, [1989] 1 Lloyds Rep 205�����������������������������������������������������������������430 England & Wales, NI Adams v Bracknell Forest BC [2004] UKHL 29, [2005] 1 AC 76����������������������������������498 African Export-Import Bank v Shebah Exploration and Production Co Ltd [2017] EWCA Civ 845, [2018] 1 WLR 487, [2017] BLR 469�����������������������������������176 Airport Industrial GP Ltd v Heathrow Airport Ltd [2015] EWHC 3753 (Ch)����� 189–90 Aldford House Freehold Ltd v Grosvenor (Mayfair) Estate [2019] EWCA Civ 1848, [2020] 2 WLR 116����������������������������������������������������������������������������������������������������������535 Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 508�������������������������247 Allied P&L Ltd v Paradigm Housing Group Ltd [2009] EWHC 2890 (TCC), [2010] BLR 59�����������������������������������������������������������������������������������������������������������������448 Allpropertyclaims Ltd v Tang [2015] EWHC 2198 (QB)����������������������������������������� 329–30 Amalgamated Building Contractors Ltd v Waltham Holy Cross UDC [1952] 2 All ER 452 (CA)����������������������������������������������������������������������������������������������167 AMEC Group Ltd v Thames Water Utilities Ltd [2010] EWHC 419 (TCC)����������������454 Anns v Merton LBC [1976] QB 882����������������������������������������������������������������������������������495 Anns v Merton LBC [1978] AC 728 (HL)���������������������������107, 275–76, 290, 324–25, 327 Antino v Epping Forest DC (1991) 53 BLR 56 (DC)�����������������������������������������������101, 173 Aqua Leisure International Ltd v Benchmark Leisure Ltd [2020] EWHC 3511 (TCC)�������������������������������������������������������������������������������������������475 Armes v Nottinghamshire County Council [2017] UKSC 60, [2018] AC 355������������242 Arnold v Britton [2015] UKSC 36, [2015] AC 1619������������������������������������������������155, 525

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Aviva Insurance Ltd v Brown [2011] EWHC 362 (QB), [2012] Lloyd’s Rep IR 211���������������������������������������������������������������������������������������������366 BAM Glory Mill Ltd v Balicrest Ltd [2018] EWHC 3926 (TCC)����������������������������������502 Barclays Bank PLC v Fairclough Building Ltd [1995] QB 214 (CA), 38 Con LR 86 �����������������������������������������������������������������������������������������������������������������245 Barrett v Lounova (1982) Ltd [1988] EWCA Civ 9, [1990] 1 QB 348���������������������������523 Barton v Gwyn-Jones [2019] EWCA Civ 1999, [2002] CLC 533�����������������������������������155 Baxall Securities Ltd v Sheard Walshaw Partnership [2002] EWCA Civ 9, [2002] BLR 100, 83 Con LR 164���������������������������������������������������������������������������268, 272 Beattie Passive Norse Ltd v Canham Consulting Ltd [2021] EWHC 1116 (TCC)������191 Bellefield Computer Services Ltd v E Turner & Sons Ltd [2000] BLR 97 (CA)����������257, 271–72, 278–79 Bellefield Computer Services Ltd v E Turner & Sons Ltd [2002] EWCA Civ 1823, [2003] TCLR 10 ������������������������������������ 257, 271–72, 278–79 Benedetti v Sawiris [2013] UKSC 50, [2014] 1 AC 938���������������������������������������������������201 Berkeley Square Holdings Ltd v Lancer Property Asset Management Ltd [2021] EWCA Civ 551���������������������������������������������������������������������������������������������������438 Beumer Group UK Ltd v Vinci Construction UK Ltd [2016] EWHC 2283 (TCC), [2017] BLR 53�����������������������������������������������������������������������������������������������������������������453 BFI Group of Companies Ltd v DCB Integration Systems Ltd [1987] CILL 348��������194 Biffa Waste Services Ltd v Maschinenfabrik Ernst Hese GmbH [2008] EWCA Civ 1257, [2009] QB 725, [2009] BLR 1��������������������������������������������242 Biogen Inc v Medeva plc [1997] RPC 1 (HL)�������������������������������������������������������������������444 Birse Construction Ltd v Haiste Ltd [1996] 1 WLR 675 (CA)���������������������������������������441 Blackpool Borough Council v Volkerfitzpatrick Ltd [2020] EWHC 1523 (TCC)��������� 77 Blaenau Gwent BC v Khan (1993) 35 Con LR 65 (DC)��������������������������������������������96, 101 Blue Manchester Ltd v North West Ground Rents Ltd [2019] EWHC 142 (TCC), 182 Con LR 59��������������������������������������������������������������������������������������������������������194, 530 Blue Manchester Ltd v North West Ground Rents Ltd [2020] EWHC 2777 (TCC)�������������������������������������������������������������������������������������������������������530 Board of Governors of the Hospital for Sick Children v McLaughlin & Harvey plc (1987) 19 Con LR 25 (OR)������������������������������������������������������������������������191 Bolam v Friern Hospital Management Committee [1957] 1 WLR 582 (QB)���������������� 37 Bole v Huntsbuild Ltd [2009] EWCA 1146 (TCC), 127 Con LR 154����������������������������292 Bole v Huntsbuild Ltd [2009] EWCA Civ 770������������������������������������������������������������������292 Bole v Huntsbuild Ltd [2009] EWHC 483 (TCC), 124 Con LR 1����������������������������������295 Bouygues (UK) Ltd v Sharpfibre Ltd [2020] EWHC 1309 (TCC)���������������������������������440 Boxwood Leisure Ltd v Gleeson Construction Services Ltd [2021] EWHC 947 (TCC)���������������������������������������������������������������������������������������������494 Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2019] EWCA Civ 27, 182 Con LR 1���������������������������������������������������������������������������453 Broster v Galliard Docklands Ltd [2011] EWHC 1722 (TCC), [2011] BLR 569, 137 Con LR 26������������������������������������������������������������256, 271, 500–02 Bryen & Langley Ltd v Boston [2004] EWHC 2450 (TCC), [2005] BLR 28�������������������������������������������������������������������������������������������������� 450, 453–56 Bryen & Langley Ltd v Boston [2005] EWCA Civ 973, [2005] BLR 508����������������������453

Table of Cases  xli BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 862 (TCC), 131 Con LR 42����������������������������������������������������������������������������������������������������������������252 Burgess v Lejonvarn [2016] EWHC 40 (TCC), [2016] TCLR 3���������������������� 155, 259–61 Burgess v Lejonvarn [2018] EWHC 3166 (TCC), 181 Con LR 204������������������������������262 Burgess v Lejonvarn [2019] EWHC 369 (TCC), [2019] Costs LR 549�����������������262, 438 Burnett v International Insurance Co of Hanover Ltd [2021] UKSC 12��������������155, 545 Butcher v Hill [2015] EWHC 1703 (TCC)���������������������������������������� 150, 168–69, 257, 296 Butters v Hayes [2021] EWCA Civ 252�����������������������������������������������������������������������������497 BV Nederlandse Industrie van Eiprodukten v Rembrandt Enterprises Inc [2019] EWCA Civ 596, [2020] QB 551�����������������������������������������������������������������������247 Canada Square Operations Ltd v Potter [2021] EWCA Civ 339������������������������������������497 Cantiere San Rocco SA v Clyde Shipbuilding & Engineering Co [1924] AC 226 (HL)�������������������������������������������������������������������������������������������������������227 Caparo Industries plc v Dickman [1990] 2 AC 605 (HL)�����������������������������������������������255 Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358, 104 Con LR 1, [2006] BLR 15��������������������������������������������446 Catholic Child Welfare Society (Diocese of Middlesbrough) v CD [2018] EWCA Civ 2342 [34], [2019] ELR 1����������������������������������������������������������������511 Catlin Estates Ltd v Carter Jonas [2005] EWHC 2315 (TCC), [2006] 2 EGLR 139���������������������������������������������������������������������������������������������������������294 Cavendish Square Holding BV v El Makdessi [2015] UKSC 67, [2016] AC 1172���������������������������������������������������������������������������������������������������������������182 Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933] AC 20 (HL)���������������������������������������������������������������������������������������������������������194 Charlotte Thirty Ltd v Croker Ltd (1990) 24 Con LR 46 (QB)���������������������������������������247 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101���������������������������������������������������������������������������������������������������� 154–55 Chief Constable of Greater Manchester v Carroll [2017] EWCA Civ 1992, [2018] 4 WLR 32������������������������������������������������������������������������������������������������������������498 Christopher Linnett Ltd v Harding [2017] EWHC 1781 (TCC), [2018] Bus LR 179����������������������������������������������������������������������������������������������������������330 Clark Electrical Ltd v JMD Developments (UK) Ltd [2012] EWHC 2627 (TCC), [2012] BLR 546���������������������������������������������������������������������������������������������������������������452 Clark v In Focus Asset Management & Tax Solutions Ltd [2014] EWCA Civ 118, [2014] 1 WLR 2502�������������������������������������������������������� 435–36 Clin v Walter Lilly & Co Ltd [2018] EWCA Civ 490, [2018] BLR 321�������������������������171 Clin v Walter Lilly & Co Ltd [2021] EWCA Civ 136�������������������������������������������������������172 Cole v Scion Ltd [2020] EWHC 1022 (Ch)�����������������������������������������������������������������������499 Companhia de Seguros Imperio v Heath (REBX) Ltd [2000] EWCA Civ 219, [2001] 1 WLR 112����������������������������������������������������������������������������������������������������������496 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 (HL)�����������������������������������������������������������������������������������������������������������189 Cornish v Accident Insurance Co Ltd (1889) 23 QBD 453 (CA)����������������������������������548 Costello v MacDonald [2011] EWCA Civ 930, [2012] QB 244�������������������������������������199 Customs & Excise Commissioners v Barclays Bank plc [2006] UKHL 28, [2007] 1 AC 181��������������������������������������������������������������������������������������������������������������255

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D&F Estates Ltd v Church Commissioners for England [1989] 1 AC 177 (HL)��������������������������������������������������������������������������������������������251, 277 Dadourian Group International Inc v Simms [2009] EWCA Civ 169, [2009] 1 Lloyd’s Rep 601������������������������������������������������������������������������������������������������153 Darlington Borough Council v Wiltshier Northern Ltd [1994] EWCA Civ 6, [1995] 1 WLR 68������������������������������������������������������������������������������������������������������������247 David T Morrison & Co Ltd (t/a Gael Home Interiors) v ICL Plastics Ltd [2014] UKSC 48, 2014 SLT 791����������������������������������������������������������������������������494, 509 Department of the Environment v Thomas Bates & Son Ltd [1991] 1 AC 499 (HL)����������������������������������������������������������������������������������������������������278 D G Williamson Ltd v Northern Ireland Prison Service [2009] NIQB 8���������������������446 Diamond Services South East Ltd v Ogedengbe [2018] EWHC 773 (QB)������������������354 Director General of Fair Trading v First National Bank [2001] UKHL 52, [2002] 1 AC 481��������������������������������������������������������������������������������������������� 177, 182, 455 Dixon v Radley House Partnership [2016] EWHC 2511 (TCC), [2016] TCLR 10��������������������������������������������������������������������������������������������������������������497 Domsalla (t/a Domsalla Building Services) v Dyason [2007] EWHC 1174 (TCC), 112 Con LR 95, [2007] BLR 348, [2007] TCLR 5�������������������������������������� 448, 454, 456 Donoghue v Stevenson [1932] AC 562 (HL)����������������������������� 251, 267–69, 271, 275–76, 278, 297, 317, 321, 324, 419–20 Downey v Stevens [2021] EWHC 752 (Ch)����������������������������������������������������������������������154 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 (HL)�������������������������������������������������������������������������������������������������197, 225 Dutton v Bognor Regis UDC [1972] 1 QB 373 (CA)��������������������������28, 30, 70, 107, 245, 251, 275, 290, 308–09, 311, 318, 324, 327 Duval v 11–13 Randolph Crescent Ltd [2020] UKSC 18, [2020] AC 845��������������������529 Eastwood, Re [1975] Ch 112 (CA)�������������������������������������������������������������������������������������302 Eckersley v Binnie (1988) 18 Con LR 1 (CA)�������������������������������������������������������������������270 Edenbooth Ltd v Cre8 Developments Ltd [2008] EWHC 570 (TCC)��������������������������448 Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1191 (TCC), 148 Con LR 127�����������������������������������������������������106, 502 Endurance Corporate Capital Ltd v Sartex Quilts & Textiles Ltd [2020] EWCA Civ 308, [2020] Bus LR 1729�������������������������������������������������������� 367–68 Ener-G Holdings plc v Hormell [2012] EWCA Civ 1059, [2013] 1 All ER (Comm) 1162�������������������������������������������������������������������������������������502 Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd [2020] EWHC 2357 (TCC), 192 Con LR 79���������������������������������������������������������������248 Equitable Life Assurance Society v Hyman [2002] 1 AC 408 (HL)�������������������������������164 Essex County Council v UBB Waste (Essex) Ltd [2020] EWHC 1581 (TCC)�����������������������������������������������������������������������������������������������151, 164 Eurocom Ltd v Siemens plc [2014] EWHC 3710 (TCC), [2015] BLR 1 ����������������������453 Evans Marshall & Co Ltd v Bertola SA [1973] 1 All ER 992������������������������������������������190 Farley v Skinner [2001] UKHL 49, [2002] 2 AC 732�����������������������������������������������152, 192 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 (HL)���������������������������������������������������������������������������������������������������������227

Table of Cases  xliii Financial Conduct Authority v McKendrick [2019] EWCA Civ 524, [2019] 4 WLR 65 ���������������������������������������������������������������������������������������������������191, 368 First Port Property Services Ltd v The Various Long Leaseholders of Citiscape [2018] UKFTT RP/LON/00AH/LSC/2017/0435�������������������������������������������������������532 Fletcher & Son v Jubb Booth & Helliwell [1920] 1 KB 275 (CA)�����������������������������������511 Freeborn v De Almeida Marcal [2019] EWHC 454 (TCC)��������������������������������������������264 Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412 (TCC), [2015] BLR 321���������������������������������������������������������������������������������������������������������������445 Global Switch Estates 1 Ltd v Sudlows Ltd [2020] EWHC 3314 (TCC)�����������������������195 Goldman v Zurich Insurance plc [2020] EWHC 192 (TCC), [2020] BLR 236������������554 Goldtrail Travel Ltd v Grumbridge [2020] EWHC 1757 (Ch)���������������������������������������497 Gosden v Halliwell Landau [2020] EWCA Civ 42, [2020] EGLR 9�������������������������������499 GR Property Management Ltd v Safdar [2020] EWCA Civ 1441����������������������������������535 Granville Technology Group Ltd v Infineon Technologies AG [2020] EWHC 415 (Comm)�����������������������������������������������������������������������������������������497 Gravgaard v Aldridge & Brownlee [2004] EWCA Civ 1529, [2005] PNLR 19������������499 Great Lakes Reinsurance (UK) SE v Western Trading Ltd [2016] EWCA Civ 1003, [2016] 2 CLC 478����������������������������������������������������������������������������546 Greenwich Millennium Village Ltd v Essex Services Group plc [2013] EWHC 3059 (TCC), 151 Con LR 1�����������������������������������������������������������������242 Gregory v H J Haynes Ltd [2020] EWHC 911 (Ch)��������������������������������������������������������498 Hadley v Baxendale (1854) 156 ER 145, 9 Ex Ch 341�����������������������������������������������������244 Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, [2004] 1 WLR 3002��������������������������������������������������������������������������������������������������������438 Hancock v BW Brazier (Anerley) Ltd [1966] 1 WLR 1317 (CA)����������������������������������164 Harris Springs Ltd v Howes [2007] EWHC 3271 (TCC), [2008] BLR 229�������������������499 Harrison v Shepherd Homes Ltd (No 2) [2011] EWHC 1811 (TCC), (2011) 27 Const LJ 709��������������������������������������������������������������������������165, 182, 256–57, 292, 295, 371, 438 Harrison v Shepherd Homes Ltd [2014] EWHC 2786 (TCC)���������������������������������������371 Hart v Large [2020] EWHC 1302 (TCC)��������������������������������������������������������������������������281 Hart v Large [2020] EWHC 2159 (TCC)��������������������������������������������������������������������������281 Hart v Large [2020] EWHC 985 (TCC)����������������������������������������������������������� 152, 280, 422 Hastings BC v Manolete Partners plc [2016] UKSC 50, [2016] 1 WLR 3059��������������291 Haward v Fawcetts [2006] UKHL 9, [2006] 1 WLR 682�������������������������������������������������499 Hawkins v Chrysler UK Ltd (1986) 38 BLR 36 (CA)������������������������������������������������������287 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL)�����������������������������������������������������������������������28, 147, 255, 277, 286, 289–90, 303, 317 Henderson v Foxworth Investments Ltd [2014] UKSC 41, [2014] 1 WLR 2600��������������������������������������������������������������������������������������������������������266 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL)������������������������� 251, 255, 258 Hillcrest Homes Ltd v Beresford and Curbishley Ltd [2014] EWHC 280 (TCC), 153 Con LR 179���������������������������������������������������������������������������������������������������������������������445 Hodgson v NHBC [2018] EWHC 2226 (TCC), [2018] BLR 663��������������������������374, 546 Holt v Holley & Steer Solicitors [2020] EWCA Civ 851, [2020] 1 WLR 4638�������������256

xliv Table of Cases Hotel Services Ltd v Hilton International Hotels (UK) Ltd [2000] EWCA Civ 74, [2000] BLR 235������������������������������������������������������������������������106 Howsons Ltd v Redfearn [2019] EWHC 2540 (TCC), 186 Con LR 222���������������448, 457 Hughes-Holland v BPE Solicitors [2017] UKSC 21, [2018] AC 599���������������������281, 289 Hunt v Optima (Cambridge) Ltd [2013] EWHC 1121 (TCC) ��������������������������������������283 Hunt v Optima (Cambridge) Ltd [2013] EWHC 681 (TCC), 148 Con LR 27����������������������������������������������������������������������� 165, 168, 188, 192, 282–83, 286–87, 289, 499, 531 Hunt v Optima (Cambridge) Ltd [2014] EWCA Civ 714, [2015] 1 WLR 1346, [2014] BLR 613������������������������������������������������������������������������������������������������ 286–87, 502 Hunter v Canary Wharf Ltd, Hunter v London Docklands Development Corporation [1997] AC 655 (HL)���������������������������������������������������������������������������������� 78 IBM UK Ltd v Rockware Glass Ltd [1980] FSR 335 (CA)����������������������������������������������169 ICCT Ltd v Pinto [2019] EWHC 2134 (TCC)������������������������������������������������ 178, 199, 446, 452–53, 455–56 Independent Broadcasting Authority v EMI Electronics Ltd and BICC Construction Ltd (1978) 11 BLR 38 (CA)������������������������������������������������������������������164 Inframatrix Investments Ltd v Dean Construction Ltd [2012] EWCA Civ 64, 140 Con LR 59����������������������������������������������������������������������������������������������������������������502 Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 (CA)�����������������������������������������������������������������������������������������������145, 179 Jacobs v Sesame Ltd [2014] EWCA Civ 1410, [2015] PNLR 6���������������������������������������499 Jarvis v Evans [2020] EWCA Civ 854��������������������������������������������������������������������������������520 Jet 2 Holidays Ltd v Hughes [2019] EWCA Civ 1858, [2020] 1 WLR 844�������������������439 Jeune v Queens Cross Properties Ltd [1974] Ch 97���������������������������������������������������������190 Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520 (HL)������������������������������� 255, 317–18 Kalma v African Minerals Ltd [2020] EWCA Civ 144����������������������������������������������������266 Kew Holdings Ltd v Donald Insall Associates Ltd [2020] EWHC 1862 (TCC), [2020] BLR 578�������������������������������������������������������������������������������������������������������� 446–48 Kew Holdings Ltd v Donald Insall Associates Ltd [2020] EWHC 3069 (TCC)������������������������������������������������������������������������������������������������ 447–48 Khurana v Webster Construction Ltd [2015] EWHC 758 (TCC), [2015] BLR 396�������������������������������������������������������������������������������������������������������� 452–56 King v North Cornwall DC [1995] NPC 21 (CA)�����������������������������������������������������������278 Kitchen v Royal Air Force Association [1958] 1 WLR 563 (CA)�����������������������������������511 Large v Hart [2021] EWCA Civ 24��������������������������������������������������������������������� 280–81, 422 L’Estrange v F Graucob Ltd [1934] 2 KB 394 (DC)���������������������������������������������������������179 Leander Construction Ltd v Mulalley & Co Ltd [2011] EWHC 3449 (TCC), [2012] BLR 152���������������������������������������������������������������������������������������������������������������167 Lee v Leeds CC [2002] EWCA Civ 6, [2002] 1 WLR 1488���������������������������������������������521 Lejonvarn v Burgess [2017] EWCA Civ 254, [2017] BLR 277, 171 Con LR 118���������261 Lejonvarn v Burgess [2020] EWCA Civ 114, [2020] Costs LR 45���������������������������������263 Lessees and Management Company of Herons Court v Heronslea Ltd [2018] EWHC 3309 (TCC), [2019] BLR 401����������������������������������������������� 108, 298–99 Lessees and Management Company of Herons Court v Heronslea Ltd [2019] EWCA Civ 1423, [2019] 1 WLR 5849�������������������������������������������������������������300

Table of Cases  xlv Liberty Mercian Ltd v Cuddy Civil Engineering Ltd [2013] EWHC 4110 (TCC)�����������������������������������������������������������������������������������������������190, 232 Liberty Syndicate Management Ltd v Campagna Ltd [2011] EWHC 209 (TCC), (2011) 27 Const LJ 275��������������������������������������������������������������������������������������������������540 Libyan Investment Authority v King [2020] EWCA Civ 1690���������������������������������������497 Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 85 (HL)���������248 Linklaters Business Services Ltd v Sir Robert McAlpine Ltd [2010] EWHC 1145 (TCC), [2010] BLR 537, 130 Con LR 111�������������������������������500 Lipton v BA City Flyer Ltd [2021] EWCA Civ 454������������������������������������������������������������ 26 Liverpool City Council v Irwin [1977] AC 239 (HL)����������������������������������������������� 520–22 LM Homes Ltd v Queen Court Freehold Co Ltd [2020] EWCA Civ 371, [2020] 2 WLR 1135��������������������������������������������������������������������������������������������������������535 London Borough of Hackney v Shiva Ltd [2020] EWHC 2489 (QB)���������������������������241 London Borough of Newham v Khatun [2004] EWCA Civ 55, [2005] QB 37������������181 London Borough of Southwark v Mills and Baxter v London Borough of Camden [2001] 1 AC 1 (HL), [1999] 4 All ER 449, (2000) 32 HLR 148������� 521, 528 Loretto Housing Association Ltd v Cruden Building & Renewals Ltd [2019] CSOH 78�������������������������������������������������������������������������������������������������������������509 Lovell Projects v Legg [2003] BLR 452 (TCC)�������������������������������������������������� 448, 454–56 Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93, (1999) 1 TCLR 113���������������������������������������������������������������������������������������������������������446 Maftoon v Sayed [2020] EWHC 1801 (TCC)�������������������������������������������������������������������159 Malcolm Charles Contracts Ltd v Crispin [2014] EWHC 3898 (TCC), 159 Con LR 185��������������������������������������������������������������������������������������������������������������454 Manchikalapati v Zurich Insurance plc [2019] EWCA Civ 2163, [2020] BLR 1���������������������������������������������������������������������������������������������������� 162, 548–49 Manolete Partners plc v Hastings BC [2013] EWHC 842 (TCC), [2013] BLR 361���������������������������������������������������������������������������������������������������������������291 Manolete Partners plc v Hastings BC [2014] EWCA Civ 562, [2014] 1 WLR 4030��������������������������������������������������������������������������������������������������������291 Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72, [2016] AC 742�����������������������������������������������������164, 171 Matila Ltd v Lisheen Properties Ltd [2010] EWHC 1832 (Ch)��������������������������������������165 McCain Foods GB Ltd v Eco-Tec (Europe) Ltd [2011] EWHC 66 (TCC)�������������������106 McCall v Abelesz [1976] 1 QB 585 (CA)���������������������������������������������������������������������������192 McGivney v Golderslea Ltd [2001] Const LJ 454 (CA)����������������������������������������������������� 95 McGlinn v Waltham Contractors Ltd (No 3) [2007] EWHC 149 (TCC), 111 Con LR 1��������������������������������������������������������������������������������������������������� 37, 157, 187 McQuire v Western Morning News Co Ltd [1903] 2 KB 100 (CA)�������������������������������� 37 Merrett v Babb [2001] EWCA Civ 214, [2001] QB 1174, [2001] BLR 483�������������������290 Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200, [2013] BLR 265����������������������������������������������������������������������151 Mitchell v Glasgow City Council [2009] UKHL 11, [2009] 1 AC 874��������������������������279 Montgomery v Lanarkshire Health Board [2015] UKSC 11, [2015] AC 1430�������������� 37 Motacus Constructions Ltd v Paolo Castelli SPA [2021] EWHC 356 (TCC)���������������� 25 Mount v Barker Austin [1998] EWCA Civ 277����������������������������������������������������������������511

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MT Højgaard A/S v E.On Climate & Renewables UK Robin Rigg East Ltd [2017] UKSC 59, [2018] 2 All ER 22���������������������������������������������������������������������������164 Mul v Hutton Construction Ltd [2014] EWHC 1797 (TCC), [2014] BLR 529���������������������������������������������������������������������������������������������������������������188 Murphy v Brentwood DC [1991] 1 AC 398 (HL)����������������������������� 27–29, 31, 70, 89–90, 108, 230, 255, 267, 271, 276–78, 282, 297, 300–01, 304, 317, 321, 324–25, 495, 498–500, 542–43 MW High Tech Projects UK Ltd v Haase Environmental Consulting GmbH [2015] EWHC 152 (TCC), 158 Con LR 260���������������������������������������������������������������453 Mylcrist Builders Ltd v Buck [2008] EWHC 2172 (TCC), [2009] 2 All ER (Comm) 259, [2008] BLR 611�����������������������������������178–79, 423, 456 N v Poole BC [2019] UKSC 25, [2020] AC 780���������������������������������������������������������������255 National Farmers Union Mutual Insurance Society Ltd v HSBC Insurance (UK) Ltd [2010] EWHC 773 (Comm), [2010] 1 CLC 557���������������������400 Naylor v Roamquest Ltd [2021] EWHC 567 (TCC)�������������������������������������� 193, 310, 365, 369, 379, 487 Ndole Assets Ltd v Designer M&E Services UK Ltd [2018] EWCA Civ 2865, [2019] BLR 147���������������������������������������������������������������������������������������������������������������497 NHBC Building Control Services Ltd v Sandwell BC (1990) 50 BLR 101 (DC)������������������������������������������������������������������������������������� 87, 101, 104, 516 North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744, [2018] BLR 565���������������������������������������������������������������������������������������������������������������167 Oakapple Homes (Glossop) Ltd v DTR (2009) Ltd [2013] EWHC 2394 (TCC), 150 Con LR 110������������������������������������������������������������������������������������������������������245, 278 Oliver v Shaikh [2020] EWHC 2658 (QB)������������������������������������������������������������������������191 Optimus Build Ltd v Southall [2020] EWHC 3389 (TCC)���������������������������� 157, 199, 440 OT Computers Ltd v Infineon Technologies AG [2021] EWCA Civ 501���������������������497 Paccar Inc v Road Haulage Association Ltd [2021] EWCA Civ 299�����������������������������481 P&M Kaye Ltd v Hosier & Dickinson Ltd [1972] 1 WLR 146 (HL)������������������������������484 Paice v MJ Harding [2015] EWHC 661 (TCC), [2015] BLR 345�����������������������������������453 Pankhania v London Borough of Hackney [2002] EWHC 2441 (Ch), [2002] NPC 123��������������������������������������������������������������������������������������������������������������147 Pankhania v London Borough of Hackney [2004] EWHC 323 (Ch), [2004] 1 EGLR 135���������������������������������������������������������������������������������������������������������147 Patchett v Swimming Pool and Allied Trades Association Ltd [2009] EWCA Civ 717, [2010] 2 All ER (Comm) 138��������������������������������������355, 357 Payne v John Setchell Ltd [2001] EWHC 457 (TCC), [2002] BLR 489, (2001) 3 TCLR 26������������������������������������������������������������������������������������������ 286, 292, 500 PC Harrington Contractors Ltd v Systech International Ltd [2012] EWCA Civ 1371, [2013] 2 All ER 69, [2013] BLR 1�������������������������������������450 Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111 (CA)��������������������������������������������������������������������������������������������������167 Pearson Education Ltd v The Charter Partnership Ltd [2007] EWCA Civ 130, [2007] BLR 324���������������������������������������������������������������������������������������������� 268, 272, 419 Perry v Sidney Phillips & Son [1982] 1 WLR 1297 (CA)������������������������������������������������192

Table of Cases  xlvii Peters v General Accident Fire & Life Assurance Corp Ltd [1938] 2 All ER 267 (CA)����������������������������������������������������������������������������������������������247 Piechnik v Oxford City Council [2020] EWHC 960 (QB)����������������������������������������������� 95 PGF II SA v OMFS Co [2013] EWCA Civ 1288, [2014] 1 All ER 970��������������������������438 Philcox v Wilson [2018] EWHC 3138 (QB)����������������������������������������������������������������������� 17 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 (HL)������������������������191 Picardi v Cuniberti [2002] EWHC 2923 (TCC), [2003] BLR 487������������������ 453, 455–56 Pickard Finlason Partnership Ltd v Lock [2014] EWHC 25 (TCC)�������������������������������� 52 Pirelli General Cable Works Ltd v Oscar Faber and Partners [1983] 2 AC 1 (HL)����������������������������������������������������������������������������������������� 27, 495, 503 Playboy Club London Ltd v Banca Nazionale del Lavoro SpA [2018] EWCA Civ 2025, [2019] LLR 90����������������������������������������������������������������������553 Powell v Ash (Central London County Court, 17 February 2020)��������������������������������150 Project Consultancy Group v The Trustees of the Gray Trust [1999] BLR 377 (TCC)��������������������������������������������������������������������������������������������������453 Purbrick v Cruz [2020] EWHC 1465 (QB)�����������������������������������������������������������������������159 R (Gresty) v Knowsley MBC [2012] EWHC 39 (Admin)�����������������������������������������������278 Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900������������������������155 Re Reese River Silver Mining Co, Smith’s Case (1867) LR 2 Ch App 604 (HL)�����������149 Relicpride Building Co Ltd v Cordara [2013] EWCA Civ 158, (2013) 147 Con LR 92����������������������������������������������������������������������������������������������������174 Rendlesham Estates plc v Barr Ltd [2014] EWHC 3968 (TCC), [2015] 1 WLR 3663��������������������������������������������������������������������������������165, 193, 292–95, 449, 531 Resistant Building Products Ltd v National House-Builders’ Council [2020] NICh 6�����������������������������������������������������������������������������������������������������������86, 366 RG Securities (No 2) Ltd v Allianz Global Corporate and Specialty CE [2020] EWHC 1646 (TCC), 191 Con LR 1������������������������������������������������ 296, 497, 551 Robinson v Chief Constable of West Yorkshire Police [2018] UKSC 4, [2018] AC 736�����������������������������������������������������������������������������������������������������������������279 Robinson v Harman (1848) 1 Ex 850, 154 ER 363�����������������������������������������������������������192 Robinson v PE Jones (Contractors) Ltd [2010] EWHC 102 (TCC), [2010] TCLR 3����������������������������������������������������������������������������������������������������������������253 Robinson v PE Jones (Contractors) Ltd [2011] EWCA Civ 9, [2012] QB 44, [2011] BLR 206�������������������������������������������������������������������������������������253 Robophone Facilities Ltd v Blank [1966] 1 WLR 1428 (CA)�����������������������������������������194 Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24, [2019] AC 119��������������������������������������������������������������������������� 153–54 Royscot Trust Ltd v Rogerson [1991] 2 QB 297 (CA)�����������������������������������������������������153 Rushbond plc v JS Design Partnership LLP [2020] EWHC 1982 (TCC), [2020] BLR 587�������������������������������������������������������������������������������������������������������265, 279 Russell v Stone (t/a PSP Consultants) [2019] EWHC 831 (TCC)���������������������������54, 502 Ruxley Electronics and Construction Ltd v Forsyth [1994] 1 WLR 650 (CA)����������193, 226 Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 (HL)����������191–93, 212 Sainsbury’s Supermarkets Ltd v Condek Holdings Ltd [2014] EWHC 2016 (TCC), [2014] BLR 574��������������������������������������������������������������������������255

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Samuel Thomas Construction v Anon (HH Judge Overend, 28 January 2000)����������448 Savoye and Savoye Ltd v Spicers Ltd [2014] EWHC 4195 (TCC), 159 Con LR 120, [2015] BLR 151���������������������������������������������������������������������������������448 Scullion v Bank of Scotland plc [2011] EWCA Civ 693, [2011] 1 WLR 3212, [2011] BLR 449���������������������������������������������������������������������������������������������������������������290 Secretariat Consulting Pte Ltd v A Company [2021] EWCA Civ 6�������������������������������420 Shaw v Lighthousexpress Ltd [2010] EWCA Civ 161�����������������������������������������������������248 Shaw v Massey Foundation & Pilings Ltd [2009] EWHC 493 (TCC)��������� 446, 448–49, 454 Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd [1996] AC 102 (HL)���������498 Shepherd Homes Ltd v Encia Remediation Ltd [2007] EWHC 1710 (TCC)���������������182 Simaan General Contracting v Pilkington Glass [1988] QB 758�����������������������������������318 Simpson v Norfolk & Norwich University Hospital NHS Trust [2011] EWCA Civ 1149, [2012] QB 640���������������������������������������������������������������������247 Smith v Eric S Bush and Harris v Wyre Forest DC (conjoined appeals) [1990] 1 AC 831 (HL)��������������������������������������������������������������������������������������������� 289–90 Smith v Land and House Property Corporation (1884) 28 Ch D 7 (CA)���������������������149 Société Générale v Geys [2012] UKSC 63, [2013] 1 AC 523 �����������������������������������������163 South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (HL)�����������������������������������������������������������������������������������������������281, 289 South Bucks DC v Porter [2003] UKHL 26, [2003] 2 AC 558���������������������������������������241 Southwark LBC v Mills [2001] 1 AC 1 (HL)���������������������������������������������������������������������150 Sparham-Souter v Town & Country Developments (Essex) Ltd [1976] 1 QB 858 (CA)����������������������������������������������������������������������������������������������29, 495 Speymill Contracts Ltd v Baskind [2010] EWCA Civ 120, [2010] BLR 257, 129 Con LR 66����������������������������������������������������������������������������������������������������������������454 Sportcity 4 Management Ltd v Countryside Properties (UK) Ltd [2020] EWHC 1591 (TCC), 192 Con LR 131����������������������������� 296, 495–96, 513, 551 Spring v Guardian Assurance plc [1995] 2 AC 296 (HL)������������������������������������������������264 Spurling Ltd v Bradshaw [1956] 1 WLR 461 (CA)��������������������������������������������������179, 357 St Martins Property Corporation Ltd v Sir Robert McAlpine and Sons Ltd [1994] AC 85 (HL)������������������������������������������������������������������ 212, 247–48 Staechelin v ACLBDD Holdings Ltd [2019] EWCA Civ 817, [2019] 3 All ER 429��������������������������������������������������������������������������������������������������������266 Starglade Properties Ltd v Nash [2010] EWCA Civ 1314, [2011] Lloyd’s Rep FC 102��������������������������������������������������������������������������������������������248 Steel v NRAM Ltd [2018] UKSC 13, [2018] 1 WLR 1190����������������������������������������������279 Stilk v Myrick (1809) 2 Campbell 317�������������������������������������������������������������������������������160 Stovin v Wise [1996] AC 923 (HL)������������������������������������������������������������������������������������265 St Peter Total Building Solutions Ltd v Rhodes [2020] EWHC 2036 (TCC)���������������448 Strange v Westbury Homes (Holdings) Ltd [2009] EWCA Civ 1247����������������������������193 Stratton v Patel [2016] EWHC 2032 (TCC)����������������������������������������������������������������������189 Street v Sibbasbridge (1980)������������������������������������������������������������������������������������������������173 Sugarman v CJS Investments LLP [2014] EWCA Civ 1239, [2015] 1 BCLC 1����� 542–43 Summerfield Browne Ltd v Waymouth [2021] EWHC 85 (QB)����������������������������348, 354 Sutton v Norwich City Council [2021] EWCA Civ 20�������������������������������������������������������� 8

Table of Cases  xlix Swansea Stadium Management Co Ltd v City & County of Swansea [2018] EWHC 2192 (TCC), [2019] BLR 652��������������������������������������������������������������502 Swansea Stadium Management Co Ltd v City & County of Swansea [2019] EWHC 989 (TCC), 185 Con LR 21�����������������������������������������������������������������502 Takhar v Gracefield Developments Ltd [2019] UKSC 13, [2020] AC 450��������������������553 Technotrade Ltd v Larkstore Ltd [2006] EWCA Civ 1079, [2006] 1 WLR 2926���������248 Tejani v Fitzroy Place Residential Ltd [2020] EWHC 1856 (TCC), 191 Con LR 165������������������������������������������������������������������������������������������������������168, 296 Temloc v Errill Properties Ltd (1987) 39 BLR 30 (CA)���������������������������������������������������107 Templars Estates Ltd v National Westminster Bank [2016] EWHC 2020 (Comm)��������� 436 Tesco Stores Ltd v Wards Construction (Investment) Ltd (1995) 76 BLR 94 (QB)��������������������������������������������������������������������������������������������������������82, 278 The 52 Occupiers of the Ceramic Works v Bowmer & Kirkland Ltd [2021] EWHC 17 (TCC)�����������������������������������������������������������������������������������������������497 The Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1, [2021] 2 WLR 123����������������������������������������������������������������������������������������������������������368 The Mayor and Commonalty and Citizens of the City of London v Various Leaseholders of Great Arthur House [2021] EWCA Civ 431�����������������������������������532 The White Lion Hotel v James [2021] EWCA Civ 31������������������������������������������������������524 Thomas v Taylor Wimpey Developments Ltd [2019] EWHC 1134 (TCC), 184 Con LR 1������������������������������������������������������������������������������������������������������������������393 Tinseltime Ltd v Roberts [2011] EWHC 1199 (TCC), [2011] BLR 515���������������242, 248 Tonkin v UK Insurance Ltd [2006] EWHC 1120 (TCC), [2006] 2 All ER (Comm) 550, 107 Con LR 107����������������������������������������������������������������������366 Treasure & Son Ltd v Dawes [2007] EWHC 2420 (TCC), [2008] BLR 24��������������������454 Trecarrell House Ltd v Rouncefield [2020] EWCA Civ 760�������������������������������������������523 Triple Point Technology Inc v PTT Public Company Ltd [2019] EWCA Civ 230, [2019] 1 WLR 3549, [2019] BLR 271��������������������������������������162, 195 Tuke v Derek Hood [2020] EWHC 2843 (Comm)����������������������������������������������������������547 Uratemp Ventures Ltd v Collins [2001] UKHL 43, [2002] 1 AC 301����������������������������449 Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2016] UKSC 45, [2017] AC 1��������������������������������������������������������������������������������������366 VHE Construction plc v Alfred McAlpine Construction Ltd [1997] EWHC Tech 370������������������������������������������������������������������������������������������������264 Viagogo AG v Competition and Markets Authority [2019] EWHC 1706 (Ch), [2020] ECC 5������������������������������������������������������������������������������������������������������������������333 Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 (CA)����������������������������������������������������������������������������������������������������244 Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46, [2014] AC 160�����������������������������������������������������������������������������������������������������������������436 Volcafe Ltd v Cia Sud Americana de Vapores SA [2018] UKSC 61, [2019] AC 358�����������������������������������������������������������������������������������������������������������������266 Walford v Miles [1992] 2 AC 128 (HL)�����������������������������������������������������������������������������430 Walter Lilly & Co Ltd v Clin [2016] EWHC 357 (TCC), [2016] BLR 247������������� 170–71 Walter Lilly & Co Ltd v Clin [2019] EWHC 945 (TCC), 184 Con LR 34���������������������171

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Watts v Morrow [1991] 1 WLR 1421 (CA)���������������������������������������������������������������192, 281 West v Ian Finlay & Associates [2013] EWHC 868 (TCC)���������������������������� 180, 438, 455 West v Ian Finlay & Associates [2014] EWCA Civ 316, 153 Con LR 1, [2014] BLR 324������������������������������������������������������������������������������������������������ 181–82, 456 Westfields Construction Ltd v Lewis [2013] EWHC 376, [2013] BLR 223���������� 448–49, 452–53 Whiston v London Strategic Health Authority [2010] EWCA Civ 195, [2010] 1 WLR 1582��������������������������������������������������������������������������������������������������������498 White v Jones [1995] 2 AC 207 (HL)�������������������������������������������������������������������������251, 265 Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL)�����������������������������255 Williams v Roffey Brothers & Nicholls (Contractors) Ltd [1990] 1 QB 1 (CA)����������162 WM Morrison Supermarkets plc v Various Claimants [2020] UKSC 12, [2020] 1 WLR 941����������������������������������������������������������������������������������������������������������242 Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173, 171 Con LR 1������������������������������������������������������������������������������������������������������������������155 Woodlands Oak Ltd v Conwell [2011] EWCA Civ 254, [2011] BLR 365���������������������187 WW Gear Construction Ltd v McGee Group Ltd [2012] EWHC 1509 (TCC), [2012] BLR 355���������������������������������������������������������������������������������������������������������������453 Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB), [2013] 1 All ER (Comm) 1321, [2013] BLR 147��������������������������������������������������������151 Zagora Management Ltd v Zurich Insurance plc [2019] EWHC 140 (TCC), 182 Con LR 180�����������������������������������������������������������������������������������������������������177, 415, 541–48, 550–52 Zagora Management Ltd v Zurich Insurance plc [2019] EWHC 205 (TCC), 182 Con LR 240������������������������������������������������������������������������������������������������������� 546–47 Zagora Management Ltd v Zurich Insurance plc [2019] EWHC 257 (TCC)�������� 546–47 Zealander v Laing Homes Ltd (2000) 2 TCLR 724 (TCC)�������������������������������������178, 456 Zennstrom v Fagot [2013] EWHC 288 (TCC), 147 Con LR 162�����������������������������������291 Zuberi v Lexlaw Ltd [2021] EWCA Civ 16�����������������������������������������������������������������������481 Australia Australia (Federal and High Court) Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30, (2012) CLR 205���������������������������������������������������������������������������������������������������������������������������195 Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd [2015] FCA 1204, (2015) 239 FCR 33�������������������������������������������������206 Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224����������������������������������������������������������������������������������������������205 Australian Competition and Consumer Commission v Woolworths Ltd [2016] FCA 1472������������������������������������������������������������������������������������������������������������338 Australian Securities and Investments Commission v Kobelt [2019] HCA 18, (2019) 267 CLR 1�����������������������������������������������������������������������������������������������������������338 Bellgrove v Eldridge [1954] HCA 36, (1954) 90 CLR 613�����������������������192, 194, 211–13

Table of Cases  li Bowen Investments Pty Ltd v Tabcorp Holdings Ltd [2007] FCA 708�������������������������213 Bowen Investments Pty Ltd v Tabcorp Holdings Ltd [2008] FCAFC 38, (2008) 166 FCR 494�������������������������������������������������������������������������������������������������������212 Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 (HCA)������511 Bryan v Maloney [1995] HCA 17, (1995) 182 CLR 609�������������������������������� 107, 277, 303, 305–06, 324 Burnie Port Authority v General Jones Pty Ltd [1994] HCA 13, (1994) 179 CLR 520 (HCA)������������������������������������������������������������������������������������������274 Commonwealth Bank of Australia v Barker [2014] HCA 32, (2014) 253 CLR 169��������� 151 Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12, (2017) 261 CLR 544������������������������������������������������������������������� 155–56 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7, (2014) 251 CLR 640��������������������������������������������������������������������� 154–55 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22, (2007) 81 ALJR 1107������������������������������������������������������������������������������������������������������584 Hasell v Bagot, Shakes & Lewis Ltd [1911] HCA 62, (1911) 13 CLR 374���������������������188 Hill v Van Erp (1997) 188 CLR 159 (HCA)����������������������������������������������������������������������276 Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10, (2013) 247 CLR 613��������������������������������������������������������������������������442 Icon Co (NSW) Pty Ltd v Liberty Mutual Insurance Company Australian Branch [2020] FCA 1493�������������������������������������������������������������������155, 556 Janbar Pty Ltd v Arborcrest Pty Ltd [2020] FCA 1519���������������������������204, 336, 419, 463 Lumbers v W Cook Pty Ltd [2008] HCA 27, (2008) 232 CLR 635�������������� 199, 210, 303 Mann v Paterson Constructions Pty Ltd [2019] HCA 32, (2019) 267 CLR 560�������������������������������������������������������������������������������198–201, 208–09, 265, 587 Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5, (2018) 264 CLR 46�������������174 Morris-Garner v One Step (Support) Ltd [2018] UKSC 20, [2019] AC 649����������������191 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37, (2015) 256 CLR 104�������������������������������������������������������������������������������������������������������156 Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28, (2016) 258 CLR 525�������������������������������������������������������������������������������������� 197, 201, 214 Pavey & Matthews Pty Ltd v Paul [1987] HCA 5, (1985) 162 CLR 221������������������������199 Rogers v Whitaker [1992] HCA 58, (1992) 175 CLR 479������������������������������������������������� 37 Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5, (2002) 240 CLR 45�������������������������������������������������������������������������������151 Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51, (1979) 144 CLR 596��������������������������������������������������������������������������151 Specsavers Pty Ltd v Luxottica Retail Australia Pty Ltd [2013] FCA 648���������������������336 Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1, (1986) 160 CLR 16����������242 Sullivan v Moody [2001] HCA 59, (2001) 207 CLR 562�������������������������������������������������305 Sutherland Shire Council v Heyman [1985] HCA 41, (1985) 157 CLR 424��������303, 325 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8, (2009) 236 CLR 272�������������������������������������������������������������������������������������������������������213 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 (HCA)������������������������������������������������������������������������������������������303

lii

Table of Cases

Unique International College Pty Ltd v Australian Competition and Consumer Commission [2018] FCAFC 155, (2018) 266 FCR 631���������������������������������������������338 Victorian Building Authority v Andriotis [2019] HCA 22, (2019) 372 ALR 1 [98]��������� 120 Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16, (2004) 216 CLR 515�������������������������������������������������������������������������������������� 303, 306, 506 Australia (ACT) Asset Building Certifiers Pty Ltd v Hyblewski [2020] ACTCA 21��������������������������������117 Hyblewski v Bellerive Homes Pty Ltd [2019] ACTSC 44�����������������������������������������������117 Australia (NSW) Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261, (2005) 63 NSWLR 557��������������������������������������������������������������338 Bandelle Pty Ltd v Sydney Capitol Hotels Pty Ltd [2020] NSWCA 303�����������������������505 Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36, (2014) 254 CLR 185��������������������������������������������������������������������������������������� 274, 303–06, 325, 555–56 C & V Engineering Pty Ltd v Hamilton & Marino Builders Pty Ltd [2020] NSWCA 103�������������������������������������������������������������������������������������������������������154 Caltex Refineries (Qld) Pty Ltd v Stavar [2009] NSWCA 258, (2009) 75 NSWLR 649���������������������������������������������������������������������������������������������������305 Cappello v Hammond & Simonds NSW Pty Ltd [2020] NSWSC 1021����������������195, 208 Cappello v Hammond & Simonds NSW Pty Ltd [2021] NSWCA 57���������������������������208 Chan v Acres [2015] NSWSC 1885������������������������������������������������������������������������������������305 Commissioner for NSW Fair Trading, Department of Finance and Services v Luo [2017] NSWSC 369����������������������������������������������������������������������������������������������� 63 Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2019] NSWCA 185, (2019) 101 NSWLR 679�������������������������������������������������������������������������������������������������165 Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2020] NSWSC 178��������������������������������������������������������������������������������������������������������484 Ippolito v Cesco [2020] NSWSC 561���������������������������������������������������������������������������������190 Kavanagh v Blissett [2001] NSWCA 79�����������������������������������������������������������������������������337 Ku-ring-gai Council v Chan [2017] NSWCA 226, (2017) 224 LGERA 330����������������305 Onethree Pty Ltd v Seaman [2018] NSWCATCD 83������������������������������������������������������194 Oikos Constructions Pty Ltd v Ostin [2020] NSWCA 358��������������������������������������������204 Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219������������������������������������������������������������������������������������������������������556 Owners Corporation Strata Plan 72535 (‘Star of the Sea’) v Brookfield Multiplex Ltd [2012] NSWSC 712�������������������������������������������������������������������������������506 Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151, (2017) 95 NSWLR 82����������������������������������������������������������������196

Table of Cases  liii Probuild Constructions (Aust) Pty Ltd v Shade Systems Ltd [2018] NSWSC 540�������� 55 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 (NSWCA)�������������������������������������������������������������������������������163 Sydney Capitol Hotels Pty Ltd v Bandelle Pty Ltd [2019] NSWSC 1825����������������������505 Taylor v Clientel Development Pty Ltd [2020] NSWCATAP 136����������������������������������212 The Owners – Strata Plan No 87265 v Saaib; The Owners – Strata Plan No 87265 v Alexandrova [2021] NSWSC 150������������������������������������������������������������337 The Owners – Strata Plan 89041 v Galyan Pty Ltd [2019] NSWSC 619���������������� 188–89 The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd [2013] NSWCA 317, (2013) 85 NSWLR 479������������������������������������������������������271, 304 The Owners – Strata Plan No 74602 v Brookfield Australia Investments Ltd [2015] NSWSC 1916������������������������������������������������������������������������������������������������������306 The Owners – Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067����������������������������������������������������������������������������������������������� 188–89 Vagg v Routledge [2020] NSWSC 88���������������������������������������������������������������������������������506 Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253�������������������������������������������������������������������������������������������������������212 Zepinic v Chateau Constructions (Aust) Ltd [2018] NSWCA 317��������������������������������� 17 Zepinic v Chateau Constructions (Aust) Ltd; Chateau Constructions (Aust) Ltd v Zepinic [2017] NSWSC 582����������������������������������������������������������������������������������������� 17 Australia (Qld) Kirkby v Coote [2006] QCA 61������������������������������������������������������������������������������������61, 212 Mousa v Vukobratich Enterprises Pty Ltd [2019] QSC 49�������������������������������������� 305–06 Nel v Octoclay Pty Ltd [2020] QDC 200���������������������������������������������������������������������������170 UI International Pty Ltd v Interworks Architects Pty Ltd [2008] 2 Qd R 158�������������212 Australia (SA) Stone v Chappel [2017] SASCFC 72, (2017) 128 SASR 165������������������������������������ 211–12 Tincknell v Duthy Homes [2020] SASCFC 24���������������������������������������������������������212, 337 Australia (Tas) State of Tasmania v Leighton Contractors Pty Ltd (2005) 15 Tas R 243�����������������������195 Australia (Vic) Adcon Vic Pty Ltd v Icon Co (Vic) Pty Ltd (No 2) [2020] VSC 227�����������������������������338 Advaland Pty Ltd v Bitcon [2015] VSC 235������������������������������������������������������������������������ 37

liv Table of Cases Barton v Stiff [2006] VSC 307���������������������������������������������������������������������������������������������164 Bensons Property Group Pty Ltd v Key Infrastructure Australia Pty Ltd [2021] VSCA 69��������������������������������������������������������������������������������������������������������������196 Birch v Robek [2014] VCC 68������������������������������������������������������������������������������� 50–51, 147 Brakoulias v Karunaharan [2012] VSC 272������������������������������������������������������������������������ 37 Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd [2014] VSCA 165������������������������������������������������������������������������������������������������������������505 Broomfield v Ideal Transport & Training Pty Ltd [2017] VCAT 358��������������������� 338–39 Cao v Al Bahjeh Pty Ltd [2019] VCAT 998����������������������������������������������������������������������471 Draper v VCAT [2020] VSC 720����������������������������������������������������������������������������������������436 Edmonds v Select Coatings Pty Ltd [2016] VCAT 2065��������������������������������������������������� 38 Hardiman v Gory [2008] VCAT 267���������������������������������������������������������������������������������505 Hooper v Metricon Homes Pty Ltd [2014] VCAT 277�����������������������������������������������60–62 Hurdle v Commerford [2014] VCAT 282��������������������������������������������������������������������������� 47 Ian Street Developer Pty Ltd v Arrow International Pty Ltd [2018] VSC 14���������������465 Isaacs v Vero Insurance Ltd [2009] VCAT 358���������������������������������������������������������432, 434 Janney v Steller Works Pty Ltd [2017] VSC 363, (2017) 53 VR 677�������������������������������� 46 Kounelis v Ross Horton Homes Pty Ltd [2014] VCAT 319����������������������������������������46–47 Lee v Creative Lifestyles Homes Pty Ltd [2015] VCAT 511��������������������������������������������� 39 Leeda Projects Pty Ltd v Zeng [2020] VSCA 192�����������������������������������������������������167, 192 Lin v P & T Constructions (Vic) Pty Ltd [2014] VCAT 1125����������������������������������������439 Metricon Homes Pty Ltd v Hooper [2015] VSC 110��������������������������������������������������������� 62 Metricon Homes Pty Ltd v Softley [2016] VSCA 60, (2016) 49 VR 746������������������������� 62 Owners Corporation No 1 of PS613436T v LU Simon Builders Pty Ltd [2019] VCAT 286������������������������������������������������������������������������������������������� 48, 114, 204, 442, 513, 565 Shaw v Yarranova Pty Ltd [2006] VSCA 291, (2006) 15 VR 289�����������������������������������209 SMK Cabinets v Hili Modern Electrics Pty Ltd [1984] VR 391 (VSCFC)��������������������167 Softley v Metricon Homes Pty Ltd [2014] VCAT 1502�����������������������������������������������60–61 Stellar Constructions Pty Ltd v Ferguson [2013] VCAT 2159����������������������������������������� 38 Stiff v Barton (Domestic Building) [2005] VCAT 821����������������������������������������������������468 Tanah Merah Vic Pty Ltd v Owners’ Corporation No 1 of PS631436T [2021] VSCA 72������������������������������������������������������������������������������������ 37, 49, 55, 57, 204, 442, 469–70, 513 Tanah Merah Vic Pty Ltd v Owners Corporation No 1 of PS613436T [No 2] [2021] VSCA 122��������������������������������������������������������������������������������������������� 442, 469–70 Thurston v Campbell [2007] VCAT 340���������������������������������������������������������������������������505 Toomey v Scolaro’s Concrete Constructions (No 2) [2001] VSC 279���������������������������304 Australia (WA) Houlahan v Pitchen [2009] WASCA 104��������������������������������������������������������������������������241 Silent Vector Pty Ltd v Squarcini (2009) 25 BCL 58, [2008] WASC 246����������������������107 Willshee v Westcourt [2009] WASCA 87��������������������������������������������������������������������������213

Table of Cases  lv Canada City of Kamloops v Nielsen [1984] 2 SCR 2 ��������������������������������������������������������������30, 309 Winnipeg Condominium Corporation No 36 v Bird Construction Co Ltd [1995] 1 SCR 85, 121 DLR (4th) 193�������������������������������������������������������������������271, 304 Hong Kong Arnhold & Co Ltd v Attorney General of Hong Kong (1990) 47 BLR 129, (1989) 5 Const LJ 263 (HKHC)������������������������������������������������������������������������������������196 Xiamen Xinjingdi Group Co Ltd v Eton Properties Ltd [2020] HKCFA 32�����������������191 Ireland ACC Bank plc v Johnston [2011] IEHC 502���������������������������������������������������������������������441 Achill Sheltered Housing Association CLG v Dooniver Plant Hire Ltd [2018] IEHC 6�����������������������������������������������������������������������������������������������������������������473 Brandley v Deane [2017] IESC 83������������������������������������������������������������������������������� 507–08 Cavanagh v Spring Homes Developments Ltd [2019] IEHC 496��������������������������� 477–78 Construgomes v Dragados Ireland Ltd [2021] IEHC 79�������������������������������������������������475 Corrigan v Crofton [1984] IEHC 28, [1985] ILRM 189��������������������������������������������������226 Defender Ltd v HSBC France [2020] IESC 37������������������������������������������������������������������441 Dublin City Council v McFeely [2012] IESC 45��������������������������������������������������������������132 Farrell v Arborlane Ltd [2015] IEHC 535�������������������������������������������������������� 413, 477, 539 Farrell v Arborlane Ltd [2016] IECA 224��������������������������������������������������������������������������477 Gillivan v Sitreas Construction Management Ltd (High Court Record No. 2019/7612P)�������������������������������������������������������������������������������������������������������������478 Gilmore v Galway County Council [2010] IEHC 483�����������������������������������������������������226 Glencar Exploration v Mayo County Council (No 2) [2001] IESC 64, [2002] 1 IR 84, [2002] ILRM 481�������������������������������������������������������������������������� 317–18 Glow Heating Ltd v Eastern Health Board [1988] IR 110����������������������������������������������315 Hanrahan v Minister for Agriculture, Fisheries and Food [2017] IESC 66������������������226 Healy v Whitepark Developments Ltd (IEHC, 15 June 2009)����������������������������������������225 Hussey v Dillon [1995] 1 IR 111 (IESC)����������������������������������������������������������������������������441 James Elliott Construction Ltd v Irish Asphalt Ltd [2011] IEHC 269���������������������������398 Johnson v Longleat Properties Ltd (IEHC, 19 May 1976)����������������������������������������������226 KBC Bank of Ireland v Brennan [2020] IEHC 247����������������������������������������������������������329 Launceston Property Finance Ltd v Burke [2017] IESC 62��������������������������������������������226 Lee Towers Management Co Ltd v Lance Investments Ltd [2018] IEHC 444�������������560 McGann v Connellan [2011] IEHC 462����������������������������������������������������������������������������478 McGee v Alcorn [2016] IEHC 59���������������������������������������������������������������������������������������226 Millerick v Minister of Finance [2016] IECA 206�����������������������������������������������������������477 Mitchell v Mulvey Developments [2014] IEHC 37����������������������������������������������������������226

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Moloney v Liddy [2010] IEHC 218, [2010] 4 IR 653 ������������������������������������������������������441 Murphy v Bower (1868) IR 2 CL 506���������������������������������������������������������������������������������315 Noreside Construction Ltd v Irish Asphalt Ltd [2014] IESC 68������������������������������������398 O’Leary v Mercy University Hospital Cork Ltd [2019] IESC 48������������������������������������420 O’Reilly v Neville [2017] IEHC 554���������������������������������������������������������������������������226, 478 O’Reilly v Neville [2018] IEHC 228 ����������������������������������������������������������������������������������474 O’Reilly v Neville [2020] IECA 215�����������������������������������������������������������������������������������474 Paddy Burke (Builders) Ltd v Tullyvaraga Management Co Ltd [2020] IEHC 170���������� 560 Pat O’Donnell & Co Ltd v Truck and Machinery Sales Ltd [1998] 4 IR 191 (IESC)�������� 225 Persona Digital Telephony Ltd v Minister for Public Enterprise [2017] IESC 27�������481 Primor plc v Stokes Kennedy Crowley [1996] 2 IR 459 (IESC)�������������������������������������477 Roche v Peilow [1986] ILRM 189���������������������������������������������������������������������������������������396 Sheehan v Breccia [2018] IECA 286����������������������������������������������������������������������������������226 Siney v Dublin Corporation [1980] IR 400�����������������������������������������������������������������������318 Tuohy v Courtney [1994] 3 IR 1 (Supreme Ct)����������������������������������������������������������������507 Ulster Bank DAC v McDonagh [2020] IEHC 185�����������������������������������������������������������441 University College Cork v Electricity Supply Board [2015] IEHC 598�������������������������478 Ward v McMaster [1985] IR 29, [1986] ILRM 43 (High Court)��������������������� 130, 317–18 Wilkinson v Ardbrook Homes [2016] IEHC 434������������������������������������������������������������398 WL Construction Ltd v Chawke [2016] IEHC 539���������������������������������������������������������478 New Zealand 127 Hobson Street Ltd v Honey Bees Preschool Ltd [2020] NZSC 53��������� 195, 197, 214 Askin v Knox [1989] 1 NZLR 248 (NZCA)����������������������������������������������������������������������503 Attorney General v Strathboss Kiwifruit Ltd [2020] NZCA 98�������������������� 265, 274, 325 Body Corporate 160361 v BC 2004 Ltd [2015] NZHC 1803������������������������������������������311 Body Corporate 207624 v Grimshaw & Co [2020] NZHC 34���������������������������������������313 Body Corporate 207624 v North Shore City Council (Spencer on Byron) [2012] NZSC 83, [2013] 2 NZLR 297����������������������������������������������������������� 30, 312, 565 Body Corporate 90247 v Wellington City Council [2014] NZHC 295�������������������������310 Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (NZCA)���������������308 Bryant v Primary Industries Insurance Co Ltd [1990] 2 NZLR 142 (NZCA)�������������367 Carter Holt Harvey Ltd v Minister of Education [2016] NZSC 95, [2017] 1 NZLR 78������������������������������������������������������������������������������������ 56, 313, 440, 505 Couch v Attorney General (No 2) [2010] NZSC 27, [2010] 3 NZLR 149������������265, 310 Couch v Attorney General [2008] NZSC 45, [2008] 3 NZLR 725�������������������������265, 310 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2006] NZHC 60���������������������������������������������������������������������������������������������� 190, 222–23 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2006] NZHC 486, [2007] 1 NZLR 785�������������������������������������������������������� 190, 222–23 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2007] NZCA 355, [2008] 2 NZLR 591�������������������������������������������������������� 190, 222–23 Dunedin Water Works Co v Bassett (1868) 1 NZCAR 141��������������������������������������������165 Electrix Ltd v The Fletcher Construction Co Ltd [2020] NZHC 918����������� 199, 214, 264

Table of Cases  lvii Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432��������������������������������������������������������������������������������������������������������156 Grant v Ridgway Empire Ltd [2018] NZHC 2642, (2018) NZCPR 66��������������������������148 Grimshaw & Co v Body Corporate 207624 [2016] NZHC 715�������������������������������������313 Hamlin v Bruce Stirling Ltd [1993] 1 NZLR 374 (NZHC)����������������������������������������������� 28 Haskell v Ashcroft [2020] NZHC 772��������������������������������������������������������������������������������473 Invercargill City Council v Hamlin [1994] 3 NZLR 513, 72 BLR 39 (NZCA)������������������������������������������������������������������������������������������� 28–29, 418 James Hardie Industries plc v White [2019] NZSC 39����������������������������������������������������313 La Grouw v Cairns (2004) 5 NZCPR 434 (HC)���������������������������������������������������������������148 Lakes International Golf Management Ltd v Vincent [2017] NZSC 99, [2017] 1 NZLR 935��������������������������������������������������������������������������������������������������������156 Magee v Mason [2017] NZCA 502, (2017) 18 NZCPR 902�������������������������������������������148 Minister of Education v H Construction North Island Ltd [2018] NZHC 871�����������309 Mount Albert BC v Johnson [1979] NZLR 234 (NZCA)������������������������������������������������242 Mount Albert Grammar School Board of Trustees v Auckland City Council [2009] NZHC 1852��������������������������������������������������������������������������������������������������30, 309 North Shore City Council v Attorney General (The Grange) [2012] NZSC 49, [2012] 3 NZLR 341���������������������������������������������������������������������������� 86 North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZCA 64�������������������������������������������������������������������������������������������������������������268 North Shore City Council v Body Corporate 188529 (Sunset Terraces) and Body Corporate 189855 (Byron Avenue) [2010] NZSC 158, [2011] 2 NZLR 289����������������������������������������������������������������������������������������� 97, 310, 558 North Shore City Council v Body Corporate 207624 (Spencer on Byron) [2011] NZCA 164, [2011] 2 NZLR 744���������������������������������������������������������������312, 565 Osborne v Auckland Council [2014] NZSC 67����������������������������������������������������������������505 Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374, [2009] 3 NZLR 786�����������������������������������������������������������������������312 Rebnik Properties Ltd v Dobbs [2020] NZHC 3494�������������������������������������������������������157 Rees v Firth [2011] NZCA 668, [2012] 1 NZLR 408�������������������������������������������������������472 Ridgway Empire Ltd v Grant [2019] NZCA 134, (2019) 20 NZCPR 236�������������� 149–50 Ridgway Empire Ltd v Grant [2019] NZSC 85�����������������������������������������������������������������149 Ridgway v Calvert [2018] NZDC 14253���������������������������������������������������������������������������148 Shen v Ossyanin [2019] NZHC 135�����������������������������������������������������������������������������������148 South Pacific Manufacturing Co Ltd v New Zealand Security Consultants and Investigations Ltd [1992] 2 NZLR 282 (NZCA)�������������������������������������������������327 Southland Indoor Leisure Centre Trust v Invercargill City Council [2017] NZSC 190, [2018] 1 NZLR 278����������������������������������������������������������������245, 313 Te Mata Properties Ltd v Hastings District Council [2008] NZCA 446, [2009] 1 NZLR 460 �������������������������������������������������������������������������������������������������������312 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444��������������������������������������������������������������������������������������������������������156 Wanaka Gym Ltd v Queenstown Lakes DC [2012] NZHC 284������������������������������������215 Wanaka Gym Ltd v Queenstown Lakes DC [2014] NZSC 198���������������������������������������� 91 Xu v IAG New Zealand Ltd [2019] NZSC 68�������������������������������������������������������������������367

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Scotland @Sipp Pension Trustees v Insight Travel Services Ltd [2015] CSIH 91, 2016 SLT 131�������������������������������������������������������������������������������������������������������������������154 A&E Investments Inc v Levy & McRae Solicitors [2020] CSOH 14������������������������������481 Briggs of Burton plc v Doosan Babcock Ltd [2020] CSOH 100������������������������������������155 British Overseas Bank Nominees Ltd v Stewart Milne Group [2019] CSIH 47, 2019 SLT 1253, 186 Con LR 80�����������������������������������������������278, 321 Cowan v Lanarkshire Housing Association Ltd [2020] CSIH 26��������������������������269, 561 Davidson v Bank of Scotland [2002] ScotCS 50���������������������������������������������������������������321 Gray v Braid Group (Holdings) Ltd [2016] CSIH 68������������������������������������������������������231 Hochtief Solutions AG v Maspero Elevatori SpA [2021] CSIH 19��������������������������������457 Hoe International v Andersen [2017] CSIH 9, [2017] SC 313���������������������������������������154 Hughes v Barratt Urban Construction (Scotland) Ltd [2002] ScotCS 87�������������� 229–30 Hughes v Barratt Urban Construction (Scotland) Ltd [2003] ScotCS 115������������ 230–31 Hughes v Barratt Urban Construction (Scotland) Ltd [2003] ScotCS 345, 2004 SCLR 338 (Extra Division, Inner House)������������������������������������������� 230, 319–20 Kier Construction Ltd v WM Saunders Partnership LLP [2016] CSOH 17��������232, 278 Loretto Housing Association Ltd v Cruden Building & Renewals Ltd [2019] CSOH 78�������������������������������������������������������������������������������������������������������������509 Macdonald v Fédération International de Football Association [1998] ScotCS 85, 1999 SLT 1129��������������������������������������������������������������������������������321 Mars Black Sheep Hotels Ltd v Douglas & Stewart UK Ltd [2019] CSOH 64, 2019 SLT 1159�����������������������������������������������������������������������������������������������������������������446 McManus v City Link Development Co Ltd [2015] CSOH 178����������������������������242, 269 McManus v Scott Wilson Scotland Ltd [2020] CSOH 47���������������������������������������269, 561 Midlothian Council v Blyth & Blyth [2019] CSOH 29, 2019 SLT 1327������������������������509 Midlothian Council v Bracewell Stirling Architects [2018] CSIH 21���������������������������509 Midlothian Council v Keith [2017] CSOH 87������������������������������������������������������������������321 Petition of PHG Developments for Rectification of Deed of Conditions [2020] CSOH 58 and [2021] CSIH 12�������������������������������������������������������������������������155 Reay v Dumfries and Galloway Housing Partnership [2020] SC DUM 19������������������528 Robertson Construction Central Ltd v Glasgow Metro LLP [2009] CSOH 71�����������167 WPH Developments Ltd v Young & Gault LLP [2020] SC GLA 27������������������������������509 Singapore Denka Advantech Pte Ltd v Seraya Energy Pte Ltd [2020] SGCA 119�����������������195, 197 Sandy Island Pte Ltd v Thio Keng Thay [2020] SGCA 86�����������������������������������������������187 European Union Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (C-415/11) EU:C:2013:164, [2013] 3 CMLR 89 ����������������������������������������������������������������������������177

Table of Cases  lix Bundesverband der Verbraucherzentralen und Verbraucherverbände – Verbraucherzentrale Bundesverband eV v Deutsche Apotheker und Ärztebank eG (C-380/19) EU:C:2020:498, [2020] WLR(D) 370 ��������������������330 Centre hospitalier universitaire de Besançon v Dutrueux (C-495/10) EU:C:2011:869����������������������������������������������������������������������������������������������������������������297 Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland (C-300/95) EU:C:1997:255, [1997] ECR-I 2649������������������297 Condominio di Milano, via Meda v Eurothermo SpA (C-329/19) EU:C:2020:263 �������������������������������������������������������������������������������������������������������177, 536 Freiburger Kommunalbauten GmbH Baugesellschaft & Co KG v Hofstetter (C-237/02) EU:C:2004:209, [2004] 2 CMLR 13 ��������������������������������������������������������179 Fundación Consejo Regulador de la Denominación de Origen Protegida Queso Manchego v Industrial Quesera Cuquerella SL (C-614/17) EU:C:2019:344, [2019] Bus LR 1718, [2019] WLR(D) 255 �������������������������������������334 Kirschstein (C-393/17) EU:C:2019:563 ����������������������������������������������������������������������������334 Komisia za zashtita na potrebitelite v Kamenova (C-105/17) EU:C:2018:808, [2018] Bus LR 2325 ���������������������������������������������������������������������������330 Lintner v UniCredit Bank Hungary Zrt (C-511/17) EU:C:2020:188����������������������������178 María Victoria González Sánchez v Medicina Asturiana SA (C-183/00) EU:C:2001:453, [2002] ECR-I 3901 ��������������������������������������������������������296 NW, LW and CW v Sanofi Pasteur MSC SNC (C-621/15) EU:C:2017:484, [2017] 4 WLR 171����������������������������������������������������������������������������������������������������������297 O’Byrne v Sanofi Pasteur MSD Ltd (C-127/04) EU:C:2006:93, [2006] 2 CMLR 24, [2006] 1 WLR 1606 ��������������������������������������������������������������������296 Oceano Grupo Editorial SA v Rocio Murciano Quintero (C-240/98–244/98) EU:C:2000:346, [2000] ECR-I 4941���������������������������������������������������������������������179, 455 Prezes Urzędu Ochrony Konkurencji i Konsumentów v Orange Polska SA (C-628/17) EU:C:2019:480, [2019] Bus LR 1882, [2019] WLR(D) 325������������������334 Raiffeisen Bank SA v JB (C-698/18 and C-699/18) EU:C:2020:537, [2021] 1 CMLR 6������������������������������������������������������������������������������������������������������������503 Veedfald v Århus Amtskommune (C-203/99) EU:C:2001:258, [2003] 1 CMLR 41�������� 297 Verbraucherzentrale Berlin eV v Unimatic Vertriebs GmbH (C-485/17) EU:C:2018:642, [2018] WLR(D) 525, [2018] Bus LR 1777 �����������������330 Zentrale zur Bekämpfung unlauteren Wettbewerbs Frankfurt am Main eV v Comtech GmbH (C-568/15) EU:C:2017:154, [2017] Bus LR 1232 �������������330, 350

lx

TABLE OF STATUTES 1 England & Wales, NI, UK Act for the Rebuilding of the City of London 1667 (18–19 Chas II, 8)��������������������������� 79 Act of Union 1707����������������������������������������������������������������������������������������������������������������588 Arbitration Act 1996 (E&W, NI (part), Scotland (part)) s 91�����������������������������������������������������������������������������������������������������������������������������������179 Building Act 1984 (E&W)����������������������������������������������������������������� 22, 88, 97–98, 279, 298 s 1(1)����������������������������������������������������������������������������������������������������������������������������82, 91 s 1(1A)�������������������������������������������������������������������������������������������������������������������������82, 91 s 2A������������������������������������������������������������������������������������������������������������������������������������� 95 s 7(1)���������������������������������������������������������������������������������������������������������������������������������� 92 ss 8–11������������������������������������������������������������������������������������������������������������������������������� 93 s 14������������������������������������������������������������������������������������������������������������������������������������� 86 s 16������������������������������������������������������������������������������������������������������������������������������������� 87 s 35�����������������������������������������������������������������������������������������������������������������������������������101 s 38���������������������������������������������������������������������������������������������� xi, 239, 301–02, 319, 322 s 38(1)������������������������������������������������������������������������������������������������������������������������������290 s 38(3)������������������������������������������������������������������������������������������������������������������������������290 s 38(4)������������������������������������������������������������������������������������������������������������������������������290 s 39������������������������������������������������������������������������������������������������������������������������������������� 93 s 47(6)�������������������������������������������������������������������������������������������������������������������������������� 89 s 49(7)������������������������������������������������������������������������������������������������������������������������������300 s 52�����������������������������������������������������������������������������������������������������������������������������������104 s 57���������������������������������������������������������������������������������������������������������������������������104, 553 s 106(1)����������������������������������������������������������������������������������������������������������������������������291 s 107����������������������������������������������������������������������������������������������������������������������������������� 94 Building Regulations (Amendment) Act (Northern Ireland) 2009��������������������������������� 80 Building Safety Bill (principally England) (2020)�����������������������xi, 20, 26, 81, 86, 88, 105, 110, 290, 302, 553, 566 Civil Jurisdiction and Judgments Act 1982 (UK)�������������������������������������������������������������� 25 Civil Liability (Contribution) Act 1978 (E&W)���������������������������������������������������������������441 Climate Change and Sustainable Energy Act 2006 (E&W)���������������������������������������������� 91 Common Law Procedure Act 1854 (E&W) s 79�����������������������������������������������������������������������������������������������������������������������������������578



1 Includes

Bills passing through Parliament at the time the book went to press.

lxii

Table of Statutes

Commonhold and Leasehold Reform Act 2002 (E&W) pt 1 ch 1���������������������������������������������������������������������������������������������������������������������������534 pt 2 ch 1���������������������������������������������������������������������������������������������������������������������������526 Construction Contracts (Amendment) Act (Northern Ireland) 2011��������������������������446 Consumer Insurance (Disclosure and Representations) Act 2012 (UK)����������������������367 Consumer Protection Act 1987 (UK) ���������������������������������������������������������������� 26, 498, 523 pt I������������������������������������������������������������������������������������������������������������������������������������296 s 4(1)(e)����������������������������������������������������������������������������������������������������������������������������297 Consumer Rights Act 2015 (UK)����������������������������������������26, 178, 184, 205, 217, 219–20, 224, 249, 253, 257, 333, 343, 350, 431, 453, 455, 536, 540 sch 2����������������������������������������������������������������������������������������� 177, 179–80, 182, 198, 512 pt 1�������������������������������������������������������������������������������������������������������������179–80, 198, 512 s 2(3)������������������������������������������������������������������������������������������������������������������������175, 435 s 2(4)��������������������������������������������������������������������������������������������������������������������������������449 ss 8–11�����������������������������������������������������������������������������������������������������������������������������175 s 12���������������������������������������������������������������������������������������������������������������������������152, 176 ss 19–24���������������������������������������������������������������������������������������������������������������������������176 s 31�����������������������������������������������������������������������������������������������������������������������������������176 ss 33–34���������������������������������������������������������������������������������������������������������������������������357 s 49�����������������������������������������������������������������������������������������������������������������������������������357 s 50���������������������������������������������������������������������������������������������������������������������������152, 175 s 53�����������������������������������������������������������������������������������������������������������������������������������175 s 54�����������������������������������������������������������������������������������������������������������������������������������175 ss 55–56�������������������������������������������������������������������������������������������������������������������175, 189 s 58�����������������������������������������������������������������������������������������������������������������������������������175 s 65���������������������������������������������������������������������������������������������������������������������������181, 268 s 76(3)������������������������������������������������������������������������������������������������������������������������������449 ch 4 ������������������������������������������������������������������������������������������������������������������� 152–53, 175 Contracts (Rights of Third Parties) Act 1999 (E&W, NI)���������������������251, 258, 286, 308, 315, 321, 327, 374 s 1(1)(a)���������������������������������������������������������������������������������������������������������������������������250 s 1(1)(b)���������������������������������������������������������������������������������������������������������������������������250 s 1(2)��������������������������������������������������������������������������������������������������������������������������������250 s 1(3)��������������������������������������������������������������������������������������������������������������������������������249 s 1(4)��������������������������������������������������������������������������������������������������������������������������������249 s 1(5)��������������������������������������������������������������������������������������������������������������������������������249 s 1(6)��������������������������������������������������������������������������������������������������������������������������������250 s 3��������������������������������������������������������������������������������������������������������������������������������������249 s 7(4)��������������������������������������������������������������������������������������������������������������������������������249 s 8(1)��������������������������������������������������������������������������������������������������������������������������������249 Coronavirus Act 2020 (UK)�������������������������������������������������������������������������������������������������� 79 Data Protection Act 2018 (UK)������������������������������������������������������������������������������������26, 348 Defective Premises (Landlord’s Liability) Act (NI) 2001 ss 1–2������������������������������������������������������������������������������������������������������������������������291, 523

Table of Statutes  lxiii Defective Premises Act 1972 (E&W, NI)���� xi, 108, 133, 165, 168–69, 175, 202, 205, 229, 235, 248, 257, 277, 282, 284, 293–96, 298, 302, 307, 319, 321, 323, 327, 362, 371, 396, 418, 449, 458, 494–95, 498, 501–02, 508, 512, 526–27, 531, 544, 551, 563, 574 s 1������������������������������������������������������������������������������������������������������� xi, 164, 299–300, 419 s 1(1)������������������������������������������������������������������������������������������������������������������������292, 299 s 1(1)(b)���������������������������������������������������������������������������������������������������������������������������292 s 1(4)��������������������������������������������������������������������������������������������������������������������������������301 s 1(4)(a)���������������������������������������������������������������������������������������������������������������������������291 s 1(5)������������������������������������������������������������������������������������������������������������������������292, 496 s 2��������������������������������������������������������������������������������������������������������������������������������������371 s 3��������������������������������������������������������������������������������������������������������������������������������������291 s 4������������������������������������������������������������������������������������������������������������������������������424, 523 s 4(1)��������������������������������������������������������������������������������������������������������������������������������523 s 6(2)��������������������������������������������������������������������������������������������������������������������������������292 Disability Discrimination Act 1995 (E&W, NI (part), Scotland (part))������������������������� 95 Domestic Fire Safety (Wales) Measure 2011����������������������������������������������������������������������� 90 Enterprise Act 2002 (UK)����������������������������������������������������������������������������������������������98, 333 Environmental Protection Act 1990 (UK, NI (part))�������������������������������������������������������� 91 Equality Act 2010 (E&W, NI (part), Scotland (part))�������������������������������������������������������� 95 European Union (Withdrawal) Act 2018 (UK) s 2���������������������������������������������������������������������������������������������������������������������������������������� 26 s 6��������������������������������������������������������������������������������������������������������������������������������������177 ss 6–7���������������������������������������������������������������������������������������������������������������������������������� 26 Fair Trading Act 1973 (UK)�������������������������������������������������������������������������������������������������� 98 Financial Services and Markets Act 2000 (UK) sch 17�������������������������������������������������������������������������������������������������������������������������������435 sch 17 para 16�����������������������������������������������������������������������������������������������������������������435 s 22�����������������������������������������������������������������������������������������������������������������������������������435 ss 225–26�������������������������������������������������������������������������������������������������������������������������435 s 228(2)����������������������������������������������������������������������������������������������������������������������������435 s 228(5)����������������������������������������������������������������������������������������������������������������������������436 pt XVI������������������������������������������������������������������������������������������������������������������������������435 Fire Safety Act 2021 (E&W)������������������������������������������������������������������������� 99, 523, 566, 573 Government of Wales Act 2006 sch 7A����������������������������������������������������������������������������xviii Ground Rents Act (Northern Ireland) 2001���������������������������������������������������������������������535 Health and Safety at Work etc Act 1974 (E&W) s 71�����������������������������������������������������������������������������������������������������������������������������������290 Homes (Fitness for Human Habitation) Act 2018 (E&W)������������������������������ 522–23, 528 Housing (Wales) Act 2014���������������������������������������������������������������������������������������������������520 Housing Act 1961 (E&W) s 32(1)(b)�������������������������������������������������������������������������������������������������������������������������521 Housing Act 1985 (E&W) s 27AB������������������������������������������������������������������������������������������������������������������������������519

lxiv Table of Statutes Housing Act 1988 (E&W) ss 21–21B�������������������������������������������������������������������������������������������������������������������������523 Housing Act 2004 (E&W)�����������������������������������������������������������������������������������������8, 99, 109 pt 1������������������������������������������������������������������������������������������������������������������������������������523 pt 5������������������������������������������������������������������������������������������������������������������������������������151 Housing and Regeneration Act 2008 (E&W) pt 2������������������������������������������������������������������������������������������������������������������������������������519 Housing Grants, Construction and Regeneration Act 1996 (UK) ��������200, 446, 451–53, 456, 474, 485, 588 pt II���������������������������������������������������������������������������������������������������������������������������180, 445 s 106�������������������������������������������������������������������������������������������������������������������������170, 180 s 106(2)���������������������������������������������������������������������������������������������� 447, 449–50, 454–55 s 106(3)����������������������������������������������������������������������������������������������������������������������������447 s 106A������������������������������������������������������������������������������������������������������������������������������447 s 108(1)����������������������������������������������������������������������������������������������������������������������������445 s 108(2)(a)�����������������������������������������������������������������������������������������������������������������������445 s 108(3)����������������������������������������������������������������������������������������������������������������������������445 Insurance Act 2015 (UK)��������������������������������������������������������������������������������������������367, 372 s 13A��������������������������������������������������������������������������������������������������������������������������������490 Judicature Act 1873 (E&W)������������������������������������������������������������������������������������������������578 Judicature Act 1875 (E&W)������������������������������������������������������������������������������������������������578 Landlord and Tenant Act 1987 (E&W) pt 1������������������������������������������������������������������������������������������������������������������������������������525 Landlord and Tenant Act 1985 (E&W) s8���������������������������������������������������������������������������������������������������������������������������������������528 s 9A���������������������������������������������������������������������������������������������������������������������������424, 522 s 9A(5)�����������������������������������������������������������������������������������������������������������������������������523 s 9A(6)�����������������������������������������������������������������������������������������������������������������������������522 s 10�����������������������������������������������������������������������������������������������������������������������������������523 s 11�����������������������������������������������������������������������������������������������������������������������������������424 s 17�����������������������������������������������������������������������������������������������������������������������������������520 s 20�����������������������������������������������������������������������������������������������������������������������������������522 Latent Damage Act 1986 (E&W)����������������������������������������������������� 421, 494–995, 498, 508 s 3��������������������������������������������������������������������������������������������������������������������������������������500 Law of Property (Miscellaneous Provisions) Act 1989 (E&W) s 1��������������������������������������������������������������������������������������������������������������������������������������496 s 2��������������������������������������������������������������������������������������������������������������������������������������154 Law of Property Act 1925 (E&W) s 136(1)����������������������������������������������������������������������������������������������������������������������������248 Law Reform (Contributory Negligence) Act 1945 (E&W, Scotland)����������������������������245 Law Reform (Frustrated Contracts) Act 1943 (E&W, NI)����������������������������������������������227 Law Reform (Miscellaneous Provisions) Act (NI) 1948�������������������������������������������������245 Leasehold Reform, Housing and Urban Development Act 1993 (UK)������������������������532 Legal Aid, Sentencing and Punishment of Offenders Act 2012 (E&W) s 85(1) �����������������������������������������������������������������������������������������������������������������������������101 Limitation Act 1623�������������������������������������������������������������������������������������������������������������496

Table of Statutes  lxv Limitation Act 1980 (E&W)������������������������������������������������������������������������������ 421, 494, 533 s 2��������������������������������������������������������������������������������������������������������������������������������������496 s 8(1)������������������������������������������������������������������������������������������������������������������������496, 505 s 9��������������������������������������������������������������������������������������������������������������������������������������496 s 11�����������������������������������������������������������������������������������������������������������������������������������507 s 11A��������������������������������������������������������������������������������������������������������������������������������296 s 14(1A)���������������������������������������������������������������������������������������������������������������������������498 s 14A–B����������������������������������������������������������������������������������������������������������������������������498 s 32(1)(a)�������������������������������������������������������������������������������������������������������������������������543 s 32(1)(b)�������������������������������������������������������������������������������������������������������������������������497 s 32(5)������������������������������������������������������������������������������������������������������������������������������498 s 33�����������������������������������������������������������������������������������������������������������������������������������498 s 33B���������������������������������������������������������������������������������������������������������������������������������503 s 35�����������������������������������������������������������������������������������������������������������������������������������497 s 36 ����������������������������������������������������������������������������������������������������������������������������������496 Local Democracy, Economic Development and Construction Act 2009 (UK) pt 8������������������������������������������������������������������������������������������������������������������������������������447 Local Government Act 1972 (E&W) s 222���������������������������������������������������������������������������������������������������������������������������������241 Misrepresentation Act (NI) 1967�������������������������������������������������������������������������������153, 175 Misrepresentation Act 1967 (E&W)��������������������������������������������������������������������������147, 175 s 1(a)–(b)�������������������������������������������������������������������������������������������������������������������������150 s 2(1)��������������������������������������������������������������������������������������������������������������������������������153 s 2(2)��������������������������������������������������������������������������������������������������������������������������������150 Occupiers’ Liability Act (NI) 1957 s 2��������������������������������������������������������������������������������������������������������������������������������������524 s 4��������������������������������������������������������������������������������������������������������������������������������������523 Occupiers’ Liability Act 1957 (E&W) s 2(2)��������������������������������������������������������������������������������������������������������������������������������524 s 4��������������������������������������������������������������������������������������������������������������������������������������523 Parking (Code of Practice) Act 2019 (E&W, Scotland)���������������������������������������������������198 Private International Law (Implementation of Agreements) Act 2020 (UK)���������������� 25 Public Health Act 1936 (E&W, also NI in part)����������������������������������������������������������������� 90 Renting Homes (Wales) Act 2016��������������������������������������������������������������������������������������522 s 31�����������������������������������������������������������������������������������������������������������������������������������520 Representation of the People Act 1983 (UK) s 5��������������������������������������������������������������������������������������������������������������������������������������449 Sale of Goods Act 1893 (UK)��������������������������������������������������������������������������������������223, 399 Self-build and Custom Housebuilding Act 2015 (E&W)���������������������������������������������������� 6 Senior Courts Act 1981 (E&W) s 49(2) �����������������������������������������������������������������������������������������������������������������������������578 Supply of Goods and Services Act 1982 (E&W, NI) s 2��������������������������������������������������������������������������������������������������������������������������������������175 s2A������������������������������������������������������������������������������������������������������������������������������������175 s 5A�����������������������������������������������������������������������������������������������������������������������������������175 ss13–16����������������������������������������������������������������������������������������������������������������������������174

lxvi

Table of Statutes

Sustainable and Secure Buildings Act 2004 (E&W)����������������������������������������������������91, 95 Town and Country Planning Act 1990 (E&W) s 171E�������������������������������������������������������������������������������������������������������������������������������241 s 172���������������������������������������������������������������������������������������������������������������������������������241 s 183���������������������������������������������������������������������������������������������������������������������������������241 s 187B�������������������������������������������������������������������������������������������������������������������������������241 Unfair Contract Terms Act 1977 Part I (E&W, NI)������������������������ 175, 177, 181–82, 234, 253–54, 257, 268, 290, 502, 536 s 3(1)��������������������������������������������������������������������������������������������������������������������������������176 Part II (Scotland)������������������������������������������������������������������������������������������������������������������176 Part III (UK)��������������������������������������������������������������������������������������������������������������������������176 s 2��������������������������������������������������������������������������������������������������������������������������������������290 United Kingdom Internal Market Act 2020 (UK)���������������������������������������������������137, 151 Australia Australian Consumer Law��������������������������������������������������������������������������203, 205, 335–36, 340, 359, 488 s 4��������������������������������������������������������������������������������������������������������������������������������������336 s 18������������������������������������������������������������������������������������������������������������������� 51, 147, 303, 336–37, 441, 463 s 20�����������������������������������������������������������������������������������������������������������������������������������338 s 20(2)������������������������������������������������������������������������������������������������������������������������������338 s 21�����������������������������������������������������������������������������������������������������������������������������������338 s 21(1)������������������������������������������������������������������������������������������������������������������������������338 s 21(4)(a)�������������������������������������������������������������������������������������������������������������������������338 s 22(1)(a)�������������������������������������������������������������������������������������������������������������������������338 s 22(1)(d)�������������������������������������������������������������������������������������������������������������������������338 s 22(1)(j)��������������������������������������������������������������������������������������������������������������������������338 s 22(1)(l)��������������������������������������������������������������������������������������������������������������������������338 s 22(2)(a)�������������������������������������������������������������������������������������������������������������������������338 s 22(2)(d)�������������������������������������������������������������������������������������������������������������������������338 s 22(2)(j)��������������������������������������������������������������������������������������������������������������������������338 s 22(2)(l)��������������������������������������������������������������������������������������������������������������������������338 s 22A��������������������������������������������������������������������������������������������������������������������������������336 s 23�����������������������������������������������������������������������������������������������������������������������������������205 s 23(1)������������������������������������������������������������������������������������������������������������������������������205 s 23(3)������������������������������������������������������������������������������������������������������������������������������205 s 23(4)������������������������������������������������������������������������������������������������������������������������������206 s 24�����������������������������������������������������������������������������������������������������������������������������������205 s 24(1)����������������������������������������������������������������������������������������������������������������������206, 220 s 24(4)������������������������������������������������������������������������������������������������������������������������������206 ss 25����������������������������������������������������������������������������������������������������������������������������������206

Table of Statutes  lxvii s 27(1)������������������������������������������������������������������������������������������������������������������������������205 s 27(2)������������������������������������������������������������������������������������������������������������������������������205 s 29���������������������������������������������������������������������������������������������������������������������������335, 339 s 29(2)������������������������������������������������������������������������������������������������������������������������������339 s 30(1)������������������������������������������������������������������������������������������������������������������������������339 s 33���������������������������������������������������������������������������������������������������������������������������335, 339 s 34���������������������������������������������������������������������������������������������������������������������������335, 339 s 36�����������������������������������������������������������������������������������������������������������������������������������339 s 40�����������������������������������������������������������������������������������������������������������������������������������339 s 50�����������������������������������������������������������������������������������������������������������������������������������339 s 59���������������������������������������������������������������������������������������������������������������������������204, 335 s 232���������������������������������������������������������������������������������������������������������������������������������335 s 234���������������������������������������������������������������������������������������������������������������������������������335 s 236(1)����������������������������������������������������������������������������������������������������������������������������335 s 236(2)����������������������������������������������������������������������������������������������������������������������������335 s 243(a)����������������������������������������������������������������������������������������������������������������������������335 s 243(b)(i)������������������������������������������������������������������������������������������������������������������������335 s 243(d)����������������������������������������������������������������������������������������������������������������������������335 s 243(f)�����������������������������������������������������������������������������������������������������������������������������335 s 243(g)����������������������������������������������������������������������������������������������������������������������������335 s 246(2)(b)�����������������������������������������������������������������������������������������������������������������������335 s 243(2)(d)�����������������������������������������������������������������������������������������������������������������������335 s 247���������������������������������������������������������������������������������������������������������������������������������336 s 290A������������������������������������������������������������������������������������������������������������������������������205 pt 2-1��������������������������������������������������������������������������������������������������������������������������������335 pt 2-2��������������������������������������������������������������������������������������������������������������������������������335 pt 3-1������������������������������������������������������������������������������������������������������������������������335, 339 Australian Notes Act 1910 (Cth)����������������������������������������������������������������������������������������192 Australian Securities and Investments Commission Act 2001 (Cth)����������������������������205 Competition and Consumer Act 2010 (Cth) s 87B����������������������������������������������������������������������������������������������������������������������������������� 52 pt VIA������������������������������������������������������������������������������������������������������������������������������441 Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2019 Measures)) Act 2020 (Cth) sch 1���������������������������������������������������������������������������������������������������������������������������������205 Insurance Contracts Act 1984 (Cth)����������������������������������������������������������������� 385, 488, 557 ss 8–9��������������������������������������������������������������������������������������������������������������������������������205 s 54�����������������������������������������������������������������������������������������������������������������������������������386 s 56�����������������������������������������������������������������������������������������������������������������������������������386 Mutual Recognition Act 1992 (Cth)����������������������������������������������������������������������������������120 Trade Practices Act 1974 (Cth)�������������������������������������������������������������������������������������������339 s 52���������������������������������������������������������������������������������������������������������������������������303, 336 Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Act 2018 (Cth)������������������������437

lxviii

Table of Statutes

Australia (ACT) Building Act 2004 (ACT) s 49������������������������������������������������������������������������������������������������������������������������������������� 80 s 84�����������������������������������������������������������������������������������������������������������������������������������389 s 88(4)����������������������������������������������������������������������������������������������������������������������389, 506 s 88(2)(a)–(e)������������������������������������������������������������������������������������������������������������������203 s 88(3)������������������������������������������������������������������������������������������������������������������������������203 s 90�����������������������������������������������������������������������������������������������������������������������������������389 s 141���������������������������������������������������������������������������������������������������������������������������������441 s 142���������������������������������������������������������������������������������������������������������������������������������504 Building and Construction Industry (Security of Payment) Act 2009 (ACT) s 9(2)(b)���������������������������������������������������������������������������������������������������������������������������464 Civil Law (Sale of Residential Property) Act 2003 (ACT)����������������������������������������������151 Civil Law (Wrongs) Act 2002 (ACT) s 47�����������������������������������������������������������������������������������������������������������������������������������245 ch 7A��������������������������������������������������������������������������������������������������������������������������������441 Construction Occupations (Licensing) Act 2004 (ACT) s 47�����������������������������������������������������������������������������������������������������������������������������������386 s 52�����������������������������������������������������������������������������������������������������������������������������������386 Residential Tenancies Act 1997 (ACT)������������������������������������������������������������������������������554 Unit Titles (Management) Act 2011 (ACT)����������������������������������������������������������������������554 Australia (NSW) Builders Licensing Act 1971 (NSW) s 45�����������������������������������������������������������������������������������������������������������������������������������199 Building and Construction Industry Security of Payment Act 1999 (NSW) s 7(2)(b)���������������������������������������������������������������������������������������������������������������������������464 Civil Liability Act 2002 (NSW)������������������������������������������������������������������������������������������307 s 34(3A)���������������������������������������������������������������������������������������������������������������������������441 pt 4������������������������������������������������������������������������������������������������������������������������������������441 div 8����������������������������������������������������������������������������������������������������������������������������������245 Conveyancing Act 1919 (NSW) s 52A��������������������������������������������������������������������������������������������������������������������������������151 Design and Building Practitioners Act 2020 (NSW)�����������������������������������������������323, 327 pt 2 div 3��������������������������������������������������������������������������������������������������������������������������307 pt 4����������������������������������������������������������������������������������������������������������������������������303, 306 ss 36–40���������������������������������������������������������������������������������������������������������������������������307 Electricity (Consumer Safety) Act 2004 (NSW) s 16(1)(c)(iii)��������������������������������������������������������������������������������������������������������������������� 63 s 45������������������������������������������������������������������������������������������������������������������������������������� 63 Environmental Planning and Assessment Act 1979 (NSW)������������������������������������80, 125 s 6.20����������������������������������������������������������������������������������������������������������������� 307, 504–05 s 109ZJ (repealed)����������������������������������������������������������������������������������������������������������441

Table of Statutes  lxix Home Building Act 1989 (NSW)���������������������������������������130, 389, 207, 209–10, 506, 556 s 7AA��������������������������������������������������������������������������������������������������������������������������������206 s 7BA��������������������������������������������������������������������������������������������������������������������������������207 s 8��������������������������������������������������������������������������������������������������������������������������������������208 s 8A�����������������������������������������������������������������������������������������������������������������������������������208 s 18B(a)–(f)���������������������������������������������������������������������������������������������������������������������203 s 18B(1)(d)����������������������������������������������������������������������������������������������������������������������208 s 18BA����������������������������������������������������������������������������������������������������������������������189, 202 s 18D��������������������������������������������������������������������������������������������������������������������������������203 s 18G������������������������������������������������������������������������������������������������������������������������195, 208 s 20�����������������������������������������������������������������������������������������������������������������������������������386 s 48MA�����������������������������������������������������������������������������������������������������������������������������190 s 92�����������������������������������������������������������������������������������������������������������������������������������386 s 99�����������������������������������������������������������������������������������������������������������������������������������389 s 103���������������������������������������������������������������������������������������������������������������������������������389 sch 1 cl 2��������������������������������������������������������������������������������������������������������������������������555 sch 1 cl 3��������������������������������������������������������������������������������������������������������������������������555 Home Building Amendment Act 2011 (NSW)����������������������������������������������������������������441 Law Reform (Law and Equity) Act 1972 (NSW) s 6��������������������������������������������������������������������������������������������������������������������������������������578 Law Reform (Miscellaneous Provisions) Act 1965 (NSW) pt 3������������������������������������������������������������������������������������������������������������������������������������245 Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW)�������������������������������������������������������������������������������������������������������������124 s 3��������������������������������������������������������������������������������������������������������������������������������������125 pt 5������������������������������������������������������������������������������������������������������������������������������������436 Residential Tenancies Act 2010 (NSW)�����������������������������������������������������������������������������554 Retirement Villages Act 1999 (NSW)������������������������������������������������������������������������������������ 8 Strata Schemes Development Act 2015 (NSW)�������������������������������������������������������554, 556 Strata Schemes Management Act 2015 (NSW)����������������������������������������������������������������554 pt 11 div 3��������������������������������������������������������������������������������������������������������� 12, 125, 426 Supreme Court Act 1970 (NSW) ss 57–60���������������������������������������������������������������������������������������������������������������������������578 Vexatious Proceedings Act 2008 (NSW)����������������������������������������������������������������������������� 17 Australia (NT) Building Act 1993 (NT)������������������������������������������������������������������������������������������ 22, 80, 506 s 48B���������������������������������������������������������������������������������������������������������������������������������390 s 54AC������������������������������������������������������������������������������������������������������������������������������386 s 54AD�����������������������������������������������������������������������������������������������������������������������������203 s 54B���������������������������������������������������������������������������������������������������������������������������������491 ss 54B(1)(a)–54B(1)(f)��������������������������������������������������������������������������������������������������203 s 54BA(2)�������������������������������������������������������������������������������������������������������������������������208 s 54BA(2)(b)��������������������������������������������������������������������������������������������������������������������210

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s 54BB������������������������������������������������������������������������������������������������������������������������������203 s 54CB������������������������������������������������������������������������������������������������������������������������������389 s 54CC������������������������������������������������������������������������������������������������������������������������������389 s 54FC������������������������������������������������������������������������������������������������������������������������������491 s 155 (repealed)��������������������������������������������������������������������������������������������������������������441 ss 159–60�������������������������������������������������������������������������������������������������������������������������504 Construction Contracts (Security of Payment) Act 2004 (NT)�������������������������������������464 Law of Property Act 2000 (NT) s 56�����������������������������������������������������������������������������������������������������������������������������������303 Law Reform (Miscellaneous Provisions) Act 2006 (NT) Part V�������������������������������������������������������������������������������������������������������������������������������245 Proportionate Liability Act 2005 (NT)������������������������������������������������������������������������������441 Residential Tenancies Act 1999 (NT)��������������������������������������������������������������������������������554 Sale of Land Act 2009 (NT)������������������������������������������������������������������������������������������������151 Unit Titles Act 1975 (NT) ��������������������������������������������������������������������������������������������������554 Unit Titles Schemes Act 2009 (NT)�����������������������������������������������������������������������������������554 Australia (Qld) Body Corporate and Community Management Act 1997 (Qld) ����������������������������������554 Building Act 1975 (Qld)�������������������������������������������������������������������������������������������������������� 80 Building Industry Fairness (Security of Payment) Act 2017 (Qld)�������������������������������464 Building Units and Group Titles Act 1980 (Qld)�������������������������������������������������������������554 Civil Liability Act 2003 (Qld) ch 2 pt 2���������������������������������������������������������������������������������������������������������������������������441 Civil Proceedings Act 2011 (Qld) s 7��������������������������������������������������������������������������������������������������������������������������������������578 Law Reform Act 1995 (Qld) s 10�����������������������������������������������������������������������������������������������������������������������������������245 Penalties and Sentences Act 1992 (Qld) s 181B�������������������������������������������������������������������������������������������������������������������������������124 Property Law Act 1974 (Qld) s 55�����������������������������������������������������������������������������������������������������������������������������������303 Queensland Building and Construction Commission Act 1991 (Qld)������������������80, 202, 209, 388 s 20�����������������������������������������������������������������������������������������������������������������������������������203 s 21�����������������������������������������������������������������������������������������������������������������������������������203 s 22�����������������������������������������������������������������������������������������������������������������������������������203 s 23�����������������������������������������������������������������������������������������������������������������������������������203 s 24�����������������������������������������������������������������������������������������������������������������������������������203 s 25�����������������������������������������������������������������������������������������������������������������������������������203 s 26�����������������������������������������������������������������������������������������������������������������������������������203 s 27�����������������������������������������������������������������������������������������������������������������������������������203 s 67X���������������������������������������������������������������������������������������������������������������������������������390

Table of Statutes  lxxi s 71J����������������������������������������������������������������������������������������������������������������������������������491 sch 1 s 29��������������������������������������������������������������������������������������������������������������������������506 sch 1B s 28�����������������������������������������������������������������������������������������������������������������������208 sch 1B s 31�����������������������������������������������������������������������������������������������������������������������211 sch 1B s 32�����������������������������������������������������������������������������������������������������������������������210 sch 1B s 33�����������������������������������������������������������������������������������������������������������������������208 pt 6, pt 6AA���������������������������������������������������������������������������������������������������������������������123 s 74(AE)���������������������������������������������������������������������������������������������������������������������������124 s 74(AF)���������������������������������������������������������������������������������������������������������������������������123 Queensland Building and Construction Legislation (Non-conforming Building Products – Chain of Responsibility and Other Matters) Amendment Act 2017 (Qld)�����������������������������������������������������������������������������������������123 Residential Tenancies and Rooming Accommodation Act 2008 (Qld)������������������������554 Australia (SA) Building and Construction Industry Security of Payment Act 2009 (SA) s 7(2)(b)���������������������������������������������������������������������������������������������������������������������������464 Building Work Contractors Act 1995 (SA)������������������������������������������������������ 112, 202, 506 s 23(2)(f)��������������������������������������������������������������������������������������������������������������������������204 s 28(1)������������������������������������������������������������������������������������������������������������������������������210 s 28(1)(d)�������������������������������������������������������������������������������������������������������������������������210 s 28(1)(f)��������������������������������������������������������������������������������������������������������������������������206 s 29(1)������������������������������������������������������������������������������������������������������������������������������208 s 29(2)–(4)�����������������������������������������������������������������������������������������������������������������������209 s 30(1)������������������������������������������������������������������������������������������������������������������������������208 s 32(2)(a)�������������������������������������������������������������������������������������������������������������������������203 s 32(2)(b)�����������������������������������������������������������������������������������������������������������������203, 390 s 32(2)(c)�������������������������������������������������������������������������������������������������������������������������203 s32(2)(d)��������������������������������������������������������������������������������������������������������������������������203 s 32(2)(e)�������������������������������������������������������������������������������������������������������������������������203 s 32(2)(f)������������������������������������������������������������������������������������������������������������������� 203–04 s 32(4)������������������������������������������������������������������������������������������������������������������������������203 s 32(5)����������������������������������������������������������������������������������������������������������������������390, 506 s 32(6)������������������������������������������������������������������������������������������������������������������������������506 s 34�����������������������������������������������������������������������������������������������������������������������������������386 s 35�����������������������������������������������������������������������������������������������������������������������������������390 s 36�����������������������������������������������������������������������������������������������������������������������������������207 s 38�����������������������������������������������������������������������������������������������������������������������������������210 s 42�����������������������������������������������������������������������������������������������������������������������������������208 Community Titles Act 1996 (SA)���������������������������������������������������������������������������������������554 Development Act 1993 (SA)�����������������������������������������������������������������������������������������80, 532 s 72�����������������������������������������������������������������������������������������������������������������������������������441 s 73�����������������������������������������������������������������������������������������������������������������������������������504

lxxii Table of Statutes Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 7��������������������������������������������������������������������������������������������������������������������������������������245 pt 3������������������������������������������������������������������������������������������������������������������������������������441 Residential Tenancies Act 1995 (SA)���������������������������������������������������������������������������������554 Strata Titles Act 1988 (SA)��������������������������������������������������������������������������������������������������554 Supreme Court Act 1935 (SA) ss 20–27���������������������������������������������������������������������������������������������������������������������������578 Australia (Tas) Building Act 2016 (Tas)��������������������������������������������������������������������������������������������������������� 80 s 327���������������������������������������������������������������������������������������������������������������������������������504 Building and Construction Industry Security of Payment Act 2009 (Tas)�������������������464 Civil Liability Act 2002 (Tas) pt 9A���������������������������������������������������������������������������������������������������������������������������������441 Housing Indemnity Act 1992 (Tas)������������������������������������������������������������������������������������386 Housing Indemnity Amendment Act 2008 (Tas) s 7��������������������������������������������������������������������������������������������������������������������������������������386 Property Agents and Land Transactions Act 2005 (Tas) pt 10���������������������������������������������������������������������������������������������������������������������������������151 Residential Building Work Contracts and Dispute Resolution Act 2016 (Tas)�����������������������������������������������������������������������������������������������������������������202 s 13�����������������������������������������������������������������������������������������������������������������������������������210 s14������������������������������������������������������������������������������������������������������������������������������������210 s14(j)��������������������������������������������������������������������������������������������������������������������������������210 s 17�����������������������������������������������������������������������������������������������������������������������������������209 s 23�����������������������������������������������������������������������������������������������������������������������������������203 s 24�����������������������������������������������������������������������������������������������������������������������������������203 s 25�����������������������������������������������������������������������������������������������������������������������������������203 s 27�����������������������������������������������������������������������������������������������������������������������������������203 s 28�����������������������������������������������������������������������������������������������������������������������������������203 s 29�����������������������������������������������������������������������������������������������������������������������������������203 s 30�����������������������������������������������������������������������������������������������������������������������������������208 s 31�����������������������������������������������������������������������������������������������������������������������������������203 s 33�����������������������������������������������������������������������������������������������������������������������������������207 s 32�����������������������������������������������������������������������������������������������������������������������������������506 s 39�����������������������������������������������������������������������������������������������������������������������������������206 s 41�����������������������������������������������������������������������������������������������������������������������������������208 s 78�����������������������������������������������������������������������������������������������������������������������������������208 Residential Tenancy Act 1987 (Tas)�����������������������������������������������������������������������������������554 Strata Titles Act 1998 (Tas)�������������������������������������������������������������������������������������������������554 Wrongs Act 1954 (Tas) s 4��������������������������������������������������������������������������������������������������������������������������������������245

Table of Statutes  lxxiii Australia (Vic) Architects Act 1991 (Vic) ���������������������������������������������������������������������������������������������������118 Australian Consumer Law and Fair Trading Act 2012 (Vic) s 3(1)��������������������������������������������������������������������������������������������������������������������������������209 Building Act 1993 (Vic)�������������������������������������������������������������������� 61, 80, 97, 112, 114–16, 120, 209, 388, 506 pt 4 div 2��������������������������������������������������������������������������������������������������������������������������436 pt 9 div 1��������������������������������������������������������������������������������������������������������������������������306 s 24A��������������������������������������������������������������������������������������������������������������������������������116 s 24B���������������������������������������������������������������������������������������������������������������������������������116 s 25AC������������������������������������������������������������������������������������������������������������������������������117 s 25AD�����������������������������������������������������������������������������������������������������������������������������117 s 34�����������������������������������������������������������������������������������������������������������������������������������117 s 35B���������������������������������������������������������������������������������������������������������������������������������117 s 38(2)������������������������������������������������������������������������������������������������������������������������������282 s 46(2)������������������������������������������������������������������������������������������������������������������������������282 s 58(2)������������������������������������������������������������������������������������������������������������������������������282 s 78�����������������������������������������������������������������������������������������������������������������������������������116 s 79�����������������������������������������������������������������������������������������������������������������������������������116 s 129–131�������������������������������������������������������������������������������������������������������������������������441 s 134����������������������������������������������������������������������������������������������������������466, 492, 504–05 s 135����������������������������������������������������������������������������������������������������������������������������������� 89 s 136���������������������������������������������������������������������������������������������������������������������������������391 s 169F�������������������������������������������������������������������������������������������������������������������������������118 s 190���������������������������������������������������������������������������������������������������������������������������������115 s 221ZZZFA��������������������������������������������������������������������������������������������������������������������436 ss 221ZZZKA–B�������������������������������������������������������������������������������������������������������������436 s 241AS����������������������������������������������������������������������������������������������������������������������������118 pt 10���������������������������������������������������������������������������������������������������������������������������������464 pt 11 div 3������������������������������������������������������������������������������������������������������������������������436 sch 3���������������������������������������������������������������������������������������������������������������������������������464 Building and Construction Industry Security of Payment Act 2002 (Vic) s 7(2)(b)���������������������������������������������������������������������������������������������������������������������������464 Building and Environment Protection Legislation Amendment Act 2020 (Vic)�����������������������������������������������������������������������������������������������������������������436 Building and Planning Legislation Amendment (Governance and Other Matters) Act 2013 (Vic) s 4��������������������������������������������������������������������������������������������������������������������������������������113 s 16�����������������������������������������������������������������������������������������������������������������������������������113 Constitution Act 1975 (Vic)������������������������������������������������������������������������������������������������208 s 75�����������������������������������������������������������������������������������������������������������������������������������463 s 85�����������������������������������������������������������������������������������������������������������������������������������463 County Court Act 1958 (Vic) pt II div 2�������������������������������������������������������������������������������������������������������������������������463

lxxiv

Table of Statutes

Domestic Building Contracts Act 1995 (Vic)��������������������������������������������� 22, 61, 112, 115, 386, 463, 469 ss 4–6��������������������������������������������������������������������������������������������������������������������������������202 s 8�������������������������������������������������������������������������������������������������������������������� 119, 164, 203, 393, 465–66 s 8(a)���������������������������������������������������������������������������������������������������������������������������������203 s 8(b)������������������������������������������������������������������������������������������������������������������������� 203–04 s 8(c)�������������������������������������������������������������������������������������������������������������������������� 203–04 s 8(d)������������������������������������������������������������������������������������������������������������������������203, 208 s 8(e)�������������������������������������������������������������������������������������������������������������������������203, 205 s 8(f)�������������������������������������������������������������������������������������������������������������������������� 203–04 s 9��������������������������������������������������������������������������������������������������������������������������������������203 s 10�����������������������������������������������������������������������������������������������������������������������������������208 s 11�����������������������������������������������������������������������������������������������������������������������������������208 s 13�����������������������������������������������������������������������������������������������������������������������������������209 s 13(1)(a)�������������������������������������������������������������������������������������������������������������������������209 s 14�����������������������������������������������������������������������������������������������������������������������������������210 s 15�����������������������������������������������������������������������������������������������������������������������������������210 s 15(2)(a)�������������������������������������������������������������������������������������������������������������������������209 s 16�����������������������������������������������������������������������������������������������������������������������������������208 ss 17–18���������������������������������������������������������������������������������������������������������������������������210 s 19���������������������������������������������������������������������������������������������������������������������������210, 412 s 20�����������������������������������������������������������������������������������������������������������������������������������203 s 21�����������������������������������������������������������������������������������������������������������������������������������209 s 24�����������������������������������������������������������������������������������������������������������������������������������210 s 28�����������������������������������������������������������������������������������������������������������������������������������210 s 29�����������������������������������������������������������������������������������������������������������������������������������118 s 29A��������������������������������������������������������������������������������������������������������������������������������206 s 30���������������������������������������������������������������������������������������������������������������������������� 210–11 s 30(3)������������������������������������������������������������������������������������������������������������������������������211 s 30(7)������������������������������������������������������������������������������������������������������������������������������208 s 31�����������������������������������������������������������������������������������������������������������������������������������210 s 31(r)�������������������������������������������������������������������������������������������������������������������������������210 s 33�����������������������������������������������������������������������������������������������������������������������������������210 s 34(1)������������������������������������������������������������������������������������������������������������������������������207 s 34(3)������������������������������������������������������������������������������������������������������������������������������207 s 34(4)������������������������������������������������������������������������������������������������������������������������������207 ss 34–35���������������������������������������������������������������������������������������������������������������������������207 s 35(1)������������������������������������������������������������������������������������������������������������������������������207 s 35(4)������������������������������������������������������������������������������������������������������������������������������207 s 35(4)–(5)�����������������������������������������������������������������������������������������������������������������������207 s 37�����������������������������������������������������������������������������������������������������������������������������������209 s 40���������������������������������������������������������������������������������������������������������������������������200, 208 s 40(4)������������������������������������������������������������������������������������������������������������������������������208 s 41�����������������������������������������������������������������������������������������������������������������������������������468 s 41(5)–(6)�����������������������������������������������������������������������������������������������������������������������211

Table of Statutes  lxxv s 42�����������������������������������������������������������������������������������������������������������������������������������209 s 44�����������������������������������������������������������������������������������������������������������������������������������465 s 45A(c)����������������������������������������������������������������������������������������������������������������������������466 s45(3)�����������������������������������������������������������������������������������������������������������������������466, 492 s 45C�������������������������������������������������������������������������������������������������������������������������466, 492 s 45������������������������������������������������������������������������������������������������������������209, 465–66, 492 s 45F���������������������������������������������������������������������������������������������������������������������������������468 s 45F(5)����������������������������������������������������������������������������������������������������������������������������468 s 45G(3)���������������������������������������������������������������������������������������������������������������������������466 s 46E���������������������������������������������������������������������������������������������������������������������������������468 s 46E(5)����������������������������������������������������������������������������������������������������������������������������468 s 46F���������������������������������������������������������������������������������������������������������������������������������466 s 49B���������������������������������������������������������������������������������������������������������������������������������466 s 48D(3)(c)����������������������������������������������������������������������������������������������������������������������466 s 48J(3)�����������������������������������������������������������������������������������������������������������������������������467 s 48K���������������������������������������������������������������������������������������������������������������������������������467 s 48L���������������������������������������������������������������������������������������������������������������������������������467 s 48M��������������������������������������������������������������������������������������������������������������������������������467 s 48N��������������������������������������������������������������������������������������������������������������������������������467 s 48O��������������������������������������������������������������������������������������������������������������������������������467 s 49A(1)(b)����������������������������������������������������������������������������������������������������������������������467 s 49(B)(1)�������������������������������������������������������������������������������������������������������������������������467 s 49B(5)����������������������������������������������������������������������������������������������������������������������������467 s 49C���������������������������������������������������������������������������������������������������������������������������������466 s 49C(1)(c)�����������������������������������������������������������������������������������������������������������������������467 s 49D(3)���������������������������������������������������������������������������������������������������������������������������467 s 49G��������������������������������������������������������������������������������������������������������������������������������466 s 49G(4)���������������������������������������������������������������������������������������������������������������������������468 s 49U��������������������������������������������������������������������������������������������������������������������������������468 s 49U(3)���������������������������������������������������������������������������������������������������������������������������468 s 49W(2)��������������������������������������������������������������������������������������������������������������������������468 s 52A��������������������������������������������������������������������������������������������������������������������������������465 s 52C���������������������������������������������������������������������������������������������������������������������������������465 s 52E���������������������������������������������������������������������������������������������������������������������������������465 s 52I����������������������������������������������������������������������������������������������������������������������������������467 s 53(2)(g)–(h)������������������������������������������������������������������������������������������������������������������467 s 56(1)������������������������������������������������������������������������������������������������������������������������������468 s 57�����������������������������������������������������������������������������������������������������������������������������������463 s 57(2)������������������������������������������������������������������������������������������������������������������������������464 s 132���������������������������������������������������������������������������������������������������������������������������������207 pt 4 div 2 ss 45–45G�������������������������������������������������������������������������������������������������������465 pt 4 div 3 ss 46–46H�������������������������������������������������������������������������������������������������������465 pt 4 div 4 ss 47–47D�������������������������������������������������������������������������������������������������������466 pt 4 div 7 ss 50–50A�������������������������������������������������������������������������������������������������������468 pt 4 div 8 ss 51–51B��������������������������������������������������������������������������������������������������������466 s 53(1)������������������������������������������������������������������������������������������������������������������������������469

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Table of Statutes

s 63�����������������������������������������������������������������������������������������������������������������������������������468 s 65�����������������������������������������������������������������������������������������������������������������������������������468 s 66�����������������������������������������������������������������������������������������������������������������������������������468 s 67�����������������������������������������������������������������������������������������������������������������������������������468 Estate Agents Act 1980 (Vic)����������������������������������������������������������������������������������������������416 House Contracts Guarantee Act 1987 (Vic)���������������������������������������������������������������������388 Limitation of Actions Act 1958 (Vic) s 5(3)��������������������������������������������������������������������������������������������������������������������������������505 Magistrates’ Court Act 1989 (Vic) pt 5������������������������������������������������������������������������������������������������������������������������������������463 Owners Corporations Act 2006 (Vic)��������������������������������������������������������������������������������554 Professional Engineers Registration Act 2019 (Vic)��������������������������������������������������������118 Project Development and Construction Management Act 1994 (Vic) s 3��������������������������������������������������������������������������������������������������������������������������������������207 Residential Tenancies Act 1997 (Vic)��������������������������������������������������������������������������������554 Retirement Villages Act 1986 (Vic)���������������������������������������������������������������������������������������� 8 Sale of Land Act 1962 (Vic)�������������������������������������������������������������������������������������������������147 s 12(d)������������������������������������������������������������������������������������������������������������������������������336 s 32�����������������������������������������������������������������������������������������������������������������������������������151 Sale of Land Amendment Act 2019 (Vic)�����������������������������������������������������������������151, 166 Subdivision Act 1998 (Vic)�������������������������������������������������������������������������������������������������554 Supreme Court Act 1986 (Vic) s 29(2)������������������������������������������������������������������������������������������������������������������������������578 Victorian Civil and Administrative Tribunal Act 1998 (Vic) pt 4 div 5��������������������������������������������������������������������������������������������������������������������������469 s 83�����������������������������������������������������������������������������������������������������������������������������������469 s 97�����������������������������������������������������������������������������������������������������������������������������������469 s 98�����������������������������������������������������������������������������������������������������������������������������������469 s 109���������������������������������������������������������������������������������������������������������������������������������471 s 148���������������������������������������������������������������������������������������������������������������������������������470 Victorian Managed Insurance Authority Act 1996 (Vic)������������������������������������������������388 Wrongs Act 1958 (Vic) pt V�����������������������������������������������������������������������������������������������������������������������������������245 pt IVAA����������������������������������������������������������������������������������������������������������������������������441 pt XII��������������������������������������������������������������������������������������������������������������������������������306 s 59������������������������������������������������������������������������������������������������������������������������������������� 37 Australia (WA) Building Act 2011 (WA) s 37������������������������������������������������������������������������������������������������������������������������������������� 80 Building Services (Complaint Resolution and Administration) Act 2011 (WA) s 6��������������������������������������������������������������������������������������������������������������������������������������492 Building Services (Registration) Act 2011 (WA) s 18�����������������������������������������������������������������������������������������������������������������������������������386

Table of Statutes  lxxvii Civil Liability Act 2002 (WA) pt 1F���������������������������������������������������������������������������������������������������������������������������������441 Construction Contracts Act 2004 (WA)���������������������������������������������������������������������������464 Home Building Contracts Act 1991 (WA)������������������������������������������������������������������������202 s 4(2)������������������������������������������������������������������������������������������������������������������������206, 386 s 7(1)��������������������������������������������������������������������������������������������������������������������������������209 s 8(3)��������������������������������������������������������������������������������������������������������������������������������492 s 10�����������������������������������������������������������������������������������������������������������������������������������208 s 10(1)������������������������������������������������������������������������������������������������������������������������������208 s 11�����������������������������������������������������������������������������������������������������������������������������������202 s 13�����������������������������������������������������������������������������������������������������������������������������������209 s 15�����������������������������������������������������������������������������������������������������������������������������������492 s 15(1)������������������������������������������������������������������������������������������������������������������������������210 s 17�����������������������������������������������������������������������������������������������������������������������������������492 s 25A��������������������������������������������������������������������������������������������������������������������������������391 s 25C���������������������������������������������������������������������������������������������������������������������������������386 s 25D��������������������������������������������������������������������������������������������������������������������������������390 s 26�����������������������������������������������������������������������������������������������������������������������������������210 s 28�����������������������������������������������������������������������������������������������������������������������������������208 Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA) Part 2��������������������������������������������������������������������������������������������������������������������������������245 Property Law Act 1969 (WA) s 11�����������������������������������������������������������������������������������������������������������������������������������303 Residential Tenancies Act 1987 (WA)�������������������������������������������������������������������������������554 Strata Titles Act 1985 (WA)������������������������������������������������������������������������������������������������554 Canada (BC) Homeowner Protection Act, SBC 1998 c 31���������������������������������������������������������������������365 Ireland Building Control Act 1990 (Ire)�������������������������������������������������������������������� 82, 88, 130, 133 s 6(4)���������������������������������������������������������������������������������������������������������������������������������� 89 s 21�����������������������������������������������������������������������������������������������������������������������������������319 Building Control Act 2007 (Ire)���������������������������������������������������������������������������������131, 319 Central Bank (Supervision and Enforcement) Act 2013 (Ire)����������������������������������������129 Central Bank Act 1942���������������������������������������������������������������������������������������������������������437 Civil Liability Act 1961 (Ire) s 11�����������������������������������������������������������������������������������������������������������������������������������441 s 17�����������������������������������������������������������������������������������������������������������������������������������441 s 21�����������������������������������������������������������������������������������������������������������������������������������441 s 34�����������������������������������������������������������������������������������������������������������������������������������245 s 35(1)(i)��������������������������������������������������������������������������������������������������������������������������441

lxxviii

Table of Statutes

Competition and Consumer Protection Act 2014 (Ire) s 12(1)������������������������������������������������������������������������������������������������������������������������������129 Construction Contracts Act 2013 (Ire)�����������������������������������������������������������������������������475 s 2(1)(a)���������������������������������������������������������������������������������������������������������������������������474 s 2(1)(b)���������������������������������������������������������������������������������������������������������������������������474 s 2(3)��������������������������������������������������������������������������������������������������������������������������������447 s 2(5)(b)���������������������������������������������������������������������������������������������������������������������������474 s 6(1)��������������������������������������������������������������������������������������������������������������������������������474 s 6(10)������������������������������������������������������������������������������������������������������������������������������474 Consumer Information Act 1978 (Ire) s 6��������������������������������������������������������������������������������������������������������������������������������������147 Consumer Insurance Contracts Act 2019 (Ire)�����������������������������������������367, 432, 489–90 Consumer Protection Act 2007 (Ire)�������������������������������������������������������������������������330, 333 s 2��������������������������������������������������������������������������������������������������������������������������������������332 s 41�����������������������������������������������������������������������������������������������������������������������������������331 ss 42–44���������������������������������������������������������������������������������������������������������������������������331 s 45–46�����������������������������������������������������������������������������������������������������������������������������332 s 52–54�����������������������������������������������������������������������������������������������������������������������������332 s 55�����������������������������������������������������������������������������������������������������������������������������������331 s 74�����������������������������������������������������������������������������������������������������������������������������������334 Financial Services and Pensions Ombudsman Act 2017 (Ire)�������������������������������� 492–93 s 55�����������������������������������������������������������������������������������������������������������������������������������432 s 58�����������������������������������������������������������������������������������������������������������������������������������437 s 60�����������������������������������������������������������������������������������������������������������������������������������437 s 62�����������������������������������������������������������������������������������������������������������������������������������437 s 64�����������������������������������������������������������������������������������������������������������������������������������437 Fire Services Act 1981 (Ire)������������������������������������������������������������������������������������������ 132–33 Health (Preservation and Protection and other Emergency Measures in the Public Interest) Act 2020 (Ire)����������������������������������������������������������������������������� 79 Housing Act 1966 (Ire)��������������������������������������������������������������������������������������������������������318 s 58(1)������������������������������������������������������������������������������������������������������������������������������559 Institution of Civil Engineers of Ireland (Charter Amendment) Act 1969 (Ire)���������131 Land and Conveyancing Reform Act 2009 (Ire) s 9(2)��������������������������������������������������������������������������������������������������������������������������������559 s 49�����������������������������������������������������������������������������������������������������������������������������������559 s 51�����������������������������������������������������������������������������������������������������������������������������������154 Legal Services Regulation Act 2015 (Ire) s 12 (1)�����������������������������������������������������������������������������������������������������������������������������129 s 169(1)����������������������������������������������������������������������������������������������������������������������������478 pt 10���������������������������������������������������������������������������������������������������������������������������������474 Liability for Defective Products Act 1991 (Ire)��������������������������������������������������������296, 399 Mediation Act 2017 (Ire) s 10�����������������������������������������������������������������������������������������������������������������������������������476 s 11�����������������������������������������������������������������������������������������������������������������������������������475 s 14�����������������������������������������������������������������������������������������������������������������������������������476 s 16�����������������������������������������������������������������������������������������������������������������������������������476

Table of Statutes  lxxix s 17�����������������������������������������������������������������������������������������������������������������������������������476 s 18�����������������������������������������������������������������������������������������������������������������������������������476 s 19�����������������������������������������������������������������������������������������������������������������������������������476 s 21 ����������������������������������������������������������������������������������������������������������������������������������476 Multi-Unit Developments Act 2011 (Ire)��������������������������������������������������������������������������347 s 2��������������������������������������������������������������������������������������������������������������������������������������559 s 18�����������������������������������������������������������������������������������������������������������������������������������560 s 18(10)����������������������������������������������������������������������������������������������������������������������������560 s 18(11)����������������������������������������������������������������������������������������������������������������������������560 sch 1 ��������������������������������������������������������������������������������������������������������������������������������559 Occupiers’ Liability Act 1995 (Ire) s 2��������������������������������������������������������������������������������������������������������������������������������������524 s 4��������������������������������������������������������������������������������������������������������������������������������������524 Pyrite Resolution Act 2013 (Ire)�����������������������������������������������������������������������������������������365 Residential Tenancies (Amendment) Act 2015 (Ire)�������������������������������������������������������559 Residential Tenancies Act 2004 (Ire) s 12�����������������������������������������������������������������������������������������������������������������������������������559 Sale of Goods Act 1893 (Ire)�����������������������������������������������������������������������������������������������223 s 55�����������������������������������������������������������������������������������������������������������������������������������399 Sale of Goods and Supply of Services Act 1980 (Ire)������������������������������������������������ 223–24 s 10�����������������������������������������������������������������������������������������������������������������������������������398 s 39���������������������������������������������������������������������������������������������������������������������������224, 357 s 40���������������������������������������������������������������������������������������������������������������������������224, 357 s 41�����������������������������������������������������������������������������������������������������������������������������������224 s 45(2)������������������������������������������������������������������������������������������������������������������������������150 s46������������������������������������������������������������������������������������������������������������������������������������175 pt V�����������������������������������������������������������������������������������������������������������������������������������153 Statute of Limitations (Amendment) Act 1991 (Ire)�������������������������������������������������������507 Statute of Limitations 1957 (Ire)�����������������������������������������������������������������������������������������505 s 11�����������������������������������������������������������������������������������������������������������������������������������507 s 11(5)������������������������������������������������������������������������������������������������������������������������������507 Supreme Court of Judicature Act (Ire) 1877 s 27�����������������������������������������������������������������������������������������������������������������������������������578 New Zealand Building (Earthquake-prone Buildings) Amendment Act 2016 (NZ)��������������������������127 Building Act 1991 (NZ)�������������������������������������������������81, 126–27, 149, 310, 312, 386, 505 s 51(3)(b)��������������������������������������������������������������������������������������������������������������������������� 89 s 91�����������������������������������������������������������������������������������������������������������������������������������504 Building Act 2004 (NZ)�������������������������������������������������������������82, 126–27, 310–11, 504–05 s 3���������������������������������������������������������������������������������������������������������������������������������������� 97 s 7��������������������������������������������������������������������������������������������������������������������������������������215 ss 8–9��������������������������������������������������������������������������������������������������������������������������������215 s 16������������������������������������������������������������������������������������������������������������������������������������� 83

lxxx Table of Statutes Part 4A������������������������������������������������������������������������������������������������������214, 216, 307–08 s 318���������������������������������������������������������������������������������������������������������������������������������436 s 362A������������������������������������������������������������������������������������������������������������������������������215 s 362B(1)��������������������������������������������������������������������������������������������������������������������������215 s 362D(1)(b)��������������������������������������������������������������������������������������������������������������������216 s 362E(1)(b)��������������������������������������������������������������������������������������������������������������������221 s 362H������������������������������������������������������������������������������������������������������������������������������216 s 362I(1)���������������������������������������������������������������������������������������������������������������������������217 s 362I(2)���������������������������������������������������������������������������������������������������������������������������216 s 362J��������������������������������������������������������������������������������������������������������������������������������216 s 362K������������������������������������������������������������������������������������������������������������������������������216 s 362M�����������������������������������������������������������������������������������������������������������������������������218 s 362O������������������������������������������������������������������������������������������������������������������������������218 s 362P�������������������������������������������������������������������������������������������������������������������������������218 s 362Q������������������������������������������������������������������������������������������������������������������������������218 s 362R(1)(b)��������������������������������������������������������������������������������������������������������������������215 s 362S�����������������������������������������������������������������������������������������������������������������������217, 220 s 392���������������������������������������������������������������������������������������������������������������������������������314 s 393(2) ���������������������������������������������������������������������������������������������������������������������������505 Building Amendment Act 2012 (NZ) �������������������������������������������������������������������������������311 Building Amendment Act 2015 (NZ)��������������������������������������������������������������������������������308 Building Performance Guarantee Corporation Act 1977 (NZ) s 17�����������������������������������������������������������������������������������������������������������������������������������386 Construction Contracts Act 2002 (NZ)���������������������������������������������������126, 308, 471, 474 s 25(2)(b)�������������������������������������������������������������������������������������������������������������������������216 s 26�����������������������������������������������������������������������������������������������������������������������������������216 s 28�����������������������������������������������������������������������������������������������������������������������������������472 ss 71A–D��������������������������������������������������������������������������������������������������������������������������472 Construction Contracts Amendment Act 2015 (NZ)�����������������������������������������������������472 Consumer Guarantees Act 1993 (NZ)�������������������������������������������������������������������������������215 s 2������������������������������������������������������������������������������������������������������������������������������� 219–20 s 7��������������������������������������������������������������������������������������������������������������������������������������219 ss 8–10�����������������������������������������������������������������������������������������������������������������������������219 ss 13–14���������������������������������������������������������������������������������������������������������������������������219 s 15�����������������������������������������������������������������������������������������������������������������������������������219 s 18ff���������������������������������������������������������������������������������������������������������������������������������219 ss 25–27���������������������������������������������������������������������������������������������������������������������������219 s 32ff���������������������������������������������������������������������������������������������������������������������������������220 s 34�����������������������������������������������������������������������������������������������������������������������������������219 s 43�����������������������������������������������������������������������������������������������������������������������������������219 Contract and Commercial Law Act 2017 (NZ)����������������������������������������������������������������213 ss 10–20���������������������������������������������������������������������������������������������������������������������������308 s 35�����������������������������������������������������������������������������������������������������������������������������������150 s37������������������������������������������������������������������������������������������������������������������������������������150 ss 42–48���������������������������������������������������������������������������������������������������������������������������218 Contracts (Privity) Act 1982 (NZ)�������������������������������������������������������������������������������������308

Table of Statutes  lxxxi Contractual Remedies Act 1979 (NZ)�������������������������������������������������������������������������������214 s 6��������������������������������������������������������������������������������������������������������������������������������������150 Contributory Negligence Act 1947 (NZ)��������������������������������������������������������������������������245 Disputes Tribunal Act 1988 (NZ)���������������������������������������������������������������������������������������471 Fair Trading Act 1986 (NZ)�����������������������������������������������������������������������215, 333, 339, 359 s 5C�����������������������������������������������������������������������������������������������������������������������������������340 s 5D����������������������������������������������������������������������������������������������������������������������������������340 ss 9–11�����������������������������������������������������������������������������������������������������������������������������340 ss12A–14��������������������������������������������������������������������������������������������������������������������������340 s 12B���������������������������������������������������������������������������������������������������������������������������������340 s 13(i)�����������������������������������������������������������������������������������������������������������������������219, 340 s 14(1)(b)�������������������������������������������������������������������������������������������������������������������������340 s 26A��������������������������������������������������������������������������������������������������������������������������������221 s 36K–36S������������������������������������������������������������������������������������������������������������������������340 s 40�����������������������������������������������������������������������������������������������������������������������������������221 ss 41–46���������������������������������������������������������������������������������������������������������������������������340 s 46A��������������������������������������������������������������������������������������������������������������������������������340 s 46L(1)����������������������������������������������������������������������������������������������������������������������������220 s 46M��������������������������������������������������������������������������������������������������������������������������������221 Finance Act 1987 (NZ) s 2��������������������������������������������������������������������������������������������������������������������������������������386 Insurance (Prudential Supervision) Act 2010 (NZ)��������������������������������������������������������437 Limitation Act 1950 (NZ)���������������������������������������������������������������������������������������������������503 Municipal Corporations Act 1867 (NZ) s 186���������������������������������������������������������������������������������������������������������������������������������127 sch 13 pt V�����������������������������������������������������������������������������������������������������������������������127 Residential Tenancies Act 1986 (NZ) s 45(1)������������������������������������������������������������������������������������������������������������������������������557 Supreme Court Act 2003 (NZ)��������������������������������������������������������������������������������������������� 29 Unit Titles Act 1972 (NZ) s 13(2)������������������������������������������������������������������������������������������������������������������������������558 Unit Titles Act 2010 (NZ)���������������������������������������������������������������������������������������������������537 s 54�����������������������������������������������������������������������������������������������������������������������������������558 Weathertight Homes Resolution Services Act 2006 (NZ)����������������������������� 216, 308, 505 s 14�����������������������������������������������������������������������������������������������������������������������������������505 Scotland (where different from UK) Abolition of Feudal Tenure etc (Scotland) Act 2000�������������������������������������������������������561 Building (Scotland) Act 1970����������������������������������������������������������������������������������������������229 Building (Scotland) Act 2003�������������������������������������������������������������xxxviii, 20, 91, 94, 134, 136, 228, 321 s 1(1)���������������������������������������������������������������������������������������������������������������������������������� 82 s 51������������������������������������������������������������������������������������������������������������������ 135, 290, 322 Buildings (Recovery of Expenses) (Scotland) Act 2014��������������������������������������������������134

lxxxii Table of Statutes Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018�������������������481 Consumer Scotland Act 2020���������������������������������������������������������������������������������������������228 Contract (Scotland) Act 1997 s 1��������������������������������������������������������������������������������������������������������������������������������������156 Contract (Third Party Rights) (Scotland) Act 2017�������������������������������������������������� 320–21 Coronavirus (Scotland) Act 2020����������������������������������������������������������������������������������������� 79 Housing (Scotland) Act 2001 s 27�����������������������������������������������������������������������������������������������������������������������������������561 sch 4 para 1����������������������������������������������������������������������������������������������������������������������561 Housing (Scotland) Act 2006����������������������������������������������������������������������������������������������421 ch 4�����������������������������������������������������������������������������������������������������������������������������������561 pt 3������������������������������������������������������������������������������������������������������������������������������������151 Housing (Scotland) Act 2014����������������������������������������������������������������������������������������������134 ss 22–27���������������������������������������������������������������������������������������������������������������������������561 Interest on Damages (Scotland) Act 1958�������������������������������������������������������������������������230 Land Registration (Scotland) Act 2012�����������������������������������������������������������������������������562 Land Tenure Reform (Scotland) Act 1974������������������������������������������������������������������������561 Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 ss 8–9��������������������������������������������������������������������������������������������������������������������������������154 s 10�����������������������������������������������������������������������������������������������������������������������������������153 Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 s 36�����������������������������������������������������������������������������������������������������������������������������������481 Legal Writings (Counterparts and Delivery) (Scotland) Act 2015��������������������������������154 Long Leases (Scotland) Act 2012 s 70�����������������������������������������������������������������������������������������������������������������������������������562 Occupiers’ Liability (Scotland) Act 1960 ss 1–2��������������������������������������������������������������������������������������������������������������������������������524 s 3��������������������������������������������������������������������������������������������������������������������������������������523 Prescription (Scotland) Act 2018 s 5��������������������������������������������������������������������������������������������������������������������������������������509 s 13�����������������������������������������������������������������������������������������������������������������������������������509 Prescription and Limitation (Scotland) Act 1973������������������������������������������������������������230 s 6(1)������������������������������������������������������������������������������������������������������������������������493, 508 s 11(3)������������������������������������������������������������������������������������������������������������������������������508 Private Housing (Tenancies) (Scotland) Act 2016 pt 2������������������������������������������������������������������������������������������������������������������������������������561 pt 3������������������������������������������������������������������������������������������������������������������������������������520 Public Services Reform (Scotland) Act 2010��������������������������������������������������������������������134 Requirements of Writing (Scotland) Act 1995���������������������������������������������������������154, 561 Rules of the Court of Session 1994 s 42�����������������������������������������������������������������������������������������������������������������������������������481 Sale and Supply of Goods Act 1994 (Scotland) ���������������������������������������������������������������175 Scotland Act 1998������������������������������������������������������������������������������������������������������������������� 22 s 30A��������������������������������������������������������������������������������������������������������������������������������228 Scotland Act 2016 s 50�����������������������������������������������������������������������������������������������������������������������������������228

Table of Statutes  lxxxiii Tenements (Scotland) Act 2004������������������������������������������������������������������������������������������585 s 8(1)��������������������������������������������������������������������������������������������������������������������������������562 sch 1���������������������������������������������������������������������������������������������������������������������������������562 Title Conditions (Scotland) Act 2003 pt 2������������������������������������������������������������������������������������������������������������������������������������563 pt 6������������������������������������������������������������������������������������������������������������������������������������563 Singapore Building Control Act (Cap 29, 1999 Rev Ed) (Singapore)������������������������������������������������ 88 South Africa Housing Consumers Protection Measures Act 1998 (Act no 95 of 1998) (Sth Africa)������������������������������������������������������������������������������������������������������������������������ 87

lxxxiv

TABLE OF STATUTORY INSTRUMENTS England & Wales, NI Alternative Dispute Resolution for Consumer Disputes (Amendment) Regulations 2015 (SI 2015/1392)�������������������������������������������������������������������������428, 503 Alternative Dispute Resolution for Consumer Disputes (Amendment) (No. 2) Regulations 2015 (SI 2015/1972)������������������������������������������������������������428, 503 Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015 (SI 2015/542)�������������������������������428 Alternative Dispute Resolution for Consumer Disputes (Extension of Time Limits for Legal Proceedings) (Amendment etc) (EU Exit) Regulations 2020 (SI 2020/1139)�������������������������������������������������������������������������429, 503 Assured Shorthold Tenancy Notices and Prescribed Requirements (England) Regulations 2015 (SI 2015/1646 as amended by SI 2015/1725)�������������������������������523 Building (Amendment) Regulations (Northern Ireland) 2016 (SR 2016/412)�������������� 80 Building (Amendment) Regulations 2016 (SI 2016/490)������������������������������������������������� 92 Building (Amendment) Regulations 2018 (SI 2018/1230)���������������������������������������������517 Building (Approved Inspectors etc) Regulations 2010 (SI 2010/2215)�������������������88, 300 Building (Inner London) Regulations 1987 (SI 1987/798)����������������������������������������������� 79 Building (Local Authority Charges) Regulations 2010 (SI 2010/404)����������������������������� 83 Building (Prescribed Fees) (Amendment) Regulations (Northern Ireland) 2013 (SR 2013/60)������������������������������������������������������������������������������������������������������������ 83 Building (Repeal of Provisions of Local Acts) Regulations 2012 (SI 2012/3124)���������� 80 Building (Scotland) Regulations 2004 (SSI 2004/406)��������������������������������������������134, 291 Building Regulations &c (Amendment No 3) and Domestic Fire Safety (Wales) Regulations 2013 (SI 2013/2730; W264)�������������������������������������������������������� 90 Building Regulations (Northern Ireland) 2012 (SR 2012/192)����������������������������������80, 87 Building Regulations (Northern Ireland) Order 1979 (SR 1979/1709)��������������80, 83, 92 Building Regulations 1965 (SI 1965/1373)������������������������������������������������������������������������� 79 Building Regulations 2010 (SI 2010/2214)�����������������������������������������������������������������93, 517 Civil Procedure Rules (SI 1998/3132 as amended)������������������������������������������������� xvii, 425 Commonhold Regulations 2004 (SI 2004/1829 as amended by SI 2009/2363)�����������534 Construction (Design and Management) Regulations 2015 (SI 2015/51) (E&W, Scotland)�������������������������������������������������������������������������������������������������������������100 Construction Contracts (England and Wales) Exclusion Order 1998 (SI 1998/648)�����������������������������������������������������������������������������������������������������������446, 447 Construction Contracts (England) Exclusion Order 2011 (SI 2011/2332)������������������447

lxxxvi

Table of Statutory Instruments

Construction Contracts (Northern Ireland) Order 1997 (SR 1997/274)������ xix, 445, 588 Construction Products (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/465) and 2020 (SI 2020/1359)�������������������������������������������������������������������25, 26 Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134)�������������������������������������������������������������������������152, 329 Consumer Protection (Amendment) Regulations 2014 (SI 2014/870)�������������������������330 Consumer Protection (Enforcement) (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/203)�����������������������������������������������������������������������������26, 333 Consumer Protection (Enforcement) (Amendment etc) Regulations 2020 (SI 2020/404)��������������������������������������������������������������������������������������������������������������������� 26 Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277)������������������������������������������������������������������������������������������������� 98, 153, 330 Consumer Rights Act 2015 (Commencement No 3, Transitional Provisions, Savings and Consequential Amendments) Order 2015 (SI 2015/1630)�����������������333 Defective Premises (Northern Ireland) Order 1975 (SR 1975/1039)��������������������291, 371 Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020 (SI 2020/312)�����������������������������������������������������������������������������������522 Energy Performance of Buildings (England and Wales) Regulations 2012 (SI 2012/3118)����������������������������������������������������������������������������������������������������������������151 European Union (Withdrawal) Act 2018 (Relevant Court) (Retained EU Case Law) Regulations 2020 (SI 2020/1525)��������������������������������������� 26 Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544)�������������������������������������������������������������������������������������������������������������������435 Fire Precautions (Sub-surface Railway Stations) Regulations (England) 2009 (SI 2009/782)�������������������������������������������������������������������������������������������������������������������270 Fire Precautions (Sub-surface Railway Stations) Regulations 1989 (SI 1989/2401)��������� 270 Gas Safety (Installation and Use) Regulations (SI 1998/2451 as amended by SI 2018/139)��������������������������������������������������������������������������������������������������������������������523 House-Building Standards (Approved Scheme etc) Order 1979 (SI 1979/381) (E&W)�����������������������������������������������������������������������������������������������������371 House-Building Standards Order (Northern Ireland) 1979 (SR 1979/120)�����������������371 Housing (Right to Manage) (England) Regulations 2012 (SI 2012/1821)��������������������519 Housing Health and Safety Rating System Regulations (England) 2005 (SI 2005/3208)������������������������������������������������������������������������������������������������������������������ 99 Judicial Committee (Appellate Jurisdiction) Rules 2009 (sch to SI 2009/224)�������������� 29 Late Payment of Commercial Debts (Interest) Regulations 2002 (SI 2002/1674)�������449 Licensing and Management of Houses in Multiple Occupation (Additional Provisions) (England) Regulations 2007 (SI 2007/1903)������������������������� 8 Licensing of Houses in Multiple Occupation (Prescribed Description) (England) Order (SI 2018/221)���������������������������������������������������������������������������������������� 8 Limitation (Amendment) (Northern Ireland) Order 1987 (SI 1987/1629, NI 17)������494 Limitation (Northern Ireland) Order 1989 (SI 1989/1339, NI 11)��������������������������������494 Management of Houses in Multiple Occupation (England) Regulations 2006 (SI 2006/372)����������������������������������������������������������������������������������������������������������������������� 8

Table of Statutory Instruments  lxxxvii National Assembly for Wales (Legislative Competence) (Housing) (Fire Safety) Order 2010 (SI 2010/1210)��������������������������������������������������������������������������������������������� 90 Privacy and Electronic Communications (EC Directive) Regulations 2003, as amended (SI 2003/2426)�������������������������������������������������������������������������������������������348 Property (Northern Ireland) Order 1997 (SR 1997/1179)����������������������������������������������524 Public Bodies (The Office of Fair Trading Transfer of Consumer Advice Scheme Function and Modification of Enforcement Functions) Order 2013 (SI 2013/783)���������������������������������������������������������������������������������������������333 Public Procurement (Amendment etc) (EU Exit) Regulations 2020 (SI 2020/1319)������������������������������������������������������������������������������������������������������������������ 25 Regulatory Reform (Fire Safety) Order 2005 (SI 2005/1541) (E&W)����������������������������� 99 RTM Companies (Model Articles) (England) Regulations (SI 2009/2767)�����������������527 RTM Companies (Model Articles) (Wales) Regulations (SI 2011/2680)����������������������527 Rules of the Supreme Court 2009 (SI 2009/1603)������������������������������������������������������29, 474 Scheme for Construction Contracts (England & Wales) Regulations (SI 1998/648)�����������������������������������������������������������������������������������������������������������446, 447 Scheme for Construction Contracts (England & Wales) Regulations 1998 (Amendment) (England) Regulations 2011 (SI 2011/2333)������������������������������������446 Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (UK)��������������������������������������������������������������������������������������������������������102 Unfair Arbitration Agreements (Specified Amount) Order (Northern Ireland) 2005 (SR 2005/219)��������������������������������������������������������������������������������������������������������179 Unfair Arbitration Agreements (Specified Amount) Order (SI 1999/2167)����������������179 Unfair Terms in Consumer Contracts Regulations 1994 (SI 1994/3159)���������������������176 Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083 as amended by SI 2001/1186)�������������������������������������������������������������������������������176, 179 Welsh Ministers (Transfer of Functions) (No 2) Order 2009 (SI 2009/3019)���������������� 90 Australia Australia (ACT) Building (General) Regulation 2008 (ACT) �������������������������������������������������������xv, 80, 202, 389, 506 Construction Occupations (Licensing) Regulation 2004 (ACT)�����������������������������������386 Australia (NSW) Conveyancing (Sale of Land) Regulation 2010 (NSW)���������������������������������������������������151 Conveyancing (Sale of Land) Regulation 2017 (NSW)���������������������������������������������������151 Environmental Planning and Assessment Regulation 2000 (NSW)������������������������������� 80 Home Building Regulation 2014 (NSW) �������������������������������������������������������������������������389

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Australia (NT) Building Regulations 1993 (NT) ���������������������������������������������������������������� 80, 202, 386, 389 Building (Resolution of Residential Building Work Disputes) Regulations 2012 (NT) �����������������������������������������������������������������������������������������389, 491 Australia (Qld) Building Regulation 2006 (Qld)������������������������������������������������������������������������������������������� 80 Queensland Building and Construction Commission (Minimum Financial Requirements) Regulation 2018 (Qld) �����������������������������������������������������������������������386 Queensland Building and Construction Commission Regulation 2018 (Qld) �����80, 390 Australia (SA) Building Work Contractors Regulations 2011 (SA)��������������������������������������������������������390 Development Regulations 2008 (SA)����������������������������������������������������������������������������������� 80 Australia (Tas) Building Regulations 2016 (Tas)������������������������������������������������������������������������������������������ 80 Occupational Licensing (Building Services Work) Determination 2019 (Tas) ����������386 Residential Building Work Contracts and Dispute Resolution Regulations 2016 (Tas)���������������������������������������������������������������������������������������� xxiii, 202 Australia (Vic) Building Regulations 2018 (Vic)����������������������������������������������������������������� 80, 114, 115, 118 Covid-19 Omnibus (Emergency Measures) (Criminal Proceedings and Other Matters) Regulations 2020 (Vic)���������������������������������������������������������������497 Domestic Building Contracts Regulations 2017 (Vic)��������������������������������������������118, 202 Plumbing Regulations 2018 (Vic)��������������������������������������������������������������������������������������114 Australia (WA) Building Regulations 2012 (WA)������������������������������������������������������������������������������������������ 80 Building Services (Complaint Resolution and Administration) Regulations 2011 (WA)�������������������������������������������������������������������������������������������������492 Home Building Contracts (Home Indemnity Insurance Exemptions) Regulations 2002 (WA) ����������������������������������������������������������������������������������������390, 391 Home Building Contracts Regulations 1992 (WA) ������������������������������xxiii, 202, 386, 391

Table of Statutory Instruments  lxxxix Ireland Building Control (Amendment) (No 2) Regulations 2015 (SI 365/2015) (Ire)�����������131 Building Control Regulations 1997 (SI 496/1997) (Ire)��������������������������������������������������130 Building Control Regulations 2020 (SI 113/2020) (Ire)��������������������������������������������������130 Consumer Insurance Contracts Act 2019 (Commencement) Order 2020 (SI 329/2020) (Ire)����������������������������������������������������������������������������������������������������������490 European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 (SI 27/1995) (Ire), as amended by SI 336/2014 (Ire)�������������������������������������������������������������������������������������������� 177, 224, 225 European Union (Alternative Dispute Resolution for Consumer Disputes) Regulations 2015 (SI 343/2015) (Ire)�������������������������������������������������������������������428, 508 European Union (Alternative Dispute Resolution for Consumer Disputes) (No 2) Regulations 2015 (SI 368/2015) (Ire)��������������������������������������������������������������508 European Union (Consumer Information, Cancellation and Other Rights) Regulations 2013 (SI 484/2013) (Ire)���������������������������������������������������������������������������329 European Union (Consumer Information, Cancellation and Other Rights) (Amendment) Regulations 2014 (SI 250/2014) (Ire)������������������������������������������������329 Financial Services and Pensions Ombudsman (Compensation) Regulations 2018 (SI 154/2018) (Ire)���������������������������������������������������������������������������437 Housing (Standards for Rented Houses) Regulations 2019 (SI 137/2019) (Ire)����������559 Rules of the Superior Courts (Construction Contracts Act 2013) 2016 (SI 450/2016) (Ire)����������������������������������������������������������������������������������������������������������474 Building Control (Amendment) Regulations 2014 (SI 9/2014) (Ire)��������������������130, 131 New Zealand Building (Definition of Restricted Building Work) Order 2011 (2011/317) (NZ)�������������������������������������������������������������������������������������������������������������127 Building (Residential Consumer Rights and Remedies) Regulations 2014 (2014/361) (NZ) �����������������������������������������������������������������������������������158, 159, 172, 215 Construction Contracts Amendment Regulations 2015 (2015/256) (NZ)������������������472 Construction Contracts Regulations 2003 (SR 2003/30) (NZ)��������������������������������������472 Disputes Tribunal Rules 1989 (SR 1989/34) (NZ)�����������������������������������������������������������471 Scotland (where different from UK) Building (Fees) (Scotland) Regulations 2004 (SSI 2004/508)�����������������������������������������135 Building (Procedure) (Scotland) (Amendment) Regulations 2007 (SSI 2007/167) ���������������������������������������������������������������������������������������������������������������134 Building (Procedure) (Scotland) (Amendment) Regulations 2009 (SSI 2009/117)����������������������������������������������������������������������������������������������������������������134 Building (Procedure) (Scotland) Regulations 2004 (SSI 2004/428)����������������������134, 136 Building (Scotland) Amendment Regulations 2019 (SSI 2019/210)�����������������������������134

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Table of Statutory Instruments

Building (Scotland) Regulations 2004 (SSI 2004/406)��������������������������������������������134, 291 Housing (Scotland) Act 2006 (Modification of the Repairing Standard) Regulations 2019 (SSI 2019/61)�����������������������������������������������������������������������������������561 Housing (Scotland) Act 2006 (Prescribed Documents) Regulations 2008 (SSI 2008/76)�����������������������������������������������������������������������������������������������������������151, 421 Title Conditions (Scotland) Act 2003 (Development Management Scheme) Order 2009 (SI 2009/729)���������������������������������������������������������������������������������������������563

TABLE OF EU MEASURES Agreement on the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community [2019] OJ C384/1���������������������������������������������������������151 Commission Notice, Guidance on the interpretation and application of Council Directive 93/13/EEC on unfair terms in consumer contracts [2019] OJ C323/04���������������������������������������������������������������������������������������������������������177 Consolidated Version of the Treaty on the Functioning of the European Union [2016] OJ C202/164�������������������������������������������������������������������������������������������������������330 Council Directive 1993/13/EEC of 5 April 1993 on unfair terms in consumer contracts [1993] OJ L95/29��������������������������������������������������������������������176 Council Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products [1985] OJ L210/29���������������������296 Delegated Regulation (EU) 244/2012 of 16 January 2012 supplementing Directive 2010/31/EU of the European Parliament and of the Council on the energy performance of buildings by establishing a comparative methodology framework for calculating cost-optimal levels of minimum energy performance requirements for buildings and building elements [2012] OJ L81/18�������������������������������������������������������������������������������������������������������������� 81 Directive (EU) 2019/2161 of the European Parliament and of the Council of 27 November 2019 amending Council Directive 93/13/EEC and Directives 98/6/EC, 2005/29/EC and 2011/83/EU of the European Parliament and of the Council as regards the better enforcement and modernisation of Union consumer protection rules [2019] OJ L328/7����������330 Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council [2005] OJ L149/22��������������������������������������� 98, 330–35 Directive 2008/52/EC of the European Parliament and of the Council of 21 May 2008 on certain aspects of mediation in civil and commercial matters [2008] OJ L136/3������������������������������������������������������������������������429 Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy performance of buildings (OJ L153/13, 18 June 2010)��������������������������������������������������������������������������������������������� 80

xcii

Table of EU Measures

Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council [2011] OJ L304/64��������������������������������������������185, 329 Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC, [2012] OJ L315/1�������������������������������������������������������������������������������������������������������������� 81 Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC [2013] OJ L165/63 ����������������������������������������������������������428, 503 Directive 2014/61/EU of the European Parliament and of the Council of 15 May 2014 on measures to reduce the cost of deploying high-speed electronic communications networks [2014] OJ L155/1�������������������������������������������� 95 Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests [1998] OJ L166/51������������������������������������������������������������������������������������������333 Regulation (EC) 765/2008 of the European Parliament and of the Council of 9 July 2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products and repealing Regulation (EEC) No 339/93 [2008] OJ L218/30�������������������������������������������������������� 26 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC [2016] OJ L119/1, corrected by [2018] OJ L127/2������������������������������������������������������������������������������������������������������������348 Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services [2019] OJ L186/57�������������������������������������358 Regulation (EU) 305/2011 of the European Parliament and of the Council of 9 March 2011 laying down harmonised conditions for the marketing of construction products and repealing Council Directive 89/106/EEC [2011] OJ L88/5���������������������������������������������������������������������������������������������������������������� 80

TABLE OF STANDARD FORMS OF CONSTRUCTION CONTRACT UK/International FIDIC Conditions of Contract for Construction (‘The Red Book’, 2nd edn 2017) www.fidic.org����������������������������������������������������������������xix, 170, 172, 588 FMB Domestic Building Contract: www.fmb.org.uk�����������������xix, 10, 35, 167, 168, 172, 173, 184, 186, 188, 197, 241, 248, 250, 351, 352, 353, 356, 383, 414, 430, 454, 485, 497 JCT Building Contract and Consultancy Agreement for a Home Owner/Occupier (HO/C and HO/CA 2005, revised 2015): www.jctltd.co.uk�������������������������������������������������������������������������������������������������������xx, 430 JCT Building Contract for a Home Owner/Occupier (HO/B 2005): www.jctltd.co.uk���������������������������������������������������������������������������������������������� xx, 454, 512 JCT Building Contract with Contractors’ Design (WCD 1981): www.jctltd.co.uk�������������������������������������������������������������������������������������������������������������500 JCT Design and Build Contract 2016 (DB 2016): www.jctltd.co.uk�����������������������������������������������������������������������������xviii, xx, 247, 250, 454 JCT Minor Works Building Contract 1998: www.jctltd.co.uk���������������������������������������454 JCT Minor Works Building Contract 2016 (MW 2016): www.jctltd.co.uk�������������������������������������������������������������������������������������������������������������454 JCT Minor Works Building Contract with contractor’s design 2016 (MWD 2016): www.jctltd.co.uk�������������������������������������������������������������������������������������������������������������454 JCT Prime Cost Building Contract (PCC98): www.jctltd.co.uk������������������������������������454 JCT Private with Quantities (1998): www.jctltd.co.uk����������������������������������������������������454 JCT Standard Building Contract With Quantities 2016 (SBC/Q 2016): www.jctltd.co.uk������������������������������������������������������������������������������������� xx, xxii, 170, 174, 247, 250, 454 NEC3 Engineering and Construction Contract (2013): www.neccontract.com���������174 NEC4 Engineering and Construction Contract (June 2017): www.neccontract.com���������������������������������������������������������������������������������������������������241 RIBA Concise Building Contract 2018: www.architecture.com��������������������������� xxii, 250 RIBA Domestic Building Contract 2018: www.architecture.com���������� 10, 167, 168, 170, 172, 184, 186, 196, 241, 248, 250, 291, 414, 430, 447, 484, 496

xciv

Table of Standard Forms of Construction Contract

RIBA Domestic Professional Services Contract 2018: Architectural Services: www.architecture.com��������������������������������172, 263, 291, 414, 430, 449, 496 Australia Australian Building Industry Contract ABIC MW 2018: www.architecture.com.au��������������������������������������������������������������������������������������414, 463 Australian Building Industry Contract ABIC SW 2018: www.architecture.com.au����������������������������������������������������������������������������������������������414 Australian Standards AS4300-1995: www.standards.org.au�������������������������������������83, 463 HIA New Homes Victoria Contract: www.hia.com.au����������������������������� xix, 50, 195, 210 Ireland PW-CF1, Public Works Contract for Building Works Designed by the Employer (2019): www.constructionprocurement.gov.ie�����������������������������170 RIAI forms: www.riai.ie�������������������������������������������������������������������������������������������������������473 New Zealand NZCB/CBANZ contracts: www.nzcb.nz����������������������������������������������������������� xvi, xxi, 222, 341, 352, 390 Housing, Alterations and Small Buildings Contract NZS 3902:2004: www.standards.govt.nz����������������������������������������������������������������������������������� 83, 159, 222 The Real Estate Institute of New Zealand Inc and Auckland District Law Society Inc standard form (8th edn, 2006(2))������������������������������������������������������������149 Scotland Building Contract for a Homeowner/Occupier who has Appointed a Consultant to Oversee the Work (HO/C/Scot 2015 – SBC583): www.scottishbuildingcontracts.com������������������������������������������������������������ 10, 172, 174, 320, 485

1 Introduction The UK’s highest paid chief executive, Jeff Fairburn of housebuilder Persimmon, has been ousted just four months after collecting a £75m bonus.1 Mum offered ‘insulting’ John Lewis voucher after finding 245 ‘defects’ at new home.2

1.1  This Book’s Aims The interface between the business and techniques of residential construction, and the legal norms which apply to it, is both familiar and arcane. We spend much of our waking (and most of our sleeping) time in the product of these activities; and during the Covid-19 pandemic have spent more than we planned. However, as the quotations above reflect, it can be a shock to encounter the reality of the legal rights and obligations which impact on the design, construction and modification of our homes, as well as the economic realities of the substantial sector of industry (from prominent corporate names down to solo tradespeople) which produces ‘homes’ and their internal systems. This book seeks to illuminate this reality – residential construction law and the context in which it operates – in order to inform the construction, legal and wider communities about the relevant legal principles, to subject law and practice to critical examination and to encourage their rational reform. Home buyers and homeowners too may learn useful background to transactions they may be about to enter, or have already entered; and will gain tools and information helpful in dealing with issues about build quality. The legal side of residential construction has until now had only modest attention, save in occasional published papers and articles (some by our authors and contributors, from which parts of this book distantly derive). However, there is new pressure on governments to encourage higher standards of construction of homes and to make available better remedies for homeowners against developers, as well as more effective 1 Rupert Neate and Angela Monaghan, ‘Persimmon Boss Asked to Leave Amid Outrage Over Bonus’ The Guardian (7 November 2018). Jeff Fairburn’s successor stood down in 2020: Julia Kollewe, ‘Persimmon Chief Quits Amid Row Over Firm’s Building Quality’ The Guardian (27 February 2020). Jeff Fairburn is now CEO and has a controlling interest in Berkeley DeVeer, a Yorkshire-based housebuilder which in 2021 acquired Avant Homes in Scotland. 2 Conor Gogarty and Kate Timms, ‘Mum Offered “Insulting” John Lewis Voucher After Finding 245 “Defects” at New Home’ Mirror (12 September 2019). The house had been built by Persimmon in Somerset and the 245 defects were as listed by a building surveyor instructed by the buyer; they included walls and render out of plumb, insufficient insulation and doors not fitted properly. Persimmon offered the buyer a £250 John Lewis voucher, as well as claiming that all the necessary repairs would be completed in a timely manner.

2  Introduction legal structures for multi-unit developments. These issues became acutely topical in the early 2020s, after the Grenfell Tower fire added an extra and urgent focus on safety and survivability, creating general anxiety about external cladding and insulation on blocks of flats. Other cladding fires have triggered comparable concerns worldwide and started talk of a ‘crisis’ in the construction industry. Among general construction law writers in English, Julian Bailey is unique in engaging in detail with the specific character of residential projects and their regulation.3 He also shares our strong conviction that comparison between different jurisdictions’ approaches to identical issues deepens our understanding and sharpens our perceptions. We follow his example, taking a pan-common-law approach: England & Wales is (are) our starting focus, but we also consider the position in Ireland, Northern Ireland, New Zealand and the nine jurisdictions of Australia (its eight states and territories, plus its federal jurisdiction). There is input too from the ‘mixed jurisdiction’ of Scotland, at the crossroads of common law and civil law traditions. Collectively, we refer to all these as ‘our subject jurisdictions’. Our view that a book looking head-on at residential construction law is overdue springs from five main ideas: 1 2 3 4

5

Residential projects, though under-explored in the literature, form a significant aspect of activity in the sector in most jurisdictions (35 per cent of the value of all new construction orders in the UK in 2018; a higher proportion in Australia);4 The resulting problems mostly arise in contexts different from those in larger commercial construction or infrastructure projects, and much of the law is different too; The issues pose some big and difficult questions of principle about standards, rights and remedies – which in turn concern the many obstacles to intervening effectively in a sphere of economic activity, as well as access to justice; Laying out the legal principles and illustrating practical problems and their solutions should enable more practitioners to become interested in the field, filling a real and unwelcome gap in the availability to home buyers and homeowners of specialist expertise; and Policymakers ought to be aware of the range of approaches illustrated by this book’s discussion of different jurisdictions, and could benefit from our evaluations of current practice and reform proposals.

1.2  What is ‘Residential Construction Work’? To give a sense of both the complexity and diversity of residential construction and its interface with the law, the tables below include three sets of numbered scenarios. 3 Julian Bailey, Construction Law, 3rd edn (London, London Publishing Partnership, 2020), which includes Singapore and Hong Kong (but not New Zealand): on residential projects, see his ch 19. 4 Chris Rhodes, ‘Construction Industry: Statistics and Policy’ (House of Commons Library Briefing Paper 01432, 16 December 2019). The seasonally adjusted figures for Australia show the value of residential construction work in June 2019 as 55 per cent of total construction work: www.abs.gov.au.

What is ‘Residential Construction Work’?  3 In our terms, each involves residential construction (at least in part); the right-hand column previews the key legal questions which may arise. Later chapters return to each scenario in order to discuss it in detail. Those discussions also include a significant category of party not mentioned in any of the scenarios, but whose role in practice may have legal and practical significance: the organisation (public or private) which had the statutory role of approving the plans and inspecting the process of construction for its compliance with ‘the building code’. We refer to these generically throughout the book as ‘building control bodies’ (BCBs), though other terms may be used on the ground (eg ‘building surveyors’ in Victoria or ‘Approved Inspectors’ in England & Wales); other types of inspectors and certifiers (without a statutory function) may also be involved.5 The key parties in Scenarios 1 and 2 and their relationships are represented by Figure 1.1 below. This shows developer X at the top of a contractual chain, via the main contractor M1, to a network of consultants (architects and others) and subcontractors (for a significant project, there could be many more than four consultants and subcontractors). The obligations M1 has taken on are in the main construction contract with X; this is likely to be a published standard form and will count as a business-to-business (B2B) contract. Similar – perhaps identical – obligations are likely to be cascaded downwards from M1 to each subcontractor, but X has no direct contractual relationship with any of the consultants or subcontractors. However, X’s

Table 1.1  Scenarios and Issues I SCENARIO

KEY LEGAL ISSUES

1 Developer X buys a site on which to build several individual single-storey new homes. X lets the contract to build the whole estate, on a design-and-build basis, to main contractor M1, who engages consultants C1, C2 etc and subcontractors S1, S2 etc.

X has a contract only with M1, so must primarily look to M1 as responsible for the activities of all those M1 engages. How might X also have a contractual link with some or all of the project team of M1?

2 X sells one of the houses freehold off-plan to its first-time buyer B1, who funds part of the purchase price with a mortgage from lender L. The house comes with a 10-year insurance policy against major defects from third-party warranty provider W.

B1 has no contractual link with M1, nor with the project team. Could B1 nonetheless have rights against M1 or members of the project team if the new home is defective, especially if X is by then no longer trading? What role does or could a funder like L play in taking responsibility for the quality of a dwelling bought off-plan? What impact does the existence of insurance have on the rights of B1 against X?

5 On BCBs, their role and statutory background, see ch 3; on their legal liability for negligence, see Case Study 1 at section [1.12], also section [5.8]ff. On inspections in general, see ch 8.

4  Introduction Figure 1.1  Scenarios 1 and 2

main contract with M1 may require each consultant to give X a collateral warranty looking to its own performance in the project. Such a warranty is often backed by insurance, and X may have power to assign its benefit to a new owner of the completed development. However, the existence of such collateral warranties, let alone their assignment, never figures in a developer’s standard off-plan sale contract to an individual home buyer; even if someone in the position of B1 understood how valuable such rights to sue consultants directly could be, they will not usually have enough bargaining power with X to insist on this. The contract that B1, the first buyer, makes with X is a business-to-consumer (B2C) contract, as B1 is buying as an individual (not by way of trade or profession), with a view to living in the new home. Under the first aspect of this contract, X undertakes to build the new home; under the second, to transfer its ownership to B1 when complete. As Figure 1.1 shows, B1 has no relationship with any of those ‘on the ground’ actually making construction happen, so it is primarily to X that B1 must look if anything goes wrong, as happens in Scenario 4 (Table 1.2 below). The fact that B1 needs finance towards the purchase brings in lender L, which in return for providing part of the purchase price will gain security over the home when its title is transferred to B1. In order to agree to fund the purchase, L must have reasonable certainty that the home offers adequate security for the loan sought. For a house still being built, this usually means requiring insurance cover to be in place which will, if necessary, pay for structural repairs in the early years of the home’s life. In the UK and Ireland, this usually brings in W, a private-sector insurer – not shown in Figure 1.1 – offering a third-party warranty: cover against the need to rectify major defects. The insurer will agree to offer such cover based on

What is ‘Residential Construction Work’?  5 inspections during and at the end of construction.6 If there is no insurance cover, L may instead accept a certificate from a construction professional, who similarly will have inspected work in progress on site. Table 1.2  Scenarios and Issues II SCENARIO

KEY LEGAL ISSUES

3 B1 commissions local plumber P to replace a shower unit in the house with a larger unit; it overflows, and a second plumber says that the size of drain fitted was too small.

Does the law require any particular documentation for such a contract, especially if it is made in the kitchen of the home of B1? What rights does B1 have, if they can show that P did the work badly, and how could they assert these with a view to getting a remedy?

4 Two years after purchasing the home, B1 notices cracks in the walls. They ask a friend, a ‘building consultant’, for advice. The friend thinks the cracks are caused by ‘heave’ in the concrete floor slab. B1 contacts X, who seems no longer to be trading.

What is the possible impact of this amount of time having already passed? Does B1 carry the risk of X’s insolvency, if they otherwise have a claim against X? What would be adequate evidence of defective design and/or construction, as the basis for a claim against someone?

5 B1 wants out and is able – at a discount, given the obvious problems – to sell the house to B2, also assigning to B2 all rights under the purchase contract from X. It is now 10 years since the house was constructed: B2 is looking for compensation from someone for the cost of resolving the issues with the cracks and the floor slab. On excavating close to one end of the house, to have a look at the condition of the slab, B2 notices that the brick wall seems to overhang beyond the slab below by about 25mm.

Does B2 acquire the same rights against X (or anyone else) as B1 had? Automatically, or only within the scope of the assignment? If not, what rights does B2 have, and against whom? Assuming that B2 does in theory have rights against someone, how long do they have to start legal action? Does the fact that a new defect – or perhaps a new reason for the existing problems – seems to have come to light make a difference? How much of an overhang is legally acceptable? If B2 has more than one potential target defendant, but one or more appear to be not worth suing, can B2 claim all the damages from just one solvent (or insured) defendant as ‘the last person standing’, or will (must?) the court apportion damages according to the degree of responsibility of each defendant (proportionate liability)? (continued)

6 In all but one Australian jurisdiction, a similar form of insurance is mandatory by statute. On third-party warranties and other forms of insurance, see ch 7.

6  Introduction Table 1.2  (Continued) SCENARIO 6 B2 is able to subdivide the plot on which their house stands and commissions architect A to design a new house to be built on the other half of the plot; after a tendering exercise, B2 awards the construction contract for this project to main contractor M2. The contract requires M2 to comply with all ‘statutory requirements’. With the new house partly built, B2 sells the plot to B3, who intends to rent the new house out as an investment. B3 claims that the house does not respect the terms of its planning permission, being too close to the front boundary of the plot. B2 points out that there is an adjudication clause in the contract with M2, suggesting that B3 cannot go straight to court.

KEY LEGAL ISSUES Does the fact that B2 is an individual and already owns the plot make any difference to the contractual situation with M2 – and with B3?7 Can B3 enforce the construction contract’s terms against M2, and on what legal basis? What if M2 subcontracts the groundworks to specialist subcontractors S1? Does the plan B3 has to rent the new house out change any aspect of the legal situation? Is an adjudication clause in this situation necessarily binding so as to prevent traditional litigation, or does it have some other effect? Does the answer depend on which jurisdiction’s law applies?

Scenarios 3–6 combine post-construction problems with some deriving from new construction work, varying in scale; the last three bring in parties who are successors, in one way or another, to those who were in place at an earlier stage in the same story. A change of ownership of a home – or even of just a building site – can create a risk that the new owner does not have the same possibilities for redress under contract as their predecessor; time passing may also mean that some legal rights become unenforceable: see chapter 10. Table 1.3  Scenarios and Issues III SCENARIO 7 Developer Y buys a site on which to build a six-storey block of flats, with retail units on its ground floor. Y’s own construction division builds the block. One of the individual flats on the first floor is ‘sold’ (on a long leasehold basis), after lying empty for 18 months, to its first buyer B1. Each lease also has as a party MCo, a management company having responsibility for ‘the common parts’. Y then sells the freehold of the whole site to Z.

KEY LEGAL ISSUES If there is a local residential construction contract regime, does it deal differently with multi-unit developments (blocks of flats) from houses? What liability, if any, does Y retain on parting with the freehold of the block to Z? Can B1 assert any rights about build quality against Y or Z, having bought after the block is complete? Who owns, or may own, ‘the common parts’, and does this person or entity have any rights against Y or Z? (continued)

7 In Australian jurisdictions, such a construction employer may in law be an ‘owner-builder’, specially regulated: see www.ownerbuild.com.au. Such situations have no special regulation in the UK or Ireland, but there is encouragement within the planning system (E&W) under the Self-build and Custom Housebuilding Act 2015, as amended, and a new £150m 'Help to Build' scheme announced by the MHCLG in April 2021: see also www.nacsba.org.uk.

The Scope of this Book  7 Table 1.3  (Continued) SCENARIO

KEY LEGAL ISSUES

B1 has a friend who is a building surveyor; on looking behind a panel in the flat’s bathroom, the surveyor considers that there is inadequate fire-stopping between that flat and the shop unit below. B1 becomes anxious about everyone’s safety in the block (including the short-term tenants now in that flat), if a fire broke out and if the firestopping problem were widespread.

If it could be shown that the fire-stopping was non-compliant with ‘the building code’, how far would a claim for the cost of rectification be possible against defects insurance (assuming that there is cover in place)? Does it make any difference to any of these issues that this is a ‘mixed use’ block?

8 B1 attempts to involve other residents, who are worried about the impact on their flats’ value if it becomes known that the block may have construction problems. B1 therefore decides not to renew the tenants’ tenancy and to put the flat on the market; dropping below the asking price ‘for a quick sale’, B1 manages to sell to B2.

What if the legal structures in use were not long leaseholds under a freehold landlord, but a ‘commonhold’ (or equivalent) system, with ownership of the whole block in a legal entity in which all unit owners have shares? Is B2 in the same – or worse – position than B1?

This final pair of scenarios concerns an increasingly common living situation: a new-build block of flats. The interconnectedness of all its separately occupied units, sharing structure, spaces and services, poses specific legal and management problems, which are discussed, together with these scenarios, in chapter 11.

1.3  The Scope of this Book Generalising from the scenarios above, but also echoing some of the relevant statutory provisions, Table 1.4 below gives working definitions of what this book is about. When the book uses the phrase ‘in our field’, we mean all situations included in these scenarios and definitions. Table 1.4  This Book’s Scope KEY TERM ‘Residential’ (the functional equivalent of what some jurisdictions call ‘domestic’, as in ‘domestic building contract’): all operations (including design) directed towards constructing, modifying or extending a building whose main function is, or is intended to be, a dwelling. Those operations may impact on the whole life of the building – potentially centuries-long.8

CONSEQUENCE This book does not discuss operations of maintenance or repair alone. Nor does it consider quality or safety issues relating to temporary or mobile structures; hostels, boarding houses or hotels; residential facilities run by or for schools, colleges or universities; retirement villages; or homes for the elderly which include the giving of care (many such situations having their own regulatory regimes).9 (continued)

8 A 2003 survey found that Saltford Manor House in Somerset was the oldest continuously inhabited dwelling in the UK, dating to around 1150: Maev Kennedy, ‘Britain’s Longest-Inhabited Dwelling’ The Guardian

8  Introduction Table 1.4  (Continued) KEY TERM

CONSEQUENCE

I f construction is ‘residential’ in the above sense, it remains so whether or not the resulting building is in fact occupied by the person or entity commissioning and paying for these operations.

As in Scenarios 5–7, where the construction employer is not the ultimate consumer of the building, this may change the landscape radically in legal terms.

‘A residential owner or occupier’: one or more individuals (‘natural persons’) who on their own account (ie not by way of trade or business) are buying or own or rent a building – or a unit in a multi-unit building or development – which itself is residential in the sense above.

The contract to build between X and M1 in Scenario 1 (Table 1.1) is ‘residential’, despite also being business-to-business (B2B), so may nonetheless be subject to the local legal regime for ‘residential (or domestic) construction contracts’. The building contract in Scenario 6 (Table 1.2) is also ‘residential’ but may also be business-toconsumer (B2C), if B2 and B3 are acting on their personal account, rather than by way of trade or business. Only when B1 comes on the scene in Scenario 2 do we have ‘a residential owner or occupier’, whose off-plan contract to buy a not-yet-built home is therefore B2C in nature, as is the shower unit contract in Scenario 3 (Table 1.2). This may bring in specific protections for consumers in contracts with ‘traders’. How the law deals with ‘buy-to-let’ situations, as in Scenarios 6 (Table 1.2) and 7 (Table 1.3), depends on the area of law involved: if general consumer law is relevant, or if there is an issue about the availability of statutory adjudication, the intended commercial exploitation of a residential building may make a difference, at least in the UK and Ireland; and may have implications for the type of planning permission needed. (continued)

(28 August 2003). The boom in post-war construction in England and relative decline in recent activity meant that, in 2015, around 39% of the then existing English stock was built between 1945 and 1980, with about 22% built since 1980 and about 20% before 1850: Department for Communities and Local Government, 50 Years of the English Housing Survey (2017) 17. 9 Each Australian jurisdiction has its own legislation and regulations on retirement villages: see, eg, Retirement Villages Act 1999 (NSW) and Retirement Villages Act 1986 (Vic) – the Victorian Act is under review (2021): see www.engage.vic.gov.au/retirementvillagesact. In England, ‘Houses in Multiple Occupation’ (as defined by SI 2018/221) are specially regulated under a licensing regime authorised by the Housing Act 2004, notably the Management of Houses in Multiple Occupation (England) Regulations 2006 (SI 2006/372) and the Licensing and Management of Houses in Multiple Occupation (Additional Provisions) (England) Regulations 2007 (SI 2007/1903): see Sutton v Norwich City Council [2021] EWCA Civ 20. Wales has its own similar regime. Mobile homes and caravan sites also have their own legislative and regulatory structures, in both England & Wales; as do living situations which include the giving of care to residents.

The Scope of this Book  9 Table 1.4  (Continued) KEY TERM

CONSEQUENCE

‘Building’: any permanent structure capable of use as a self-contained dwelling, but also (in the case of detached houses and blocks of flats) any linked garden, structures or other amenities, especially if shared with other residents.

The position of ‘mixed’ multi-unit developments, with both residential and commercial units, is not straightforward, but insofar as there is a special legal regime for residential buildings, it may at least apply to the residential units. How the legal relationships between individual unitholders and the whole block are organised will directly affect how repair or rectification issues are resolved, and at whose cost.

Following the present introductory chapter, the structure of this book aims to consider, step-by-step, the context for all types of residential construction activity, the relevant law (or its equivalent in practice) and its application ‘on the ground’: CHAPTER 2

What level of dissatisfaction does residential construction generate? What do consumers mean by ‘defects’, and is there a gap between those expectations and industry standards? What commercial and technical pressures make defects inevitable?

CHAPTER 3

What aspects and types of law and regulation are applicable to residential construction projects? How does the ‘public law’ of building regulation work, and how well?

CHAPTER 4

Contractual relationships within residential construction: from common law to standard form contract to statutory regime

CHAPTER 5

Beyond traditional contractual relationships and towards tort liability or statutory liability for defects: who may owe duties to homeowners, under what conditions and with a view to what remedies?

CHAPTER 6

Consumer protection: what forms does it take, and how is it relevant in our field?

CHAPTER 7

Insurance and third-party warranties: who is protected against what?

CHAPTER 8

Inspections: who will, may or should inspect construction work on a home, and what may follow from the results of such inspections?

CHAPTER 9

Pathways to individual redress – formal and informal

CHAPTER 10

Time limits for taking action

CHAPTER 11

Multi-unit developments: blocks of flats

CHAPTER 12

Conclusions

Chapters 4 and 5 do not offer a slimmed-down summary of the whole of the law of contract and tort (or equivalent); nor do we attempt to cover all the law of landlord and tenant – or strata titles – in chapter 11. Instead, we have selected aspects of these wider bodies of law which are regularly relevant or problematic (or both) to home buyers, homeowners or residents more generally in relation to construction, at the same time referring to textbooks and other sources which give a more complete overview.

10  Introduction

1.4  What Makes Residential Construction Different? The Legal Background 1.4.1  Contractual Rights and Obligations The scenarios in Tables 1.1–1.3 cover a wide range of situations, in projects of enormously varying value and significance. Of them, only Scenarios 1 (letting of a construction contract to build an estate of new houses) and 6 (a homeowner subdividing a plot and commissioning a new house to be built next door) look similar to the B2B arrangements common in larger commercial and infrastructure projects. Leaving aside statutory intervention (as in Australasia), only in those two situations is a published standard form construction contract likely – but not certain – to form the project’s central legal framework. Many examples of such standard forms are available, some being specially designed for smaller or simpler projects, including in a B2C situation, with an individual consumer as construction employer. They aim to define comprehensively, and on paper, both parties’ rights, obligations and remedies – notably in relation to the eternal trio of competing objectives: time, cost and build quality;10 but also to be ‘balanced’ (in the sense of reflecting and reconciling the reasonable expectations of both parties), as well as compatible with consumer protection law – so far as it applies to a residential construction contract. This book refers regularly to two ‘plain English’ examples, intended for use in England & Wales on a residential construction project for an individual employer: the RIBA Domestic Building Contract 2018 and the Federation of Master Builders (FMB) Domestic Building Contract.11 But using such a ready-made published contract is the exception, not the norm, in our field: few small construction projects initiated by a homeowner get this level of formality, though many arguably deserve it, if only to include provisions for payment, variations and extensions of time, and quick and cheap dispute resolution.12 Nor does a would-be home buyer often have much chance to influence the terms of a contract to buy off-plan from a developer. In England & Wales, there are no published standard forms for such a transaction, though in 2016 Westminster’s All Party Parliamentary Group (APPG) for Excellence in the Built Environment argued for standardisation and publication, which may eventually bear fruit.13 In most commercial and infrastructure projects, ‘those who pay the piper, call the tune’: the party which commissions the project and pays for it (directly or indirectly) expects to impose their choice of procurement method, key players and contractual structures.14 In the residential field, 10 For further details of B2C standard forms, see ch 4, especially section [4.7.4]. 11 The FMB contract is not restricted to projects on which ‘the builder’ is an FMB member. The nearest equivalent contract in Scotland appears to be the Building Contract for a Homeowner/Occupier who has Appointed a Consultant to Oversee the Work (HO/C/Scot 2015 – SBC583). 12 A striking illustration of the downsides of such informality is Case Study 6 at section [5.6]. 13 All Party Parliamentary Group (APPG) for Excellence in the Built Environment, More Homes, Fewer Complaints (2016): www.cic.org.uk. 14 Some sources suggest that this maxim comes from the story of the Pied Piper of Hamelin, first published in English in 1605: www.bookbrowse.com. But the key part of that story is that the piper led all (or almost all) the town’s children away as his revenge for not being paid for ridding the town of rats.

What Makes Residential Construction Different? The Legal Background  11 the opposite is often true: the party who pays for residential construction and in many cases initiates (or at least enables and pays for) the work may have little influence on the terms under which that work is done. Statute may (in Australasia; to a lesser extent in the UK and Ireland) intervene to control the key terms of such a contract and the form in which the parties’ agreement is recorded (perhaps unexpectedly, even in Scenario 3 (Table 1.2) – the new shower unit). This may encourage use of a compliant standard form, even for a low value renovation project. But in many residential situations, the principles, relationships and machinery familiar from the express terms commonly encountered in such contracts, as in the more comprehensive and detailed contracts for bigger projects, may simply be absent – unless statute intervenes.

1.4.2  Legal Elements Usually Missing Without a formalised contract (or statutory overlays), there may be no provisions dealing with those key aspects which are almost invariably dealt with expressly in B2B standard forms, including: • Obligations on ‘the builder’ (meant generically, so including subcontractors, consultants and suppliers) to comply with all external mandatory standards and the planning regime.15 • A fixed or ascertainable contractual completion date, with liquidated damages payable if the builder is late. • Stage payments due on completion of defined milestones (or on regular valuations of work done). • Rights on the employer to inspect work in progress – including via an agent or representative, or an independent contract administrator – and to require defective work to be rectified immediately. • Procedures for instructing (or agreeing) variations and for valuing them. • Cash retentions (typically 5 per cent before practical completion and a further 5 per cent until the final account), held by the employer against payments due on interim certificates, as cash flow if work is not completed or defects are left unremedied;16 or other types of performance security, like on-demand bonds against the main contractor’s parent company, bank or insurer.

15 As discussed in ch 3 (see, eg, section [3.6] in respect of E&W and the summary in Table 3.1), compliance with such standards is a fundamental requirement of most jurisdictions’ ‘building code’ regulatory structures, but without contractual provisions requiring such compliance, an injured party (generally, the homeowner) may be without a remedy in contract for the relevant defect. 16 Cash retentions have been contentious in larger projects in the UK for many decades, though they remain part of many UK-published standard forms; see Department for Business, Energy and Industrial Strategy, Retention Payments in the Construction Industry: A Consultation on the Practice of Cash Retention under Construction Contracts: Summary of Responses (2020): www.gov.uk. Many industry bodies argued for banning cash retentions by law, or replacing them by protected deposits, but the government has not yet adopted any changes as policy: the Construction (Retention Deposit Schemes) Bill introduced in the Commons in 2018 by

12  Introduction • Payments made to the main contractor protected against its insolvency, eg via a trust arrangement or a project bank account. • A defined defects liability period, giving the owner a right to require the main contractor to correct defects, ahead of the final account. • Collateral warranties from consultants, creating a direct legal link between them and the employer, transferable to a later owner of the building. • Adjudication (or other forms of expedited dispute resolution) if a dispute arises while construction is under way, at least on payment issues.17 When there is a fight over rights and obligations and no express provisions in the contract on such matters, the parties are left to rely on implied terms (or extra-contractual arguments) and traditional litigation (or a form of ADR agreed after a dispute has already arisen, unless statute imposes the possibility of adjudication). What happens when some or all of these features of commercial construction are absent is a key theme of this book.18

1.4.3  If there is No Direct Contractual Link? Even where the original homeowner had a contract with the builder which included some (or all) of the features above, the scenarios in Tables 1.1–1.3 record common situations in which a homeowner lacks what lawyers call ‘privity of contract’ – ie has no contractual relationship with those who appear to be factually (but not necessarily legally) responsible for a problem in the home dating from its original construction or modification. The classic example is Scenario 5 (Table 1.2), where the original off-plan buyer B1 has sold on to B2, making B2 the subsequent owner and would-be claimant; this is the natural consequence of buildings having a substantial intended life, leading to a sequence of owners over time. A similar situation occurs in Scenario 8 (Table 1.3), where the first buyer of a flat B1 successfully sells on to B2 with the potential fire-stopping problem still left unresolved. At common law, B2 never automatically acquires the rights that B1 enjoyed, merely by buying the house or flat from B1: defects themselves pass to a new owner with the building of which they are part, but the right to sue never automatically does.

Peter Aldous MP did not progress beyond First Reading. In Scotland, see Scottish government, Consultation on the Practice of Cash Retention under Construction Contracts (2019): www.consult.gov.scot. In Australia, trusts for retention money under non-residential construction contracts have been progressively introduced via several states’ ‘security of payment’ regimes, and there have been moves to require such security to be provided by employers as well as contractors. In NSW, developers are to lodge a bond for 2% of the contract value for repair of ‘snagging’ in the period shortly after completion of the development: see Strata Schemes Management Act 2015 (NSW) pt 11 div 3. 17 For the scope of statutory adjudication, see sections [9.7] (UK), [9.9.2] (Aus), [9.10.2] (NZ), [9.11.2] (Ire). 18 For an example of a wide-ranging statutory list of topics which some higher-value residential construction contracts must contain, including some of the items above, see section [4.5.2].

What Makes Residential Construction Different? The Disadvantaged Consumer  13 Statute may fill this legal gap, intervening to create a contractual link from B2 back to the developer or builder where there would otherwise be none (the Australasian approach);19 or may give B2 a right of action against anyone who ‘took on work’ for the construction project and produced a seriously defective result, where they might otherwise not have one (the English approach).20 But such specific interventions, intended to redress the balance between homeowner and ‘builder’, are limited in scope. Where none of them applies, the issue for our homeowner B2 becomes the question Mr Hamlin had to face in section [1.12] below: do I have a right of action in tort (a different branch of the law entirely) against this potential defendant, if I can show that their negligence – or some other civil wrong – has led to a defect in my home which requires fixing? As chapter 5 explains, the answer is complex, jurisdictionspecific and – on the whole – unhelpful to homeowners, unless the house or flat happens to be in New Zealand.21

1.5  What Makes Residential Construction Different? The Disadvantaged Consumer 1.5.1 Introduction A society that bestows sovereignty of choice on consumers faces two immediate problems. First, there is the business challenge of anticipating and influencing the exercise of that sovereignty. What do consumers want? … Second, how do we, the consumers, cope with the burden of this sovereignty? How do we know what’s ‘good’ and what’s ‘bad’? What if, confronted with a flood of ads, campaigns, trailers, logos and billboards, I still don’t know what I like? This is where star ratings, endorsements and marks out of ten come in handy. In a society of excessive choice, we become reliant on what the French sociologist Lucien Karpik has described as ‘judgment devices’: prosthetic aids which support us in the exhausting labour of choosing and preferring.22

The notional freedom which a home buyer enjoys in deciding with whom to make a contract to buy (or lease) a home – or even just to have a shower unit replaced – may be limited or illusory. In a B2C situation (most of the scenarios in Tables 1.1–1.3 above), even a consumer using the many online ‘judgment devices’ may be unable to make a meaningful and considered choice of a developer or provider of construction services, nor to assess – let alone influence – the terms offered.23 Further, the new homes market

19 See section [4.13.2] (Aus) and [4.14.3] (NZ). 20 See sections [5.8]–[5.11]. 21 Or in a jurisdiction beyond the scope of this book, notably the recognition in Canada of a common law duty of care in relation to dangerous defects: see ch 5, n 136. 22 William Davies, ‘Who Am I Prepared to Kill?’ London Review of Books vol 42 no 15 (30 July 2020). Karpik’s ‘judgment devices’ are explored in ch 5 of his Valuing the Unique: The Economics of Singularities (Princeton, Princeton University Press, 2010). 23 On ‘trusted trader’ schemes, attempting to meet this consumer need, see section [6.6]. Few of these schemes cover developers and sales of new homes.

14  Introduction has special characteristics, as noted in 2016 by the APPG for Excellence in the Built Environment: A shortage of houses, limited competition and the fact that homes tend to be one off purchases means that, unlike other types of brands and products, housebuilders do not have the same pressures to provide excellent customer service to win repeat business.24

1.5.2  Information Asymmetry: Used Cars Residential construction procurement offers classic examples of what is called information asymmetry. Here, the assumption made by neo-economics that both parties considering entering into a contract have perfect (ie equal and adequate) information is often unjustified, with negative consequences not just for ‘the weaker party’, but also for that particular market more generally.25 In the literature, an early example comes from used car dealers: they offer a would-be buyer something labelled as a ‘guarantee’ (in effect a contractual promise, often managed by an external third party) against the car’s service or repair costs for a fixed period.26 This aims to offset the buyer’s anxiety that they cannot reliably assess the quality of the car offered.27 Alternatively, the potential buyer could allay their fears by what is called ‘screening’: investing time and energy in trying to discover the risk of defects. In the car example, they could commission a technical inspection and report on the car from an independent third party. This would more obviously be at their own cost than accepting the seller’s ‘guarantee’; and could delay clinching the deal.28 When buyers cannot tell the difference between products of good and bad quality, they typically prefer the cheapest available. In the case of off-plan sales of new homes, developers are not required to disclose the quality of what they are offering to consumers, nor would this be easy for them: selling a lower-quality product (or home) will be more profitable, so competitors selling a higher-quality product may be forced out of the market.29 The impact of information asymmetry is multiplied when a similar product is offered to multiple buyers, as in a new block of flats or another form of multi-unit development.

24 The APPG for Excellence in the Built Environment (n 13) [4.4]. 25 Three USA economists shared the 2001 Nobel Memorial Prize in Economic Sciences for their analyses of markets with asymmetric information: George A Akerlof, A Michael Spence and Joseph E Stiglitz. For more background, see the ‘Advanced Information’ background paper, available from www.nobelprize.org/prizes/ economic-sciences/2001. 26 New cars are different: here the manufacturer almost always offers the buyer a ‘warranty’: see section [7.1.2]. 27 George A Akerlof, ‘The Market for Lemons: Quality Uncertainty and the Market Mechanism’ (1970) 84 Quarterly Journal of Economics 485. 28 See, eg, www.theautomotiveinspector.com: this UK company offers to do an inspection within two days of instruction, claiming: ‘Clients are so confident in our inspection service that some buy the vehicle based on our report without seeing it’. 29 Martin Loosemore, Bill Randolph and Caitlin Buckle, ‘Lack of Information on Apartment Defects Leaves Whole Market on Shaky Footings’ The Conversation (20 November 2019).

What Makes Residential Construction Different? The Disadvantaged Consumer  15

1.5.3  Application to New Home Sales Off-plan sales of new homes follow aspects of the used car model, developers offering most buyers a third-party warranty (just a different version of the word ‘guarantee’) backed by insurance; in most of Australia, this is mandated by law. In the UK, most also offer a promise of compliance with a Consumer Code, displaying the logo for both Code and warranty provider at the entrance to the new development site. Where the developer has done well in feedback from new home buyers, its star rating on Trustpilot or equivalent will also figure prominently in promotional literature or on its website.30 As with used cars, incentives like this work because the first buyer (B1) believes at that moment that they suggest a level of quality (which the buyer cannot independently verify), as well as offering ‘peace of mind’ – whether or not this is in fact achieved in the long run.31 Behaviour like this from a producer is called ‘signalling’ – flagging the quality of what is being offered, but doing so indirectly.32 When the homeowner (by then, the home may have been sold to B2) confronts the reality of the warranty, the developer will long ago have banked the profit from the sale and moved on. By then, the Special Purpose Vehicle which undertook the development and sold the home may have been wound up; perhaps it never had any significant assets. By analogy with used cars, in the home buying situation the UK consumer advocate, the HomeOwners Alliance (HOA), advises repeat forms of ‘screening’: would-be off-plan buyers in England & Wales should ask a professional to inspect whatever stage the build has reached even before committing to buy, as well as before moving in and perhaps even again on having done so.33 What might seem a crucial difference between a used car and a significant building project is that, in construction, inspections of work in progress against ‘the building code’ happen automatically, required by law. However, such inspections, though carried out by BCBs separate from ‘the builder’, give only a limited assurance and not directly with a view to consumer protection. They can only exceptionally be relied on in court by a homeowner, if the resulting report or certificate proves inaccurate or misleading.34

1.5.4  The Scale of the Problem Information asymmetry is not present in every B2C construction transaction, nor is the imbalance always the same way round: in Scenario 6 (Table 1.2), for example, our construction employer (B2) may be a serial developer of individual homes and our main contractor (M2) newly in the market, short of cash flow and desperate for work. The homeowner tends to be in a position of vulnerability where the supplier of construction services is a ‘repeat player’ and the consumer, whether an individual or couple, is not. The consumer may be entering into this sort of transaction for the first 30 On Trustpilot and developers, see section [6.6]. 31 On Consumer Codes, see section [6.5]; on third-party warranties, see ch 7. 32 Loosemore, Randolph and Buckle: n 29. 33 More on inspections in ch 8. 34 On BCBs, their role and statutory background, see ch 3; on their legal liability for negligence, see Case Study 1 at [1.12], also section [5.8]ff.

16  Introduction time (notably buying a home, perhaps off-plan, never having done so before – about a third of home buyers in the UK are first-time buyers);35 may never have had a thirdparty warranty before; or buys the particular construction service (eg plumbing) at best only occasionally, perhaps never having done so in the area where they now live.36 When a consumer enters into a contract in an area where traditionally arrangements have been commercial, they ‘do not know what the rules are and they present their expectations as reasonable, not relative to the rules, but relative to the generalised ideas of fair dealing, and the like’.37 Not only may the consumer have no relevant or adequate experience to call on; they also may have to do without the sorts of reliable external data they would regard as material – for example, on the other party’s competence, its reputation, its long-term financial stability or how well it deals with clients’ problems. There are of course general protections for consumers against being misled by information from the other party in the run-up to the making of a B2C contract; but these do not guarantee positively that the consumer will be armed with an ideal level of information.38 And there are services aiming to reduce the risk of making a bad choice of ‘builder’: ‘trusted trader’ schemes, offering assurances about competence and reliability.39 The implications of information asymmetry are acute in some residential construction transactions, where the purchase price (or construction cost) of a home usually makes it the largest single transaction anyone ever enters into in their own account, so the stakes are high if something goes seriously wrong. However, just building a modest extension (or even installing a larger shower unit) will involve significant cost, as well as processes, skills and materials with which an average homeowner is unfamiliar. This imbalance is emphasised when one party has greater bargaining power, so can impose its own contractual terms, on a take-it-or-leave-it basis, on the other – a special concern of the law in fashioning forms of protection for consumers.

1.6  What Makes Residential Construction Different? ‘Home’ and Conflict The final distinctive feature of residential construction is practical and psychological: the subject-matter of the work concerns a home. Britain has famously been described as a nation of homeowners. Fulfilling the dream of homeownership has long been many people’s ambition. Much of this ambition can be attributed 35 Kalyeena Makortoff, ‘Share of UK Homes Bought by First-time Buyers Expected to Drop’ The Guardian (28 September 2020). 36 A widely noted application of the information asymmetry approach is the finding that out-of-town home buyers typically pay more for houses than those already living in that location. This is still true in the era of internet platforms offering houses for sale, at least in the USA: Dr Michael Sklarz, Dr Norman Miller and Katrin Kandlbinder, ‘Has the Internet Increased the Efficiency of the Housing Market?’ (Collateral Analytics, 2017): www.collateralanalytics.com. 37 Roger Brownsword, Contract Law: Themes for the Twenty-First Century, 2nd edn (Oxford, Oxford University Press, 2006) 10. 38 On such protections for consumers in general, see ch 6. 39 For a regime guaranteeing by law a minimum level of information for home buyers, see Devin Lin, Regulating Information Asymmetry in the Residential Real Estate Market: The Hong Kong Experience (London, Routledge, 2018).

What Makes Residential Construction Different? ‘Home’ and Conflict  17 to the non-financial, ‘x-factor’ values that home ownership encompasses, and which have become embedded in an ideology of home ownership. Our home is the focal point of our private and family lives; it is integral to our identity, reflecting who we are and the community we belong to. Bad law and bad practice that affect people’s experience in their home therefore have a particular impact on them.40

There is therefore usually an emotional component which goes beyond anything which would ordinarily be expected in an arm’s-length commercial transaction, even where the home is occupied by a ‘mere’ periodic tenant, like most residents at Grenfell Tower.41 In addition to any other remedy, this occupier – whatever their actual legal status – may therefore look for compensation in damages for the psychological impact of a construction-related problem. The stress suffered can be severe: ‘living over the problem’ (which may mean a significant and ongoing loss of amenity for them and any co-habiting family members, until the problem is finally sorted, perhaps years hence); and navigating the legal or other pathways to rectification of defects (first of all, finding out whether any such pathways in fact exist). One homeowner interviewed for a recent study said that they were usually ‘quite good at coping … [but] a couple of weeks ago even I found it … just too hard … but the thing is I don’t want to walk away’.42 For those brave few who do not ‘walk away’ from making a claim at law, their emotional and financial over-commitment can often mean that they continue to pursue in the courts what they believe to be their rights, in the face of sound advice of the risks involved.43 Noting this tendency is Pembroke J in the New South Wales Supreme Court: In this case, and in many similar such cases, the litigant’s enthusiasm and passionate engagement in his quest for supposed justice, obscures the essential unreality of his expectations; blinds him to the chaos that his pursuit has created; and renders him oblivious to the waste and expense that he has generated or the disproportionate court time that he has consumed.44

The homeowners before the court were barred from bringing any further proceedings in relation to (amongst other matters) a home building contract from 2006.45 40 Nick Hopkins and Jonathan Mellor, ‘“A Change is Gonna Come”: Reforming Residential Leasehold and Commonhold’ (2019) 83(4) Conveyancer and Property Lawyer 321, 331. 41 On tenants and ‘home’, see also Tony Honoré in the main text to ch 11, n 21. Samuel Tyrer argues that our experience of ‘home’ is of much more than a tangible structure offering shelter; but achieving ‘home’ necessitates housing stability and an ability to control one’s living space – which short-term and periodic tenants have less than both long leaseholders (in England & Wales) and freeholders: ‘Home in Australia: Meaning, Values and Law’ (2020) 43(1) UNSW Law Journal 340. 42 Nicole Johnston and Sacha Reid, An Examination of Building Defects in Residential Multi-Owned Properties (Deakin University and Griffith University, 2019) 53. 43 One notable recent example of this, from the English courts, is Case Study 6 at section [5.6]. 44 Zepinic v Chateau Constructions (Aust) Ltd; Chateau Constructions (Aust) Ltd v Zepinic [2017] NSWSC 582 [46]. 45 The judge’s order was under the Vexatious Proceedings Act 2008 (NSW). The homeowners continued to seek to litigate their claims; by the end of 2018, the NSW Court of Appeal observed that they had raised 12 separate proceedings which were vexatious within the meaning of the Act: Zepinic v Chateau Constructions (Aust) Ltd [2018] NSWCA 317 [191] (Simpson AJA; McColl and Macfarlan JJA agreeing). Two years later, as this book was being finalised, the NSW Court of Appeal dismissed yet another appeal by the homeowners and ordered them to pay the builder’s costs on an indemnity basis: Zepinic v Chateau Constructions (Aust) Ltd [2020] NSWCA 291. The English courts have equivalent powers to make ‘civil restraint orders’ under the Civil Procedure Rules rr 2.3(1) and 3.11, amplified by Practice Direction 3C: see Philcox v Wilson [2018] EWHC 3138 (QB).

18  Introduction For many, there is also the impact of ‘home as main asset’: the existence – or even suspicion – of defects can dramatically diminish the marketability and value of a home, as in the UK for private-sector blocks of flats which may have combustible cladding and insulation. In less dramatic contexts, defects may not be so public or so general. It is unsurprising that homeowners, in the UK as well as in Australasia, sometimes prefer to sell quietly (if they can), rather than go public with the existence of a defect: They pay $300,000, $400,000, $500,000, $600,000, $700,000 – whatever the number is. That might be the biggest investment they have ever made. And if they then go through and start to talk about the fact that their building has got defects and this that and the other, obviously that is going to have an impact on the value of their investment.46

Doing so successfully – as happens in Scenario 8 (Table 1.3) – merely transfers the problem on to the new owner, who is usually unsuspecting; indeed, may have no reason to suspect.47

1.7  How is a Homeowner Protected? 1.7.1  Regulatory Intervention The inherent nature and scale of home buyers’ and homeowners’ vulnerability as a class has led to a widely recognised need for protection, but with a striking variety of scope and technique across the jurisdictions in this book. It takes the form of regulatory intervention, external to the parties, with five main sources: 1

2

3

Forms of state regulation of construction activity (like occupational licensing and the imposition of ‘a building code’): some aspects may be specific to residential projects and some have a semi-legal status (technically market-created but in fact supported by government, like some ‘trusted trader’ schemes); Contractual issues – the making of B2C contracts may be regulated by general consumer law, and there may also be law applying specifically to residential construction contracts: terms may be implied into the contract, including from case law, or statute may make some terms mandatory (banning others or allowing them to be challenged as unfair) and some may be enforceable by parties who are strangers to the original contract; and standard forms in common use also have normative force for many B2C residential construction arrangements; Duties imposed via the law of delict or of tort (in the legal systems considered, derived primarily from the courts’ own case law, but occasionally from legislation too), and exceptionally from restitutionary principles (depriving one party of an unfair advantage, or compensating a party who has unfairly incurred a detriment);

46 Evidence from the Owners Corporation Network to the ACT, Standing Committee on Economic Development and Tourism, Inquiry into Building Quality (Report 9, 2020) [2.8]: www.parliament.act.gov.au. 47 On caveat emptor and the duty to disclose, see section [4.4.4] (the term is explained in the Glossary).

How is a Homeowner Protected?  19 4 5

Duties (or prohibitions) introduced by statute – some supporting initiatives within 1–3 above – enforced via the criminal law: this book only discusses those which are construction-specific, usually leading to a fine or civil penalty; and Judicial and quasi-judicial machinery, offering ‘justice according to law’ in order to resolve the legal issues which may arise relating to residential construction projects, with possibilities of state enforcement of court judgments or tribunal decisions, the procedures in some cases being specially designed for consumers and their construction problems.

1.7.2  Prevention and/or Cure? These different forms of external intervention are therefore directly relevant in answering the key questions: • Prevention: what assurance does the law give buyers (and later owners or occupiers) of a home that construction work (original, on new-build or conversion, or on modification of an existing building) will comply with minimum standards of design, safety and build quality for its life? • Cure: what forms of redress – from whom, and by what route – can homeowners expect, when, often long after completion of construction, they discover defects attributable to original construction parties, or to those who had the job of verifying the plans and inspecting the work when construction originally took place (or of doing a valuation before the home was bought)? Governments, believing that they can (perhaps should) capture and support the values and goals of ‘the community’, are usually eager for prevention through statutory regulation (principally via ‘the building code’ and its enforcement by public or private authorities). As the Grenfell Tower fire demonstrated, there are some aspects of protection for which only effective prevention will do. Safety is the obvious example: those who lost loved ones may be able eventually to look to those legally responsible for compensation for ‘wrongful death’, or may see some of those responsible facing prosecution for manslaughter, but no-one would ever regard that as equivalent to adequate preventive measures. By contrast, lawyers and judges are usually more familiar with after-the-event cure issues; but it is only when prevention breaks down that a cure becomes necessary. They seldom consider how a regime to prevent defective or dangerous buildings being built could, or should, work; or the many ways in which it might fail in its mission. They tend also to have a traditional model of redress in which individuals have (or should be given) legal rights, to be asserted in a civil court or specialist tribunal against one or more identifiable (and solvent) defendants. Such a model assumes adequate and widespread access to affordable and competent legal advice, followed by court or tribunal procedures which are genuinely accessible and appropriate for disputes where the amount at stake, by commercial dispute standards, may be relatively modest. Chapter 9 shows that this assumption is seldom justified.

20  Introduction

1.8  The Shadow of Grenfell Tower In the early hours of 14 June 2017, a fire started in the kitchen of Flat 16 of the recently refurbished Grenfell Tower in West London. Within minutes, the fire had spread into combustible aluminium composite material (ACM) façade cladding and other materials, leading to the deaths of 72 occupants of the building.48 That fire had a direct ACM cladding-related precursor, the Lacrosse tower fire in Melbourne in 2014; but there have been others, including the Lakanal House fire in south London in 2009 and Melbourne’s Neo200 apartment building fire in 2019.49 Together they show that, at least in England and Victoria, our systems looking to protect residents’ safety in their homes from the risk of injury or death are manifestly failing. The issues are not just what to do about combustible ACM cladding on high-rise residential buildings (the UK government’s immediate focus) but questions altogether bigger and harder to tackle about future prevention. As Dame Judith Hackitt said in the foreword to the summary of her post-Grenfell Review’s Interim Report, Building A Safer Future: ‘[T]he whole system of regulation, covering what is written down and the way in which it is enacted in practice, is not fit for purpose, leaving room for those who want to take shortcuts to do so’.50 Rethinking regulation (including, where appropriate, reinstating levels of regulation dismantled over decades) has therefore been an important part of the official response, with a Building Safety Bill released in draft in July 2020.51 This is not a book primarily about such fires, the specific problem of combustible external cladding or – equally important – maximising the chance that emergency services will be able to rescue residents successfully if disaster strikes. However, the evident failure of ‘the building code’ in England and Australia, in its application to those specific projects (as well, it turns out, as to many hundreds of other high-rise residential towers), forms a haunting backdrop to our other themes. Australian jurisdictions, despite their already well-developed regulation of construction, are traversing an equally difficult and thorough reconsideration of the role of the law in guaranteeing minimum standards of safety for building users and preventing dangerous products being used in residential buildings. A notable reaction from New South Wales imposes a new statutory duty of care on all those involved in the process of construction.52 Ripples from Grenfell Tower, as well as notable recent

48 See, eg Grenfell Tower Inquiry: Phase 1 Report: Report of the Public Inquiry into the Fire at Grenfell Tower on 14 June 2017 (HC 2019, 49): its findings are summarised in chs 2 and 3. 49 See the inquest and report (2009–13) by the coroner, Judge Frances Kirkham CBE: www.lambeth.gov.uk/ about-council/transparency-open-data/lakanal-house-coroner-inquest; see also DCLG, Report to the Secretary of State by the Chief Fire and Rescue Adviser on the emerging issues arising from the fatal fire at Lakanal House, Camberwell on 3 July 2009 (HMSO, 2009). A defining event in Scotland was in 1999 at Garnock Court, a North Ayrshire Council tower block, where a lighted cigarette dropped in one flat led to a fire which ignited the exterior cladding and destroyed flats on nine floors; under the resulting Building (Scotland) Act 2003, any form of cladding must inhibit the spread of fire: see section [3.10]. 50 Ministry of Housing, Communities and Local Government, Building a Safer Future – Independent Review of Building Regulations and Fire Safety: Interim Report (Cm 9551, 2017) (Hackitt Interim Report). 51 On post-Grenfell reforms in England, see section [3.6.8]. 52 On the NSW statutory changes, see section [5.12.4].

Related Themes  21 building failures, have led to reviews of building control and fire safety measures in Scotland and Ireland too.53

1.9  Related Themes The Grenfell example compels an awareness of the range of legal forms and structures under which homeowners actually occupy where they live: at one end of the spectrum sits outright (freehold) ownership (usual for a detached, semi-detached or terraced home sold on the open market, but long leasehold for a time became common – and highly contentious – in England, even for detached homes).54 Next come strata title, long leasehold or equivalent statutory machinery (commonhold) for multi-unit developments, then finally shorter periodic tenancies from a public landlord (like the Royal Borough of Kensington and Chelsea at Grenfell Tower), a third-sector social landlord like a UK housing association or a purely private sector freeholder. Dealing with rectification in relation to residential towers with ‘the wrong sort’ of cladding has to take these tenure differences into account; but all occupiers are residents, and it is their ongoing safety which is in question, to which the technical detail of their legal status ought arguably to be irrelevant. Some of the special management and legal problems which afflict residents of tower blocks and other multi-unit developments, impacting on building quality and safety, are discussed in chapter 11, including noting how leasehold relationships are acting as obstacles to rectification of non-compliant cladding in private sector blocks of flats in England & Wales. A further part of this book’s background is the nature of the residential construction industry (from developers of whole estates down to individual tradespeople) and its characteristics in each relevant jurisdiction – as exemplified in England & Wales by the controversy about the remuneration for Persimmon’s former CEO in the opening quotation of this chapter.55 That in turn links to a larger question of the supply (or rather shortage) of new housing. Figures from September 2019 suggested that England should be building 340,000 new homes a year (of which 145,000 ought to be social housing) to meet the current need; however, the last time this total was built in one year was in 1968 under Harold Wilson as Prime Minister.56 In the year to March 2019, only 169,770 new homes were built, of which up to a third of sales were assisted by the government’s ‘Help

53 The Scottish government established a Building and Fire Safety Ministerial Working Group: see section [3.10.3]; the Irish government similarly set up a Task Force: see section [3.9.3]. The Northern Ireland Housing Executive established a Reference Group to review the cladding and fire safety in all its 33 tower blocks, publishing a Fire Safety Report (2018) and adopting a Tower Blocks Action Plan (2019): www.nihe.gov.uk. 54 There is the separate issue – not discussed here – of the use of leasehold structures for new detached housing, which the government in 2017 undertook to ban for future developments: see Department of Communities and Local Government, Tackling Unfair Practices in the Leasehold Market: Summary of Consultation Responses and Government Response (2017) and ‘James Brokenshire Announces Industry Pledge to Crack Down on Toxic Leasehold Deals’ (Press release, March 2019). For leasehold and other legal structures in multi-unit developments, see ch 11. 55 On Persimmon and build quality, see also ch 11, n 8. 56 Figures from the National Housing Federation, representing Housing Associations: www.housing.org.uk.

22  Introduction to Buy’ equity loan scheme, subsidising buyers from public funds and giving a large financial boost to those developers taking part.57 The Queen’s Speech of the new Johnson government in December 2019 committed to building ‘at least a million more homes over this Parliament’, as well as extending the separate ‘Affordable Homes Programme’ and, by introducing a new ‘First Homes’ scheme, to offer an ongoing discount on the purchase price of a home for local people and key workers as first-time buyers.58 Achieving any new homes target will be impossible until well after the Covid-19 pandemic is over: figures for dwellings completed in England between April and June 2020 showed a 62 per cent drop on the preceding quarter, only 94,000 homes being built in the first nine months of 2020.59

1.10  Protective Regimes All Australasian jurisdictions take an approach to residential construction activity quite different from that under English law. They choose to intervene, by elaborate and subtly varied statutory and regulatory regimes, in the relations between home buyers, homeowners and those who supply construction services (from smaller works of renovation up to off-plan sales of whole dwellings or the building of blocks of flats). As a crude measure of the scale of intervention into residential construction contracts (explained in chapter 4), the current text of Victoria’s Domestic Building Contracts Act 1995 runs to more than 100 numbered sections (many with additional text inserted more recently); in addition, the state’s more comprehensive Building Act 1993 currently has close to 300 numbered sections and nearly a dozen Schedules. Its Part 12A, on just plumbing work, runs (happily, not continuously) from section 221A to 221ZZZK. Activity of this intensity and detail raises the question: how could there be no interventions of comparable scale in the UK, beyond the all-embracing Building Act 1984 and the regulatory regimes under it in England & Wales (with comparable rules in Scotland and Northern Ireland)?60 Given how closely British society shares features

57 Robert Booth, ‘More than 8m People in England Living in Unsuitable Housing’, The Guardian (23 September 2019). For help to buy, see www.gov.uk/affordable-home-ownership-schemes and the critical Committee of Public Accounts, Help To Buy: Equity Loan Scheme (HC 2017–2019, 2046). This found that around three-fifths of buyers who took part in the scheme did not need its support to buy a property, and the large sums of money tied up could have been spent differently to address a wider set of housing priorities and focus more on those most in need. See also Julia Kollewe, ‘Taylor Wimpey Reports £811m in Profits Boosted by Help-to-Buy’, The Guardian (27 February 2019). 58 Queen’s Speech, December 2019: Background Notes, 48: www.gov.uk. See also Public Accounts Committee, 31st Report, Starter Homes (HC 2019–21,686). Homes England is the government agency responsible for encouraging and facilitating the building of new homes: www.gov.uk. 59 MHCLG, Housing Supply: Indicators of New Supply, England January to June 2020 (2020): www.gov. uk; also Joanna Partridge, ‘Covid-19 Hinders Government Hitting “Ambitious” Target for New Homes’ The Guardian (2 February 2021). 60 Scotland to this extent copies the English minimum-intervention approach, though the Scottish Parliament has devolved power to regulate construction in general, but consumer protection is a ‘reserved matter’ to Westminster under the Scotland Act 1998, as amended.

Setting out the Law  23 with Australasia, does this difference reflect a lower value which the community in the UK places on well-built homes and on protecting residents? Or is it perhaps that different techniques have been adopted to aim at a similar result? A laissez-faire instinct certainly dominates in the UK, leading to private-sector solutions like third-party warranties (chapter 7). This contrasts with a much longer tradition of state intervention in Australia – not just in relation to construction. Or is the answer even more prosaic? Given the legislative independence of each of these jurisdictions, no compelling political imperative requires them to pay any particular attention to one another’s regulatory responses, even though their communities face much the same issues in relation to the safety and habitability of their dwellings. As we shall see, the answer to these questions is – to a large extent – ‘all of the above’. This book shows that radically different approaches to the same sector of economic activity can lead to disappointingly similar and unsatisfying results ‘on the ground’. For complex reasons deriving from the difficulties of designing and implementing effective systems of regulation, neither the UK approach nor any equivalent elsewhere gets close to achieving its declared aims – to judge only from the number of defects new homeowners report (as in the second quotation at the head of this chapter) and from the stories contained in reported case law. Then there are the horrific safety issues illustrated by Grenfell Tower and other catastrophes. To confront these questions of efficacy means that this book has to engage with the traditional ‘lawyers’ law’ of contract, tort and property/land law (private law) (chapters 4, 5 and 11); but also with the public law of statutory intervention and bureaucratic regulation (chapters 3 and 6). We have to ask what combination of prevention and cure each jurisdiction currently has and whether the respective roles of the state (directly or indirectly) and of the actors in residential construction are clear, appropriate and adequately integrated one with another in order to achieve intelligible community goals.

1.11  Setting out the Law Below those troubling high-level issues of policy and its implementation are more mundane – but no less important – questions: what actually is the law which affects individuals in relation to construction professionals, developers, lenders of mortgage finance, third-party warranty providers and others in relation to their homes? Our primary aim is to lay out this law clearly, explaining where it comes from. We present England & Wales first in each main chapter, making no assumption that its responses to problems are more effective or more worthy of emulation than those of our other subject jurisdictions – which then feature as contrasts in following sections. Most main chapters analyse situations in depth which have led to one or more key reported cases in courts or tribunals. Significant ones are identified and numbered as Case Studies: Case Study 1 is at section [1.12]. These have the advantage of a memorable – sometimes even picturesque – real-life story, each better illustrating points than a mere summary of legal principle. Every main chapter (except ­chapter 8)

24  Introduction offers as its last-but-one section a table-form summary of the law from all our subject jurisdictions, followed by a critical evaluation of the current position. The final ­chapter 12 assembles these into general conclusions. We take the reader to have some familiarity either with construction law in general (not necessarily in the specific residential field) or with the practices and actors of residential development and construction, in any of the relevant jurisdictions. The explanations of key terms in the Glossary at the back of the book should help those newly exploring the field; a separate table gives Australasian terminology, where this differs from that used in the UK and Ireland. Equally, the List of Abbreviations will help those allergic to acronyms and initialisms to find explanations of terms shortened or reduced just to initials, including those used to identify a court, where a footnote refers to a reported case. Where possible, we have chosen reported cases about construction to illustrate more general legal points. Legal devices familiar to most construction lawyers which usually have no application in relation to homeowners or residential occupiers hardly make an appearance: PFI or PPP models of funding (NPD in Scotland), joint venture agreements, letters of intent, parent company guarantees, lenders’ step-in rights, alliancing or other collaborative forms of procurement. All these can form part of the framework within which large-scale housing developments are built, but impact only tangentially on individual home buyers or homeowners and are well discussed in the general construction law textbooks. For space reasons, we do not consider in detail the publicly administered land use planning system in any jurisdiction, save the need for any significant construction project to comply with it. It is fundamental in most cases to the possibility of new homes being constructed: their location, density, tenure mix, affordability and design. Nor do we discuss the special features of shared ownership (part ownership/part renting of a home, in the UK usually in a long leasehold context from a housing association or private developer).61 Conversely, dispute resolution – a central feature of commercial and infrastructure projects in all our jurisdictions, especially in its statutory form of adjudication – is an important theme in our field too. Homeowners’ often limited resources (including haphazard access to appropriately skilled professional help, both technical and legal) mean that inventing and improving cheap, informal and speedy methods of redress is a strong contemporary theme. Victoria has now had several years’ experience of a statutory and publicly funded conciliation service for many categories of residential building dispute: Domestic Building Dispute Resolution Victoria is positioned as – in most cases – a gatekeeper ahead of proceedings before the Victorian Civil and

61 For a case study on shared ownership, see Dave Cowan, Helen Carr and Alison Wallace, Ownership, Narrative, Things (London, Palgrave Macmillan UK, 2018). For a negative view of the legal position, see ‘“Shared Ownership: a Misnomer that can be Worse than Renting and Worse than Leasehold”, says Solicitor’, Leasehold Knowledge (26 March 2020): www.leaseholdknowledge.com. For its impact on a resident in a flat in a high-rise tower affected by cladding uncertainty, see Hayley Tillotson, ‘My Dream Flat Became A Nightmare’ The Guardian (22 January 2021). Consultation concluded in 2020 on changes to shared ownership’s legal and regulatory regime: see MHCLG, Making Home Ownership Affordable: Summary of Responses and the Government Response to the Discussion Paper Proposing a New Model for Shared Ownership: www.gov.uk.

Setting out the Law  25 Administrative Tribunal (VCAT); New Zealand has made adjudication available for disputes between home buyers or homeowners and ‘builders’; with a similar aim but a different starting-point, a sector-specific New Homes Ombudsman is under development for the UK.62 In our field, even adjudication itself is seldom centre-stage and litigation a last, exceptional and unwelcome resort: the risks an individual must take in order to start (or defend) legal action have no regular analogy in the larger ticket projects which are the bread and butter of the average construction lawyer. Nonetheless, ‘what a court would decide’ remains the backdrop against which any (simpler, quicker, cheaper and perhaps more expert) form of alternative (or appropriate) dispute resolution (ADR) takes place. How, and how well, traditional justice works in our field therefore remains important. Under what conditions are homeowners in a position to assert rights against ‘builders’, or (less usually) to defend their position against legal action brought by ‘a builder’, with a view to an enforceable judicial outcome? What remedies are available, and are they adequate – in particular for the distress and other forms of psychological harm, hard to quantify in money, which actually living in a defective home can engender? Important aspects of the law in force in the UK, as well as in Ireland, derive from measures adopted by the European Union or its predecessors: the rules on unfair terms and other consumer rights in B2C contracts (including data protection), product liability and the prohibition of a wide range of ‘unfair commercial practices’, as well as many aspects of the regulation of insurance, the certification of construction and other products, the energy performance of buildings, the mutual recognition of professional qualifications, ADR for B2C disputes, public procurement and the jurisdiction of the courts in civil and commercial cases.63 Once the post-Brexit ‘implementation period’ ended on 31 December 2020, it was no longer necessary for the UK to maintain any of these measures in force in domestic law, even in Northern Ireland; the Christmas Eve 2020 Trade and Cooperation Agreement between the EU, the European Atomic Energy Community and the UK does not appear immediately to change this position.64 Similarly, almost all existing

62 All these ‘access-to-justice’ issues are discussed in ch 9. 63 On construction products, see section [3.4.1]; and on the energy performance of buildings, see section [4.4.4]; on challenging unfair contract terms, see section [4.10] (UK) and [4.15.3] (Ireland); on product liability, see section [5.10.4]; on other consumer rights and ‘unfair commercial practices’, see section [6.2]; and on ADR in B2C disputes, see section [9.2.3]. On EU regulation of insurance, see ch 7, n 10. On mutual recognition of professional qualifications, see, eg, MHCLG, The System for Recognising EU Qualified Architects in the UK from 1 January 2021 (2020); on public procurement, see, eg, the Public Procurement (Amendment etc) (EU Exit) Regulations 2020 (SI 2020/1319), also National Audit Office, Investigation into Government Procurement during the COVID-19 Pandemic (2020). Title VI of the Trade and Cooperation Agreement (n 64) places obligations on both the EU and UK in relation to public procurement; Title X reaffirms the freedom of both the EU and UK to regulate consumer protection. On courts’ jurisdiction, the Civil Jurisdiction and Judgments Act 1982 (UK) was amended by the Private International Law (Implementation of Agreements) Act 2020 (UK): in a construction adjudication context, see Motacus Constructions Ltd v Paolo Castelli SPA [2021] EWHC 356 (TCC). 64 Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part (24 December 2020): www.gov.uk.

26  Introduction links between the law of the UK (and litigation in the UK) and the European Court of Justice have already come to an end, and the status of ECJ case law – past and future – is being downgraded.65 However, by definition, primary legislation remains in force, even where it in fact gives effect to European measures (like aspects of the Consumer Rights Act 2015, the Data Protection Act 2018 or the Consumer Protection Act 1987 – all applicable UK-wide), unless expressly repealed or modified. The withdrawal provisions do the same for equivalent secondary legislation and for EU Regulations.66 Inertia may therefore mean that individual UK measures reflecting EU requirements are in fact maintained in force, though some have been expressly transformed into purely national rules.67 In return, UK bodies lose their status under EU regulatory regimes, such as for certifying construction products, which now becomes national (the UKCA mark) rather than European (the CE mark).68 Politically, it must be very unlikely that any recently adopted, or future, EU measures will now be separately legislated also to become the law of the UK, save perhaps for Northern Ireland alone under the 2020 UK-EU Protocol on Ireland/Northern Ireland. Ireland itself remains an EU Member State, so its relationship with the whole body of EU law, present and future, is unchanged.

1.12  Case Study 1: Foundations Too Shallow 1.12.1 Introduction A profound and significant divergence between two common law jurisdictions, almost three decades ago, was the beginning of the investigative journey whose current end-point this book represents. Those two jurisdictions – England & Wales and New Zealand – share a common legal heritage (combined in New Zealand with that of the Māori people), yet sit geographically at almost exactly opposite ends of the Earth.

65 European Union (Withdrawal) Act 2018 (UK) ss 6–7, as amended. See Sylvia de Mars, ‘Brexit Next Steps: The Court of Justice of the EU and the UK’ (House of Commons Library Insight, 7 February 2020): www. commonslibrary.parliament.uk. In 2020 the Ministry of Justice consulted on a range of options for designating those UK courts which are to have power to depart from ‘retained’ EU case law and how their powers to do so should be exercised: the result was the European Union (Withdrawal) Act 2018 (Relevant Court) (Retained EU Case Law) Regulations 2020 (SI 2020/1525). 66 European Union (Withdrawal) Act 2018 (UK) s 2. See Lipton v BA City Flyer Ltd [2021] EWCA Civ 454. 67 See, eg, the Consumer Protection (Enforcement) (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/203) and the Consumer Protection (Enforcement) (Amendment etc) Regulations 2020 (SI 2020/404). A new Government Procurement Portal will replace the EU system, which uses notices in the Official Journal. 68 On EU regulation of construction, see, generally, section [3.4.1]. Those UK institutions which were Notified Bodies under the Construction Products Directive lose their status; similarly, the UK Accreditation Service ceases to be a national accreditation body under Regulation (EC) 765/2008 of the European Parliament and of the Council of 9 July 2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products and repealing Regulation (EEC) No 339/93 [2008] OJ L 218/30. See now the Construction Products (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/465) and 2020 (SI 2020/1359). The draft text of the Building Safety Bill (2020) contains provisions for the future certification of construction products in the UK in cl 110 and sch 8.

Case Study 1: Foundations Too Shallow  27 In 1996 the Judicial Committee of the Privy Council reached conclusions on a civil appeal governed by the law of New Zealand, whose judges had departed from two relatively recent House of Lords cases (technically, binding authority at the highest level but within English law alone): Murphy v Brentwood DC from 1990 and Pirelli v Oscar Faber from 1983.69 This case law from the UK’s then highest civil court had changed the direction of English construction law, with the result (but not the aim) of making it harder for a homeowner to mount a successful civil action for damages against a ‘builder’ with which it had no contractual link. The case had been initiated in 1990 by Noel Hamlin, the first buyer (B1) of a new bungalow in Waikiwi, a suburb of Invercargill in New Zealand’s South Island. In 1972 Mr Hamlin had bought a section (plot) from developer/builder (X), Bruce Stirling Ltd, on what was known locally to be low, swampy ground close to the Waihopai River. At the same time, he made a contract with X to construct him a new single-storey rectangular house. This was in fact already designed: X had submitted the plans to the City Council (here acting as a building control body, or BCB), which had approved them.

1.12.2  The Legal Issues Along the eastern wall of Mr Hamlin’s house, the foundations had subsided. His civil action for damages, for the cost of rectification, was initially against the obvious defendant: the developer/builder X, who took no part in the litigation (it may have Figure 1.2  Hamlin v Invercargill

69 Murphy v Brentwood DC [1991] 1 AC 398 (HL): see section [5.8]; Pirelli General Cable Works Ltd v Oscar Faber and Partners [1983] 2 AC 1 (HL): see Table 10.1.

28  Introduction ceased trading by that point, or even become formally insolvent); but also against Invercargill City Council as BCB. The litigation raised two main questions of law, summarised in Figure 1.2. The first was about liability: could Mr Hamlin look to the Council, the second defendant, as responsible in the tort of negligence? The second issue was no less important, about the limitation period: the Council argued that, even if Mr Hamlin had a right of action, he had started legal action too late, long after construction was complete. At first instance, in 1992 before Williamson J in the High Court in Invercargill, the Council conceded an important threshold point of law: it accepted that, as BCB, it owed him a duty of care. After a four-day hearing, Mr Hamlin won on liability against both defendants, as well as on the limitation point. The judge found – unsurprisingly – that for the foundations to be only about half the depth of those on the approved plans was a breach of contract by X. He also found that the building inspector for the Council, the second defendant, failed to verify the actual depth against the plans: this was negligent.70 Abandoning its duty of care concession, the Council (more accurately, its insurer) appealed to what was then the top tier of the New Zealand court system, the Court of Appeal.71 Three further days’ argument took place, the Council losing there in September 1994 (of the five judges, one was on the Council’s side, but on the limitation point alone). The Court looked at the functions of the City Council in Invercargill under what was then a 1954 Act, going on to analyse the societal aims and significance of the building permit process to New Zealand homeowners. The detailed provisions of that legislation in the end hardly mattered, since the judges took a broad view of the economic and political context of Mr Hamlin’s situation. It was highly relevant, they said, that government policy was to encourage house building and home ownership, especially for individual consumers with modest incomes: these were people who could not and would not spend extra money on surveys and inspections. On the supply side, there was a large number of small builders, few with any assets and even fewer with relevant insurance cover. (Mr Hamlin’s developer/builder probably belonged to both groups.) Combining all these factors, it was reasonable, the Court thought, for New Zealand homeowners as a class to rely – arguably the key idea here – on the supervisory and inspection role of local authorities in New Zealand (now collectively called Territorial Authorities (TA)). They had the power (‘control’) to prevent inadequate construction.72 It followed that a TA should pay if it failed to do a proper job, reasonably foreseeably causing loss.73 The judges in Wellington accepted Mr Hamlin’s argument that, under

70 Hamlin v Bruce Stirling Ltd [1993] 1 NZLR 374 (NZHC) 376. 71 Invercargill City Council v Hamlin [1994] 3 NZLR 513, 72 BLR 39 (NZCA). 72 This analysis puts BCB and homeowner in NZ in what we could call a ‘special relationship’ or one ‘akin to contract’, along lines familiar in English law from Hedley Byrne v Heller: see ch 5, n 70. The ‘control’ idea comes from Lord Denning MR in Dutton v Bognor Regis: ch 5, n 150 and its main text. 73 This also vindicated the views of Baron Cooke of Thorndon (1926–2006), former President of the New Zealand Court of Appeal, and the only NZ judge ever to become a member of the House of Lords, whose writings include the seminal ‘An Impossible Distinction’ (1991) 107 Law Quarterly Review 46. This gently criticises the post-Murphy state of English law and the distinctions it uses to limit the scope of recovery of damages for construction defects, contrasting it with the law in many states of the USA and arguing for the more generous and straightforward approach of New Zealand law.

Case Study 1: Foundations Too Shallow  29 the New Zealand version of the common law, municipal building inspectors and certifiers owed homeowners like Mr Hamlin a duty of care in tort.74 This led to an award of damages for the cost of rectifying his house’s foundations. The insurer appealed a second time, the case finally arriving in London before the Privy Council in 1995, with judgment in February 1996.75 In Invercargill City Council v Hamlin, the Judicial Committee confirmed the views of the five-judge New Zealand Court of Appeal on liability.76 At the same time, it was absolutely clear that, had the same situation arisen in English law, Murphy v Brentwood DC would have applied, so the Council would have owed Mr Hamlin no duty of care.77 The Privy Council’s second finding related to the law of limitation; it held that, in New Zealand law at the time, the period within which legal action in tort had to be started did not begin to run against a would-be claimant when the defective feature of the building was initially installed (as English law now said, in Pirelli v Oscar Faber). Instead, time began to run only when that person had (or was taken to have) a degree of knowledge of what had gone wrong.78 This was also as the New Zealand Court of Appeal had decided (by a majority), going on to conclude that, under this test, Mr Hamlin had started litigation in time.79 So Mr Hamlin won again on both issues and shortly thereafter collected his damages, whose amount (‘quantum’) had already been assessed at first instance and was not challenged in either appeal.80

1.12.3  Case Study 1: Significance The case graphically illustrates several important points, previewing later themes in this book: • In the field of residential construction, remedies issues (‘Is this claim too late?’ ‘Is my builder still in business?’ ‘Even if I win, will I gain enough to do the repairs necessary?’) are often as important as substantive law (‘Is there a defendant here who may be liable to me?’). 74 Invercargill City Council v Hamlin: n 71. 75 Appropriately, the judicial panel for the final appeal included Sir Michael Hardie Boys, at the time a Court of Appeal judge in New Zealand; he became a Privy Councillor in 1989, which permitted his participation in cases before the Judicial Committee. (He had of course not been a member of the panel in the NZ Court of Appeal which decided Invercargill City Council v Hamlin.) Between 1996 and 2001 he was New Zealand’s 17th Governor-General. The Privy Council’s decision was handed down not long before NZ ended the right of final appeal to London via the Supreme Court Act 2003 (NZ), establishing its own Supreme Court on Lambton Quay in Wellington. Appeals from the Cook Islands and Niue to London – great rarities – are unaffected by the abolition of appeals from NZ itself. 76 Invercargill City Council v Hamlin [1996] AC 624 (PC), 78 BLR 78, 50 Con LR 105. 77 On Murphy v Brentwood, DC, see section [5.8]. 78 This was the position in English law until Pirelli: see Sparham-Souter v Town & Country Developments (Essex) Ltd [1976] 1 QB 858 (CA). 79 On time limits, see ch 10. 80 By agreement between the parties, the Privy Council was asked to make no costs award, meaning that each side took responsibility for (only) its own costs; the PC would otherwise have had the widest discretion to ‘make such orders as it considers just’, most recently under the Judicial Committee (Appellate Jurisdiction) Rules 2009 (sch to SI 2009/224), r 43(1). The UK Supreme Court has an identical discretion to ‘make such orders as it considers just in respect of the costs of any appeal, application for permission to appeal, or other application to or proceeding before the Court’: Rules of the Supreme Court 2009 (SI 2009/1603), r 46(1).

30  Introduction • The same physical problem may lead to two linked but separate claims: (a) in contract against one defendant (Mr Hamlin against his builder/developer X, who was held to be in breach of contract, having built the house with inadequate foundations, though this claim may have had no practical purpose); and (b) in tort against a different defendant (the City of Invercargill, which culpably failed to protect Mr Hamlin against X not complying with the local bye-laws). • Mr Hamlin was successful against what was arguably a secondary defendant, for the City’s negligence could only operate once X had already failed to make the foundations compliant with the plans and the bye-laws. Choosing different words for the same idea in the Supreme Court of Canada, the majority judges in City of Kamloops v Nielsen said: ‘The City’s negligence in this case was its breach of duty in failing to protect the plaintiff against the builder’s negligence’.81 • ‘The builder’s negligence’ certainly covers – as in Hamlin itself – culpable failure to produce an outcome complying with ‘the building code’; but could such a broad definition cover any defects which would have been a breach of the builder’s build quality obligations in the contract? This would make the BCB (the local authority) not just assume the risk of the builder’s inability to satisfy a judgment against it (as happened), but also become the guarantor of every aspect of the builder’s performance. As Elias CJ made clear later in Spencer on Byron: ‘it is only in the discharge of its own functions that the Council is exposed to liability’, this requiring proof of (its own) fault.82 • In a scenario where a homeowner sues a public sector BCB, many judges have found it hard to ignore that, in court, David is suing Goliath, who may be ‘the last person standing’: the defendant has deep pockets, so there is no real risk that its liabilities will ever be unfunded. Further, under the common law principle of joint and several liability (fully in force in New Zealand, as in England & Wales) Mr Hamlin could recover all the allowable damages against the City.83 As Lord Denning MR memorably put it in Dutton, of local authorities as BCBs: ‘Their shoulders are broad enough to bear the loss’.84 Such a defendant is well placed – certainly better placed than Mr Hamlin – to spread its financial exposure over a wider group, for example via its own insurance or (so far as it has the power to do so) by fractionally increasing the charges for its building control activities, or even the general taxes it levies on its residents. But if ability to absorb a loss may encourage a court to impose liability in tort, it is hardly a sufficient reason for doing so – as the House of Lords pointed out

81 City of Kamloops v Nielsen [1984] 2 SCR 2, 15f. For the same point in NZ, see Mount Albert Grammar School Board of Trustees v Auckland City Council: the main text to ch 5, n 320. 82 Body Corporate 207624 v North Shore City Council (Spencer on Byron) [2012] NZSC 83, [2013] 2 NZLR 297 [21]. Some of the later cases in the NZ Supreme Court, in using the term ‘negligence’, seem to make no distinction between non-compliance with ‘the building code’ and ‘defects’ more generally; but this cannot be correct as a matter of principle: see section [5.13.2]. 83 On statutory modifications in Australia of joint and several liability, introducing systems of proportionate liability, see ch 9. 84 Dutton v Bognor Regis UDC [1972] 1 QB 373 (CA), 398A: see section [5.7].

Case Study 1: Foundations Too Shallow  31 in Murphy v Brentwood DC, as a prelude to pulling the plug almost completely on such claims in English law.85 • Justice in different jurisdictional contexts may therefore lead to radically contrasting results, even where the building blocks of the law are notionally the same. As Lord Lloyd pointed out, giving the views of the Judicial Committee in Hamlin: [I]n the present case the judges in the New Zealand Court of Appeal were consciously departing from English case law on the ground that conditions in New Zealand are different. Were they entitled to do so? The answer must surely be ‘Yes.’ The ability of the common law to adapt itself to the differing circumstances of the countries in which it has taken root, is not a weakness, but one of its great strengths. Were it not so, the common law would not have flourished as it has, with all the common law countries learning from each other.86 In a succession of cases in New Zealand over the last 20 years it has been decided that community standards and expectations demand the imposition of a duty of care on local authorities and builders alike to ensure compliance with local byelaws. New Zealand judges are in a much better position to decide on such matters than the Board. Whether circumstances are in fact so very different in England and New Zealand may not matter greatly. What matters is the perception.87

• In both aspects of its decision, the Privy Council in effect sided with consumers and homeowners in general, primarily because the New Zealand courts clearly thought that justice, in the national context, required this. A victory for Mr Hamlin was therefore a victory for ‘the little people’, as commentators said when the Privy Council decision arrived – by fax – at his solicitors’ office in Invercargill.88 The far less claimant-friendly English position on both the issues in Hamlin, with other jurisdictions’ many divergences from it (some discussed by the Privy Council in the case itself), are explored in chapters 5 (liability) and 10 (limitation). • Had a comprehensive statutory regime for residential construction been in force in New Zealand at the time, as in most of Australia, Mr Hamlin might have been protected by mandatory insurance, on which he could have claimed the cost of making good his house’s foundations: he might never have needed to start legal action against the local authority. There is extra protection in contract in New Zealand now, and plans were under discussion in 2020 about insurance against builder insolvency and later-appearing defects.89 However, so long after he bought the house, Mr Hamlin might have been too late to claim on insurance, and probably unable to claim as much as he in fact gained in damages in court (but would not have incurred his legal team’s costs); we – and our readers in turn – would be less well informed on the choices open to the law.

85 Murphy v Brentwood DC: see section [5.8]. 86 Invercargill City Council v Hamlin (n 76) 640C. 87 Invercargill City Council v Hamlin (n 76) 642E. 88 ‘City Couple Win Landmark Case’, The Southland Times (Invercargill, 14 February 1996) 4. 89 On the NZ statutory regime for residential construction contracts, see section [4.14.2]. On the possible introduction of a third-party warranty scheme in NZ for residential projects, see section [5.13.2].

2 Residential Construction: Defects in Context This day I observed the house, which I took to be the new tennis-court, newly built next my Lord’s lodgings, to be fallen down by the badness of the foundation or slight working, which my cozen Roger and his discontented party cry out upon, as an example how the King’s work is done … It hath beaten down a good deal of my Lord’s lodgings, and had like to have killed Mrs Sarah, she having but newly gone out of it. SAMUEL PEPYS1 A bricklayer was building a significant section of the wall he had been working on without building in any wall ties. When he was stopped by the Clerk of Works and queried, his response was that as the contractor hadn’t provided enough wall ties they had run out, and he could not afford to sit around as his earnings for that day were dependent on him completing the wall. REPORT OF THE INDEPENDENT INQUIRY INTO THE CONSTRUCTION OF EDINBURGH SCHOOLS2

2.1 Introduction In the early 2000s, the actor Jeremy Irons restored the fifteenth-century Kilcoe Castle on Ireland’s Roaring Water Bay. Proclaiming himself someone who ‘relish[ed] risk’, he embarked on a project which took six years, cost several million Euros and involved a range of workers, from specialist craftspeople through to ‘various characters who turned up’.3 Such residential construction projects capture the popular imagination, having created an entire genre of reality TV programme. By 2020,

1 Pepys’s Diary, Wednesday 24 June 1663: www.pepysdiary.com. ‘My Lord’ is Sir Edward Montagu, Commissioner of the Admiralty, Earl of Sandwich and Pepys’s patron (and cousin); ‘Mrs Sarah’ is Sandwich’s housekeeper. The tennis court (real, not lawn) may have been the new one in Whitehall, built for Charles II after the Restoration in 1660, so ‘My Lord’s lodgings’ may have been part of Whitehall Palace. Pepys’s ‘cozen Roger’ (1617–88) was a lawyer and politician, sitting in the House of Commons as MP for Cambridge (1661–78). 2 Report of the Independent Inquiry into the Construction of Edinburgh Schools (2017) [10.14.7]. 3 David Kamp, ‘How Jeremy Irons Rescued and Restored a 15th-Century Irish Castle’ Vanity Fair (October 2017).

Introduction  33 Grand Designs had 19 UK seasons (including Irish projects, but not Kilcoe), eight in Australia and six in New Zealand. Each programme finds drama unfolding in the process of construction – the cost overruns, the impact of unseasonable weather and the fraught decisions to abandon or rethink aspects of the original plans. However, these projects reflect little of the central reality of residential construction, as explored in this book. For a start, Grand Designs features only ‘one-off ’ projects for ‘owner-builders’ – employers (in the construction sense) who already have the site for a new home or own an existing home which is to be transformed.4 We include one such project as Scenario 6 (Table 1.2); but in most of our subject jurisdictions, this is the exception, not the rule.5 Apart from the centrality of contract in the legal context of such a project and its need to comply with planning requirements and ‘the building code’, it bears little resemblance to the ‘take-it-or-leave-it’ houses and flats speculatively constructed by volume home builders, then sold off-plan for a fixed price – like Scenarios 2 (Table 1.1) or 7 (Table 1.3); and has nothing in common with more modest smaller works undertaken for a homeowner by a single tradesperson, like P the plumber replacing a shower unit for B1 in Scenario 3 (Table 1.2). Nor does it offer any insights into work on a publicly owned tower block offering social housing, like Grenfell Tower, where the residents had no real role in the construction process, yet suffered the consequences of failures by others. In an off-plan sale of a new home (Scenario 2), the first buyer B1 has no exposure to cost overruns (unless these lead to the insolvency of developer X), but has little if any say in what is built (other than to walk away without committing, if they do not like what is planned) or in the terms on which they can acquire it as a home. This is the very opposite of the usual Grand Designs scenario, where the owner(s) are in control of what is built and may have contractual protections against contractor insolvency and late completion (though TV never discusses those); by contrast, B1 usually has little recourse if X hands over the new home later than anticipated.6 Nor does TV ever show any post-completion negotiations with ‘the builder’ on the final account (let alone formal dispute resolution, if no ‘deal’ can be struck); or about rectifying aspects of the house which turned out, later on, to be defective – such a regular feature of the volume housebuilder world. In addition, Grand Designs cannot explore the interrelationship between all the many parties who would be involved in a larger project. We do sometimes meet the owners again, seeing how the house is doing one year on, but its environmental footprint, long-term sustainability, running costs and maintenance are seldom visual enough to form part of the story. Leaving aside such aspirational but atypical ‘trophy homes’, this chapter focuses on what we – and the law – might mean by a ‘defect’ in a residential context, and why preventing (and rectifying) them is such a complex challenge. This helps to explain why the current legal contexts (described in chapters 3–11) are so elaborate and diverse.

4 On renovations and extensions, Channel 4 in the UK also has Ugly House to Lovely House, in 2020 in its second series. 5 New Zealand may be an exception, with few speculative large-scale new housing developments and a preponderance of ‘owner-builder’ projects: Nick Brunsdon and Orin Lockyer, Study Report SR241: New House Owners’ Satisfaction Survey 2018 (Porirua, BRANZ, 2019). 6 On delays to the completion of construction work, see section [4.7.3].

34  Residential Construction: Defects in Context For the uninitiated, disappointing (or catastrophic) construction outcomes are often a shock. A firefighter on his way to Grenfell Tower, seeing the scale of the blaze, exclaimed: ‘How is that possible?!’7 Residents in our subject jurisdictions (and beyond) may ask a similar question – in less dire circumstances – when they find leaking shower bases, cracking concrete slabs, unexpected wall colours or a panoply of other unfulfilled expectations. The chapter therefore starts in section [2.2] by considering what a ‘defect’ means. In order to explain the gap between expectations and reality, section [2.3] then examines evidence of consumers’ perceptions in respect of quality, and section [2.4] looks at the incidence and consequences of defects. We go on to consider why preventing and rectifying defects poses such a difficult regulatory challenge (foreshadowing why chapter 3 will propose a wide definition of ‘regulation’): section [2.5] outlines the process and competence challenges to be surmounted in meeting ‘performance requirement’ goals. The chapter then examines the tensions underpinning the delivery and maintenance of quality dwellings, starting in section [2.6] with the inherent conflicts between the different project parties; section  [2.7] considers the diverse interests and abilities of those who interact with buildings as its residents or ‘consumers’. The chapter next discusses the specific challenges arising at each stage of the building cycle, from planning through to occupation, including Case Study 2 in section [2.9], and ends with a table-form summary.

2.2  What is a ‘Defect’? 2.2.1  Examples and Definitions Construction work may be viewed as ‘defective’ on a number of possible grounds. We take here examples from a detached home built by developer X and sold off-plan to first buyer B1, newly moved in with their family. Table 2.1  ‘Defects’? EXAMPLES

BASIS FOR COMPLAINT

1 The developer agreed to install low-level electric lighting alongside the path to the front door, but this has not been done.

The completed project fails to include something which was promised.

2 A different model of oven from that agreed has been installed in the kitchen.

What has been installed is not what was promised.

3 The wall-mounted oven is not level, and one of its glass doors is scratched.

The workmanship is not up to standard.

As Australian construction law experts John Dorter and John Sharkey suggested, a defect is a ‘falling short’, so ‘the very concept is relative to the standard from which it is­



7 See,

eg, www.youtube.com/watch?v=Scl6mtHkNKw.

What is a ‘Defect’?  35 deficient’.8 Any labelling of a situation as a ‘defect’ must therefore start by identifying the applicable requirements or standards for the relevant work or project. ‘Quality’ would then mean meeting – or exceeding, if possible – all these requirements or standards. As in Examples 1 and 2 (Table 2.1), what is to be built may include detailed requirements and specifications, these having contractual force between – in this case – developer X and first buyer B1. This book does not specifically address the outdoor aspects of a new home construction project, though a landscaping project forms Case Study 6 in section [5.6]. However, as Example 1 shows, issues outside the home can as easily lead to consumer unhappiness as any feature inside – notably construction spoil left in the garden.9 Example 3 looks more directly to what the consumer would see as ‘quality’: the ‘how well?’, rather than the ‘what?’. Our consumer would probably still be unhappy even if the oven were the correct one, if this was not level and had a scratched door. It is obvious that the project will expect a certain standard of workmanship from ‘the builder’: this may be imposed by statute, contained in the sale contract or implied by the courts on any provider of construction services. It is a requirement, but how precisely is it (or can it be) defined? Later chapters lay out how such requirements can come into being and what remedies the law makes available if they are not met. But to apply whatever the standard is: that is where uncertainty often arrives. On moving in, our home buyer B1 is unlikely to have a lawyer at their side. In the UK and Ireland, the industry uses the term ‘snag’ to cover problems which at the limit might not be breaches of contract or applicable mandatory standards (not ‘defects’ in a narrow legal sense). A ‘snag’ therefore also covers problems that go only to appearance or aesthetics but which a responsible developer ought to be willing to remedy if the buyer is unhappy. Examples 2 and 3 could fall into this category. X may meet B1 ­halfway, offering compensation if B1 accepts the oven, installed as it is; but our buyer may wish to insist on having it replaced by the agreed model, or at least re-installed level.10 So ‘customer satisfaction’ – subjective, always hard to pin down, and varying greatly between different consumers – may go to ‘quality’, even though some of its other aspects can be objectively determined.11 If the present oven failed to comply with the regulations for electrical wiring, that would be a ‘defect’ in the technical legal sense, rather than just a ‘snag’. 8 John Dorter and John Sharkey, Building and Construction Contracts in Australia (Thomson Reuters WestlawAU) [11.10.1]. In almost identical terms, see Standards Australia, Australian Standard 4349-2007: Inspection of Buildings (SAI Global Ltd, 2011) s 1.3.5 (AS4349.0 – general); s 1.4.6 (AS4349.1 – pre-purchase inspections for residential buildings). For a survey of such definitions, see Nicole Johnston and Sacha Reid, An Examination of Building Defects in Residential Multi-Owned Properties (Deakin University and Griffith University, 2019) 8. 9 Unusually, the FMB Domestic Building Contract includes an obligation on the builder to clear the site before the completion date, leaving it ‘clean and tidy’ (cl 27). Such ‘exterior’ problems can be acute in a new multi-unit development, where the developer has promised shared leisure or car parking facilities, but these are not yet in place when the first unit owners move in – and sometimes never materialise. 10 This is the situation where professional ‘snagging experts’ offer to assist those like B1 and fight their corner with the developer: see ch 8. 11 Paul Watson and Tim Howarth, Construction Quality Management: Principles and Practice (London, Spon Press, 2011) ch 1. See also Jim Georgiou, Peter ED Love and Jim Smith, ‘A Comparison of Defects in Houses Constructed by Owners and Registered Builders in the Australian State of Victoria’ (1999) 17 ­Structural Survey 160; Jim Georgiou, Peter ED Love and Jim Smith, ‘A Review of Builder Registration in the

36  Residential Construction: Defects in Context

2.2.2  Even Technical Experts May Disagree In a study in Victoria, reported in 2010, Jim Georgiou asked 12 architects to examine an inspection report of a home (redacted to remove references to the owner and inspector), containing 13 issues, and provide their views about three matters: how the building element should be classified; whether it was, in fact, a defect; and which trade was responsible for the work. He then compared those views to his assessment.12 The examples were common issues, such as embedding a timber pergola post directly into concrete (likely to rot).13 Only 42 per cent of the architects agreed with Georgiou on how the element should be classified; half agreed that it was a defect, and 83 per cent agreed with his assessment of which trade was responsible for the work.14 Across the 13 items, there was an average of 63 per cent agreement on the building element, 63 per cent on whether the item was a defect and 78 per cent on which trade was responsible.15 There was, however, a strong correlation between everyone in assessing the total number of defects in the hypothetical house.16 Even with a small sample size, the study shows the scope for differences of view in the apparently objective (in this case, hypothetical and anonymous) expert assessment of basic questions about whether an item of work is in fact (let alone in law), a ‘defect’. Along similar lines, Ian Page in New Zealand looked at the direct causes of defects in new homes, comparing independent inspectors’ views with insiders’ (builders’) ­opinions about what had gone wrong.17 Again, this shows the potential for diverging views: Table 2.2  Defects in New Homes: Direct Causes CAUSE

INSPECTOR’S VIEW

BUILDER’S VIEW

52%

27%

–

21%

MATERIALS

12%

7%

SUBCONTRACTOR WORK/ UNCOORDINATED TRADES

12%

8%

POOR (OR INCOMPLETE) DESIGN

12%

22%

CONSTRUCTION METHODS

12%

14%

POOR WORKMANSHIP BUILD ERROR

State of Victoria, Australia’ (2000) 18 Structural Survey 38; Jim Georgiou, ‘Verification of a Building Defect ­Classification System for Housing’ (2010) 28 Structural Survey 370, 371; and David S Watt, Building ­Pathology, 2nd edn (Oxford, Blackwell Publishing, 2007) 96. See, similarly, the compilation of definitions in Tony Hopkin et al, ‘Key Stakeholders’ Perspectives Towards UK New-Build Housing Defects’ (2017) 35 International ­Journal of Building Pathology and Adaptation 110, 111. 12 Georgiou (n 11) 375. 13 Georgiou (n 11) 377 (item 2). 14 Georgiou (n 11) 376. 15 Georgiou (n 11) 376. 16 Georgiou (n 11) 379. 17 Ian Page, Study Report SR335: New house construction quality survey 2014 (Judgeford, BRANZ, 2015).

What is a ‘Defect’?  37

2.2.3  Quality Standards Legal concepts of defects look, to varying extents, to industry norms. ‘Reasonableness’ is a key one, generally regarded as an objective standard, to which judges often appeal (or to which construction standards refer) in order to assess the quality of completed work: was it, or was it not, good enough? But who is the benchmark ‘man on the Clapham omnibus’ (or, for that matter, the person on the Melbourne tram, Dublin Light Rail or Auckland ferry), whose views the court will claim (or aim) to reflect?18 Are they a builder? Or are they a home buyer or homeowner? If a consumer, must they be an ­‘average’ or ‘reasonable’ consumer (midway between hyper-demanding and easily pleased)?19 Looking to the standards of behaviour the English courts apply where a patient sues a medical practitioner after an unsuccessful procedure, the doctor will not be liable if they acted ‘in accordance with a practice accepted as proper by a responsible body of medical practitioners skilled in that particular art’.20 By analogy, ‘reasonableness’ in relation to construction work will look to the industry’s prevailing standards for that sort of project, or aspect of a project. This may translate into a result lower than an individual consumer finds acceptable. In a case about a house in well-to-do Brighton, the Melbourne suburb, Walker SM said: ‘[a]lthough absolute perfection may be an ideal[,] an Owner cannot complain if it is not achieved’.21 As a result, the Senior Member disallowed the claim for a blemish within a polished stone fireplace, which he could not see during a site inspection. He observed that ‘[b]uilding work is to be done in compliance with the statutory warranties which require a reasonable standard of workmanship. … An alleged cosmetic defect that cannot be seen, even by someone looking for it, is not a defect’.22 In an English context, Coulson J similarly commented – concerning a multi-million-pound mansion constructed in Jersey for Ian McGlinn (who initially made his fortune by financing the Body Shop) – that the designers were to produce a ‘high quality finished building … not … a perfect building’, because ‘a perfect standard of interior fitting and finish could only be provided by boat-fitting specialists, not construction contractors’.23

18 ‘The man on the Clapham omnibus’: McQuire v Western Morning News Co Ltd [1903] 2 KB 100 (CA) 109 (Collins MR). 19 ‘The average consumer’ appears regularly in general consumer protection law, discussed in ch 6. 20 Lords Kerr and Reed (with whom Lords Neuberger, Clarke, Wilson and Hodge agreed) in Montgomery v Lanarkshire Health Board [2015] UKSC 11, [2015] AC 1430 [40], summarising McNair J’s classic direction to the jury in Bolam v Friern Hospital Management Committee [1957] 1 WLR 582 (QB). The Supreme Court modified the duties on doctors relating to ‘informed consent’ to treatment, in English and Scots law, but the ‘Bolam test’ remains in place to assess the treatment given. In Australia, a different standard of care for professionals was adopted by the High Court in Rogers v Whitaker [1992] HCA 58, (1992) 175 CLR 479, but its effect subsequently modified by statute in most states and territories: see eg, Wrongs Act 1958 (Vic) s 59, explained by the Victorian Court of Appeal in Tanah Merah Vic Pty Ltd v Owners’ Corporation No 1 of PS631436T [2021] VSCA 72 [238]–[244] and Brakoulias v Karunaharan [2012] VSC 272 for its interaction with the common law standard. 21 Advaland Pty Ltd v Bitcon [2015] VSC 235 [117]. 22 Advaland (n 21) [117]. 23 McGlinn v Waltham Contractors Ltd (No 3) [2007] EWHC 149 (TCC), 111 Con LR 1 [192]; see also section [4.5.2].

38  Residential Construction: Defects in Context Home buyers and homeowners tend to have more idealistic (less realistic) expectations than ‘the builder’ as to what is achievable: consumers expect the quality to be ‘high’; ‘builders’ think that ‘reasonable’ is good enough. The industry norms defining ‘a reasonable standard of workmanship’ may be common sense to builders, but opaque to consumers, especially first-time buyers of a new home. How level is ‘level enough’, for the oven in Table 2.1? Must they live with its scratched glass door? Where there are published national standards relevant to a particular aspect of construction, these will be relevant.24 Most Australian states (and New Zealand) capture key ideas in published Guides to Standards and Tolerances: the Victorian Building Authority (VBA) describes its version as ‘a convenient reference to the minimum technical standards and quality of work’.25 For example, it provides that a crack in a concrete slab of less than 2 mm is generally not regarded as defective.26 The VBA Guide explicitly does not override other legal requirements, including the parties’ own contract.27 However, builders treat it as a primary reference point on what expectations from the buyer’s or client’s side are reasonable (therefore, actionable if not attained). In Edmonds v Select Coatings, an installer of a polished concrete floor overlay argued that his company ought not to have to rectify its work, basing his case almost entirely on the Guide’s provisions.28 The Tribunal noted that the Guide was not prescriptive.29 However, the owner brought no expert evidence about the floor’s quality and could not show that the contract contained an express or implied term requiring it ‘to be completely free of any imperfections or flawless’. Grainger M relied on the Guide in order to hold that the cracks in the concrete were too minor to be considered defects.30 The UK and Ireland so far have no published national equivalents of such authoritative guides, so where a court has to decide whether the workmanship is adequate may depend on expert evidence or a site visit. However, the technical standards developed by many third-party warranty providers (such as the National House-Building Council for Buildmark) could be directly relevant, justifying the insurer’s refusal of a claim under the warranty, as well as defining when the developer should respond directly to claims by the homeowner in the policy’s early years.31 The NHBC Standards 2021 does lay down precise tolerances for many aspects of construction: for Example 3 (Table 2.1), the oven housing should ‘be visually aligned (vertically, horizontally and in

24 For structural movement and cracking in Australia, see Case Study 2 at section [2.9]. 25 Victorian Building Authority, Guide to Standards and Tolerances 2015 (Melbourne, Victorian Building Authority, 2015) 9. 26 VBA Guide (n 25) [2.10]. See also the new ISO 6707-1:2020 Buildings and Civil Engineering Works – Vocabulary – Part 1: General Terms, replacing ISO 1803:1997 Building Construction – Tolerances – Expression of Dimensional Accuracy – Principles and Terminology. 27 VBA Guide (n 25) 10. 28 Edmonds v Select Coatings Pty Ltd [2016] VCAT 2065: see, eg, [172]. 29 Edmonds (n 28) [178]. 30 Edmonds (n 28) [181]. Not all such cases refer to the VBA Guide: see, eg, Stellar Constructions Pty Ltd v Ferguson [2013] VCAT 2159. 31 For those UK third-party warranty providers who impose their own technical requirements, see Table 7.1. Under Buildmark, the developer’s primary responsibility extends to the end of Year 3 in multi-unit developments: see section [11.7].

Perceptions of Dissatisfaction  39 plan)’, and the oven doors should not have ‘conspicuous abrasions or scratches … when viewed in daylight from a distance of 0.5 m’. Beyond such requirements, tolerances will be ‘those currently acceptable in the house-building industry’.32 Once again, industry norms rule, rather than consumer expectations! However, it seems possible that the New Homes Ombudsman reforms in the UK could include a semi-authoritative guide for new homeowners, differentiating between ‘snags’ and ‘defects’.33

2.3  Perceptions of Dissatisfaction 2.3.1  Diverse Expectations Many studies have tracked ‘customer satisfaction’ in relation to residential construction work, but very few go into detail on quality outcomes.34 Therefore, the consensus is elusive about what a ‘reasonable consumer’ might expect concerning specific, commonly encountered issues that produce significant angst, such as gaps in architraves – or perhaps a built-in oven which is not level (Table 2.1). What is clear is that people’s expectations of build quality vary enormously. At the ‘high expectations’ end of the spectrum was the homeowner in Lee v ­Creative Lifestyles Homes.35 She was willing to take her builder to VCAT over dozens of alleged non-structural defects, several of which cost less than A$10 to rectify; her builder described her as being ‘of a personality that if a single thing (however small) was not done as she wanted she would let me know immediately’.36 At the other end of the ­spectrum, some occupiers think that they are not entitled to complain even about matters directly threatening their health and safety. This was the impression conveyed to Grenfell Tower resident Roy Smith, who reported being told by the Tenant Management Organisation that he was a ‘nit-picker’ when he raised concerns about exposed gas pipes installed through a staircase.37 The potential for consumer dissatisfaction is exacerbated by the disparity of ­understanding between them and industry insiders about what level of quality is attainable (or reasonable for the price paid). This is one aspect of information ­asymmetry, introduced in section [1.5] and recurring in later chapters of this book.38 James Sommerville and Julie McCosh characterise one of its effects in the UK new home market as encouraging buyers to adopt ‘cognitive dissonance’: buyers believe that they are in charge of setting the requirements for their new house or flat, which is usually far

32 www.nhbc.co.uk. 33 See section [9.8]. 34 See, eg, James Sommerville and Julie McCosh, ‘Defects in New Homes: An Analysis of Data on 1,696 New UK Houses’ (2006) 24 Structural Survey 6, 7. 35 Lee v Creative Lifestyles Homes Pty Ltd [2015] VCAT 511. 36 Lee (n 35) [8]. 37 Grenfell Tower Inquiry, Witness Statement of Roy Smith (2018) 7. For policies and rules that aim to give residents a greater say in the management of social housing, see Ministry of Housing, Communities and Local Government, The Charter for Social Housing Residents: Social Housing White Paper (2020). 38 See, eg, sections [6.6.1] and [7.2.2].

40  Residential Construction: Defects in Context from the truth.39 They may be able to customise – to an extent – a new home bought off-plan, as first buyer B1 did in Table 2.1; but they cannot meaningfully affect the terms on which they commit to buying, nor assess the likely quality outcome. Worse (though probably unaware of this on committing to buy): they will have a limited ability to force the developer to rectify everything they think of as defects. In the end they may have to rely on the developer’s goodwill, rather than readily enforceable legal rights or other formal procedures.40

2.3.2  Insights from Social Media and Surveys Credible evidence supports the pervasive view that residential building work is prone to high levels of defects. Social media posts, though only a curated version of reality, at least provide insights into widely held beliefs. The Victorian Building Action Group asserts on its Facebook page that ‘we are faced with a consumer disaster on a massive scale, one never before imagined and far worse than any natural disaster in our history, man-made and repeated every year.’41 This may sound exaggerated; but in 2020, the former Premier of Victoria, Ted Baillieu, saltily characterised the endemic level of residential defects in his state as a ‘ticking time bomb of crap’.42 In relation to new housing in England, the All Party Parliamentary Group for Excellence in the Built Environment reported in 2016 on the quality and workmanship of new homes for sale: ‘around 15,500 buyers each year … are not getting what they were led to believe they were getting, which clearly demonstrates there is room for improvement in the country’s housebuilding system’.43 More detailed findings come from the annual National New Home Customer Satisfaction Survey, which reports on new UK homes with Buildmark warranties.44 The 2019–20 survey had responses from 47,470 homeowners (62 per cent of those approached); figures in brackets are from the 2018–19 survey:45 • 10 (8) per cent reported being fairly or very dissatisfied with the quality of their home overall. 39 Sommerville and McCosh (n 34) 8–9. 40 On ‘defects’ and ‘snags’, see section [2.2.1]. If a home buyer can with confidence point to a breach of contract or other kinds of externally imposed legal requirements, then to threaten or actually start legal proceedings can be a real and effective remedy, if the potential benefits outweigh the risks. But where the amount of damages likely to be awarded would not be worth a fight – the developer is certain to know from experience when this is so – a home buyer may be helped in the UK by a Consumer Code: see section [6.5]. On informal methods of getting defects rectified, see also section [9.2]. 41 Victorian Building Action Group Inc, ‘The Building Industry Fails to Deliver Buildings that Meet Minimum Building, Safety Standards’: www.vbag.org.au. 42 Alex White and Matt Johnston, ‘Home Wreckers’ Sunday Herald Sun (27 January 2020) 1, 4. 43 All Party Parliamentary Group (APPG) for Excellence in the Built Environment, More Homes, Fewer Complaints (2016) 21: www.cic.org.uk. 44 The survey is administered jointly by the NHBC and the Home Builders Federation (the trade association for volume house builders); on the NHBC, see section [7.2]. 45 Lichfields and Home Builders Federation, The Economic Footprint of House Building in England and Wales (2018) 2–4: Lichfields.UK; Home Builders Federation and National House-Building Council, National New Home Customer Satisfaction Survey (2018–2019 and 2019–2020): www.hbf.co.uk. This level of apparent dissatisfaction within construction is by no means limited to the residential sector. Surveys of client satisfaction

Perceptions of Dissatisfaction  41 • 94 (97) per cent said they had notified problems to their developer since moving in. • 30 (31) per cent said that there were more problems (defined as including ‘snags’) with the home than they had expected; 26 (26) per cent said there were fewer problems. • 23 (25) per cent reported more than 16 problems. This annual survey was joined in 2016 by the New Homes Review; its respondents have bought new homes in the last two years with third-party warranties from two NHBC competitors, Premier Guarantee and LABC Warranty. It has a much smaller sample than NHBC surveys but asserts normal confidence levels of statistical robustness. Its 2019 survey confirms that large numbers of new home buyers experience defects (89 per cent), only 60 per cent saying that the property was in the condition they expected when they moved in and only 55 per cent happy with the post-sales service from the developer.46 In Australia, the Victorian Building Commission (the VBA’s predecessor) conducted several building consumer surveys. The 2008 survey found that 91 per cent of respondents reported high satisfaction with build quality.47 By contrast, the Australian government’s 2016 Consumer Survey, based on 5,408 responses, reported a high level of dissatisfaction. It found that 17 per cent of Australian consumers had reported a problem in relation to the building, renovation, repair or maintenance of their home.48 The authors extrapolated from this that the average direct cost of such issues to each member of the Australian adult population was A$61.43, or more than A$1bn in total.49 A 2006 Victorian government study, based on a consumer survey, found home ­renovations and maintenance to be the category of goods and services with the highest incidence of ‘detriment costs’ to consumers, totalling A$706.4m (22.4 per cent of all categories’ costs).50 In New Zealand, the Building Research Association NZ (BRANZ) conducts an annual New House Owners’ Satisfaction Survey.51 Reflecting a much smaller and more individualised market for new homes in New Zealand than in the UK, the 2018 survey excluded new homes built by a developer without a specific committed buyer; it also included ‘owner-builders’ (engaging a builder to build a house on land already owned), who seem hardly to figure in the UK. The survey achieved a low (16 per cent) response rate from a total sample of 4,563 new homeowners across 25 territorial authority areas.

in the industry generally were summarised as regarding ‘construction as a business that is unpredictable, competitive only on price not quality, with too few barriers to entry for poor performers’: John Egan, Rethinking Construction: The Report of the Construction Taskforce (London, HMSO, 1998) 8. 46 www.newhomesreview.com. 47 Victorian Building Commission, Pulse Building Intelligence 2008 (Melbourne, 2009) 15. 48 Australian Treasury, Australian Consumer Survey 2016 (Canberra, 2016) 39, 101. 49 Australian Consumer Survey 2016 (n 48) 64. 50 Consumer Affairs Victoria, Consumer Detriment in Victoria: A Survey of its Nature, Costs and Implications (Melbourne, 2006) 3. 51 The Building Research Levy funds the survey: under the Building Research Levy Act 1969 (NZ), 0.1% of the contract value (above NZ$20,000) of every construction project put forward for building consent is payable by the builder to BRANZ. In practice, the levy is charged and collected by building consent authorities, then paid to BRANZ.

42  Residential Construction: Defects in Context In line with the UK figures, over 80 per cent of respondents had to call their builder back after the job was complete, 41 per cent of respondents reporting more defects than expected and similarly low numbers expressing satisfaction with the post-completion service. Despite that, more than 80 per cent of owners said they were very or fairly satisfied with the overall quality of their home.52 There appear to be no comparable consumer surveys in Ireland about the home buying process, but the research summarised above indicates that consumer dissatisfaction with the outcomes of residential construction and the process of buying and occupying a new home is at significant levels in all our other subject jurisdictions. It would be surprising if Ireland does not conform to this broad picture.

2.4  Defects: Incidence As three researchers noted in 2006: ‘reliable evidence of the scale and extent of non-compliance with Building Regulations in the UK is not recorded in any publicly available source’.53 This remains true for all our subject jurisdictions: none has a single reliable database, and some studies fail to differentiate between defects arising from the work of construction and inadequate maintenance.54 Sommerville and McCosh analysed inspection reports for 1,696 new UK homes, revealing 100,195 ‘snags’.55 Despite data limitations, they found with a reasonable level of confidence that 17 per cent (228) of properties generated 41 per cent of the total number of problems (with more than 100 problems in each of these properties).56 At a micro level, Bousmaha Baiche, Nicholas Walliman and Raymond Ogden analysed the outcomes of 11 speculative housing projects in Oxfordshire and Gloucestershire, including surveys of homeowners (just under half of whom reported no fault of any kind in their house) and interviews with building inspectors (BCBs).57 Their primary finding was that there did not seem to be a widespread and purposeful flouting of building regulations, but they identified a substantial number of shortcomings compromising the building’s performance.58 Many of these were in areas covered up, with ventilation gaps in cavity walls filled with carelessly dropped debris and discontinuous damp-proof courses. Two Australian studies provide detailed insights into the extent and impacts of residential defects. In 2009, an analysis was published of the dataset collected between 1982 and 1997 (with runoff cover to 1999) by the Victorian Housing Guarantee Fund (HGF),

52 Brunsdon and Lockyer (n 5). 53 Bousmaha Baiche, Nicholas Walliman and Raymond Ogden, ‘Compliance with Building Regulations in England and Wales’ (2006) 24 Structural Survey 279, 281. 54 See, eg, Georgiou’s criticism (n 11 at 372) of the methodology used in Benedict D Ilozor, Michael I Okoroh and Charles Egbu, ‘Understanding Residential House Defects in Australia from the State of Victoria’ (2004) 39 Building and Environment 327. 55 Sommerville and McCosh (n 34) 11. 56 Sommerville and McCosh (n 34) 12. 57 Baiche, Walliman and Ogden (n 53) 288, 291. 58 Baiche, Walliman and Ogden (n 53) 295.

Avoiding Defective Residential Construction Work: The Challenges  43 the one-time statutory residential defects insurer.59 In 2019, Nicole Johnston and Sacha Reid published their findings from analysing building audit reports across NSW, Queensland and Victoria, supplemented by stakeholder interviews.60 The HGF dataset covered 800,000 properties, of which around 110,000 (about 14 per cent) made claims to the Fund for defective work.61 Johnston and Reid’s study was based on projects where defects were already identified in audit reports, so does not provide data about incidence among all projects. But it found an average of 14.4 defects in each of those reports across its three studied states.62 The most frequently occurring defects in the HGF dataset were water ingress and ­footings;63 Johnston and Reid, in the wake of the Lacrosse and Grenfell fires, identified building fabric and cladding (40.2 per cent), fire protection (13.3 per cent), and waterproofing (11.46 per cent).64 The 14 per cent claims rate from the HGF study is much higher than that reported by the Victorian Essential Services Commission for the Victorian domestic building insurance scheme from 2002 to 2016. This suggested that barely one per cent of residential projects result in claims (8,219 claims from 739,135 project certificates issued).65

2.5  Avoiding Defective Residential Construction Work: The Challenges 2.5.1  ‘Performance Requirements’ for Residential Buildings Buildings – including residential buildings – appear to be the epitome of solidity, as the common phrase ‘safe as houses’ suggests: ‘many people have the impression that, were it not for property developers, buildings left without attention would stay standing for ever’.66 In fact, even the simplest dwelling relies on the proper functioning, and ­interaction, of a complex series of systems. Thus, the twentieth-century architect

59 Anthony Mills, Peter ED Love and Peter Williams, ‘Defect Costs in Residential Construction’ (2009) 135 Journal of Construction Engineering and Management 12. 60 Johnston and Reid (n 8). 61 Mills, Love and Williams (n 59) 13: the researchers had sufficient meaningful information within the documentation to analyse 10,548 claims. 62 Johnston and Reid (n 8) 21. 63 Mills, Love and Williams (n 59) 14–15. This was based on interviews with HGF staff; due to coding disparities, it was not possible to draw firm conclusions about the incidence of various specific types of water and footings-related defects. 64 Johnston and Reid (n 8) 21: these figures were across the three states in the survey. The study went on to provide significant detail in relation to the subcategories of defects within systems (cladding, waterproofing, electrical etc). 65 Essential Services Commission, Performance of Victoria’s Domestic Building Insurance Scheme 2015–16 (Melbourne, 2017) 25. For Victoria’s DBI scheme, see sections [7.5.2]ff. 66 Carillion Services, Defects in Buildings: Symptoms, Investigation, Diagnosis and Cure, 2nd edn (TSO, 2001) 3. For ‘safe as houses’ see, eg, Sustainable Homes, Safe as Houses: Sustainability of the Social Housing Sector (Kingston-upon-Thames, 2017).

44  Residential Construction: Defects in Context (known as) Le Corbusier aptly described a modern house as a ‘machine for living in’.67 More recently, the holistic approach to understanding buildings as intertwined systems likens them to organisms, their problems labelled ‘pathology’.68 The essential function that any completed construction needs to fulfil is to resist the multiple forces of the natural world on the materials deployed within it. In order to keep its occupants safe and provide them with a habitable living environment, the building must resist those forces – not just when construction is completed, but throughout its life cycle. This longer term goal is particularly problematic: ‘we cannot have certain knowledge of, nor can we exercise complete control over, the progress of deterioration’; also: ‘nature wins because she has all the time in the universe; we do not’.69 For example, the ‘leaky building’ phenomenon, affecting tens of thousands of homes in New Zealand in the 1990s, largely involved rainwater ingress, leading to fungal decay and structural weakness where monolithic cladding slabs were placed, without adequate drainage, on untreated pine frames.70 In recent years, there has been significant concern that water damage to buildings is causing widespread health problems in Australia too: studies show that the most common defects in apartment buildings are water leaks.71 Modern approaches to protecting buildings and keeping their occupiers safe from the elements may, in fact, reduce desirable habitability outcomes. Traditional open fires, though thermally inefficient, have beneficial qualities, including drawing expiated air out of rooms and drying out moisture in wall cavities. By contrast, better sealing and insulation of rooms with central heating encourages ‘the accumulation of condensate in concealed voids within the building envelope’, potentially leading to corrosion and health problems for occupants’.72 Lack of natural ventilation also became an acute concern during the Covid-19 pandemic, after it was realised that airborne particles readily spread the virus.73 67 Charles-Edouard Jeanneret (‘Le Corbusier’), Toward an Architecture (Vers un Architecture) 2007 edn (Getty Research Institute, 1924) 151, 160, 299. 68 See, eg, David S Watt, Building Pathology, 2nd edn (Oxford, Blackwell Publishing, 2007) 9. 69 Samuel Y Harris, Building Pathology: Deterioration, Diagnostics, and Intervention (USA, John Wiley & Sons Inc, 2001) 4, 13. 70 Don Hunn, Ian Bond and David Kernohan, Report of the Overview Group on the Weathertightness of Buildings to the Building Industry Authority (Wellington, Building Industry Authority, 2002) 13. On the ‘leaky building’ syndrome see, especially, section [5.13.2]. 71 A survey responded to by 1,011 owners of apartments in NSW indicated that of the top four reported categories of defects, three related to water (internal water leaks, reported by 42% of respondents; water penetration from outside: 30%; and guttering faults: 25%): Hazel Easthope, Bill Randolph and Sarah Judd, Governing the Compact City (Sydney, City Futures Research Centre, 2012) 66. Similarly, the number of ­mould-related claims in VCAT has risen markedly in recent years: Cameron L Jones, ‘Mould in Building Disputes’ (2018) Building Dispute Practitioners Society News 4, 6. 72 Robert William Houghton-Evans, Well Built? A Forensic Approach to the Prevention, Diagnosis and Cure of Building Defects (London, RIBA Enterprises, 2005) 60. Department for Communities and Local Government, 50 Years of the English Housing Survey (2017) (at 18–19) notes that, in 1967, 76% of English homes used solid fuel for heating, but by the 2010s less than 1% relied on solid fuel as their main fuel source; conversely, the number of homes with insulation went from ‘virtually zero’ in 1961 to – in 2015 – 85% of homes having some double glazing and 98% either loft insulation or no loft. 73 See, eg, Geoff Hanmer and Bruce Milthorpe, ‘Many of our Buildings are Poorly Ventilated, and that Adds to COVID Risks’ The Conversation (18 November 2020); Thomas R Frieden and Christopher T Lee, ‘Identifying and Interrupting Superspreading Events – Implications for Control of Severe Acute Respiratory Syndrome Coronavirus 2’ (2020) 26(6) Emerging Infectious Diseases 1059.

Avoiding Defective Residential Construction Work: The Challenges   45

2.5.2  ‘Real World’ Challenges in Delivering Quality Dwellings Conceptually, it seems simple to avoid defects in residential construction, but each step opens up multiple possibilities of error (hence the chance of defects). Table 2.3  Defect-Free Construction STEP

SCOPE FOR ERROR

EXAMPLE

1 Define the desired construction outcome.

Failure to understand or reflect external mandatory requirements or contractually agreed goals which go to safety, habitability or other aspects of the building’s performance.

Lacrosse, and Grenfell Tower.

2 Design the relevant process so that it will achieve this outcome.

Under-design: building cannot deliver the performance required.

Case Study 2 at section [2.9].

3 Execute the process as designed.

Allow materials to degrade.

Below.

Inadequate skill to achieve the required quality.

Example 3 (Table 2.1).

Last-minute redesign to save cost or to meet other objectives.

Grenfell Tower.

A recurring theme in our field is that, if construction could (only) have the same quality aspirations and processes as mass production manufacturing, the incidence of defects could be markedly reduced. The 1998 Egan Review noted that ‘quality means not only zero defects but right first time, delivery on time and to budget, innovating for the benefit of the client and stripping out waste, whether it be in design, materials or construction on site’.74 Quality control perspectives from mass production processes offer valuable ideas in pursuit of defects-free construction, especially in relation to Modern Methods of Construction: materials produced off site under controlled conditions for inclusion in construction work (individual items like window assemblies, or complete pre-fabricated modular ‘pods’ – notably bathrooms).75 But installing these on site almost always takes place, like construction in general, in the open air, from the muddy and noisome depths of sewer pits to the windy heights of newly poured slabs hundreds of metres above

74 Egan (n 45) 16. 75 See, eg, Mark Lawson, Ray Ogden and Chris Goodier, Design in Modular Construction (Abingdon, Taylor & Francis, 2014), especially the discussion in ch 6 on how such buildings satisfy the Building Regulations (E&W). See also The NHBC Foundation, Modern Methods of Construction: Who’s Doing What? (NHBC, 2018); RICS, Modern Methods of Construction: A Forward-thinking Solution to the Housing Crisis? (2018); and Housing, Communities and Local Government Committee, Modern Methods of Construction (HC 2017–19, 1831).

46  Residential Construction: Defects in Context the ground.76 Not only are the elements hostile to the building’s erection; neighbours are inevitably affected, and their opposition may disrupt or even stop the project.77 Even when construction-related activities, like design, are undertaken off site, their ability to perfectly reflect the relevant technical performance requirements is often compromised by commercial or other concerns. Construction has, therefore, been described as ‘a system that requires building from less than complete drawings, working in less-than-ideal conditions, with labourers of uncertain skills’.78 Studies of construction failures tend to categorise their causes as breakdowns of processes for design, materials selection (and defects within those materials) or the techniques deployed for installing those materials on site. At their heart, all come down to decisions people make, or fail to make.79 The complex web of behaviours and practices that fall under the umbrella of ‘competence’ provides a particular challenge. Builders and others contributing to the construction or renovation of a dwelling (which may include their owners or o ­ ccupiers) need to be adequately skilled and resourced. The physical forces and challenges that construction professionals need to anticipate emphasises the broad range of skills and resources they need to deploy to not inadvertently execute defective work (or come under pressure to ‘cut corners’). These include an understanding of materials’ behaviour (and how they act in concert with each other);80 and an ability to deploy ­flexible approaches to achieving the required outcome where the expected technique is not practical. Two VCAT cases illustrate how both skill and common sense are required: • In a new home project in Brighton (the Melbourne suburb once again), the builder left timber sash windows, delivered by the manufacturers unpainted and unprimed, exposed to the elements on site for several months. When the windows rotted after installation, the builder tried to blame the manufacturers. In Kounelis v Ross Horton Homes, Walker SM found that it was the failure to prime and paint the windows promptly, which caused them to fail, awarding the owner an amount including the cost of rectification.81

76 A sense of the challenges involved may be gained from Mohammed N Alshebani and Gayan Wedawatta, ‘Making the Construction Industry Resilient to Extreme Weather: Lessons from Construction in Hot Weather Conditions’ (2014) 18 Procedia Economics and Finance 635, 636–38. 77 In Janney v Steller Works Pty Ltd [2017] VSC 363, (2017) 53 VR 677, Riordan J issued an injunction, in effect requiring the builder to dismantle and replace its tower crane, on the basis that the crane jib was committing a trespass by ‘weathervaning’ across the airspace of the plaintiff homeowners’ property. See Philip Britton, ‘Construction and “Neighbour Risk” – Common Law Variants’ (Society of Construction Law (UK) Paper D214, 2018). 78 Gregory P Luth, ‘Chronology and Context of the Hyatt Regency Collapse’ (2000) 14 Journal of ­Performance of Constructed Facilities 51, 61. See, similarly, Norbert J Delatte, Beyond Failure – Forensic Case Studies for Civil Engineers (American Society of Civil Engineers (ASCE), 2009) 2. 79 Karel Terwel estimates that human actions cause 90% of such failures: ‘Should We Focus on Human or Organizational Factors?’ (IABSE Workshop: Ignorance, Uncertainty and Human Errors in Structural ­Engineering, Helsinki, February 2017) 7. 80 Ken Ward-Harvey, Fundamental Building Materials, 4th edn (Boca Raton, Florida, Universal Publishers, 2009) 1. 81 Kounelis v Ross Horton Homes Pty Ltd [2014] VCAT 319 [70], [96], [140]: the owner was also awarded A$2,000 for loss of amenity during the rectification.

Avoiding Defective Residential Construction Work: The Challenges   47 • In Hurdle v Commerford, the homeowners accepted a quote of A$9,800 to lay concrete at the rear of their house. The concreting was poor: it was not level, was not sealed, and lacked drainage and saw cuts (necessary to accommodate expansion after curing).82 During the site view for the hearing, the concreter made implausible explanations for his work, including that rainwater could drain along the saw cuts when he eventually put them in.83 Walker SM agreed with the owners that the work was ‘quite unsatisfactory and will need to be replaced.’84 He noted that the owners had obtained quotes to pull up and re-lay the concrete ranging from A$7,040 to A$9,790, ‘but the extent of work included in these quotations is unclear’.85 He ordered the concreter to repay the owners the A$6,600 they paid: ‘the work and materials he has supplied are worthless’.86 Kounelis and Hurdle might be seen as work done incompetently because the builder did not know the appropriate techniques (or, in the case of the windows left unprotected, made a poor risk assessment); but a practitioner’s experience can wholly or partially contribute to errors. Construction professionals’ knowledge may be imagined as an iceberg: explicit knowledge above the surface is dwarfed by conscious and unconscious tacit knowledge lying beneath.87 As Samuel Y Harris observed: ‘when we cannot rely, hence act upon, certain and/or complete information, we tend to substitute forms of knowledge called experience or wisdom’; however, ‘repeated experience may simply be the repetition of the same fundamental mistake, not experience’.88 Where, as in all our subject jurisdictions, the mandatory standards in ‘the building code’ are substantial performance- (or outcomes-) based, the resulting flexibility requires high levels of expertise.89 Building practitioners therefore need higher qualifications: they no longer just follow instructions but ‘need to understand both what is required and why it is required in order to develop or approve appropriate alternative solutions’.90 This same heightened competence is needed by those who inspect the project for its compliance with ‘the building code’.91 As Peter Shergold and Bronwyn Weir noted in their 2018 Building Confidence report for the Australian Building Ministers

82 Hurdle v Commerford [2014] VCAT 282 [9]–[12]; see, eg, British Cement Association, Concrete Practice, 3rd edn (British Cement Association, 2002) 36. 83 Hurdle (n 82) [18]. 84 Hurdle (n 82) [21]. 85 Hurdle (n 82) [22]. 86 Hurdle (n 82) [23]. 87 David Bartholomew, Building on Knowledge: Developing Expertise, Creativity and Intellectual Capital in the Construction Professions (Oxford, Wiley-Blackwell, 2008) 22–23. 88 Harris (n 69) 13. 89 On ‘the building code’ and standards, see section [3.3]ff. See also Graham Spinardi, ‘Performance-based Design, Expertise Asymmetry, and Professionalism: Fire Safety Regulation in the Neoliberal Era’ (2019) 13 Regulation and Governance 520; Ray Loveridge, ‘Building Regulation: From Prescription to Performance’ in Rick Best and Gerard De Valence (eds), Design and Construction: Building in Value (Oxford, Butterworth Heinemann 2002) 136; Graham Spinardi, ‘Beyond the Stable Door: Hackitt and the Future of Fire Safety Regulation in the UK’ (2019) 109 Fire Safety Journal 1, 5. 90 Loveridge (n 89) 131–32. 91 Loveridge (n 89) 145.

48  Residential Construction: Defects in Context Forum, misunderstanding or ignoring the raft of requirements involved in aspects of the Australian National Construction Code probably contributed to the widespread ­installation of non-compliant façade cladding across Australia.92 Dame Judith Hackitt made the same point as the first key issue explaining what she labelled ‘system failure’: Ignorance – regulations and guidance are not always read by those who need to, and when they do the guidance is misunderstood and misinterpreted.93

2.6  Project Parties’ Conflicting Aims and Objectives Even the most straightforward and conventional residential construction project – for example, to create one or more complete new homes, including by conversion – may involve multiple parties. In more complex projects, the cast of players can easily run into the hundreds. Across our subject jurisdictions, there are around a million construction firms, most of which are active in the residential sector; most are sole practitioners or small businesses.94 The range of skills and specialisations makes the supply side not only fragmented, displaying divergent interests; it also means that much of the industry is made up of businesses highly susceptible to financial distress if a project fails.95 In the proceedings arising from the Lacrosse fire, there were (in addition to the 211  owner parties), five principal respondents to the action: the builder, the building surveyor, his firm, the architects and the fire engineer.96 Similarly, the list of ‘core participants’ 92 Peter Shergold and Bronwyn Weir, Building Confidence: Improving the Effectiveness of Compliance and Enforcement Systems for the Building and Construction Industry Across Australia (Building Ministers’ Forum, Canberra, 2018) 18. As Spinardi notes (n 89 at 531), a pervasive ‘expertise deficit’ amongst local authorities in relation to the sophisticated knowledge needed to assess performance-based solutions has led to a call in Scotland for a ‘central review hub’. 93 MHCLG, Building a Safer Future – Independent Review of Building Regulations and Fire Safety: Interim Report (Cm 9551, 2017) (Hackitt Interim Report) 5. 94 In the third quarter of 2018, there were 325,736 private contractors’ firms on the Department for Business, Innovation and Skills Builders’ Address File in Great Britain. Of these, 38,888 (11.9%) were sole practitioners, 138,069 (42.4%) had one employee and only 1,843 (0.6%) had 60 employees or more: extrapolated from Office for National Statistics, Construction Statistics Annual Tables (Newport, 2019): Table 3.1a. On 30 June 2019, there were 394,575 construction-related businesses registered in Australia, comprising 16.6% of all registered businesses and the highest count of any industry category: Australian Bureau of Statistics, 8165.0 – Counts of Australian Businesses, Including Entries and Exits, June 2015 to June 2019 (Canberra, 2020). More granular statistics are kept at state and territory level; in Victoria, eg, of the 23,890 individuals registered as building practitioners as of 30 June 2019, 15,791 were registered as ‘domestic’ (ie residential) builders and 5,583 as commercial builders (practitioners may be registered in more than one category): Victorian Building Authority, Annual Report 2018–19 (Melbourne, 2019) 28. In New Zealand, there were 65,320 enterprises in the construction industry in February 2019, employing 177,000 people; of those, 21,650 enterprises and 30,300 employees were in the residential construction sub-group: ‘Construction Industry at the Top of the Ladder for Business Counts Growth’ (25 October 2019): www.stats.govt.nz. In Ireland, there were 57,626 enterprises in the construction industry in 2018, of which only 21 (less than 0.01%) were not small to medium enterprises (those with fewer than 250 employees); they employed 144,521 people: Central Statistics Office (An Phríomh-Oifig Staidrimh), Structural Business Statistics (24 September 2020 release) Table 3. 95 See, eg, Senate Economics References Committee, ‘I Just Want to be Paid’: Insolvency in the Australian Construction Industry (Canberra, 2015) 12; Egan (n 45) 8, and the discussion in section [2.6.3]. 96 Owners Corporation No 1 of PS613436T v LU Simon Builders Pty Ltd [2019] VCAT 286 [5]. The superintendent under the building contract settled its liability and withdrew from the proceedings before the hearing: [6].

Project Parties’ Conflicting Aims and Objectives  49 in the Grenfell Tower Inquiry includes nearly 600 individuals (primarily occupants and their relatives) and some 30 organisations connected with the refurbishment, ranging from the Royal Borough of Kensington and Chelsea and its Tenant Management Organisation through to the architects, main contractors, subcontractors, consultants and suppliers of materials (notably in the façade cladding and insulation systems).97 The pressures placed on contractors, suppliers and others throughout the contracting chain are crucial pieces of the ‘jigsaw puzzle’, possibly explaining why defects in residential construction seem inevitable, rather than extraordinary. Anticipating those pressures via effective combinations of regulatory modes (whether through contract, legislation, behavioural norms which harness contractors’ professionalism and concern for reputation, or otherwise) is key to solving that puzzle.98 But what are the aims, motivating forces and ideals of the key parties to a residential construction project, and how do they conflict with each other? Figure 2.1  Quality as the Interaction of Conflicting Interests

The VCAT decision was appealed to the Victorian Court of Appeal; on 26 March 2021, that Court handed down its judgment, dismissing all but one of the 11 grounds of appeal raised by the builder, building surveyor, architects and fire engineer, thereby leaving intact the builder’s primary liability to the owners but reopening the liability apportionment as between the other parties (see section [2.6.4] on that aspect and, generally on the case, sections [2.6] and [2.8.1]): Tanah Merah (n 20). 97 Listing available via www.grenfelltowerinquiry.org.uk. 98 How contract delivery models may be tailored to achieve best-for-project outcomes in construction is the subject of a vast literature; a sense may be gained from, eg, David Mosey, Early Contractor Involvement

50  Residential Construction: Defects in Context

2.6.1 Developers Large-scale builders or developers base their business models on economies of scale, mass-producing a limited range of housing types based on their assessment of what will sell.99 Notable examples include Metricon Homes in Australia, which nationally had the highest number of building starts – 4,473 – in the 2018–19 financial year; in the UK in an ordinary year, Barratt, Persimmon and Taylor Wimpey combined would build about 30,000 houses.100 The thousands of individual practitioners within those companies, whether large or small, themselves harbour a range of experience and expertise, from the unskilled labourer on their first day on site to craftsmen who have been ‘on the tools’ for decades. A developer needs ‘to gain pre-sales and pre-commitments from potential buyers before banks will lend them the finance to build’;101 this drives would-be homeowners to enter into thousands of off-plan contracts each year in most of our subject jurisdictions.102 As Figure 1.1 in chapter 1 illustrates, the intending buyer B1 typically has a contractual relationship only with the developer X and a lender L; even those directly involved in making the project a reality may have a contractual link to only one other party. Such a transaction naturally exposes all parties to significant risks if the dwelling as delivered does not meet one or more of their expectations. In Birch v Robek, for example, a 24-year-old flight attendant signed a contract and paid the deposit for an apartment to be constructed in a new block in Hampton (another Melbourne bayside suburb).103 The marketing brochure she received and the contracts she signed (after checking the plans with a magnifying glass) included plans indicating that the internal area of the apartment would be 40.5 m2, with a total area of 48.5 m2.104 With the apartment close to completion, the bank from which the buyer was seeking finance assessed the living space as 32 m2, below its threshold for the funding she needed.105 Seeing the finished property, she described it as smaller than hotels she stayed in for her job, and ‘unliveable’.106 In the Victorian County Court, Kennedy J in Building Procurement (Oxford, Wiley Blackwell, 2009). Three recent texts – David Mosey, Collaborative Construction Procurement and Improved Value (Oxford, Wiley Blackwell, 2019), Charles O’Neil, Global Construction Success (Oxford, Wiley Blackwell, 2019) and Arent van Wassenaer, A Practical Guide to Successful Construction Projects (Abingdon, Taylor & Francis, 2017) – together canvass more than 50 project case studies, their success (or otherwise) to a significant degree linked to the extent to which key personnel are motivated to foster a collaborative problem-solving culture. Indeed, van Wassenaer (at 313) regards ‘building a highly motivated team’ as a key component of his ‘10 Commandments’ for project success. 99 Housing Industry Association, HIA Reveals Australia’s Top Homebuilders for 2019 (2019). Though customers of 49 UK home builders were surveyed for the 2018–19 National New Home Customer Satisfaction Survey (n 45), more than 40% of the responses were in respect of these three. 100 In New Zealand in 2016–17, builders working as franchisees of GJ Garner Homes built the highest number of new homes (1,462), more than twice its nearest rival: Anne Gibson, ‘Revealed: NZ’s Busiest House Builders’ New Zealand Herald (29 August 2017). The BRANZ 2018 survey (n 5) confirms this picture: builders operating as franchisees built more than half the houses surveyed. 101 Rodger Hills, Rebuilding Confidence: An Action Plan for Building Regulatory Reform (Submission to the Building Ministers Forum by the Building Products Innovation Council) (Canberra, 2018) 19. 102 In Australia, off-plan sales offer the advantage that a buyer’s liability to stamp duty is generally calculated on the unimproved value of the land, rather than when the dwelling is complete. 103 Birch v Robek [2014] VCC 68. 104 Birch v Robek (n 103) [9], [14], [17], [19], [23]. 105 Birch v Robek (n 103) [29]–[30]. 106 Birch v Robek (n 103) [34].

Project Parties’ Conflicting Aims and Objectives  51 found the buyer ‘entitled to believe that she was receiving an area of 48.5 m2 of “airspace” excluding any wall space’.107 But for this misdescription, she ‘might never have entered this contract’.108 As a result, the developer’s ‘inability to deliver the subject matter of the contract was repudiatory’, justifying the buyer in rescinding the contract.109

2.6.2 Consumers Whether building a new home or just replacing a shower unit, consumers of residential construction work want irreconcilables: for it to be done as quickly and cheaply as possible, but at the highest possible quality. The purchase of a new home is a transaction which, as the Victorian Auditor-General observed, ‘is typically the single biggest investment an individual consumer will make in their lifetime’, so brings with it a very significant emotional investment.110 If consumers do not have realistic expectations, quality and cost (with time as the third element in a triangle) may come into conflict.111 Where a consumer has any choice on price, as in Scenario 6 (Table 1.2), where B2 puts the construction of a new house out to tender, then to choose the lowest quotation is, on the face of it, ‘consistent with accepting lowest quality’.112 So if an ‘owner-builder’ like B2 seeks to minimise the whole-life costs of operating and maintaining a new home, they would generally be well advised – if they had the choice – to spend more on design and materials during the build phase, rather than simply seeking ‘a fast-turnaround, low-build-cost or limitedlife building’.113 Instead, consumers tend to rely on unreliable mechanisms to assess the appropriate level of trade-off between cost and quality: • Competitive quotes (tenders) from builders: even if the described scope of work is consistent across the bids, it is difficult to compare ‘apples with apples’ as to quality outcomes.

107 Birch v Robek (n 103) [90]. 108 Birch v Robek (n 103) [92]. 109 Birch v Robek (n 103) [105]. Kennedy J’s conclusions on the contract action made it unnecessary to consider the buyer’s parallel claim under the Australian Consumer Law s 18, on which see section [6.3.2]. However, she was willing to find that its elements were satisfied here. In particular, the representation of 48.5 m2 of ‘internal area’ should be interpreted as it would be understood by ‘purchasers buying a one-bedroom “off the plan” apartment at the lower end of the property market’ (rather than by others who might have a different understanding of accepted industry practice) [120]; and a generic disclaimer on the brochure and in the contract was insufficient to avoid the tendency of the representation to lead such a person into error [124]. 110 Victorian Auditor-General, Victoria’s Consumer Protection Framework for Building Construction (Melbourne, 2015) ix; and Georgiou (n 11) 370. 111 See, eg, Donald Charrett, ‘Sydney Opera House – Quality, Quality, Quality!’ (2017) 12 Construction Law International 240 and, further, section [2.6.5]. See also Do Ba Khang and Yin Mon Myint, ‘Time, Cost and Quality Trade-Off in Project Management: A Case Study’ (1996) 17 International Journal of Project Management 249. 112 Houghton-Evans (n 72) xii. 113 Houghton-Evans (n 72) 48. Michael Bealing and Laëtitia Leroy de Morel, External Study Report ER49: The Economic Cost of Quality Defects (Porirua, BRANZ, 2020) record the NZ Green Building Council’s estimate that building a house that meets their six-star rating for sustainability costs (only) 1.5% more than a house that meets just the Building Code.

52  Residential Construction: Defects in Context • Viewing other work done by the developer or builder: a ‘show’ (or ‘display’) home may have been selected to show their work in its best light. • Simple ‘trust’ in the developer or builder: susceptible to misleading marketing. • ‘Word of mouth’ via friends, websites or social media: not necessarily reliable. The BRANZ 2018 research found all these methods in use in New Zealand: Choosing a builder based on their show home was the most common method, used by 39 per cent – up from 28 per cent in 2017. The second most popular method for our respondents was recommendations from friends or family, used by 29 per cent – a slight increase from 2017. Using multiple quotes and choosing the best one is down significantly compared to 2017, with only 15 per cent of respondents using this as a method for choosing a builder – down from 33 per cent in 2017.114

The Australian Competition and Consumer Commission (ACCC) has recognised the danger of online reviews from home buyers being manipulated. It pursued the Sydneybased Wisdom Properties over non-disparagement clauses, used since 2008 in Wisdom’s own standard form home building contracts: • Prohibiting public statements by customers without Wisdom’s prior written consent. • Allowing Wisdom to determine the wording and timing of any such approved publication. • Requiring the customer to indemnify Wisdom against any losses arising from publication, whether consented to or not.115 The undertakings Wisdom agreed to make in 2018 included not to enforce any nondisparagement clauses in existing agreements and not to include such clauses in its agreements for a period of three years.116 Relying on trust rather than knowledge, as consumers often have to do, makes the working relationship with ‘the builder’ vulnerable to misunderstandings and conflict. In extreme cases, this leads a despairing owner to cry (sometimes in court): ‘I. Am. Not. Having. That. Man. Back. In. My. House’.117 In the other direction, trust-related threats

114 Brunsdon and Lockyer (n 5) [3.2]. 115 Undertaking to the Australian Competition and Consumer Commission: Wisdom Properties Group Pty Ltd (2018). The undertaking was made under the Competition and Consumer Act 2010 (Cth) s 87B. For the unfair contract terms regime in Australia, see section [4.13.3] and, for ‘trusted trader’ schemes and their online posting of consumer reviews, see section [6.6]. 116 Wisdom Properties (n 115). Anecdotally, developers who agree to repair defects in new homes in the UK often require the homeowner to sign a non-disclosure agreement, so the fact of the problem and how well it was handled – which could include the developer generously going beyond its legal obligations – will never reach the public domain. 117 Quotation kindly supplied by a VCAT Senior Member. In Pickard Finlason Partnership Ltd v Lock [2014] EWHC 25 (TCC) [179], the owner wrote to the builder that ‘there is no chance in one million years that I will see you ever again after this behaviour!’ For another collaboration which broke down, leading to m ­ ultiple court appearances, see Case Study 6 at section [5.6]. On a homeowner’s refusal to allow ‘the builder’ to rectify, see section [4.12.2].

Project Parties’ Conflicting Aims and Objectives  53 by the consumer to the builder (eg, to not engage the builder for further work) tend not to work, mainly because few consumers can make such a threat credible.118

2.6.3 Contractors For their part, builders and other construction professionals see a residential project, like any other, as primarily a business transaction within a given regulatory framework. Calculating how to make that viable, leading to an acceptable profit margin, they know that to work faster or to apply unnecessarily high standards will probably result in increased cost. Conversely, applying lower standards ought to result in lower cost (in a lump sum contract, a higher profit margin).119 For a quoted company, profit directly affects its share price, attractiveness to investors and the ability to raise finance. Commercial tensions intrinsic to the contracting arrangement thus place quality outcomes under pressure during design and construction; afterwards, too, if the project’s owner (in our field, the home buyer) claims that defects require rectification.120 These pressures wax and wane with the sector’s cycles of supply and demand: When there is plenty of work available, builders have access to income that can enable them to remain solvent. In the case of some builders, the high demand leads them to ‘cut corners’ so that they can move onto the next job. When a slow down in the building industry occurs, builders surviving on cash flow are hit the hardest and history shows that significant numbers of builders become insolvent. On top of the insolvencies, the short-cuts taken during the good times are being identified as defects.121

This process – in particular, the tendency for contractors to ‘buy jobs’ by reducing the amount factored into a tendered price for risk contingency – has been extensively analysed.122 Where a contractor has underpriced the work and risk it is required to

118 In contrast, developers can more readily use commercial levers against contractors, primarily because they can hold out (or withdraw) the prospect of further work. 119 Profit margins vary and are tightly held commercial information. Among the limited insights which are available from published studies, a study of 80 construction firms in the UK during the 1980s found the average profit as a percentage of turnover was 3.23%: Akintola Akintoye and Martin Skitmore, ‘Profitability of UK Construction Contractors’ (1991) 9 Construction Management and Economics 311, 315; the study found, however, that profit margins were higher – perhaps 12–13% – in the speculative house building sector (319). A more recent analysis concluded that a ‘4% net profit margin for Australian construction companies is a favourable result’: Maria CA Balatbat, Cho-Yi Lin and David G Carmichael, ‘Comparative Performance of Publicly Listed Construction Companies: Australian Evidence’ (2010) 28 Construction Management and Economics 919, 927. 120 Johnston and Reid (n 8 at 48) noted, as ‘recurring observations’ from their interviews with Australian construction industry participants, incentives to maximise profit by sourcing cheaper building solutions and time pressures, resulting in ‘mismanaged construction processes … and inferior buildings’. 121 Daniel Smith, ‘Builder’s Warranty: First Resort or Last Resort or Does it Really Matter?’ (Institute of Actuaries of Australia XVth General Insurance Seminar, 16–19 October 2005) 7. Smith provides (at 8) data in relation to the Victorian Housing Guarantee Fund between 1984 and 1995 showing a strong correlation between the number of builders registered at a particular time and the number of defects claims against the Fund. He says that this ‘supports the theory that the quality of building reduces in times of high demand’. See, similarly, Houghton-Evans (n 72) xii and Department of Environment Land Water and Planning, Victorian Cladding Taskforce: Interim Report (Melbourne, 2017) 29. 122 See, eg, SERC, ‘I Just Want to be Paid’ (n 95) 20–21.

54  Residential Construction: Defects in Context take on under a lump sum contract, and additional exposure crystallises, it has two basic options (beyond simply absorbing the additional cost).123 It can either seek ways of claiming against the other party or reduce its own costs by, as Shergold and Weir diplomatically put it, ‘work[ing] to find efficiencies and cost savings in the development and the design and construction of the building’.124 Extensive evidence put to the Grenfell Tower Inquiry in its Phase 2 hearings (not yet the subject of formal findings) already suggests that dynamics of this type contributed to the use of highly combustible (but relatively cheap) cladding and insulation solutions on the refurbishment project of the Tower. These tendencies were considered by one of the expert witnesses, Paul Hyett, responding to the Inquiry’s Counsel, Richard Millett QC: Frantic cost-cutting exercises are common in the building industry, and that is not a good thing. In that process, many decisions that should be taken earlier are left until later, and a very convenient way of dealing with responsibility is effectively to package it and pass it elsewhere … The end result … is that people who have not had proper training to make decisions they are making, often against desperate constraints of time, and isolated from those that could advise, are making decisions about design and work, and we see it with faulty specification and faulty design drawings.125

2.6.4  Consultants and Other Parties Beyond and behind the direct parties to a significant residential construction project – developers, contractors and perhaps funders – stands an extensive cast of players, each with their own interests. Readers will eventually have the benefit of the Grenfell Tower Inquiry’s findings in relation to the respective roles and actions of such parties. Meanwhile, the Lacrosse case already provides an illustrative case study. There, the bulk of the liability arising from installation of the combustible ACM cladding rested with the building surveyor, architect and fire engineer (or, ultimately, their insurers). This result came primarily from each of these consultants being found in breach of ‘due skill and

123 The fragility of the commercial foundations on which construction businesses operate was emphasised in January 2018 when one of the UK’s largest firms, Carillion, entered liquidation: ‘one of the biggest commercial challenges the Cabinet Office has ever faced’: Public Administration and Constitutional Affairs Committee, After Carillion: Public Sector Outsourcing and Contracting (HC 2017–19, 748) 3. See also Bob Wylie, Bandit Capitalism: Carillion and the Corruption of the British State (Edinburgh, Birlinn General, 2020). In management-type contracts, where the contract price is an aspirational target, quality may be privileged over cost. Both cost and time will then be placed under massive pressure. An illustrative example is Russell v Stone (t/a PSP Consultants) [2019] EWHC 831 (TCC), where a professional couple seeking a ‘“wow” factor in each space’ for their new home in Highgate, north London, ended up with it being completed four years after the original completion date and for nearly £1m more than they thought they ought to pay for it. Jefford J dismissed their claims against their initial project managers for that overspend, essentially on the basis that there was no breach of duty in the way the project managers conducted the tender process and administered the contracts: [6], [37], [38]. 124 Shergold and Weir (n 92) 10. 125 Grenfell Tower Inquiry, Transcript of Proceedings (4 November 2020) 154–57.

Project Parties’ Conflicting Aims and Objectives  55 care’ obligations in the consultancy agreements they entered, as novated to the main building contractor.126 The scope of services under each of these agreements was framed in expansive terms: the building surveyor, for example, expressly accepted ‘all design risk and liability’ in all contract material prepared, in reviewing the design for building code compliance, in liaison with the Melbourne Metropolitan Fire Brigade; and a raft of other obligations, all of which were the subject of an indemnity to the main building contractor for a wide scope of liability arising out of its services.127 The total fee paid to the building surveyor under those contractual arrangements was A$80,152;128 ultimately, its share of liability – as found by VCAT – was around A$4m.129

2.6.5  Conflicting Interests and Rectification of Defects All the factors described above impact a developer or builder’s response to a claim by a homeowner that there is a defect, which should be rectified. Industry participants may be expected to deploy any available tactics to avoid such responsibility. One of Australia’s most experienced construction law jurists, McDougall J, observed in 2018 that his ‘years on this Court have demonstrated, as a truism beyond argument, the proposition that those in the building and construction industries routinely use litigation as a means of carrying on their commercial aims’.130 In extreme cases, they may cease business altogether, using insolvency to block consumers’ claims against them.131 The more usual approach, however, is to resist liability – or, at least, delay its ultimate crystallisation – by the (legitimate) tactic of putting the claimant to proof of every claim – requiring, for example, expert evidence of what may the same defect in every flat of a residential block. Given the industry’s tight profit margins, from the developer’s or contractor’s point of view, it is commercially imperative to avoid having to return to the site and do further work (if at their own expense). Hopkin’s review of the rectification cost of defects across studies in Australia and England found that the average cost to ‘the builder’ is in the range of 2.3–9.4 per cent of the contract price.132 Where the defect is so fundamental 126 PS613436T (n 96): especially [55]–[68] (building surveyor); [69]–[73] (architect); and [74]–[80] (fire engineer) Tanah Merah (n 20) [9]–[11]. 127 PS613436T (n 96) [59]–[60]. 128 PS613436T (n 96) [68]: this was exclusive of Australian Goods and Services Tax of 10%. The fire engineer (bearing 39% of the total liability) was entitled to a fee of A$33,500 plus GST [80]. By contrast, the amount paid to the architect was close to A$3m [73], around the same as its 25% share of the total liability. The Victorian Court of Appeal subsequently made slight adjustments to the respective proportionate liability of the fire engineer and building surveyor: see ch 9, n 96. 129 PS613436T (n 96) [7]. 130 Probuild Constructions (Aust) Pty Ltd v Shade Systems Ltd [2018] NSWSC 540 [22]. Examples illustrating his point are in the ‘slab heave’ cases in section [2.9]. 131 Chapter 5 of SERC, ‘I Just Want to be Paid’ (n 122), considered in detail the issue of ‘phoenixing’ of companies (essentially, their voluntary administration followed by a resurrection as a different company) in the Australian construction industry. The estimated cost of unlawful phoenixing runs to billions of dollars annually; the difficulty is determining whether the practice is, in fact, unlawful in the circumstances, the primary factor being whether the controllers of the company intend to avoid debts. 132 Tony Hopkin et al, ‘Key Stakeholders’ Perspectives Towards UK New-Build Housing Defects’ (2017) 35 International Journal of Building Pathology and Adaptation 110, 114.

56  Residential Construction: Defects in Context that all the work needs to be demolished and redone, the overall cost can often significantly exceed the entire contract price.133

2.7  Diversity Among Dwelling Occupiers The diversity amongst ‘owner’ entities was encapsulated by O’Regan J in the Supreme Court of New Zealand as including ‘vulnerable homeowners, sophisticated nonvulnerable homeowners, vulnerable commercial property owners, [and] sophisticated commercial property owners’.134 The pool of persons interacting with a dwelling extends beyond those with proprietary rights (freeholders, long leaseholders, even short-term tenants) to include non-owning occupiers, visitors and others: the widest possible spectrum of interests, abilities and experience in relation to risks of defects within the building needs to be anticipated. Insights into this diversity come from evidence presented to Phase 1 of the Grenfell Tower Inquiry: residents’ ability to protect themselves, understand and comply with official ‘stay put’ advice (or to ignore it – fortunately, in many cases) and physically to leave the building down the stairs was enormously varied.135 Such issues have particular relevance where a dwelling is part of a larger multi-unit development, managed or owned by a separate entity with some level of ongoing legal responsibility for residents’ and visitors’ safety and the integrity of the whole block.136

2.8  Project Phase I: Planning 2.8.1  Selecting Materials In its Final Report into non-conforming building products, the Australian Senate observed: [O]ften it is impossible for consumers and end users of building products to know whether a product is fit-for-purpose; trust is placed in those with the appropriate technical knowledge to ensure Australians are protected when they purchase or use building products, or that the appropriate product has been used in the place where they may work or live.137

The availability – with potentially catastrophic consequences – of ACM cladding within the Australian construction supply chain was a significant focus of this Senate inquiry: how could materials be used which pose a health and safety risk to occupants? Part of the same story is how deleterious materials may be specified at the design stage because those involved do not sufficiently understand their potential for harm. 133 See the examples cited in section [2.9.3]. 134 Carter Holt Harvey Ltd v Minister of Education [2016] NZSC 95, [2017] 1 NZLR 78 [53]. 135 Grenfell Tower Inquiry: www.grenfelltowerinquiry.org.uk. 136 For multi-unit developments, see ch 11. 137 Senate Economics References Committee, Non-Conforming Building Products: The Need for a Coherent and Robust Regulatory Regime (Parliament of Australia, Canberra, 2018) ix.

Project Phase I: Planning  57 The website of one ACM systems vendor argues that ‘making your building look attractive is very easy’: they are inexpensive, recyclable, can be cut to different sizes, moulded into different shapes and produced in different colours, and have good insulating properties.138 Many architecturally attractive recent buildings have ACM cladding. A prominent Australian example is Melbourne’s Royal Women’s Hospital: in 2010, it won the Public Buildings category of the Property Council Award for Excellence and Innovation, but it and eight other hospitals in Victoria had non-compliant ACM requiring rectification.139 The complex and fraught issues surrounding ‘who knew (or should have known) what, and when?’ in relation to dangerous building materials are being considered in detail by Phase 2 of the Grenfell Tower Inquiry. The Lacrosse decision in Melbourne already provides insights, at least in the Australian context. Woodward J tracked concerns about the combustibility of ACMs back to 1968, soon after they were first developed (as ‘Alucobond’) in Germany, noting that concerns increased as sales rose.140 Before the Lacrosse and Grenfell fires, not just lay people were unaware of the lethal potential of combustible ACM cladding. Stasi Galanos, the Lacrosse building surveyor (the private sector professional responsible for compliance with ‘the building code’), noted in his witness statement that it was ‘marketed as innovative, safe and cost-effective’; he claimed that in 2011 he had ‘no reason to think otherwise’.141 Woodward J accepted that, overall, there was then a ‘poor understanding among building professionals (at least in Australia) of the fire risks associated with [ACM panels]’.142 This was a key step towards finding that although the builder at Lacrosse was in breach of its statutory warranties by installing the cladding (these being absolute obligations, not requiring proof of fault), this did not amount to a failure to take reasonable care. Engaging the building surveyor, architect and fire engineer (as ‘highly skilled professionals’) was an ‘important aspect’ of the builder’s ‘acquittal of its obligation to exercise reasonable care’.143 But the judge did not accept that the consultants had exercised reasonable care at Lacrosse. Although building surveyor Galanos ‘probably held a genuine belief that [ACM panels] with a polyethylene core were BCA compliant’, Woodward J criticised his failures: not undertaking ‘a robust or critical analysis’ to base his belief in the

138 www.alcobond.com.ng. See also DELWP, Victorian Cladding Taskforce: Interim Report (n 121) 9. ­Similarly useful qualities were once ascribed to asbestos, described in 1920 as ‘one of nature’s marvels’ with ‘­multitudinous uses’: Leonard Summers, Asbestos and the Asbestos Industry, cited by Gideon Haigh, Asbestos House: The Secret History of James Hardie Industries (Melbourne, Scribe Publications, 2006) 7. See, generally, Trevor Rushton, Investigating Hazardous and Deleterious Building Materials (London, RICS Books, 2006) ch 1. 139 Department of Health and Human Services (Vic), Reviewing Health Services Buildings (2017). 140 PS613436T (n 96) [170]–[174]. 141 PS613436T (n 96) [151]. The Victorian Court of Appeal noted further aspects of the project parties’ (lack of) knowledge of the combustibility of ACM cladding, including reference to the influence of marketing ­material: Tanah Merah (n 20) [72]. 142 PS613436T (n 96) [301]. 143 PS613436T (n 96) [306]–[307]. One of the grounds of appeal dismissed by the Victorian Court of Appeal was whether the builder had failed to take reasonable care; as the Court pointed out, the owners had not framed their claim against the builder alleging such a failure: Tanah Merah (n 20) [128].

58  Residential Construction: Defects in Context panels’ safety, and not conducting ‘even the most rudimentary investigation of what ­polyethylene was’.144 The ability to mould ACM cladding into different shapes is also the product’s ­Achilles’ heel. As explained at the Grenfell Tower Inquiry, exposing the polyethylene core along fold lines and return edges means that ‘there are multiple routes to expose that polyethylene directly to heating or flaming’.145 The decorative ‘crown’ feature at the top of the Grenfell Tower was almost completely covered in ACM cladding.146 Once the fire had travelled up one side of the building, this ‘crown’ facilitated its spread across to the other sides.147 One of the vaunted features of ACM cladding as a construction material – its ability to protect the building against rain and all other moisture – also made it highly resistant at Grenfell Tower to firefighters’ efforts to make the building safe. As fire investigator Matthew Leaver put it in his evidence: ‘all you’re doing is pouring water on something that is designed to repel water’.148 Research undertaken by the University of Portsmouth indicates that applying water to heated aluminium panels can, in fact, cause a chemical reaction producing highly flammable hydrogen.149 This may explain Firefighter Desmond Murphy reporting: ‘the first time we put the jet [of water] on, it felt like we were putting accelerant onto it. It seemed to spread the fire and it seemed to make the fire react very aggressively’.150 With rectification now a priority everywhere, it can be difficult to ascertain or confirm via a visual inspection whether high-polyethylene content ACM cladding (or expanded polystyrene blocks) has been used. The polyethylene filler sandwiched between the aluminium panels looks much the same whether the polyethylene content is 10 or 80 per cent; once covered in render, polystyrene blocks look like rendered concrete.151 This cladding example illustrates how parties to construction projects may use ­potentially deleterious products because they promise lower costs or enhanced aesthetics. It also shows that no member of a project team can be assumed to have any particular level of knowledge of the risks (as opposed to the benefits) involved in using such products.

144 PS613436T (n 96) [349]. 145 Grenfell Tower Inquiry, Transcript of Proceedings (21 November 2018) 159. Evidence provided to the Inquiry in February 2021 indicated that folded or ‘cassette’ ACM panels, as used at Grenfell, have a ‘fire growth rate’ approximately 10 times greater than that for equivalent riveted panels: see, eg, Peter Apps, ‘Grenfell Cladding Boss Denies Fire Test Failure was Arconic’s “Deadly Secret”’ Inside Housing (16 February 2021). 146 Grenfell Tower Inquiry, Transcript of Proceedings (22 November 2018) 88 (Dr Lane) and (21 November 2018) 104 (Professor Bisby); Dr Lane also saw it as an ‘architectural feature … Just to make the top of the building look nice’ (22 November 2018) 87. 147 Grenfell Tower Inquiry, Transcript of Proceedings (22 November 2018) 89–90 (Dr Lane). 148 Grenfell Tower Inquiry, Transcript of Proceedings (11 September 2018) 103. See, similarly, Stephen Walsh QC’s closing statement for the LFB: Grenfell Tower Inquiry, Transcript of Proceedings (10 December 2018) 27. 149 University of Portsmouth, ‘Cladding Tests Show Moisture May Have Sped Up Grenfell Flames’ (13 September 2018): www.phys.org. 150 Grenfell Tower Inquiry, Transcript of Proceedings (6 September 2018) 35. 151 Victorian Building Authority, Fact Sheet: Expanded Polystyrene (2018).

Case Study 2: Under-Design and Slab Heave  59

2.8.2  Avoiding Defects: Multiple ‘Layers of Redundancy’ When building professionals approach the task of designing and constructing safe and habitable structures, assessing the risks that might compromise safety and habitability is (or ought to be) in the front of their minds. For example, structural engineers apply ‘margins of safety’ (multiples of the minimum solution which supports the anticipated load on the structure); these are based on their assessment of factors which include the level of quality assurance they expect in the fabrication and manufacture of materials. For timber structural members, this factor is typically around four, whereas, for steel, it might be as low as 1.5.152 As explained by Professor Torero in evidence to the Grenfell Tower Inquiry, the levels of redundancy applied to building elements depend on the complexity of the system. The basic principle is: ‘you always introduce multiple levels of redundancy until you’re satisfied that the overall probability of the entire chain is so low that you can almost guarantee the safety of people’.153 During the planning phase of a project, failing to implement proper levels of redundancy can arise where (a) decisions on such issues are made without an adequate understanding of the risks within the system and how they interact; or (b) interests other than occupiers’ health and safety or the long-term life of the building take priority. These are central to the Grenfell Tower Inquiry’s Phase 2, Paul Hyett suggesting that the tragedy illustrates both (a) and (b).154

2.9  Case Study 2: Under-Design and Slab Heave 2.9.1 Background Margins of safety for footings design may be as high as 10.155 Those translate into potentially significant expense: drilling, soil testing, piling, rock anchors, slab depth and so forth. Therefore, it is unsurprising that subsurface elements are regular examples of ‘cutting corners’, resulting in defects.156 The resulting under-design is illustrated in the consequences of ‘waffle slab’ foundations deployed on several thousand homes built in Victoria in the early 2000s. Australia is notorious as a land of ‘droughts and flooding rains’.157 That climatic cycle recurred at the end of the first decade of the twenty-first century, when a prolonged drought in south-eastern Australia finally came to an end: in 2008, inflows into Melbourne’s reservoirs were at a low of 287,288 gigalitres, but by 2011 had more



152 Harris

(n 69) 2. Tower Inquiry, Transcript of Proceedings (20 November 2018) 11–12. 154 The main text to n 125. 155 Harris (n 69) 2. 156 For other examples, see Case Study 1 at section [1.12] and Case Study 7 at section [5.9.2]. 157 Dorothea Mackellar, ‘Core of My Heart’ (‘My Country’) 1904. 153 Grenfell

60  Residential Construction: Defects in Context than doubled to 633,164 gigalitres.158 On the back of an Australian economy boosted by a mining and resources boom, houses were built in Victoria at an unprecedented rate. During the December quarter of 2009, there were 10,723 housing starts: the highest since the relevant statistic was first kept in 1980.159 Many of these new houses were on low-yield agricultural land north and west of Melbourne: in new estates, individual plots were sold to buyers, who then contracted to have houses built by volume builders, based on show (display) homes, mixing and matching from a portfolio of possible designs but leaving all structural issues to the builder. Many of these new houses, with external brick veneer, rested on a concrete waffle raft slab: The ordinary form of a waffle slab … includes extensive ‘formed voids’. … The extensive use of voids entails a lesser use of concrete and the costs of excavation and possible complications and additional expense arising from encountering isolated rocks during excavation are substantially minimised. The waffle slab, therefore, has become very popular as an economical foundation solution in areas of highly reactive soil.160

‘Highly reactive soil’ in this case means clay subsoil, and ‘reactive’ means to moisture: a 2011 study on that precise area reported that its clay, derived from basaltic rock, may be subject to considerable shrinkage or swelling as its moisture content changes, causing unexpected ground movements ‘able to damage building foundations, structures and road infrastructure’.161

2.9.2  The Problems By 2014, the owners and occupiers of many of those new homes – in one estimate, 4,300 across three outer-Melbourne municipalities – were suffering the effects of ‘slab heave’.162 In a house built by Metricon for the Hoopers in Tarneit in 2007, the slab deflected by around 80 mm.163 Walker SM described the result: [I]nstead of a house erected upon a sound foundation the Owner has a house on an inadequate foundation that is still moving seven years after the slab was poured. Walls are leaning[,] doors and windows have jammed, substantial cracks have opened and structural parts of the House are separating.164

Some 30 km north-west, at Melton West, Mr and Mrs Softley faced similar problems with their house, also built by Metricon on a waffle slab.165 They claimed that a 71 mm 158 www.melbournewater.com.au. 159 Australian Bureau of Statistics, Building Activity, Australia (series 8752.0), December 2016 (Canberra, 2016), series ID A83794304K. 160 Softley v Metricon Homes Pty Ltd [2014] VCAT 1502 [37] (Macnamara J). 161 Aurecon, Desktop Environmental, Hydrological and Geotechnical Study: Tarneit Precinct Structure Plan, Area 90 (2011). 162 Simon Johanson, ‘Thousands of Suburban Home Owners Facing Financial Ruin’ The Age (8 June 2014). 163 Hooper v Metricon Homes Pty Ltd [2014] VCAT 277 [63]; as of 2013, one expert found the deflection to be 86 mm, another 75 mm. 164 Hooper (n 163) [222]. 165 On both these cases, see generally TJ Margetts, ‘Domestic Demolition’ (2015) 51 Building Dispute Practitioners Society News 7.

Case Study 2: Under-Design and Slab Heave  61 differential movement in the slab resulted in significant issues: walls and floors had cracked and internal partitions had lifted off the floor and separated from the ceiling. All this, they alleged, was caused by Metricon’s failure to carry out the work in a proper and workmanlike manner, in accordance with all laws and legal requirements, including the statutory warranties under the Domestic Building Contracts Act 1995 (Vic) and the Building Act 1993 (Vic), and with reasonable skill.166 They also claimed – accepted by the Tribunal – that the extent of cracking went beyond the levels (up to 5 mm wide) described as acceptable in the relevant Australian Standard.167 In both cases, Metricon sought, before and during the proceedings, to rebuff the owners’ claim by alleging that the slab heave was caused by the owners or their tenants over-watering their gardens. Adjacent to a building, this could cause ‘abnormal moisture conditions’, which might lead to damage to the foundations, but would not violate the Australian Standard.168 However, VCAT was not satisfied in either case, from the expert evidence, that garden watering (or, at the Softley house, pebble garden drainage) had caused the heave.169

2.9.3 Remedies Both sets of owners were awarded damages including the cost of complete demolition and reconstruction of their homes.170 In Softley, the Tribunal approvingly applied a passage from Keane JA in the Queensland Court of Appeal: [T]he researches of counsel for both sides have been unable to identify any case in which it has been held to be unreasonable for a plaintiff to recover the costs of demolition and reconstruction where the defendant’s defective work has affected the stability of a house structure. This suggests that the courts will be slow to characterise as unreasonable the position of a plaintiff who is unwilling to ‘live with’ the risk of the serious consequences which may result from substandard work which affects the stability of a structure. There is no support in principle or authority for the proposition that a court will determine a level of risk of instability which it is ‘reasonable’ for a plaintiff to be required to endure when the plaintiff has bargained for a level of stability which is, for all practical purposes, risk free.171

As often in building defects cases, this component of the award substantially exceeded the initial price the owners had paid Metricon.172 The Hoopers were also awarded

166 On the Victorian statutory warranties, see section [4.13.2]. 167 Rowan Gregory and Frank Van der Woude, ‘Australian Standard AS2870 – Residential Slabs and Footings: Time for Change’ (2015) 51 Building Dispute Practitioners Society News 13. 168 See, eg, Australian Standard 2870-2011: Residential Slabs and Footings (SAI Global Limited), cl 1.3.3(B); Victorian Building Authority, Minimising Foundation Movement and Damage to your Home (2015) 2–3. 169 Hooper (n 163) [199]; Softley (n 160) [49]. 170 Hooper (n 163) [244]; Softley (n 160) [104]. 171 Kirkby v Coote [2006] QCA 61 [53]. On the choice of a measure of damages in defect cases, see sections [4.12.3] and [4.13.5] (Australia). 172 In Hooper, the original contract price was not disclosed. In Softley, it was A$200,140; the Tribunal left the parties to agree on the final damages figure, but one consultant priced the work at around A$250,000: n 160 [3], [104].

62  Residential Construction: Defects in Context damages for loss of rental while the house still stood with the defects; it was then demolished and rebuilt.173 These slab heave cases illustrate how innovative, cheaper solutions may save the builder money in the short term; but if the risks crystallise towards which higher factors of safety are directed, the consequences of ignoring them at the design stage may prove very costly. A quite different cause of damage to foundations, but with equally expensive consequences, is the use in Ireland of aggregate containing pyrite, which in the right conditions reacts chemically with moisture and swells.174 Such ground-related risks are likely to become more acute as urban development extends into ‘difficult’ and ‘brownfield’ sites worldwide.175

2.10  Project Phase II: Construction 2.10.1  Loss of Control of the Supply Chain A house builder was once assumed to do most construction work through their own full-time permanent employees or regular associates, procuring building materials locally from a source – timber mill, foundry or quarry – close to the site.176 This is seldom still the case in any of our subject jurisdictions: modern urban construction procurement of medium- and high-density housing projects, increasingly the norm in urban areas, involves hundreds of consultants, tradespeople and suppliers, with supply chains spanning the globe. As a matter of contract law – often made express in an individual project – the starting point is that builders and other contractors take responsibility in law for their subcontractors and suppliers.177 In practice, though, the ability of main contractors to supervise their subcontractors’ work and check the materials provided to them by suppliers is significantly limited. This can leave ‘a potential vacuum in the overall

173 This aspect of the damages award was reduced for a failure to mitigate: Walker SM was satisfied that the house, not being actually dangerous, ought to have been lettable, albeit at a lower rental: Hooper (n 163) [241]. Metricon appealed the VCAT findings to the Supreme Court: Metricon Homes Pty Ltd v Hooper [2015] VSC 110; and Victorian Court of Appeal: Metricon Homes Pty Ltd v Softley [2016] VSCA 60, (2016) 49 VR 746. The appeals were primarily on the quantum of damages and dismissed after extensive consideration. For commentary on appealing from VCAT to the Supreme Court, see Katie Miller and Brittany Meyers, ‘It’s Appealing’ (May 2017) Law Institute Journal 40. 174 On pyrite and other problems in Ireland, see section [7.1.2]. Sulphate-bearing hardcore, derived from colliery spoil and other industrial by-products, was used in the construction of many thousands of UK homes between 1945 and1970 as support for concrete floor slabs. Damage to floor slabs and walls results, sulphate from the hardcore attacking the overlying concrete: see DCLG, Sulfate Damage to Concrete Floors on Sulfate-Bearing Hardcore (2006). 175 See, eg, Yit Lin Michael Chew, Construction Technology for Tall Buildings, 2nd edn (Singapore, Singapore University Press, 2001) ch 4. 176 This seems to have been a tenable assumption in England until the mid-eighteenth century when expanded international trade, and a corresponding expansion of the aesthetic and technical horizons of ­architects and their clients, meant that materials were regularly sourced from further afield: Alain de Botton, The Architecture of Happiness (Harmondsworth, Penguin Books, 2006) 33–34. 177 This may be modified, eg, where the owner/employer nominates suppliers or subcontractors. For the contrasting principle in tort law, see section [5.2.2].

Project Phase II: Construction  63 co-ordinating role of the general contractor in supervision’.178 Again, the Phase 2 findings at Grenfell may illuminate these issues, illustrating the complex web of commercial arrangements and how gaps in the responsibility bound up in that web can have catastrophic consequences. A particular problem arises from the global supply chain for materials.179 In its inquiry into non-conforming building products, the Australian Senate noted concern that such products can be ‘purchased ‘off the shelf ’ and installed by unskilled labour’ – homeowners could buy them online or from a local DIY store and install them at home.180

2.10.2  Example: Faulty Mains Cabling The installation of mains electrical cabling sold under the ‘Infinity’ and ‘Olsent’ brands in Australia during the early 2010s illustrates the significant risk posed by non-compliant products. In 2014, the ACCC issued a product recall for certain types of this cabling, noting that it could become prematurely brittle, risking electrical shock or fires.181 The director of Infinity Cable Co Pty Ltd (in voluntary liquidation) was prosecuted in NSW.182 The Supreme Court found that Infinity had imported and supplied approximately 1,154 km of cable to the NSW market, including to the hardware chain Masters, which sold it to the public in 22 stores across the country.183 Some three years after the prohibition and recall notices, only 43 km of the substandard cabling had been replaced in NSW premises.184 The case resulted in a fine of A$18,000 and costs of A$15,000.

2.10.3  Wider Implications The wide availability of potentially non-compliant products also creates the possibility that dangerous versions of specified materials may be used without the knowledge of the builder or ‘building code’ inspectors. It was mentioned in the Hackitt Interim Report;185 considered in detail by the Australian Senate inquiry;186 and noted as an issue by the Victorian Taskforce.187 The Senate Committee accepted evidence from industry sources about the diverse range and locations of manufacturers of ACM products, the lack of a central database

178 Houghton-Evans (n 72) 6. 179 Hills (n 101) 9. 180 SERC, The Need … (n 137) 19 (citing a submission by Australian Glass and Glazing Association). 181 PRA 2014/14237: www.productsafety.gov.au/recall. 182 Commissioner for NSW Fair Trading, Department of Finance and Services v Luo [2017] NSWSC 369 [54]. The prosecution was under the Electricity (Consumer Safety) Act 2004 (NSW) ss 16(1)(c)(iii) and 45. 183 Luo (n 182) [2.1]–[2.2]. 184 Luo (n 182) [3.1]–[3.3]. Hills (n 101, 15) estimated that 4,000 km of faulty cable was supplied across Australia. 185 Hackitt, Interim Report (n 93) 18. 186 SERC, ‘I Just Want to be Paid’ (n 95) ch 3; SERC, The Need … (n 137) 8. 187 DELWP, Victorian Cladding Taskforce: Interim Report (n 121) 4. See also Hills (n 101) 9.

64  Residential Construction: Defects in Context to track products from the manufacturing point to the building site, and widespread instances of fraudulent certification: builders could not be confident that products they were installing met the standards which they believed they did.188 The Committee also noted evidence that foreign-sourced counterfeit versions of compliant products, including electricity socket outlets, were being sold in Australia;189 and confirmed that builders seeking to save money substitute products (including ACM types) for those specified.190 It observed that exposure to these non-compliant products was dangerous for building occupants and tradespeople who have contact with them while working in homes.191

2.11  Project Phase III: Occupation 2.11.1  Impact of Building Defects on Occupants A Parliamentary Inquiry in NSW in 2016 documented many instances of inadequate maintenance and repairs in public housing, resulting in health and safety issues for tenants: poor ventilation due to windows being nailed shut, slippery surfaces in many rooms and widespread toxic mould; Australian interview-based research post-Grenfell confirms that the costs of living with combustible cladding are much broader than those of material replacement.192 In the English context, evidence given by residents to Phase 1 of the Grenfell Tower Inquiry provides insights into how dwelling occupants were impacted by defects arising from the refurbishment of the Tower, including the way attempts were made to rectify some of them before the 2017 fire. Gaps around new windows: José Vieiro, who had lived in the Tower for 41 years, noted that, after the refurbishment, there was a two- to three-inch gap around the windows in his flat; after he complained about a breeze blowing through it, the window contractors filled it with a ‘white foamy material’.193 During the fire, he observed that the window surrounds melted.194 Elizabeth Sobiesczak said that the refurbishment ­contractor had

188 SERC, ‘I Just Want to be Paid’ (n 95) 25–27; SERC, The Need … (n 137) 56. 189 SERC, The Need … (n 137) 16. 190 SERC, ‘I Just Want to be Paid’ (n 95) 27–28. 191 SERC, The Need … (n 137) 17. 192 Public Accounts Committee NSW, Management of NSW Public Housing Maintenance Contracts (Sydney, 2016) 9–11; David Ostwald, Trivess Moore and Simon Lockrey, ‘Combustible Costs! Financial Implications of Flammable Cladding for Homeowners’ (2021) International Journal of Housing Policy (published online 15 March 2021) 18: one interviewed owner-occupier echoed commonly-experienced sentiments in the UK (at 11): ‘It feels like you buy something that you’re told will be a long-term investment, [it] will appreciate in value and be an asset … [but] you wonder, is it an asset? It’s a liability basically, because it seems like I’m stuck with it … I don’t know how much money it’s going to cost to get cladding fixed’. 193 Grenfell Tower Inquiry, Transcript of Proceedings (17 October 2018) 110, 114 (José Vieiro). Antonio Roncolato (3 October 2018, 13–16, 43–44), Nadia Jafari (8 October 2018, 9), Munira Mahmud (8 October 2018, 79–80), Hiwot Dagnachew (9 October 2018, 58), Naomi Li (29 October 2018, 120), Roy Smith (31 October 2018, 13) and Hanan Wahabi (8 November 2018, 135) made similar observations about gaps and draughts in windows in their flats; several of them noted that the gaps were filled with foam by the refurbishment contractor. 194 Grenfell Tower Inquiry, Transcript of Proceedings (17 October 2018) 132–33 (José Vieiro).

Project Phase III: Occupation  65 put black duct tape over the gap by her window; the tape was still there on the night of the fire.195 Marcio Gomes observed that fire was entering his flat via the window frame, even though the window itself was intact and locked shut.196 Antonio Roncolato took a photograph of smoke entering his flat through the gaps in the windows.197 Giving expert evidence, Dr Lane explained that the windows installed in the refurbishment were smaller than those previously within the window cavities;198 Professor Torero confirmed that these gaps would probably have played a role in the migration of the fire, especially by allowing smoke to enter the flats.199 If the gap-filler foam was polyurethane, Professor Bisby noted that it would have provided ‘essentially zero resistance’ to the spread of fire through the gap.200 Floor numbering: Helen Gebremeskel noticed – taking the stairs every day – that the floor number signs in the stairwell had not been changed, even though the floors had been renumbered after the refurbishment.201 Marcio Gomes noted that some floors had had their new numbers stencilled on to the wall but that perhaps 90 per cent had the wrong number.202 These instances came to light as a result of the catastrophe, rather than from controlled sampling, but they appear to offer a reasonably representative picture of the potential scale and impact of dwelling defects. They are consistent with the observations of the 2016 NSW Parliamentary Inquiry, which noted many examples of poor work and behaviour by maintenance contractors, including tenants being treated disrespectfully, told they were a nuisance or even bullied.203

2.11.2  Conflict between Occupants’ Interests and Building Safety Measures designed or installed in buildings to promote occupants’ health and safety tend to interfere with their freedom to live as they wish within their homes. Insights on this also come from the inquiries into the fires at Grenfell and Lacrosse: • The Melbourne Municipal Building Surveyor noted that, at the time of the Lacrosse fire, many apartments in the building were occupied by 6–8 people, though they

195 Grenfell Tower Inquiry, Transcript of Proceedings (7 November 2018) 10. 196 Grenfell Tower Inquiry, Transcript of Proceedings (9 November 2018) 95. 197 Grenfell Tower Inquiry, Transcript of Proceedings (3 October 2018) 43–44 (Antonio Roncolato). 198 Grenfell Tower Inquiry, Transcript of Proceedings (22 November 2018) 30. 199 Grenfell Tower Inquiry, Transcript of Proceedings (20 November 2018) 165. 200 Grenfell Tower Inquiry, Transcript of Proceedings (21 November 2018) 66. 201 Grenfell Tower Inquiry, Transcript of Proceedings (6 November 2018) 128, 131. 202 Grenfell Tower Inquiry, Transcript of Proceedings (9 November 2018) 7–8. The numbering (or lack of it) in the stairwell caused considerable problems for the London Fire Brigade on the night of the fire: firefighters were sent to specific floors or flats but often did not know exactly where they were. Marc O’Donovan, eg, described how some floors had a number written in pencil, others had printed signs, and some had no number at all, so he had to count the number of steps between each floor to try to ascertain where he was in the thick smoke: Grenfell Tower Inquiry, Witness Statement of Marc O’Donovan (2017) 11. 203 PAC NSW (n 192) 21–27.

66  Residential Construction: Defects in Context

•

•

•

•

(and the fire systems) had been designed for half that number.204 In his decision, Woodward J also accepted evidence that one of the smoke detectors in the apartment where the fire started had been covered with foil, reducing its effectiveness (though did not accept that, if it had activated earlier, the residents would have been able to contain the fire on the balcony).205 Lawrence Reddaway noted that the process of serving ‘show cause’ notices after the Lacrosse fire became ‘a logistical marathon’ because many of the owners of those apartments were companies or otherwise not easy to locate.206 The Victorian Minister for Planning similarly noted that officers faced difficulties in gaining access to apartments in the building to check for suitability for occupation and other health and safety issues.207 During the Grenfell refurbishment, residents were given a choice of replacement front doors. Forty-eight of the 106 new doors had glass panes, making them potentially less resistant to heat and smoke.208 During the refurbishment, many residents’ new front doors also had automatic door closers fitted. Antonio Roncolato found that his made it difficult to open the door, so at his request it was removed.209 Hiwot Dagnachew reported that a contractor offered to remove hers, but she decided to keep it because it made locking the door easier.210 Dr Lane noted in her evidence that ‘guidance since the 1970s has been very clear about what the role of a self-closer is and why it is so important’.211 Sarah Russell, a Control Room Operator, taking 999 calls on the night of the fire, said that knowing callers might not have functioning door closers might have affected her advice to them: ‘they didn’t have as much time as what you’d think they would, to leave rather than to wait for rescue’.212 In his expert evidence, Professor Torero confirmed that self-closing door mechanisms are a vital part of the layers of safety applied within the system because ‘the door is the weakest link in compartmentation’ (keeping the fire contained to one area); he acknowledged, however, that they offer only a secondary layer of protection and are often removed (he observed that one had been removed in the

204 Giuseppe Genco, Lacrosse Building Fire 673 La Trobe Street, Docklands on 25 November 2014 (City of Melbourne, 2015) 16. There were six people living in the Lacrosse apartment where the fire broke out: PS613436T (n 96) [1]. In February 2019, following the cladding-related fire at the Neo200 building in Melbourne, smoke detectors in that building were likewise found to have been covered up: see, eg, Matthew Bell, ‘Melbourne’s Neo200 Apartment Building Fire: Is the Role of Residents Still Being Undervalued?’ ­Housing After Grenfell Blog, Oxford University (27 February 2019): www.law.ox.ac.uk. 205 PS613436T (n 96) [234]. 206 Lawrence Reddaway, ‘Lacrosse Docklands Fire – Lessons to be Re-Learned?’ (2015) 50 Building Dispute Practitioners Society News 10, 12. 207 Victoria, Parliamentary Debates, Assembly, 7 December 2016, 4828 (Richard Wynne: ‘Second Reading Speech: Building Amendment (Enforcement and Other Measures) Bill 2016’). 208 Grenfell Tower Inquiry, Transcript of Proceedings (26 November 2018) 24 (Dr Lane). 209 Grenfell Tower Inquiry, Transcript of Proceedings (3 October 2018) 12. 210 Grenfell Tower Inquiry, Transcript of Proceedings (9 October 2018) 57. 211 Grenfell Tower Inquiry, Transcript of Proceedings (26 November 2018) 19. 212 Grenfell Tower Inquiry, Transcript of Proceedings (19 November 2018) 70.

Chapter Summary  67 Inquiry’s witness room) because they ‘tend to disturb our usual way of using living environments’.213 Consistent with his observations about layers of redundancy in safety systems, Torero noted that, when other aspects fail, secondary measures of this type are ‘the only things that can pick up the pieces, and then they acquire a significance they were never intended to have’.214 Apart from these examples of residents’ apparent ignorance of safety features and their importance, whole-life building quality relies on regular maintenance by occupants or others on their behalf. These systems can break down: ‘where buildings are let to occupants who have no interest in them or responsibility for their upkeep, it is difficult to ensure that they are given proper routine care’.215 On the other hand, occupants who want to ‘do the right thing’ can be thwarted in their desire by apparently mundane yet intensely practical aspects of regulatory regimes. For example, a review in NSW of the innovative performance-based maintenance services contracts in place for public housing noted that many tenants found it prohibitively expensive to report faults to the call centre: they had prepaid mobile phones and had to spend significant time on hold.216

2.12  Chapter Summary Table 2.4  Residential Construction: Defects in Context ISSUE

COMMENTS

DEFECTS: THE OPPOSITE OF QUALITY

In a residential construction project, is quality externally defined? By mandatory standards? By contract? By both?

CONSUMERS AND QUALITY

There is no certainty that an individual consumer’s idea of what is a defect matches what the law considers actionable, especially in relation to standards of workmanship, where individual consumers’ expectations vary greatly and industry norms are often decisive. A responsive developer or builder may be willing to rectify what in the UK and Ireland would be called merely ‘snags’.

THE PREVALENCE OF DEFECTS

A belief is widely held that residential construction work usually results in defects; evidence from new home buyers bears this out ‘on the ground’, showing also that few consumers are happy with how defects get resolved. (continued)

213 Grenfell Tower Inquiry, Transcript of Proceedings (20 November 2018) 186–88. 214 Grenfell Tower Inquiry, Transcript of Proceedings (20 November 2018) 187. On ‘layers of redundancy’, see section [2.8.2]. 215 Houghton-Evans (n 72) 89. He noted that neglecting to shut loft access traps can lead to damaging condensation in the roof structure; putting heavy curtains over windows can reduce the window’s surface temperature, increasing condensation on the glass. 216 PAC NSW (n 192) 15.

68  Residential Construction: Defects in Context Table 2.4  (Continued) ISSUE

COMMENTS

REASONS FOR DEFECTS

Many possible reasons, some mutually interacting: •• Incompetence (lack of necessary skill, including of those supervising work – too many aspects of a project let to subcontractors). •• Unfamiliarity with relevant standards (these often not easy to apply to a specific situation). •• Inferior materials not identified as such (a faulty supply chain). •• The builder or developer attempts to protect their profit, having agreed what may be too low a price, ‘cutting corners’ by, eg, under-designing. •• The price paid by the employer/buyer is too low, or the agreed completion date is too early for an ideal standard of work to be attainable. •• The developer/builder knows that it will be too risky or costly for an individual consumer to take legal action, except for major defects or if money is no object (exceptional). •• The consumer has no effective role in developing or implementing the project (the occupier of a flat in a public sector tower block, whether newly built or to be renovated).

WHY WOULD A DEVELOPER OR BUILDER BE WILLING TO RECTIFY DEFECTS?

•• A legal obligation backed by a credible threat of litigation. •• UK: pressure on the developer from a third-party warranty provider and a Consumer Code. •• Concern for their own reputation, especially if a publicly reported court or tribunal case (or social media campaign) might otherwise take place. •• Possible occupational sanctions for inferior work – if there is an active regulator. •• An expectation of more work from the same source (unusual). •• Rectifying may be cheaper than fighting and potentially losing in court, then having to pay damages for the consumer to employ a new builder. •• If the defect was the responsibility of a subcontractor, rectification might cost the developer/builder nothing.

3 Regulation of Residential Construction Grenfell Architect Admits He Did Not Read Cladding Fire Regulations Studio E Architects had included in a list of services to its client a promise to ‘ensure that all designs comply with the relevant statutory requirements’. Sounes [project architect for the Grenfell Tower refurbishment] told the inquiry it was the responsibility of the council’s building control department to check on compliance and other expert consultants were expected to advise.1

3.1 Introduction As the quotation above suggests, no amount of external regulation of an area of economic activity will achieve its aims if: • ‘The regulations’ themselves – whatever form they take – are insufficiently clear or demanding, even if complied with. • Those in a position to comply with ‘the regulations’ in a project are unfamiliar with what the rules require or permit in an individual case. • Those who had initial responsibility for compliance (by contract or under statute) rely on others to do this work – at worst, it may never have been clear whose responsibility that task was. • Those who operate the ‘last chance’ safety-net – independent inspection, verification or checking – fail to spot what has gone wrong or its potential significance; or (at worst) certify compliance, knowing that it has not been achieved.2 Because people live in the products of residential construction, and because they are at their most vulnerable there (asleep, ill in bed, listening to music on headphones, having a party), dangers to health or life created by the building itself are a special concern. Tower blocks of flats amplify such risks, adding a need for effective fire suppression and adequate escape and rescue possibilities. Since Grenfell Tower, these issues have been centre-stage: understanding what went wrong and rethinking the rules, the roles and the responsibilities which allowed the disaster to happen. 1 Robert Booth, The Guardian (3 March 2020). This quotation was chosen almost at random from the reports of the Grenfell Tower Inquiry; many others from organisations involved in the refurbishment made equivalent admissions in evidence. On ‘statutory requirements’ in a contract context, see sections [4.8]–[4.9]. 2 For an example of this last scenario, see Case Study 11 at section [11.8].

70  Regulation of Residential Construction In July 2017 the Department of Communities and Local Government (DCLG) appointed Dame Judith Hackitt to undertake a Review of Building Regulations and Fire Safety.3 Her terms of reference were to consider how well the regulatory structure works (or not) – with special reference to high-rise and complex buildings – but not to consider questions of legal liability or compensation for non-compliance; it was acknowledged that, if clearer responsibilities under the statutory scheme followed, after-the-event civil liability issues might also be affected.4 The findings and recommendations from her two reports – relevant beyond England & Wales, so much so that she has also been asked to advise on the reshaping of construction regulation in Victoria – are noted throughout this chapter.5 In parallel runs Sir Martin Moore-Bick’s judicial inquiry into Grenfell Tower – explicitly tasked with working out not only what happened, but also where responsibility lies. The Inquiry’s Phase 1 concentrated on the night of the fire, 14 June 2017, publishing its findings in October 2019.6 Phase 2 is examining the causes of those events, hearings starting in March 2020; after significant delays from Covid-19, it is likely to continue until at least 2022. Catastrophic failures like those at Grenfell Tower may lead to tragedy, but the same complex causes may be at work when defective construction leads ‘only’ to homes where: • Ground preparation or foundations are inadequate or contain inappropriate aggregate, so the structure shows movement and cracks.7 • The structure is at risk from rainwater penetration, or is otherwise vulnerable to failure.8 • Blockwork contains deleterious materials which in the medium or long term threaten its stability and weathertightness.9

3 Judith Hackitt DBE FREng, British chemical engineer and civil servant, chaired the UK Health and Safety Executive (2007–16); she currently chairs the manufacturing trade body the Engineering Employers’ Federation, renamed as Make UK: www.makeuk.org. 4 Ministry of Housing, Communities and Local Government, Independent Review of Building Regulations and Fire Safety – Terms of Reference (2017): www.gov.uk. 5 MHCLG, Building a Safer Future – Independent Review of Building Regulations and Fire Safety, Interim Report (Cm 9551, 2017) (Hackitt Interim Report) and Final Report (Cm 9607, 2018) (Hackitt Final Report). On Dame Judith’s appointment to the Expert Advisory Panel for the Review of Victoria’s Building System, see www.planning.vic.gov.au/building-policy/review-of-victorias-building-system. 6 Grenfell Tower Inquiry, Phase 1 Report: Report of the Public Inquiry into the Fire at Grenfell Tower on 14 June 2017 (HC 2019, 49). 7 Ireland’s recent problem of material containing chemically unstable pyrite is discussed in section [7.1.2]. Individual cases of structural problems caused by ground preparation or foundations, then leading to litigation, are legion, including (from the UK alone) Dutton v Bognor Regis DC and Murphy v Brentwood DC: sections [5.7]–[5.8]; and Hughes v Barratt Urban Construction (Scotland) Ltd: Case Study 4 at section [4.16.2]. 8 New Zealand’s ‘leaky buildings crisis’ from the early 2000s is a good example: section  [5.13.2]. On Christmas Eve 2018, an almost new apartment building in Sydney, the Opal Tower, was evacuated after residents heard a loud bang; cracks were then discovered, including in a load-bearing panel on level 10 of the building. The experts’ report identified as primary causes of the failure under-design, partial grouting, and other construction and materials deficiencies: Unisearch, ‘Opal Tower Investigation Final Report’ (Sydney, 2019) 1, 3. 9 Ireland’s problems of housing in which the blockwork contains reactive pyrite and muscovite mica illustrate this scenario well: section [7.1.2].

Introduction  71 In such situations, occupants’ lives may not be immediately at risk, at least not from fire; their health and safety may not seem obviously compromised. But a structure which has foundations which are too shallow or was built on unstable ground may be – or over time become – at risk of partial or total collapse, with implications for residents and others nearby; and damp inside a structure quickly leads to mould and respiratory problems.10 The impact of defects on capital value can be severe too: when a home is most people’s largest single asset, finding that it can no longer be sold or mortgaged can be catastrophic, risking family breakup, mental illness and dependence on the state for the basics of life.11 In each of our subject jurisdictions, there has for generations been some form of state-based regulation of the process of building: it is an unchallenged (and probably unchallengeable) ‘given’ of governmental policy, especially in the field of housing. However, only exceptionally does it lead to direct state support for those who find that their homes have any of the defects listed above. This chapter therefore starts in section [3.2] by considering what regulation might mean; the obstacles to its success; and how it fails (or might fail): these are the chapter’s bigger themes. This critical look is informed by the obstacles to effective external influence of any kind presented by the complex but interconnected nature of the construction industry (described in chapter 2); by the raw data our subject jurisdictions provide; and by the distinctly different traditions of Australasia and the British Isles about regulation. Interventions which deserve analysis include the public law of regulation via mandatory construction standards (usually statutory in origin or status, for short here called ‘the building code’) and their implementation ‘on the ground’. But this is part only of the overall picture. Largely judge-made private law (contract, tort and the law of property) was in place long before a governmental authority drafted the first ‘building code’.12 These principles continue to play their own role in dictating how buildings get built – and defining some of the financial consequences of failure. They are part of the overview in Table 3.1 and are considered in detail in later chapters. The central focus of this chapter is on ‘the building code’, in sections  [3.3]–[3.5]: the adoption in all our subject jurisdictions of mandatory standards for construction projects and the processes and agencies which apply such standards to individual projects ‘on the ground’. This leads to a detailed look at England & Wales in section [3.6]; contrasts from our other subject jurisdictions follow in sections [3.7]–[3.10]. The chapter ends with a table-form summary and a final evaluation. 10 See also section [2.5.1]. 11 In a 2013 report, People Living in Bad Housing – Numbers and Health Impacts, Shelter (the UK housing charity) said: ‘working-age adults … living in bad housing are disproportionately at greater risk of poorer general health, low mental wellbeing and respiratory problems including asthma and breathlessness’; see also The Impact of Housing Problems on Mental Health (Shelter, April 2017): www.shelter.org.uk. Nor do concerns like these affect the residential sector alone: office buildings have been identified as creating ‘sick building syndrome’, where poor ventilation (especially if leading to high humidity) magnifies the impact of chemical or biological contaminants; inadequate lighting seems a contributory cause. See, eg, Sumendra M Joshi, ‘The Sick Building Syndrome’ (2008) 12 Indian Journal of Occupational and Environmental Medicine 61; Peter Williams, ‘Indoor Air Quality for Facilities Managers: Understanding the Salient Issues Concerning Airconditioned Environments’ Proceedings of the CIB W070 2002 Global Symposium 456. 12 (Leaving aside, of course, edicts of the ancient world such as the Code of Hammurabi which opens our discussion in ch 5).

72  Regulation of Residential Construction

3.2  Defining ‘Regulation’ 3.2.1  External Regulation As the first part of a working definition, by ‘regulation’ we mean bodies of rules, whatever their source, which are external to the parties and intended to affect their behaviour, so include ‘carrots and sticks’, either in the vanguard or in reserve.13 In construction, such rules also look to the outcome of the project: what is (to be) constructed, with what materials and by what techniques, and how it will then perform.14 Table 3.1 offers a high-level comparison between areas in our field which are regulated in this sense, and in what ways. The differences between our subject jurisdictions allow us to divide them into two groups by hemisphere (Australasia versus the UK and Ireland), but the fourth column notes some areas which are shared. The table illustrates the complexity of the situation, as well as how some aspects of regulation look to ‘prevention’ (deterring those whose conduct could lead to unacceptable outcomes) and some to ‘cure’ (remedies when something goes wrong). The far right-hand column indicates the section/s of this book in which each aspect of regulation is discussed. Table 3.1  Residential Construction: External Regulation AUS/NZ

UK/IRE

SHARED

SECTIONS15

–

[3.6.6]

PREVENTION WHO MAY ‘DO Statutory CONSTRUCTION’? registration and licensing systems are in place for construction professionals and most providers of construction services: qualifications, restrictions and sanctions.

There are no general sector-specific registration or licensing systems, except for some construction professionals (architects, engineers etc); qualifications are required for some technical functions (eg gas appliances).16

(continued) 13 See, eg, Scott Burris, ‘Scientific Evaluation of Law’s Effects on Public Health’ in Peter Drahos (ed), Regulatory Theory: Foundations and Applications (Canberra, Australian National University, 2017) 567. 14 Christine Parker and John Braithwaite, ‘Regulation’ in Mark Tushnet and Peter Cane (eds), The Oxford Handbook of Legal Studies (Oxford, Oxford University Press, 2005) 119. 15 Only general text sections (applying primarily to E&W) are noted in this column; on other individual subject jurisdictions, see also the separate relevant sections in each chapter. 16 A 2020 proposal from Jamie Halcro Johnston MSP, supported by trade association SELECT, for the statutory regulation of electricians in Scotland, aims to provide a single, unified register of qualified, experienced and competent electricians and to protect the title for those who are registered. The Scottish government is now itself (2021) consulting on this proposal.

Defining ‘Regulation’  73 Table 3.1  (Continued) AUS/NZ

UK/IRE

SHARED

SECTIONS

The general common law of contract (mostly case law) applies: rules about pre-contract representations, formation, implied terms, certainty, remedies for breach.

[4.3]–[4.7]

PREVENTION MAKING A CONSTRUCTION CONTRACT

ON WHAT TERMS?

BASIC QUALITY STANDARDS FOR CONSTRUCTI ON

Special formalities for making residential construction contracts.

The statutory residential construction contract regimes restrict parties’ freedom of choice and impose quality requirements enforceable in contract (narrower scheme in WA). –

No statutory residential construction contract regime. UK: Consumer Codes regulate sales, completion and after-sales processes (not universal, not required by law).

A general statutory consumer protection regime may impose formalities on B2C contracts and restrict traders’ behaviour.

No statutory residential construction contract regime.

In principle, parties are free to set own terms.

UK: The planned New Homes Ombudsman may impact on new home transactions.

control of unfair contract terms, especially in B2C contracts.

Terms are implied Ire: A possible into B2C contracts future statutory for the supply reform will of goods and provide minimum services (including terms and greater construction): legal protection quality, speed, price. for homeowners. There is judicial

–

[6.2]

The (statutory) ‘building code’, adopted by a standard-setting public body, is implemented by BCBs (often both private and public sector): each project is required to comply (criminal or civil sanctions possible).

[4.2], [4.8]–[4.10] [5.14.3] [9.8]

[3.3]ff [11.8]

There may be a separate regime for fire safety. (continued)

74  Regulation of Residential Construction Table 3.1  (Continued) AUS/NZ

UK/IRE

SHARED

SECTIONS

Development control operates via a statutory regime (land use planning) – often operated by municipalities.

–

If a claimant is able to sue a solvent defendant for breach of contract, will gain an award of damages, typically for rectification.

[4.12.3]

PREVENTION OTHER CONTROLS ON BUILDING

–

–

CURE A RIGHT TO DAMAGES FOR FAILURE TO COMPLY WITH ‘THE BUILDING CODE’?

Aus: Not usually, unless there is a right of action in contract against a project party, including under a residential construction contract regime.

Not usually, unless there is a right of action in contract against a project party (better chance in Ire in tort than in UK).

Aus: proportionate liability (a range of statutory regimes) – an individual defendant may owe as damages only its share of responsibility for the plaintiff ’s loss.

Joint and several liability (common law) – a claimant can claim all their damages from any single defendant.

[5.7]ff [9.4]

A duty of care in tort may exist if the defendant has ‘assumed responsibility’ to current claimant NZ: yes, if (but, depending on a breach of the jurisdiction, this contract or may not of itself be negligence Ire: possible future sufficient): if so, an of a project award of damages is statutory reform party can be for homeowners. possible. shown, causing Disciplinary UK only: a recoverable sanctions may be the planned form of harm. possible against New Homes Ombudsman will construction have power to award professionals for inadequate work. compensation. CONCURRENT WRONGDOERS

NZ: as in UK/Ire.

UK (but not Scotland): a statutory right of action against ‘the builder’ for defects compromising a dwelling’s habitability.

A claimant who has been contributorily negligent may have their damages reduced (limited scope in a contract claim).

[5.2.3] [9.5.3]

A defendant may bring in a third-party co-defendant and claim a contribution from them towards any damages owed. (continued)

Defining ‘Regulation’  75 Table 3.1  (Continued) AUS/NZ

UK/IRE

SHARED

SECTIONS

A claimant usually has a right to go to court (but a statutory tribunal may replace the court), or to agree any form of ADR, but agreeing arbitration in advance may be statutorily unfair in a B2C context.

[9.7]–[9.8]

CURE DISPUTE RESOLUTION

Aus (not all states/ territories): statute may impose specialist mediation and/or a regulator may have power to intervene; adjudication in some states. NZ: adjudication is a right for all construction contracts (but not mandatory).

INSURANCE PROTECTION

Aus, but not Tas or NZ: All insurers heavily insurance is mandatory for regulated by law a homeowner or employer in some residential construction projects, against builder insolvency and the cost of repair of major defects.

UK: adjudication is a right for parties to construction contracts but not mandatory, especially where a ‘residential occupier exception’ applies. Ire: adjudication does not usually apply to residential construction. UK only: the planned New Homes Ombudsman will have power to investigate new home defects and award remedies. Most new home buyers are protected by a third-party warranty (private sector) against builder insolvency and the cost of repair of major defects – not required by law but indirectly by mortgage lenders.

Some construction professions and registration regimes require members to have a minimum level of PI cover, triggered by legal liability.

ch 7 [11.7]

Even if we limit our definition of regulation to formal external interventions, this table shows a wide range of different techniques being used, though all focus on construction as an area of economic activity – often, on residential projects within it. There are systems of public sector authorisation: these make exercising a particular function (or using a particular occupational title) as a trader or professional, as well as actually starting to build and then handing a building over to its future occupier, conditional on

76  Regulation of Residential Construction approval by a public body or by someone clothed with statutory authority, which may have enforcement powers (a legal right to require non-conforming construction to be removed). The criminal law often lies behind these systems: it may be an offence (or at least lead to a civil penalty) to exercise specific construction-related functions without having the right licence, qualification or professional title, just as it is to go ahead with construction without the necessary plans approval and site inspections by a BCB. It may also be an offence to engage in undesirable trade practices which prejudice consumers. All of these different possibilities belong to public law and use its techniques. Construction also relies universally on private law: the law of contract facilitates transactions which the parties wish to make. Some forms of consumer protection in our field also look to this law: statutory initiatives (or equivalent) limit what would otherwise be the parties’ freedom, including by requiring formal steps and by imposing obligations as implied contract terms. These interventions confer or enhance individual rights, protected by legal action before civil courts or tribunals. And contract remains centre-stage in providing remedies if one party fails to carry out their obligations, with back-up from the law of restitution. The law of tort acts as second string, especially in situations where there is no contractual link, though varying greatly betwen our subject jurisdictions. The law of property is key in developers’ new-build projects, facilitating and recording the transfer of land ownership (or lesser rights) to first buyers on completion of construction, as well as providing choices of legal structure for the ownership, management and occupation of multi-unit developments; here too there is heavy statutory intervention.17 The sources of these forms of regulation are as varied as the interventions themselves: • The legislature, by adopting statutes in our field, usually at the initiative of government departments or following public reviews. • Ministers (in some cases, arm’s-length regulators), who are usually empowered by these statutes to adopt detailed rules in our field, but construction is rarely housed in the same Ministry as consumer protection; law reform may come under Justice but may have its own specialist Law Commission, reporting to government with proposals for legislation. • Arm’s-length regulators or professional self-regulation: occupational licensing, supervision and the imposition of sanctions on construction players are often out-sourced, as is the power to challenge unfair trade practices. • Courts and tribunals, in developing case law which provides the core of both contract and tort and in offering procedures for hearing and determining civil claims (as well as criminal prosecutions), with judgments which can be enforced. In the UK, the picture is fragmented by the impact of devolution, leading to four separate governments and sources of legislative power; in Australia, by the powers of individual states and territories in our field (rather, the absence of plenary powers in the Commonwealth). Rarely does one Minister or agency take so global an overview as Table 3.1 provides, aware of all the elements and how they interrelate.

17 On

multi-unit developments, see ch 11.

Defining ‘Regulation’  77

3.2.2  Regulation: Other Aspects Early in her review after the Grenfell Tower fire, Dame Judith Hackitt argued that the regulatory system in our area comprises not just ‘what is written in statute’, but also the roles and responsibilities of construction practitioners, standard-setting bodies and ‘all those who interact with the system during the use of the building’.18 So our definition of regulation is not complete without including a second set of factors: the roles of market and community actors, and of competitive and social forces, in steering behaviour.19 Regulation should also have in mind a building’s complete design life: it should not focus exclusively on the process of construction, from design to site preparation to building to handover.20 It should not ‘sign off ’ when a work of construction is complete: a building’s future users are also relevant actors, with rights as well as responsibilities. Regulatory theory offers a two-stage approach to policy design. Stage 1 demands precise articulation of the applicable policy goal; this then leads to Stage 2: design of the mix of regulatory ‘tools’ which may be deployed in pursuit of that goal – what levers might be pulled, and how hard.21 Recent reviews of the construction regimes in the UK and Australia concur in defining ‘regulation’ widely and agreeing that each of the regime’s component parts must interact effectively with the others in order to pursue ‘the safety goal’.22 In Hackitt’s terms, this is to ‘provide further assurance to residents that the buildings they live in are safe and will remain so’.23 These reviews, and the reforms they have prompted, show a high degree of consensus on the necessary elements: 1 2 3 4

Information provision: everyone who interacts with buildings, whether as a designer, builder, occupant or otherwise, should have sufficient information to contribute positively to the safety goal; Responsibility: the ‘buck stops’ with an identified authority or party; Standard-setting: framed so as to act in an integrated way with the overriding concern of meeting the goal; Competence: where competence is required, only those who are competent to do the work should do it;

18 Hackitt Interim Report (n 5) 6. 19 Colin Scott, ‘Regulating Everything: From Mega- to Meta-Regulation’ (2012) 60 Administration 57. See, similarly, Colin Scott, ‘The Regulatory State and Beyond’ in Drahos, Regulatory Theory (n 13) 280. 20 For a discussion of what ‘design life’ might mean, contractually, see Blackpool Borough Council v Volkerfitzpatrick Ltd [2020] EWHC 1523 (TCC) [198]ff. 21 Neil Gunningham and Peter Grabosky, Smart Regulation: Designing Environmental Policy (Oxford, Clarendon Press, 1998) 380. 22 See, eg, Senate Economics References Committee, Non-Conforming Building Products: The Need for a Coherent and Robust Regulatory Regime (Parliament of Australia, Canberra, 2018) 49; Peter Shergold and Bronwyn Weir, Building Confidence: Improving the Effectiveness of Compliance and Enforcement Systems for the Building and Construction Industry Across Australia (Building Ministers’ Forum, Canberra, 2018) 3; Rodger Hills, Rebuilding Confidence: An Action Plan for Building Regulatory Reform (Submission to the Building Ministers Forum by the Building Products Innovation Council, April 2018) (Canberra, 2018) 7, 12; the Hackitt Final Report (n 5) 3, 5–6; Matthew Bell, ‘Home is Where the Heart(ache) is: Building a Regulatory Regime for Residential Construction which More Effectively Meets Community Expectations for Occupant Health and Safety’ (Doctoral Thesis, King’s College London, 2019). 23 Hackitt Interim Report (n 5) 9.

78  Regulation of Residential Construction 5 6

Quality assurance: inspection and other measures as a robust ‘last line of defence’ against defects or other safety-threatening outcomes; and Rectification: an efficient and cost-effective means of ‘cure’, whether by insurance, expedited dispute resolution or otherwise.24

3.3  ‘The Building Code’: Introduction Most governments, not just in the developed world, have a policy goal that all significant new works of construction – not just residential construction – should comply with basic standards.25 This normally requires legislation (or its equivalent), including at least two steps: 1 2

Establishing a legal framework within which standards can be adopted and given legal force, usually in such a way that these can be relatively easily modified or added to from time to time; and Giving independent bodies or individuals a role to monitor compliance with the current standards in individual projects, by reviewing plans and specifications but also by inspecting the process of construction itself and in some respects certifying its conformity with ‘the regulations’.26

In this book, we call the result of Step 1 ‘the building code’, whatever its actual title; those whose job is to implement the system in Step 2 we call building control bodies or BCBs, whatever their actual title. None of these interventions can be reconciled with the general principle which Lord Hoffmann put robustly in Hunter v Canary Wharf: ‘at common law anyone may build whatever he likes upon his land’.27 By the mid-twentieth century, once the building and development control (land use planning) regimes were close to their present forms, this was clearly no longer the whole story. The existence of ‘the building code’ and its implementation machinery is only one of many ways in which the wide freedom to build – and to decide what to build – which land ownership would in principle otherwise confer has been curtailed.28 Restrictions on construction activity, imposed during the

24 This list is adapted from Douglas Maxwell and Matthew Bell, ‘(How) Can a Building Safety Regulator Help Cure the UK’s Defects Crisis? Analysing the Current Proposals in the Light of Australia’s Experience’ (2020) 36 Construction Law Journal 3, synthesising the sources in n 22, plus Victorian Auditor-General, Victoria’s Consumer Protection Framework for Building Construction (Victorian Auditor-General’s Office, Melbourne, 2015): www.audit.vic.gov.au; and All Party Parliamentary Group (APPG) for Excellence in the Built Environment, More Homes, Fewer Complaints (2016): www.cic.org.uk. 25 Parts of this section derive distantly from Philip Britton, ‘The State, the Building Code and the Courts’ (Society of Construction Law (UK) Paper D152A, 2013). 26 Many BCBs have additional powers in relation to the safety of existing buildings and may intervene to limit the risk of collapse or physical danger to occupants or others – eg Building Act 1984 (E&W) ss 76–79; these are outside the scope of this book. 27 Hunter v Canary Wharf Ltd [1997] AC 655 (HL) 709A. 28 There are close links in England & Wales between the rules on building control and other more specialised rules on fire prevention, sewers and water supply, gas and electricity installations, which have separate but interlocking statutory regimes – not all discussed in this book. As to the process of construction, the occupational health and safety and CDM regimes are also relevant; on CDM see the main text to n 131.

‘The Building Code’: Adopting Standards  79 Covid-19 pandemic, showed how quickly further aspects of that already shrinking reservoir of freedom could be taken away, at least temporarily.29

3.4  ‘The Building Code’: Adopting Standards 3.4.1  Who Makes the Rules? Legal intervention – the creation of processes by which minimum construction standards may be established as legal norms – seems to have started in our subject jurisdictions as a response to concerns about fire and the spread of fire between buildings. Records from 1212 show the first Mayor of London outlawing thatched roofs; this type of regulatory approach has echoed over the following eight centuries in our subject jurisdictions. A late-2020 example, reflecting continuing fallout from the Grenfell disaster, is the Victoria Planning Minister’s prohibition of the use of certain ACM and expanded polystyrene products on some types of building in that state.30 The Great Fire of London of September 1666 over four days killed only six people but destroyed almost all London’s civic buildings and 13,000 private dwellings, with property damage estimated at £10m at the time (£1.5bn at today’s values). In the rebuilding, timber-framed buildings were banned altogether.31 Significantly, the same fire also triggered the invention of insurance as a form of mutual protection (physical, as well as financial) of building owners against specific future risks and losses – itself a feature of this book.32 In unitary states, standard-setting has in modern times become mostly concentrated at central government level, in order to achieve national uniformity; but this may be the end-point of a long evolution starting at a decentralised and local level.33 Where, by

29 Under special new legislation, eg the Coronavirus Act 2020 (UK), the Coronavirus (Scotland) Act 2020 or the Health (Preservation and Protection and other Emergency Measures in the Public Interest) Act 2020 (Ire). Similar restrictions were imposed in our other subject jurisdictions; the state of Victoria had a significant ‘second wave’ of infections in the second half of 2020, prompting its government to implement a series of substantial restrictions on site activity by way of public health directions under its State of Emergency/State of Disaster powers. 30 Richard Wynne, Prohibition of High-Risk Cladding Products Declaration (28 December 2020) Victoria, Government Gazette S22 (13 January 2021) 3. 31 See www.historic-uk.com/HistoryUK/HistoryofEngland/The-Great-Fire-of-London. The Act for the Rebuilding of the City of London 1667 (18–19 Chas II, 8) includes: ‘V That all the outsides of buildings be henceforth made of brick or stone’. It also commanded the building of what became known as ‘The Monument’: ‘XXVII The better to preserve the memory of this dreadful visitation, a column or pillar be erected on or as near unto the place where the said Fire so unhappily began, as conveniently be made in perpetual remembrance thereof ’. The height of The Monument is said to be the same as its distance from the bakers near Pudding Lane where the fire started. 32 Nicholas Barbon set up the first ‘Fire Office’ in 1680; by 1690 one in 10 houses in London were insured and by 1700 the insurers started running their own fire brigades (eventually amalgamated into a single service); a house which was insured had a distinctive ‘fire mark’ plate on the front façade: www.museumoflondon.org. uk. On modern insurance for homes, see ch 7 and sections [11.7]–[11.8]. 33 Within England & Wales, there was once a very significant distinction between the rest of the country and London, reflecting quite different legislation and enforcement systems under the London Building Acts 1930–82. The first would-be national system arrived with the Building Regulations 1965 (SI 1965/1373); but these preserved the special Inner London regime. It took the Building (Inner London) Regulations 1987 (SI 1987/798) to complete the process of integration into the national system; even then, additional controls

80  Regulation of Residential Construction contrast, power has been devolved to autonomous provinces or regions, the construction standards which are imposed may vary between different parts of a single state, as is now the case in the UK in relation to Scotland, Wales and Northern Ireland.34 In a federal context, like Australia, the top-level national legislature may have no power to legislate on construction standards;35 but co-operative arrangements may achieve, in fact if not as a matter of law, a substantial degree of nationwide uniformity.36 A similar result may follow from membership of a supranational organisation with legislative powers, like the EU, if its founding principles require (or achieve) implementation nationally of measures adopted at the top level. In the European case, this is true for the regulation and marking of construction products (including timber products) and for the measurement and reporting of buildings’ energy performance, as well as for public procurement.37 It is also true for many aspects of consumer protection, within the old Greater London Council area survived. As well as in London, at least 55 local authorities had additional building control powers in relation to their areas under their own Local Acts of Parliament, permitting the imposition of more stringent requirements than the standard Building Regs, some including special rights of appeal. Some of these were abolished by the Building (Repeal of Provisions of Local Acts) Regulations 2012 (SI 2012/3124). 34 Scotland has its own system of building control: see section [3.10.2]. Scots law also has its own principles of delictual and quasi-delictual liability within the law of obligations, on which see section  [5.15]. In NI, see the Building Regulations (Northern Ireland) Order 1979 (SR 1979/1709), as amended by the Building Regulations (Amendment) Act (Northern Ireland) 2009; under the 1979 Order, the Building Regulations (Northern Ireland) 2012 (SR 2012/192) have been adopted; their most recent amendment comes from the Building (Amendment) Regulations (Northern Ireland) 2016 (SR 2016/412). On Wales, see n 80 and its main text. 35 The primary legislative instruments for general building regulation in the Australian states and territories are: Australian Capital Territory: Building Act 2004 (ACT); Building (General) Regulation 2008 (ACT). New South Wales: Environmental Planning and Assessment Act 1979 (NSW); Environmental Planning and Assessment Regulation 2000 (NSW). Northern Territory: Building Act 1993 (NT); Building Regulations 1993 (NT). Queensland: Building Act 1975 (Qld); Building Regulation 2006 (Qld); Queensland Building and Construction Commission Act 1991 (Qld); Queensland Building and Construction Commission Regulation 2018 (Qld). South Australia: Development Act 1993 (SA); Development Regulations 2008 (SA). Tasmania: Building Act 2016 (Tas); Building Regulations 2016 (Tas). Victoria: Building Act 1993 (Vic); Building Regulations 2018 (Vic). Western Australia: Building Act 2011 (WA); Building Regulations 2012 (WA). For the primary Australian legislation relating specifically to residential building, see ch 4, n 304. 36 Australia’s construction standards framework rests on the National Construction Code (NCC, incorporating the Building Code of Australia (BCA) and Plumbing Code of Australia). The means by which the BCA is adopted or otherwise mandated across the states and territories varies considerably, but the general requirements for compliance may be found in: Building Act 2004 (ACT) s 49; Environmental Planning and Assessment Regulation 2000 (NSW) reg 7; Building Regulations 1993 (NT) reg 4; Building Act 1975 (Qld) s 14) (this provision is definitional; the Queensland scheme is organised by requiring compliance with specific aspects of the BCA across multiple legislative provisions); Development Regulations 2008 (SA) reg 4; Building Act 2016 (Tas) s 11; Building Regulations 2018 (Vic) reg 10; Building Act 2011 (WA) s 37 (providing that all buildings must comply with ‘each applicable building standard’: these are then specified in Building Regulations 2012 (WA) Pt 4, including relevant provisions of the BCA). See, further, section [3.7.3]. 37 Regulation (EU) 305/2011 of the European Parliament and of the Council of 9 March 2011 laying down harmonised conditions for the marketing of construction products and repealing Council Directive 89/106/ EEC [2011] OJ L88/5; and Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010

‘The Building Code’: Adopting Standards  81 notably in relation to unfair contract terms, consumer rights and unfair trading practices.38 This continues to be the case open-endedly for Ireland, though no longer for post-Brexit UK.39 Climatic, geological or other environmental variations may of course explain, or even require, differences between standards within the same overall territory – in Australia, for example, buildings in cyclone-susceptible Darwin (Northern Territory) may need higher protection against intense tropical storms than temperate Hobart (Tasmania), more than 3,500 km to the south. Further south and east, across the Tasman Sea, New Zealand lies on the edge of the Pacific ‘Ring of Fire’ where two tectonic plates collide. It requires greater safeguards against building collapse from seismic shock than any part of Australia, which sits centrally on its own tectonic plate.40 Despite recurring rhetoric in favour of minimising ‘red tape’, building control widely shows ‘regulatory creep’: regulators are ‘unwilling to let go and indeed will be inclined to increase over time the range and scope of what they control’.41 This seems the case, even under right-wing governments which may in general purport to have an ‘anti-red tape’ and ‘pro-business’ agenda. Typically, therefore, statutes just get longer: the Building Act 1991 (NZ) had 92 sections, but the 2004 Act (NZ), even as originally enacted, already had 451. They also seem especially susceptible to detailed tinkering – the 2004 NZ Act has already been amended by Parliament more than 10 times since its original adoption. The Building Safety Bill (mostly relevant to England & Wales only) already had 331 pages on being first released in draft form in 2020.

3.4.2  What Aims do the Rules Have? What might the high-level aims of ‘a building code’ look like in positive law? Do they meet regulatory theory’s demand for ‘a precise articulation of the applicable policy goal’? Here is the opening section of the England & Wales legislation: The Secretary of State may, for any of the purposes of— (a) securing the health, safety, welfare and convenience of persons in or about buildings and of others who may be affected by buildings or matters connected with buildings, (b) furthering the conservation of fuel and power, (c) preventing waste, undue consumption, misuse or contamination of water, (d) furthering the protection or enhancement of the environment, on the energy performance of buildings [2010] OJ L153/13 and Delegated Regulation (EU) 244/2012 of 16 January 2012 supplementing Directive 2010/31/EU of the European Parliament and of the Council on the energy performance of buildings by establishing a comparative methodology framework for calculating costoptimal levels of minimum energy performance requirements for buildings and building elements [2012] OJ L81/18; also Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/ EC and 2006/32/EC, [2012] OJ L315/1. Implementation involves separate sets of Regulations for England & Wales, Scotland and Northern Ireland. 38 On the impact of these measures in English and Irish law, see sections [4.2] and [6.2]. 39 On the post-Brexit relationship between UK and EU law, see section [1.11]. 40 On these geographical and climatic impacts, see further sections [3.7.3] and [3.8.2]. 41 David Currie and John Cubbin, Regulatory Creep and Regulatory Withdrawal: Why Regulatory Withdrawal is Feasible and Necessary (City University of London, 2002) 2.

82  Regulation of Residential Construction (e) facilitating sustainable development, or (f) furthering the prevention or detection of crime, make regulations with respect to the matters mentioned in subsection (1A) below.42

With ironic hindsight from the Grenfell Tower fire, this suggests that ‘securing’ the physical safety of individuals is a top priority of the whole regime.43 By contrast, preserving the capital value of a home, or protecting a homeowner against the cost of having to redo work badly done by someone else: neither figures in this list at all. The high-level justification for building control, whatever detailed form it takes, remains the collective interest: preventing the construction of buildings the characteristics and performance of which could have what are considered negative consequences for the community in general. Today’s concerns produce a much longer checklist of such consequences than at the start. Taking England & Wales as a starting-point, regulation aims to minimise the risk that a building may: • Collapse or catch fire if predictable events occur (like seismic shock in an earthquake zone or a domestic appliance in the building catching fire), injuring or killing individuals inside or nearby, or damaging their property. • Be electrically unsafe. • Offer inadequate protection against crime. • Not be accessible to, or usable by, those with reduced mobility. • Damage the environment in a range of ways. • Create a risk to public health (notably by endangering the public water supply or having inadequate facilities for disposing of waste water and sewage). • Use undesirable amounts of carbon in its construction. • Not be ideally energy-efficient in operation. • Not permit easy access to fast broadband from outside the building, or within it. To justify statutory or regulatory intervention of this order, two beliefs are necessary, though seldom articulated: 1 Economic self-interest (the working of the market), plus the normal private contractual processes and the after-the-event loss-shifting functions of the law of tort, are together not sufficient to assure achievement of these broad aims; and 2 Establishing and running such a system is a justifiable and cost-effective use of public funds, or – if the system attempts to be self-funding – it is fair to load its running costs on to project parties (or the first buyers of new homes).44 42 Building Act 1984 (E&W) s 1(1). For s 1(1A), see the main text to n 86. The Building (Scotland) Act 2003 copies the English statute word-for-word in its s 1(1)(a) and (b). In Irish law, see the Building Control Act 1990 (Ire) s 3(2), extended by the 2007 Act s 4; for the even longer list in New Zealand, see the Building Act 2004 (NZ) s 4(2), as amended in 2012. Similar statements of intent can also be found across the primary Australian legislation identified in n 35. 43 For the possible significance for tort liability of s 1(1)(a), see Tesco Stores Ltd v Wards Construction (Investment) Ltd (1995) 76 BLR 94 (QB), discussed at section [5.8.4]. 44 In England & Wales, complex rules lay down the principles local authority BCBs must or may follow in order to fix the charging scheme for their services, mainly to prevent them cross-subsidising building control

‘The Building Code’: Adopting Standards  83 Below the statutory provisions and secondary legislation, there is often a cascade downwards of other official or semi-official documents. In England, each of the lettered Parts of the Building Regulations, as well as regulation 7, has one or more ‘Approved Documents’;45 in Northern Ireland, the equivalents are ‘Technical Booklets’; in Australia, the National Construction Code (NCC) provides for ‘Performance Requirements’ and ‘Compliance Solutions’ (‘Performance Solutions’ or ‘Deemed-to-Satisfy Solutions’); in Ireland, ‘Technical Guidance Documents’; in New Zealand, ‘Acceptable Solutions’ and ‘Verification Methods’. These all offer practical guidance to construction professionals on ways of complying with individual requirements in ‘the building code’; they may cross-refer to other national or international standards.46

3.4.3  What Kinds of Standards? The recent trend everywhere seems to be away from imposing detailed uniform solutions to design issues (‘what may – or must – be built’), adopting instead performance-based standards (‘how this aspect of the building must perform’).47 As New Zealand put it in its Building Act 2004: ‘The building code prescribes functional requirements for buildings and the performance criteria with which buildings must comply in their intended use.’48 In reality, though, few building codes rely on ‘functional requirements’ alone. As the DCLG put it in 2008: The current Building Regulations in England and Wales are supported by a mix of performance-based and prescriptive guidance and various levels on the continuum between the two. These levels can be summarised as follows: • Highly prescriptive guidance, eg door widths in Approved Document M (access to buildings)49 • Guidance that relies on manufacturer’s test data such as eg fan performance for Part F functions from other income: the Building (Local Authority Charges) Regulations 2010 (SI 2010/404), on which also see DCLG Circular 01/2010. Local authorities in NI apply a fixed set of fees, laid down under the Building Regulations (Northern Ireland) Order 1979 (SR 1979/1709), as amended; last modified by the Building (Prescribed Fees) (Amendment) Regulations (Northern Ireland) 2013 (SR 2013/60). As in local government in general, councils have no choice but to reduce their expenditure (and so, services) in line with any fall in their income: see also the main text to n 140. There are no controls at all on how private BCBs (AIs) in England & Wales fix their fees. 45 ‘Approved’ in England means by the Secretary of State: for the current list of ADs, see Table 3.2. 46 British Standards: www.bsigroup.com. In Ireland, see www.nsai.ie; for Standards Australia, see www.standards.org.au; and in NZ see www.standards.govt.nz. 47 See Brian J Meacham (ed), Performance-Based Building Regulatory Systems: Principles and Experiences (Inter-jurisdictional Regulatory Collaboration Committee, 2010): www.ircc.info; also David Pilzer, Performance Based Building Regulations (CIB, PeBBu Domain 7 Final Report, 2005): www.irbnet.de. 48 Building Act 2004 (NZ) s 16. 49 For example, Vol 1 of the current (2016) Part M Approved Document for dwellings prescribes at [1.9] that the door of the principal entrance to a communal building containing dwellings should have a minimum clear opening width of 775 mm, with a diagram for how this should be measured, as well as an accessible threshold and no difficulties for wheelchair access. [1.4] applies the same clearance to the principal private entrance to a dwelling, but allows for a step up to the threshold. The MHCLG put out to consultation proposed changes to these rules for England in Raising Accessibility Standards for New Homes: A Consultation Paper (2020): www.gov.uk.

84  Regulation of Residential Construction • Guidance that relies on tested methods of construction, eg fire ratings of walls for Part B • Guidance that relies on calculations, computer simulations or risk analysis, eg structural calculations for Part A • Site testing of performance, such as airtightness testing for Part L.50

The Hackitt Interim Report usefully illustrates the techniques used by the English Building Regulations. Within Part B (Fire Safety), Requirement B1 relates to Means of warning and escape: The building shall be designed and constructed so that there are appropriate provisions for the early warning of fire, and appropriate means of escape in case of fire from the building to a place of safety outside the building capable of being safely and effectively used at all material times.51

Hackitt comments favourably on that provision: The use of the words ‘appropriate’, ‘safely’ and ‘effectively’ are all indicators of a performancebased approach. So, under this approach, there is a requirement placed on those designing/ constructing/refurbishing the building to critically evaluate the viability of their plans against the requirements in Schedule 1. Therefore, in the context of requirement B1 … it should be the case that those completing the building work have a fundamental understanding of the relevant fire phenomena, wider fire safety issues and how any complex design proposals may impact on the ability of the building to provide an adequate means of warning or escape. The key purpose of setting performance-based requirements is to allow greater flexibility in building design, to encourage innovation and support cost-efficiency. It also ensures that different designs and safety requirements can come into play depending on the purpose of the building; for example, a large-scale care home utilised mostly by elderly and infirm people is likely to need additional safety features in comparison with a warehouse. Having a performance-based system, which relies on sophisticated judgements, places increased reliance on the competence of those undertaking the design and construction of buildings and the skills and rigour of the regulators verifying the quality of the work that is done.52

Opting for performance-based standards (Hackitt prefers ‘outcomes-based’) intends to encourage (at least, not to discourage) innovative design, construction techniques and materials, as well as to facilitate improvements in building performance and to take into account the characteristics of the building’s users. As in the extract from Requirement B1 above, modern building codes therefore rely heavily and intentionally on inherently flexible and imprecise terms; others frequently used are ‘adequate’, ‘undue’, or ‘equivalent’, or require that components should be installed or products used ‘in accordance with the manufacturer’s instructions’.53 In consequence (though this is certainly not the aim), greater reliance on such terms has made BCBs’ job of assessing compliance more

50 Department of Communities and Local Government, Usability of Performance-Based Regulations (BD2511, 2008). 51 Approved Document B Vol 1 (2019 edition) Requirement B1. In May 2020, HM Government published Amendments to Approved Document B; these do not amend Requirement B1. 52 Hackitt Interim Report (n 5) [3.22]–[3.23]. 53 On the NZ experience, see Peter John Mumford, Enhancing Performance-based Regulation: Lessons from New Zealand’s Building Control System (Wellington, Institute of Policy Studies, 2011): www.igps.victoria.ac.nz.

‘The Building Code’: Adopting Standards  85 demanding than it was under older, prescriptive, ‘one-size-fits-all’ building codes. In England & Wales, it necessitated a change of culture: [B]uilding control officers saw their role as helping developers meet the requirements of the regulations to ensure a satisfactory building rather than finding ways of stopping them. It took a good ten years [since the Building Regulations 1991] before pockets of resistance in some local authorities were broken down, although the introduction of competition from the private sector at the same time as the new building control system undoubtedly helped the process along.54

To adopt an outcomes-based approach certainly requires more exercise of judgement by all those involved, which shifts the focus, as Hackitt strongly points out, to the competence and training of those who have these roles.55 Evidence already presented to the Grenfell Tower Inquiry Phase 2 hearings provides valuable insights into the fragility of the assumptions of competence, expertise and control which underpin performance-based standards, especially in the face of commercial pressures of the type outlined in section [2.6.3]. The opening quotation of this chapter summarised evidence from the project architect about his level of knowledge of the applicable regulations. Equally instructive is the following response by Ray Bailey, Managing Director of the facades contractor Harley, to a question from Counsel to the Inquiry, Richard Millett QC: Q:  Looking back on all of that evidence and looking back on your involvement in general in the Grenfell Tower project as a whole, is there anything that you would have done differently? A:  I have been asking myself that for the past three years. Looking back to what we knew then, certification that we had, the industry practices that were used throughout the UK, if we were faced with the same job now, I suspect, I’m pretty certain, that we would have done it exactly as we did back then. … I can’t think … that anybody in the construction team working on Grenfell or on the hundreds of other buildings that we similarly constructed across the UK, nobody would have thought for one minute that anything we were doing was unsafe. But if I could go back in time, armed with what I know now, the certification, the testing regimes, the caveats, the misinterpretation of the Building Regulations, that are not just restricted to us but the whole industry, this stuff, Reynobond, Celotex, Kingspan, none of it would be on the wall. The legislation is complicated to use, it’s not very clear, and I think any form of combustible insulation or cladding should be banned immediately. I know that’s not my place to say, but if the building regs banned it, it wouldn’t be on the building.56

The task faced by the Inquiry’s Phase 2 also illustrates how the regulatory scheme makes the forensic exercise difficult in which lawyers and judges may have to engage: considering responsibility (and liability) after the event. Its complexity also makes it hard for a would-be claimant in legal proceedings to discharge the burden of proof resting on them – even more so for a prosecutor attempting to get a conviction.

54 Meacham (n 47) 64. On competition from the private sector in England & Wales, see sections [3.5.2] and [3.6.7] and Case Study 11 at section [11.8]. 55 Hackitt Final Report (n 5) ch 5. See now British Standards Institution, BSI Flex 8670 v1.0 Built Environment – Overarching Framework for Competence of Individuals – Specification (draft standard, 2020): www.standardsdevelopment.bsigroup.com/projects. 56 Grenfell Tower Inquiry, Phase 2, Transcript of Proceedings (9 September 2020) 195–96.

86  Regulation of Residential Construction There is little or no law about the standards themselves, other than the bare words of the top-level statute(s) and of the lower-level regulations or other documents adopted under them.57 In theory, the validity of those norms which have legal status could be challenged on public law grounds, in particular whether secondary rules fit within the prescribed objectives or scope laid down by the relevant top-level statute. This will be so in any legal system which provides for judicial review (or its equivalent), or which permits legal rules to be attacked (directly or indirectly) on constitutional or fundamental rights grounds. However, no such challenges by individuals to the rules of building control appear to have reached the courts in any of our subject jurisdictions; hence, large-scale public inquiries, such as after the Grenfell Tower tragedy, play a vital role in encouraging reform in this area. In New Zealand, the scale of repair costs for leaky buildings encouraged litigants to look in unusual directions for deep-pocket defendants, including taking aim at the Building Industry Authority (BIA), the one-time top-level standard-setting body and regulator. In North Shore City Council v A-G (The Grange), a local authority was successfully sued in tort by owners whose buildings failed to meet the then standards for resistance to moisture but which the Council had wrongly certified as code compliant. The Council attempted to pass some or all of its liability on to the BIA, whose regular audits suggested that the City’s systems and processes were adequate; this the Supreme Court rejected.58 There is a final aspect of standard-setting worth noting, at least in the UK: in the new home and residential conversion market, many private sector insurers who provide third-party warranties have, and enforce, their own sets of technical standards. Compliance with these is required (and verified by inspection) if a project is to be offered the benefit of a warranty – usually essential for developers who want to sell to any would-be buyers who will need mortgage finance. This is notably true of the NHBC, the largest UK third-party warranty provider. Although its standards at the minimum copy those in the official ‘building code’, some of its requirements may be more detailed and demanding. In addition, the NHBC may be able to react more quickly than central government, if particular building techniques or materials are shown to be inadequate or dangerous. In that sense, the NHBC is a de facto regulator, having both the first and last word in relation to those projects with which it is involved and to those developers and builders registered with it.59

57 Those with a legal background do not necessarily have much input into the drafting process. For example, the Building Regulations Advisory Committee for England (BRAC) keeps the Building Regulations under review under the Building Act 1984 (E&W) s 14, for the benefit of the DCLG (now MHCLG): its membership, as listed in recent Annual Reports, appears to include no-one with legal qualifications, or even a law degree. There are similar Committees for Scotland, Wales and Northern Ireland. The Hackitt Interim Report (n 5) said at [1.12]: ‘it is not clear whether BRAC’s role is to proactively advise on initiatives and priorities or purely to take direction from government’. BRAC will have no role in the new Building Safety Regulator in England, being abolished by the draft Building Safety Bill (2020): see section [3.4.1]. 58 North Shore City Council v Attorney General (The Grange) [2012] NZSC 49, [2012] 3 NZLR 341. 59 For a challenge to the NHBC’s technical standards, see Resistant Building Products Ltd v National House-Builders’ Council [2020] NICh 6. For the NHBC and other third-party warranties, see also ch 7; those current warranty providers who have their own technical standards are listed in Table 7.1; although Zurich left the new homes warranty market in the UK in 2009, it had its own technical standards, which figure in Case Study 11 at section [11.8].

‘The Building Code’: BCBs and Projects  87

3.5  ‘The Building Code’: BCBs and Projects 3.5.1  The Public Sector Starting-Point Applying external construction standards to individual planned and actual projects usually began as a decentralised activity, in order to keep it geographically close to each project and hence affordable; it has largely remained so. As a result, the standard-setting and operational parts of the regime may be operated by different sets of entities.60 According to the original English model, widely copied, it was primarily what are called local authorities (borough and other councils) which were given the task of verifying, inspecting, checking and certifying new construction: they were the first BCBs.61 Choosing public bodies (mostly directly elected) for this task reflects two ideas: 1 2

Citizens have a collective interest in the observance of construction standards, so those who do this work should represent the community; and Those who supervise construction in the light of ‘the building code’ must act in the public interest, having no personal or financial stake in the project itself and a strong ‘public service’ ethic, likely to guarantee objectivity and independence.

In this original, purely ‘public’, model, BCBs have statutory authority to review both designs and actual work, with linked inspection, testing and legal powers. This may be expressed – as in both England and New Zealand – as a duty to approve plans and actual work, unless the plans are defective or non-compliant, or the actual work noncompliant.62 There may be a prescribed set of key stages at which the BCB must be notified, in order then to inspect; or the number and sequence of inspections may (as now in England & Wales) be left to individual BCBs to determine project-by-project.63 In England & Wales the 2016 report of the All Party Parliamentary Group (APPG) for Excellence in the Built Environment suggested limiting this freedom, at least in relation

60 South Africa is a counter-example, having a regime which places standard-setting, implementation and registration for house-builders under one statutory national organisation: the National Home Builders Registration Council, established by the Housing Consumers Protection Measures Act 1998 (Act no 95 of 1998) (Sth Africa), as amended: www.nhbrc.org.za. 61 For building control in England & Wales, public BCBs are normally district or London borough councils, with a few oddities like the City of London, the Inner Temple and the Council of the Isles of Scilly, making about 380 separate authorities. These vary in size enormously, as does the number of staff in each responsible for building control; 90 of the BCBs (both public and private) covered by Table 4.1.1 of the DCLG’s Annual Report and Analysis of Building Control Performance Indicators 2015/16 (HMSO, 2017) had between six and 10 employees, but 38 had fewer than five, and 15 had more than 31. 62 Building Act 1984 (E&W) s 16. If the relevant BCB considers that the plans do not comply, but the project promoter thinks they do, they have a right to ask the DCLG (now MHCLG) or the equivalent in Wales for a determination: see www.gov.uk/building-regulations-determinations. 63 The Building Regulations 2010 (n 96) introduced this flexibility in 2012 in reg 16, abolishing the previous nine ‘statutory notification stages’: see DCLG, Changes to the Building Control System: Introduction of Risk-Based Service Plans for Local Authorities and Removal of the Warranty Link Rule: Impact Assessment (DCLG/0089, 2012). The official Building Control Performance Standards (n 118) require each BCB to ‘deliver a site inspection plan matched to client and project needs’: www.gov.uk. In NI, nine prescribed stages for notification and inspection are still laid down under the Building Regulations (Northern Ireland) 2012 (SR 2012/192), as amended, reg 12. On the legality of selective inspection in E&W, see NHBC Building Control Services Ltd v Sandwell BC: the main text to n 149.

88  Regulation of Residential Construction to housebuilding, with a view to a more reliable ‘audit trail’ and assurance to the ultimate buyer.64 Hackitt found that theory is not always followed in practice: Some instances of non-compliance are not picked up at all because key work is encapsulated within the fabric of the building before being inspected. The review has heard repeatedly that construction often begins before the full plans have been approved by building control.65

Where non-compliance is in fact detected while construction is still underway, a public BCB has a range of enforcement powers. Most can usually serve a ‘stop notice’ (or equivalent, which could be an injunction from a civil court) to restrain further work on site. Failure to obey such a notice, or more generally any course of action which avoids, or fails to comply with, the inspection and certification regime, may itself be a criminal offence; public BCBs usually have their own power – rarely exercised – to launch criminal prosecutions.66

3.5.2  Enter the Private Sector In the 1980s and 1990s many jurisdictions adopted a revised model of building control, fuelled by a wish to boost the efficiency of the system – increasing the chances of achieving compliance, as well as reducing the cost of doing so, not just to the public purse but to project parties too. This reflected the period’s widespread belief in ‘light touch regulation’ or ‘a mixed economy’, expressed in a ‘neoliberal’ ideology that many traditional functions of public bodies could beneficially be exposed to private sector competition. However, no jurisdiction which already had public sector players in the building control field eliminated them entirely. This movement, tendentiously expressed as hostility to ‘the nanny state’, had its impact in England & Wales,67 Ireland,68 New Zealand,69 Scotland70 and most of Australia,71 as well as Singapore.72 Unsurprisingly, it was not an exclusively common law trend: several non-common-law EU Member States, plus Iceland, headed in the 64 APPG for Excellence in the Built Environment, More Homes, Fewer Complaints (n 24) 26–27. 65 Hackitt Interim Report (n 5) [1.30]. 66 One of many changes to the enforcement regime, the draft Building Safety Bill (2020) extends the time limit for prosecutions in England & Wales from two to 10 years: cl 42. 67 The Future of Building Control in England & Wales (Cmnd 8179, 1981) criticised the existing system as ‘more cumbersome and bureaucratic than it need be; … the present detailed form of the Regulations is inflexible for many purposes, inhibits innovation and imposes unnecessary costs’. The resulting Building Act 1984, and a long line of Building (Approved Inspectors etc) Regulations made under it (the most recent main Regs are SI 2010/2215 (E&W)), brought in the private AI as an alternative to the public sector BCB, but it took many years for the AI system to get going, especially in relation to residential construction. 68 Under the Building Control Act 1990 (Ire): see further section [3.9]. 69 On New Zealand, see section [3.8]. 70 On Scotland, see section [3.10]. 71 On Australia, see section [3.7]. 72 In Singapore, the Report of the Inquiry into the Collapse of Hotel New World (Singapore Government, 1987) investigated the sudden and total collapse in March 1986 of the Lian Yak Building from the late 1960s (better known as Hotel New World, its main tenant) at 305 Serangoon Road, killing 33 people and injuring many more. This led to the new building control regime introduced in 1989 by the Building Control Act (Cap 29) (Singapore), as now amended (Cap 29, 1999 Rev Ed). This brought in private sector ‘qualified persons’ and ‘accredited checkers’, appointed by the construction employer; the aim was to avoid in future the faulty calculations which had left the hotel under-designed for its load and thus doomed to fail.

‘The Building Code’: BCBs and Projects  89 same direction.73 Each broke the monopoly of public bodies: carving out a role, but in subtly different ways, for appropriately qualified private bodies and individuals, newly empowered (or required) to carry out some building control tasks. Not all such changes were equally significant: in some, new private sector ­involvement meant no more than public BCBs starting to farm out defined building control tasks on individual projects to independent professionals – a form of statutorily authorised subcontracting, delegation or outsourcing.74 At the far end of the privatisation spectrum was Ireland: adopting a national system of building control for the first time in 1990, it chose to rely almost completely on the parties constructing a project to ensure compliance, typically supported by professional ‘opinions’ on compliance that were heavily qualified, and leaving local authorities with at best a secondary and selective spot-check role. This proved completely inadequate in practice and had to be radically rethought.75 Many of the common law jurisdictions which chose to introduce private individuals and entities into the building control process also had an eye to the post-completion defects liability regime. Some, like England & Wales, therefore required Approved Inspectors (AIs) – the private sector new entrants to the field – to have adequate public liability and PI cover, in order to guarantee, under conditions, that a valid claim against them would not fail because of their own disappearance, death or insolvency.76 Unfortunately, these insurance requirements were not accompanied by any clear provisions about the basis or extent of AIs’ underlying liability for their new functions.77 Reflecting a tough insurance market in the construction field following the Grenfell Tower fire, one of the only two commercial insurers of AIs, Howden, stopped offering 73 The Consortium of European Building Control, Building Control Systems in Europe (Building Control Report, 2006): www.cebc.eu. The same liberalisation – if that is what it was – had less impact on land use planning and zoning systems: their implementation and enforcement has tended to remain in exclusively public hands, though in England & Wales no longer only the same elected local or regional bodies which originally also ran building control. 74 This was already the practice in the 1980s in England & Wales: in Murphy v Brentwood DC [1991] 1 AC 398 (HL) the public BCB asked consulting engineers to report on the plans submitted for the new house, later bought from the developer by Mr Murphy. The engineers failed to notice the inaccurate calculations, which led to the foundations being inadequate; the litigation is discussed at section [5.8]. 75 The legislation is the Building Control Act 1990 (Ire), as amended; s 6(4) makes clear that local authorities have no duty, in issuing certificates, to verify compliance of the building on the ground with ‘the building code’. Significant concerns have been expressed about the effectiveness of the system, with moves towards its revision: see section [3.9.3]. 76 DDI in Australia: see section [7.5.2]. The insurance requirement for AIs in E&W is the Building Act 1984 (E&W) s 47(6). See also the Building Act 1993 (Vic) s 135; or Building Act 1991 (NZ) s 51(3)(b). Anecdotal evidence suggests that private certifiers in New Zealand had difficulty in securing the necessary PI cover; the leaky buildings disaster hastened the end of this experiment. 77 Perhaps surprisingly, England & Wales went one step further, though in relation only to new housing: an AI was originally not permitted to act unless there was also, or would be, an approved third-party warranty in force to give the homeowner some basic insurance protection against defects. This ‘Warranty Link Rule’ created the only situation in which a warranty was ever directly required by law in England & Wales; it never applied to commercial/industrial projects, nor to any project where building control was undertaken by a public BCB. The 2012 review of building control in England recommended its abolition: see DCLG, Research into the Operation of the Warranty Link Rule, Including Contaminated Land (BD2729 – Final Report 2012), followed by DCLG, Proposed Changes to the Building Control System: Consultation Stage Impact Assessment (January 2012) and Changes to the Building Control System: Introduction of Risk-Based Service Plans for Local Authorities and Removal of the Warranty Link Rule: Impact Assessment: n 63. The rule was abolished in England in April 2013; in Wales in September 2013.

90  Regulation of Residential Construction cover in 2019. Some AIs had to suspend operations, causing difficulties and delays for incomplete projects, many having now to be transferred to a public BCB for building control purposes.78

3.6  The ‘Building Code’: England & Wales 3.6.1 Standard-Setting In England & Wales, it was not fear of fire which drove the process of developing a nationwide system of building control, but new awareness of the link between insanitary living conditions and illness. Under the Public Health Act 1936 (E&W, also NI (part)), local authorities were empowered – but not required – to adopt bye-laws relating to the erection of buildings within their locality, as well as in relation to sanitation and dangerous or defective structures; and to enforce these.79 In parallel, the same bodies acquired powers in relation to land use planning, as the separate legal framework for development control began to take shape. Councils varied in their eagerness to exercise their new powers, so for decades there was no uniformity nationally. Standard-setting now takes place at national level, in the case of England at present under the Ministry of Housing, Communities and Local Government (MHCLG), where the Secretary of State has four Ministerial colleagues. Back in 2010, Welsh Ministers started to acquire powers to run building control, though under the same top-level statutory framework as in England.80 This is leading gradually to a separate regime: for example, in 2014 Wales introduced a more demanding energy efficiency regime than England;81 since 1 January 2016, automatic fire suppression systems (potentially including sprinklers) have become mandatory in new homes and flats in Wales.82 These standard-setting processes may involve industry and professional stakeholders or their representatives, as well as public consultations and impact assessments; the outcome of these discussions is then formally recognised in positive law. Hackitt took a critical view, quite apart from the lack of integration between the text of Part B on fire safety and the acceptable methods of complying with its provisions: The current system of building regulation relies heavily on central government to keep all regulations and supporting documents up to date, advised by [the Building Regulations 78 See www.labc.co.uk/homeowners/new-faqs-approved-inspector-insurance-issues. One of the AIs affected is Acivico: see Table 3.3. Where an AI is a subsidiary of a third-party warranty provider, this parent can be approved as the AI’s insurer, as the NHBC is for Building Control Services Ltd. 79 Cases as recent as Murphy v Brentwood DC (n 74) were determined against the background of the 1936 Act. 80 The National Assembly for Wales (Legislative Competence) (Housing) (Fire Safety) Order 2010 (SI 2010/1210); an immediate consequence was the Domestic Fire Safety (Wales) Measure 2011. An Order in 2009 gave Welsh Ministers, with effect from 31 December 2011, the power to make building regulations for Wales, including ‘Competent Person’ schemes (see n 175): the Welsh Ministers (Transfer of Functions) (No 2) Order 2009 (SI 2009/3019). So there is now a separate regime in Wales too, though the existing regime shared with England continues in force until expressly changed: see www.gov.wales/building-regulations. 81 See www.gov.wales/building-regulations (new Approved Documents for Part L). 82 The Building Regulations &c (Amendment No 3) and Domestic Fire Safety (Wales) Regulations 2013 (SI 2013/2730; W264), leading also to a new Wales-only version of the Approved Document for Part B: www.gov.wales/building-regulations.

The ‘Building Code’: England & Wales  91 Advisory Committee], a statutory body with wide representation. It is inappropriate for the burden of keeping up to date with technology to rest solely with government in this way. It is clearly the role of government to set the basic framework of standards which must be achieved and to make it clear who has responsibility for delivering those standards of performance throughout the life cycle. However, it should not be for government to lead on the specification of the detailed solutions as to how those standards will be met.83

The current Act regulating construction in England & Wales, the Building Act 1984 (as amended), is a consolidating statute.84 Its reach has been extended twice by statutes which originated in the initiative of individual MPs.85 The 1984 Act empowers the Secretary of State (meaning within the MHCLG) to make regulations to further one or more of the statute’s top-level aims with respect to: (a) the design and construction of buildings; (b) the demolition of buildings; (c) services, fittings and equipment provided in or in connection with buildings.86

In the English context, the present Schedule 1 to the 2010 Building Regulations lists 28 topics which regulations may cover. What has resulted is frequently amended (notably Part B after the Grenfell Tower fire) and imposes requirements under the 17 broad headings in Table 3.2 (most of which are known by lettered ‘Parts’).87 Below the statutory provisions and secondary legislation, each of these Parts, as well as regulation 7, has one or more linked ‘Approved Documents’ (ADs), some of which make a distinction in their scope between dwellings and other buildings; most apply equally to work creating a new building and work on an existing building, if it amounts to ‘a material change of use’. The recent MHCLG Manual warns that ADs do not cover every eventuality: They may not provide appropriate guidance if the case is unusual in terms of its design, setting, use, scale or technology. Non-standard conditions may include any of the following: a. b. c.

difficult ground conditions buildings with unusual occupancies or high levels of complexity very large or very tall buildings

83 Hackitt Interim Report (n 5) [1.61]; on BRAC, see also n 57. 84 The Building Act 1984 (E&W) also includes local authorities’ powers in relation to dangerous or defective structures, deriving from the Public Health Act 1936 (mostly only E&W) – not discussed here, but building control issues can include those about dangerous buildings, as illustrated in NZ by Wanaka Gym Ltd v Queenstown Lakes DC [2014] NZSC 198; the Supreme Court refused to permit an appeal against the building owner’s fine of NZ$64,000 for allowing a building to be used for backpacker accommodation after a ‘dangerous building’ notice had been served: see also ch 4, n 394 and its main text. The main other English legislative source for powers in relation to buildings is Part III of the Environmental Protection Act 1990 (UK, but only part in force in NI), which reproduces (with some changes) the rules on statutory nuisances, also deriving from 1936. 85 The Sustainable and Secure Buildings Act 2004 (E&W): Andrew Stunell, qualified architect and Liberal Democrat MP for Hazel Grove, later Parliamentary Under-Secretary of State – a junior Minister – in the DCLG (2010–12). This was followed by the Climate Change and Sustainable Energy Act 2006 (relevant here only to E&W): Mark Lazarowicz, qualified advocate in Scotland and Labour MP for Edinburgh North and Leith (2001–15). 86 Building Act 1984 (E&W) s 1(1A); for s 1(1), see the main text to n 42. The equivalent text in the Building (Scotland) Act 2003 is almost identical. 87 On post-Grenfell Tower amendments, see also n 51.

92  Regulation of Residential Construction d. e.

large timber buildings some buildings that incorporate modern construction methods.88

Failure to comply with an AD may generally be relied on to establish liability for contravention of a Building Regulation, and proof of compliance with such a document may generally be relied on to negative liability.89 So an alternative solution adopted which does not follow the guidance may have to be shown to be at least functionally equivalent to the officially suggested one. It is at this guidance level that the speed of change is most obvious, with (at least in England before the Grenfell Tower fire) a rolling programme of review of the ADs; changes are also triggered whenever one of the higher-level Parts of the Building Regulations is modified or a new Part introduced. Table 3.2  Building Regulations (E&W): Parts and Main Topics PART

APPROVED DOCUMENT TITLE

WHICH REGS?

safety]90

A†

Structure [Structural

B†

Fire safety

C†

Site preparation and resistance to contaminants and moisture [Resistance to contaminants and moisture]

D†

Toxic substances

E

Resistance to the passage of sound

F†

Ventilation

G†

Sanitation, hot water safety and water efficiency

H†

Drainage & waste disposal

J†

Combustion appliances and fuel storage systems [Heat producing appliances]

K†

Protection from falling, collision and impact

L

Conservation of fuel and power

M

Access to and use of buildings

N

[Glazing safety] – for England, now integrated into Part K

P†

Electrical safety

Q

Security in dwellings [Security]

R91

High speed electronic communications networks [Physical infrastructure for high speed electronic communications networks]

reg 7

Materials and workmanship

7, 38

41 39, 42, 44 36, 37

23–28, 35, 40, 43, 44

7

88 MHCLG, Manual to the Building Regulations (2020) 22: www.gov.uk/guidance. 89 Building Act 1984 (E&W) s 7(1). The current text of the Building Regulations (Northern Ireland) Order 1979 (SR 1979/1709) art 5A(7) is less clear-cut: ‘A failure on the part of a person to comply with guidance published under this Article does not of itself render that person liable to any civil or criminal proceedings; but the guidance is admissible in evidence in such proceedings and a court may take account of any failure to act in accordance with it in deciding any question in the proceedings’. For the position in Scotland, see n 344. 90 Where the title of the AD is different in Wales, it is included here in square brackets. 91 See the Building (Amendment) Regulations 2016 (SI 2016/490).

The ‘Building Code’: England & Wales  93 Parts marked † in Table 3.2 are subject to the general limitation in regulation 8, which in its current version provides: Parts A to D, F to K, and P (except for paragraphs G2, H2 and J7) of Schedule 1 shall not require anything to be done except for the purpose of securing reasonable standards of health and safety for persons in and about buildings (and any others who may be affected by buildings, or matters connected with buildings).92

In order to comply with any of the Parts above, there is an overarching requirement in regulation 7: Building work shall be carried out– (a) with adequate and proper materials which– (i) are appropriate to the circumstances in which they are used, (ii) are adequately mixed and prepared, and (iii) are applied, used or fixed so as adequately to perform the functions for which they are designed; and (b) in a workmanlike manner.93

About the current regulations, Hackitt’s conclusion was critical: The Building Regulations 2010 are clear about the outcomes to be achieved but not about where responsibilities lie. … There is no requirement for identifiable, named dutyholders responsible for ensuring and proving compliance with the Building Regulations.94

And of the ADs and their status: There is widespread confusion about what constitutes the regulations and what is guidance. The guidance on ways to meet the Building Regulations, set out in the Approved Documents, are frequently referred to as ‘the regulations’. The Approved Documents are not produced in a user-friendly format. The current format of covering each requirement (fire safety, thermal insulation, noise abatement, etc) in separate sections leads to multiple, separate specifications for overlapping or common elements of a building, with no easy means for these to be integrated into a single, compliant specification.95

Under the English rules – as in some other jurisdictions – public BCBs have a power on individual projects to relax individual regulations or to dispense with the need for compliance;96 and a BCB can be asked to regularise non-compliant work after the event,

92 Emphasis added. Paragraphs G2, H2 and J7 are not subject to the reasonableness test, since they deal directly with preventing the contamination of water; Parts L, M, Q and R are not subject to reg 8, since their focus is on aims other than health and safety. 93 Building Regulations 2010 (n 96) reg 7 – extended in 2020 for both England & Wales with provisions about the fire classification of materials becoming part of an external walls in a residential or equivalent building of more than 18m in height. 94 Hackitt Interim Report (n 5) [1.8] and [1.15]. 95 Hackitt Interim Report (n 5) [1.9]–[1.10]. The MHCLG responded by publishing all the ADs as one document and a new two-volume Manual on the building control system as a whole. 96 Building Act 1984 (E&W) ss 8–11 and 39; and Building Regulations 2010 (SI 2010/2214) reg 11. If the project promoter asks for a relaxation or dispensation and the BCB refuses, they have a right of appeal to the DCLG (now MHCLG) or the equivalent in Wales. It may be important for the later sale of any building in respect of which such a relaxation or exemption has been granted to transmit evidence of this to the intending buyer;

94  Regulation of Residential Construction to avoid any future risk of enforcement.97 At the limit, the BCB may organise rectification work and charge the building owner – but rarely will a public authority choose to commit its own limited resources, in the hope of being reimbursed later on.98 In England & Wales, three inroads into the shared monopoly of both categories of BCB have been made: 1

Allowing members of a regulated trade body to self-certify compliance with the relevant aspect of the Building Regulations (Competent Person Schemes),99 which the Hackitt Interim Report said risks non-compliant buildings, since those coming in to do only their specific tasks do not (and cannot) understand the potential impact of what they do on the building as a whole, nor is there oversight from a BCB or other regulator on their work;100 2 Approving third-party certifiers (neither public nor private BCBs) to do inspections and certification for specific kinds of work, a system newly introduced for electrical work in dwellings in 2014;101 and 3 Approving standard components, use of which takes that aspect of the project outside the normal building control regime.102

3.6.2  When do the Standards Apply? In the English context, the starting-point in every case is a ‘trigger’ event or process, which makes ‘the building code’ applicable. There are two: when there is either ‘building work’, as defined (this includes erection, extension, provision of services, material alteration, insulation of a cavity wall, underpinning of a building or alterations which bring the building into the energy efficiency regime);103 or ‘a material change of use’ (also further defined).104 Different sets of requirements apply, depending on which type of work is being undertaken; and the detailed conditions of planning permission for the project may add further requirements, bringing in aspects of the Building Regulations not universally applicable. Most standards apply once and for all at the time of new construction, though the English system does impose some ‘continuing requirements’, eg on lift systems

the same evidence may undermine legal action against an original project party based on the building’s alleged non-compliance with Building Regs. A similar power exists in Scotland under the Building (Scotland) Act 2003 s 3. 97 Building Regulations 2010 (n 96) reg 18. 98 Building Act 1984 (E&W) s 107. 99 On CP schemes, see n 175. For the broader background, see Consortium of European Building Control, Study into Self Confirmation in Building Control in Europe (Building Control Report, 2010): www.cebc.eu. 100 Hackitt Interim Report (n 5) 53 (Findings). 101 MHCLG, Third Party Certification Schemes for Domestic Electrical Work: Guidance (2014): www.gov.uk/ guidance. 102 This now applies to floors and walls in newly built houses, bungalows and flats. If the site is registered with Robust Details Ltd, its own solutions can be used which outperform Part E of the Building Regulations (resistance to sound) and avoid the need for pre-completion sound testing on site: www.robustdetails.com. 103 Building Regulations 2010 (n 96) reg 3. Schedule 2 lists classes of building and work which are exempted from the whole Building Regulations regime. 104 Building Regulations 2010 (n 96) reg 5 (as amended).

The ‘Building Code’: England & Wales  95 within buildings.105 The Sustainable and Secure Buildings Act 2004 (E&W) added the possibility of imposing new continuing requirements in relation to fuel, power and emissions.106 As other examples, if a building is extended or renovated, Part L (partly implementing the EU Directive on energy efficiency in buildings) may require the energy efficiency of the existing building (or part of it) to be upgraded.107 Part R (implementing the EU Broadband Cost Reduction Directive) requires access points and internal infrastructure for high speed broadband to be installed not just in new buildings but also in those undergoing major renovation.108 However, the general rule so far is that work already completed is not automatically affected by the adoption of new and more demanding standards. This feature of the present system was criticised by Hackitt, so it seems likely that aspects of ‘retrofitting’ may increasingly be required, owners becoming obliged to bring existing buildings’ characteristics and performance up to modern standards, at least where it is technically possible to do at a reasonable cost and where it removes a danger.109 This may well apply to some forms of cladding on high-rise residential buildings, as implicit in the Hackitt Final Report (the final Grenfell Tower Inquiry report may similarly recommend): the draft Building Safety Bill under consideration (2021) may lead to such a reform.110 There are difficult legal issues about the impact on individual unit owners in a block of flats of the need to upgrade aspects of the building in order to meet modern standards. In a typical English long leasehold environment, the standard leases may give the management company (or landlord) no power of entry into individual units to do such work, at the same time making clear that unit owners are not expected to contribute to anything which is an ‘improvement’ (rather than works of repair or maintenance, as defined).111 So if extra floors planned to be added to the top of a block must comply with the current ‘building code’, this may necessitate comparable improvements to all existing flats (the installation of sprinklers, perhaps); but the landlord may have no power of entry in order to insist on doing the work, even if (or especially if) the leases clearly rule out attempting to get existing unit owners to pay for it.112 105 The Equality Act 2010 (E&W; most provisions also apply in Scotland and a few in NI), building on the Disability Discrimination Act 1995, impacts here, making discrimination against disabled people (more widely defined than for the Building Regs) illegal in the provision of goods, facilities and services. Such discrimination can consist in failing to take reasonable steps to remove, adapt or circumvent obstacles which make access to buildings more difficult for someone who is disabled than for someone who is not. 106 Building Act 1984 (E&W) s 2A, added by the Sustainable and Secure Buildings Act 2004 (E&W) s 4. 107 The EU Directive: n 37. 108 Directive 2014/61/EU of the European Parliament and of the Council of 15 May 2014 on measures to reduce the cost of deploying high-speed electronic communications networks [2014] OJ L155/1. 109 Hackitt Interim Report (n 5) [1.25] and [1.85]. For an unsuccessful attempt to argue that a pane of glass that complied with the Building Regulations when it was installed but would not now do so constituted a breach of the ‘common duty of care’ owed by an occupier to a lawful visitor, see McGivney v Golderslea Ltd [2001] Const LJ 454 (CA). 110 See section [3.6.8]. 111 Piechnik v Oxford City Council [2020] EWHC 960 (QB). 112 Long leasehold arrangements make it very difficult to deal with situations unforeseen when the leases were first granted. By contrast, under a strata title or equivalent regime (including the English commonhold), the body owning the freehold of the whole development has a power to adopt rules binding all the unit owners and can thus react flexibly to new circumstances: see section [11.5].

96  Regulation of Residential Construction

3.6.3  Who is Responsible for Compliance? Under the present regime in England & Wales, there is uncertainty, highlighted by the Hackitt Interim Report, whether the legal responsibility for compliance is on the owner of the site, the construction employer, the builder or the certifier, or on some combination of these. The official line (in the foreword to current ADs) reflects this fogginess: People who are responsible for building work (eg agent, designer, builder or installer) must ensure that the work complies with all applicable requirements of the Building Regulations. The building owner may also be responsible for ensuring that work complies with the Building Regulations. If building work does not comply with the Building Regulations, the building owner may be served with an enforcement notice.

In English law, at least, liability for compliance in relation to building work rests on ‘a person carrying out building work’; in relation to a material change of use, it rests on the person intending to make that change. This seems to mean the owner of the site. However, in the normal case, the building contractor (or separate project manager or designer, if there is one) will in fact take responsibility – sometimes as a matter of contract – on behalf of the employer or owner for contact with the BCB.113 But the employer or owner is still ‘carrying out’ the work, though if they employ a building contractor, the contractor may be equally subject to ‘the building code’. So the owner can still be convicted of an offence even where a contractor is also involved, as in the 1993 case of Blaenau Gwent BC v Khan.114 In the Divisional Court, Stuart-Smith LJ said that the phrase ‘a person carrying out building work’ must include the building’s (or site) owner, in the same way that the owner (and not usually the builder) is the person intending to make a material change of use. Any other interpretation would defeat the whole purpose of the legislation, as enforcement would become impossible once the builder had left the site. There may also be uncertainty about who has the duty of rectifying non-compliant work, which the BCB may have power to require via a formal notice. Some form of official certification of compliance may be a vital step towards what is in many jurisdictions the final stage in building control: permission to occupy the building, which may then trigger the transfer of ownership of the now completed building (or granting a lease of it, or part of it) to its intended user. As we have seen, the failure in the regulatory structure (not just in contract) to identify who is responsible for compliance was identified by Hackitt as a significant shortcoming: In combination, the lack of a clear dutyholder and the competency issues combine together to underpin concerns that there is no reliable, competent oversight that work will be completed in line with the Schedule 1 requirements or the Approved Documents [under the Building Regulations]. This does not mean that there are no competent people working in the system; there are very many. Rather the system does not do enough to provide assurance that standards will reliably be upheld.115

113 See

section [4.8.2]. Gwent BC v Khan (1993) 35 Con LR 65 (DC). Interim Report (n 5) 53 (Findings); see also the main text to n 94.

114 Blaenau 115 Hackitt

The ‘Building Code’: England & Wales  97

3.6.4  Achieving the System’s Aims? There is nothing in the Building Act 1984 for England & Wales which comes close to such a clear statement of the law’s aims as in the New Zealand statute: [T]o promote the accountability of owners, designers, builders and building consent authorities who have responsibilities for ensuring that building work complies with the building code.116

Similar aspirations of strict responsibility for compliance with ‘the building code’ (there, the Building Code of Australia (BCA)) underpin the Australian schemes; in Victoria, for example, there is a general prohibition on carrying out ‘building’ work unless it complies with the relevant legislation (which itself incorporates, or otherwise requires compliance with, the BCA).117 The official promise made in relation to England & Wales at the start of the official (but not mandatory) Building Control Performance Standards is a very pale version of these: Although the building control process in itself does not guarantee 100% compliant buildings, the test of effective building control is its success in helping to achieve reasonable standards of health, safety, energy efficiency, accessibility and sustainability for building users.118

Such words ring hollow in the light of the Grenfell Tower tragedy. They echo the limited assurance of the wording on completion certificates issued by English BCBs: ‘[T]he building works … have been inspected and, as far as this Authority, after taking all reasonable steps, have been able to ascertain, comply …’.119 Or: ‘[S]o far as the authority has been able to ascertain the requirements of the Building Regulations are satisfied.’120 As the DCLG puts it: Completion certificates are evidence, but not conclusive proof, of compliance with the Building Regulations (ie they are not a guarantee of compliance) as building control is only a spot-checking process intended to help the person carrying out the work to comply.121

Despite the ‘Right First Time’ approach which ‘ensuring’ in the NZ statute suggests, the DCLG must be right: it would be unreasonable and unfair to expect any certificate based on selective and occasional inspections to guarantee compliance, liability following 116 Building Act 2004 (NZ) s 3(b) (emphasis added). For its relevance to the liability in tort of BCBs in NZ, see North Shore City Council v Body Corporate 188529 (Sunset Terraces) and Body Corporate 189855 (Byron Avenue) [2010] NZSC 158, [2011] 2 NZLR 289, discussed at section [5.13.2]. 117 See section [3.7.2] and, for the states’ and territories’ primary legislative provisions in relation to the BCA, n 36 above. For a key qualification to this aspiration of strict liability, see n 121. 118 Introduction to DCLG, Building Control Performance Standards (2017): www.gov.uk. The same text is in the equivalent document for Wales (2014). 119 Actual example known to the author. One of the proposals in Changes to the Building Control System (n 63) was to require all public BCBs to issue a completion certificate in each case but to modify the standard wording to make clearer the limited assurance which the certificate offers. 120 AMEC Foster Wheeler Group Ltd v Morgan Sindall Professional Services Ltd [2016] EWHC 902 (TCC), 166 Con LR 130 [12]. 121 Changes to the Building Control System (n 63) 7. Underscoring why we used the word ‘aspiration’ above, similar language may be found in key provisions of the Australian schemes. For example, the Building Act 1993 (Vic) s 46 is explicit that an occupancy permit ‘is evidence that the building or part of a building to which it applies is suitable for occupation’ but ‘not evidence that the building or part of a building to which it applies complies with this Act or the building regulations.’

98  Regulation of Residential Construction automatically if construction is in fact non-compliant or if the certificate turns out to be inaccurate. Hackitt agreed: Primary responsibility for ensuring that buildings are built to the correct standards and are fit for purpose must rest with those who commission the work and those who design and build the project. Those commissioning must ensure that those they commission to do the work have the right levels of competence and are appropriately supervised.122

There is, however, a yawning expectation gap here: lay people – and some construction parties too – put far more weight on a certificate from a BCB than those giving it intend it to bear. As Hackitt noted: Issuing of a Completion Certificate … is often seen as ‘proof ’ that those working on a building have built it to the required standards of Schedule 1 [of the Building Act 1984]. This misinterprets the role of BCBs (who, to the best of their ability, certify that work is to a required standard) and shifts responsibility for compliance away from those actually undertaking the building work.123

The same expectation gap has a further aspect: many new home buyers look to their local public BCB for help in getting issues of build quality resolved with their developer. Not only does the building control system have no direct consumer protection focus (a partially completed home’s eventual, but not yet actual, owner has no role in the process), but almost all a public sector BCB’s powers in relation to a project come to an end once it has issued the completion certificate; the equivalent for a private sector BCB (AI) is the final certificate, with the same result. Local authorities may give postcompletion advice to consumers, but the building control regime puts them under no duty to do so and gives them no powers or resources in that regard.124 These limitations in part explain calls for a New Homes Ombudsman, also why the present regulatory structure fails to reflect the whole-life safety approach to buildings (‘from design to demolition’) advocated by Hackitt.

3.6.5  Record-Keeping and Transmission with the Building The documentation supplied to a BCB in order to request authorisation to build will end up in the BCB’s archive; similarly, reports of inspections or audits organised by, or on behalf of, a warranty provider will be part of this insurer’s records.125 However, the Building Regulations themselves make no provision linking any of this information to 122 Hackitt Interim Report (n 5) [1.62]. 123 Hackitt Interim Report (n 5) 59 (Findings). 124 Where complaints by individuals about shoddy building or repair work are concerned, local authorities do have statutory powers: Trading Standards Officers can prosecute in appropriate cases eg under the Fair Trading Act 1973 (as modified by the Enterprise Act 2002) or the Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) as amended, implementing Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (‘the Unfair Commercial Practices Directive’) [2005] OJ L149/22. On these forms of consumer protection, see section [6.2]. 125 Not even these are necessarily systematically archived or preserved by the BCB or warranty provider, eg in case of later litigation, as happened in Case Study 11 at section [11.8]. For record-keeping in Scotland, see section [3.10.2].

The ‘Building Code’: England & Wales  99 the building itself, which could inform the building’s buyer, later acquirer or manager of aspects of its construction – notably the precise form of cladding used – and the processes used to reach particular design solutions. Nor is it certain that the information held by a BCB is complete or accurate, especially where construction is procured on a design-and-build basis and decisions to modify what is built take place after the submission of plans to the BCB and during the actual process of construction, eg by value engineering processes. These are not necessarily systematically recorded anywhere – and there is no legal duty to tell the BCB, who will be unable to spot their possible significance unless they come to light during an inspection. Following 2017 changes to the Building Control Performance Standards, a BCB must provide site inspection records to the building owner, on request, for all building work that has been issued with a final/completion certificate or where an initial notice has been cancelled (for which the BCB can charge); where the client is not the building owner, the BCB must take all reasonable steps to ensure that the building owner is aware of whether the local authority or an Approved Inspector is carrying out building control functions for the work to their property.126 A well-informed commercial client or investor, looking to the whole life of the building, may insist on acquiring some of this construction information from the main contractor; as might the acquirer of the freehold of a multi-unit development from its original developer. By contrast, a new home buyer, like B1 in Scenario 2 (Table 1.1) or Scenario 7 (Table 1.3), is unlikely even to think about doing so, and has no right at present to demand anything from the developer (though the APPG 2016 report recommended moves in this direction).127 If the home is sold on before problems appear and any third-party warranty has by then elapsed, as happens in Scenario 5 (Table 1.2), its new buyer (B2) can be no better informed than their predecessor – often less so. There is a separate fire protection regime for England & Wales which applies in relation to the occupation (and ongoing maintenance) of the common parts or whole of a building. This derives primarily from two overlapping (and badly co-ordinated) sources: the Regulatory Reform (Fire Safety) Order 2005 and its associated fire risk assessment documents;128 and the Housing Act 2004, under which the Housing Health and Safety Rating System Regulations (HHSRS) have been adopted.129 The first brings in the fire and rescue service at the plans review stage, before the BCB gives approval; but its role is only consultative. The same regime is also designed to ensure that, after construction, a multi-unit residential building has a ‘responsible person’ who has information about the fire safety aspects of the building, can pass this on to residents and can ensure that it is regularly reviewed and updated. The scope of these rules and their applicability to residential towers are clarified in the Fire Safety Act 2021. It was the absence of reliable ongoing record-keeping about fire-critical components and systems that created the need for other high-rise buildings to be surveyed on site post-Grenfell to see what cladding had in fact been used – there is no alternative way to 126 Building Control Performance Standards: n 118. 127 APPG 2016 report: n 24. 128 The Regulatory Reform (Fire Safety) Order 2005 (SI 2005/1541) (E&W), as amended. 129 The Housing Health and Safety Rating System Regulations (England) 2005 (SI 2005/3208) (Wales has its own 2006 Regulations).

100  Regulation of Residential Construction be sure. Finding appropriately qualified building surveyors or other professionals to do this work (and permitted by their own PI insurers to do it), which may require removal of samples of cladding for laboratory testing, has led to long delays in remedial work starting – leaving aside the thorny questions of who will or should pay. This has led to expensive 24-hour ‘waking watch’ patrols, steep increases in home and contents insurance premiums and the marketability of what are estimated to be more than a million private sector flats open-endedly sterilised.130 The knock-on effect on financial institutions (banks and building societies) of homes now worth far less than the loans secured on them is starting to be a concern. There are also issues – beyond the scope of this book, but of vital practical importance – about how such rectification work should be procured, supervised and signed off, in order to give adequate assurance about its quality. Hackitt evidenced real concern about the information gaps to which the present situation leads. Her review’s suggested reform takes the Construction (Design and Management) Regulations 2015 (CDM) as its model:131 When a building or part of a building is completed, there is a need for the project as built to be documented. A thorough, independent review needs to take place and a handover process completed before the building, or part of the building, can be occupied … There is a need for building control bodies to do more to assure that fire safety information for a building is provided by the person completing the building work to the responsible person for the building in occupation. Given the importance of such information for ongoing maintenance and fire risk assessment, proof should be sought that it has been transferred. After completion and handover of a building there must be clear responsibility assigned to a known person or persons for ensuring that the building remains fit for purpose throughout its life cycle. Where and when ownership changes, responsibilities must also be formally handed over. The assignment of responsibilities in blocks of flats, where there are boundaries between areas which are the responsibility of residents and those which fall to landlords or owners, must be clarified. The definition of the ‘common parts’ of such buildings, and clarification of who is qualified and able to properly inspect both common areas and individual properties, are critical elements of maintaining overall building integrity but are currently unclear due to the confusing overlap between the [HHSRS] Regulations 2005 and the Fire Safety Order. It is currently the case under the Fire Safety Order that fire risk assessments for high-rise residential buildings must be carried out ‘regularly’. It is recommended that the responsible person ensures these are undertaken at least annually and when any significant alterations are made to the building. These risk assessments should be shared in an accessible way with the residents who live within that building and notified to the fire and rescue service.132

The increasing use of real-time computer modelling of planned and actual construction projects (Building Information Modelling (BIM)), shared between all the project 130 See Housing, Communities and Local Government Committee, Cladding: Progress of Remediation (HC 2019–21, 172). See also section  [11.4.3]. First-hand accounts of the anguish which this situation has caused residents and owners are legion, eg Emma Byrne, ‘The New Cladding Scandal that Could Bankrupt a Generation’ The Spectator (27 August 2020); from Australia, Sue Williams, ‘Sydney Apartment Buildings with High-risk Flammable Cladding have Owners “Living in Fear”’ Domain (18 September 2020): www.domain. com.au. 131 Construction (Design and Management) Regulations 2015 (SI 2015/51) (E&W, Scotland: NI has its own CDM Regs 2016): see the Hackitt Interim Report (n 5) 53. 132 Hackitt Interim Report (n 5) [1.78], [1.80], [1.69]–[1.70] and [1.84].

The ‘Building Code’: England & Wales  101 participants and regulators involved, could make a real contribution to ameliorating this problem. But there will still be many smaller and simpler projects where the scale and cost make BIM unnecessary or technologically over-complex. Equally, it is not certain that end-users of buildings – notably short-term or periodic tenants of social landlords – will necessarily benefit where BIM is used, without a regulatory push to require key pieces of safety-critical design and construction information to be archived and passed on (or at least made reliably accessible) to them.

3.6.6  Implementation of ‘the Building Code’: The Public Sector In England & Wales, the penalty for non-compliant work under the Building Act 1984 section 35 is a fine on conviction (since 2012, potentially unlimited in amount, even in the Magistrates’ Court), with a daily additional fine of £50 while the work remains noncompliant. No reliable figures are available of court proceedings under these powers, but hard-pressed local authorities must be likely to prefer more informal ways of resolving cases known to them.133 Here, as in Ireland, public BCBs can also ask a civil court for an injunction to halt further construction, where the current state of progress is noncompliant; use of this power is probably also exceptional, though again no figures seem available. On enforcement, Hackitt noted: While informal enforcement activity by building control bodies generally leads to compliance, where non-compliance is identified, [public sector BCBs] are deterred from taking formal enforcement actions by the cost of pursuing cases through the courts, and the historical failure of the courts to impose robust sanctions. … The cost of achieving compliance must be significantly less than the sanctions which may be imposed on those who do not follow the rules and fail to achieve the standards set, in order to create the right incentive to comply and a deterrent to seeking to circumnavigate requirements.134

The building control departments of public BCBs in England have in recent times found themselves, like almost every local authority activity, under budgetary attack from central government on austerity grounds; they are also in competition with private sector AIs, as well as with other local authorities, to attract building control work.135 133 The maximum £5,000 limit in the 1984 Act (Level 5 on the standard scale) for a fine on summary conviction under s 35 was removed by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 s 85(1) (applicable only to E&W). The 1984 Act (E&W) s 57 includes separate offences of giving a false or misleading certificate, which on conviction include the possibility of imprisonment. Criminal prosecutions for breaches of the Building Regulations in English law which have reached the Law Reports include Blaenau Gwent BC v Khan (n 114); Antino v Epping Forest DC (1991) 53 BLR 56 (DC): see the main text to ch 4 n 137; and NHBC Building Control Services Ltd v Sandwell BC (n 146). As in all these cases, such legal questions get to a Divisional Court of the High Court (QBD), through either the special statutory ‘case stated’ procedure, available where magistrates try a case, or via judicial review proceedings. 134 Hackitt Interim Report (n 5) [1.29] and [1.88]. 135 There is no direct evidence of the impact of financial stringency on the performance of public BCBs as such. The Annual Reports of the Building Control Performance Standards Advisory Group do not attempt to measure how effectively BCBs do ensure compliance, but both the 2014–15 and 2015–16 reports noted that a quarter of employees in the building control function were over 55 and that there were far more complaints in relation to domestic projects than in relation to non-domestic (though the numbers in both categories are very low, as a percentage of all building control applications): DCLG, Annual Report and Analysis of Building Control Performance Indicators 2014/15 (HMSO 2016) and 2015/16 (n 61).

102  Regulation of Residential Construction Table 3.3  Local Authority Building Control: Innovations ACTION

EXAMPLE

OUTSOURCING TO AN EXTERNAL PARTY SUCH FUNCTIONS AS CAN BE DELEGATED.

The London Borough of Barnet has a joint venture development and regulatory services company with a commercial partner.

ESTABLISHING A COMPANY WHOLLY OWNED BY THE LOCAL AUTHORITY TO OFFER BUILDING CONTROL (AND OTHER) SERVICES.

In 2012 Birmingham City Council set up the Acivico Group. One of its member companies provides building control services to the City and in 2014 achieved Approved Inspector status.136

PARTNERING WITH OTHER LOCAL AUTHORITIES IN THE SAME REGION BY ESTABLISHING SHARED BUILDING CONTROL PROVISION.

In 2015–16 there were 20 local authority partnerships covering 57 local authority areas, eg Gravesham BC, Medway Council and Swale BC in north Kent now share a single building control service.137

A further part of local authorities’ collective response to the challenge represented by the arrival of AIs was the creation of a national ‘brand’ across England & Wales, Local Authority Building Control (LABC), which also offers certification of construction products as compliant with ‘the building code’ (relevant to the use of ACM cladding at Grenfell Tower); in 2007 a shared third-party warranty product was added, LABC Warranty, available only to projects using local authorities for building control. The cover offered is closely similar to the NHBC’s Buildmark and administered in tandem with another third-party warranty, Premier Guarantee.138 In 2019 a single registration system, LABC Assured, was launched for construction systems and products, providing the possibility of compliance at a single pass with both Building Regulations and the conditions for warranty cover.139 The negative implications of some of these changes came to light at the Grenfell Tower Inquiry. John Hoban, senior Building Control Officer at the Royal Borough of Kensington and Chelsea responsible for the refurbishment of the Tower, noted that between 2013 and 2017 his department lost 10 surveyors with, between them, 230 years’ experience, replaced by one recent graduate.140 Understaffing on this scale may make it hard to offer a service reliably complying with the official Building Control Performance Standards.141 Hoban confirmed that RBKC did not follow the BCPS requirement to

136 But see n 78 and its main text. 137 Helen Randall, ‘Models of Building Control Provision’, Local Government Lawyer (16 June 2016). She points out that there are limits to this, including (at least before Brexit) the possible impact of EU public procurement legislation and the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (UK) (as amended) (the protection of individual employees on the transfer of an undertaking to a new owner). See also Grant Thornton, Responding to the Challenge: Alternative Delivery Models in Local Government (January 2014): www.grant-thornton.co.uk. The figure for local authority partnerships comes from DCLG, Annual Report and Analysis of Building Control Performance Indicators 2015/16: n 135. 138 On third-party warranties, see ch 7. 139 LABC Press Release, 5 March 2019: www.labc.co.uk/news. 140 Grenfell Tower Inquiry (n 56), Phase 2, Transcript of Proceedings (1 October 2020) 216. 141 Building Control Performance Standards: n 118.

The ‘Building Code’: England & Wales  103 adopt a formal written plan for the scope and frequency of inspections of each project; he decided to inspect monthly at Grenfell Tower.142 As Hackitt had already observed: There can be a difficult trade-off between BCBs competing with one another for business with design and construction teams while ensuring rigorous and determined certification with all the requirements of the Building Regulations. This is particularly the case given tight margins on building work and the broader pressures on local authority resources. We have frequently heard that this leads to situations where BCB personnel can fail to ‘win business’ where they will not commit in advance to approval of more risky designs and that those who do win business can become far too embedded in supporting the building design process rather than being an impartial rigorous verifier of building safety.143

Making the same point in his oral evidence, Hoban agreed that his role was ‘the last link in the chain to spot a problem or spot the inappropriateness of the use of any particular product on this building’.144 But in response to questions from Richard Millett QC, he explained how he missed the significance of the ACM cladding: Q  [G]iven that you had seen that ACM was on the building, having been told in the drawings – and we saw the south elevation – in the September of 2014 that it was going to be zinc, did it not make you wonder what else Studio E or Rydon hadn’t told you about the external facade and its make-up? A  At the time it didn’t register. Q  Right. Should it have done? A  In hindsight, yes. What I would say, I’d worked with a lot of the professionals on this project on the other schemes, and I had a confidence in them, you know, the architects and the various other professionals and Exova [fire engineers]. So I had … you know, I’d dealt with them and I considered that they knew what they were doing. Q  Right. Do we take from that answer that, because of your experiences with Studio E and Exova on [an earlier] project, you had perhaps a closer working relationship than otherwise you might have done? A Yes. Q  And did that lead you to trust them? A Yes. Q  Did you know that Studio E had never done an external overclad of a high-rise building? A  No, I didn’t … it was always my understanding that Exova were fully involved in the project … Nobody ever came back to me and said, ‘Well, we’re not using Exova’ … Q  On Studio E, were you a little bit softer on them than you otherwise might have been because of your relationship? A  No, no, but, as I say, I’d worked with them for quite a considerable time on the Academy [the nearby Kensington Academy and Leisure Centre Project, where Studio E had been the architects], and I considered that architects would – it was reasonable to expect that they would know and understand Building Regulations.



142 Grenfell

143 Hackitt

Tower Inquiry (n 56), Phase 2, Transcript of Proceedings (30 September 2020) 85–87. Interim Report (n 5) 54 (Findings). Tower Inquiry (n 56), Phase 2, Transcript of Proceedings (1 October 2020) 57–58.

144 Grenfell

104  Regulation of Residential Construction Q  Was it not your job to hold them to the highest standards of compliance with the Building Regulations, completely independently and ruthlessly? A  In hindsight, yes, but I’d worked with them on the other project … it was my understanding that they knew what they were doing.145

This over-reliance on others was matched by the architects Studio E equivalently overrelying on Hoban and his department, as the opening quotation of this chapter suggests.

3.6.7  Implementation of ‘the Building Code’: The Private Sector In England & Wales, Margaret Thatcher’s second government decided to create direct competition for public sector BCBs; accordingly, in 1985 private sector Approved Inspectors (AIs) started operation. The first to be approved (by the then Department of the Environment, Transport and the Regions) was for dwellings alone: the thirdparty warranty provider NHBC’s new subsidiary, Building Control Services Ltd, which had the field to itself for more than a decade. AIs were to exercise almost the same functions as public BCBs, but appointed contractually by one of the project parties (with no fees or standard terms of contract laid down by law, and no specific requirements for inspecting projects).146 They were not placed precisely on all fours with their public equivalents, being given no enforcement powers.147 So a public BCB remains in reserve for any project where an AI has been appointed, also having the power to prosecute an AI. In 1990 Sandwell Borough Council prosecuted NHBC Building Control Services Ltd for recklessly giving a final certificate containing a false statement relating to a development of new houses, arguing that the company’s inspectors had not discharged their functions properly, failing to notice the absence of proper fire-stopping between garages and houses.148 The Divisional Court accepted the AI’s appeal against conviction, saying that a system of selective inspection was impliedly approved by the Secretary of State; some defects might therefore escape detection.149 On the issue of recklessness, the court held that it was wrong to deduce this from the fact alone that the defective fire-stopping was missed, or from the fact (known to the inspector) that the system of inspection was selective. But Leggatt LJ concluded by expressing concern about the general principle of selectivity: However reliable a builder can be, mistakes do happen. There is, therefore, an obvious case for identifying particular types of breach of Building Regulations for which only individual inspection will suffice. Unless that is done, important breaches may, as here, escape detection.150 145 Grenfell Tower Inquiry, Phase 2 (n 56), Transcript of Proceedings (1 October 2020) 201–3. 146 For the statutory controls on fees charged by public sector BCBs, see n 44. 147 AIs may serve a notice on the employer or contractor specifying the aspects of the work which do not comply with Building Regulations. If the non-compliance is not remedied in the period specified, the AI may have to cancel the initial notice under the Building Act 1984 (E&W) s 52, which revives the LA’s wider powers in relation to the project. 148 Building Act 1984 (E&W) s 57. 149 NHBC Building Control Services Ltd v Sandwell BC (1990) 50 BLR 101 (DC). 150 NHBC v Sandwell (n 149) 121.

The ‘Building Code’: England & Wales  105 The current Building Control Performance Standards include a duty to adopt ‘an appropriate site inspection regime’, bearing in mind a list of relevant factors, and recording this inspection adequately, ‘to demonstrate the application of reasonable skill and care’.151 The linked Guidance Notes, in line with the Divisional Court above, say that ‘it is not practicable for every item of work to which the Building Regulations relate to be examined’ but do lay down a list of items which should normally be inspected, including work relating to fire safety. The duties in these Standards could obviously be of relevance in any litigation against a BCB which had adopted them – perhaps even against those which had not. The Hackitt Interim Report also pointed out inconsistencies between the position of the different actors in the whole construction process – including the two types of BCB – which explain why build quality is sometimes compromised: Numerous examples have been quoted, demonstrating lack of competence among designers, builders, fire engineers, fire consultants, fire risk assessors, building control inspectors and others, which compromises the fire safety of buildings. In particular, for fire risk assessors undertaking risk assessments on complex and high-risk buildings there are no statutory registration or accreditation requirements. Private sector Approved Inspectors are required under legislation and their code of conduct to demonstrate and maintain relevant qualifications and experience and are subject to audit by an independent body, whereas there is no such statutory competence framework for Local Authority Building Control inspectors … This is one area where England and Wales appears to be lagging behind many other parts of the world that require key personnel throughout the system to be properly trained, assessed and in many cases licensed to carry out specific roles.152

In July 2020, the official register of AIs in England & Wales recorded about 90 members.153 There are a few individual AIs but most are corporate, some being very large businesses – half of the country’s top 10 BCBs (by value) are AIs. Of the operation in general of this system, Hackitt noted: There are wide differences of view regarding the benefits of the partial privatisation model introduced into building control which offers a choice between [public sector BCBs] and private sector Approved Inspectors. The latter are perceived to be less independent of the clients and have no means of enforcement action available to them other than to refer cases to [public sector BCBs]. This referral process is rarely used.154

The possibility of negotiating terms and fees seems to have resulted in higher building control fees in the private sector (£750 per average application in 2015–16) than in the public sector (£432 in the same period). It also gives the relationship with an AI more of the badges of contract than that with a public BCB, though of course every BCB operates in a statutory context.155 The DCLG certainly has taken the view that 151 Building Control Performance Standards: n 118. 152 Hackitt Interim Report (n 5) [1.19]–[1.21] and [1.23]. The draft Building Safety Bill (2020) includes new registration and supervision arrangements for all building inspectors: cl 44. 153 See www.approvedinspectors.org.uk. 154 Hackitt Interim Report (n 5) [1.28]. 155 DCLG, Annual Report and Analysis of Building Control Performance Indicators 2015/16 (n 61) Table 3.2; the average fees come from the Hackitt Interim Report (n 5) 55.

106  Regulation of Residential Construction ‘the relationship between the AI and the person carrying out the [building] work is governed by their contract’.156 However, the free market aspects of this relationship can produce an unwelcome result: the AI’s client – not to mention the building’s eventual end-user – may have limited or no recourse if non-compliant defects are discovered later. This derives first of all from the terms an AI (or its insurer) may insist on, before taking on an individual assignment. The following list summarises provisions contained in the current standard terms of NHBC Building Control Services Ltd:157 (a) Preventing the contract – where the law otherwise allows – from conferring, expressly or impliedly, on individuals or on a defined class of third parties (eg ‘the owner for the time being of the home’) the right to enforce any of its terms;158 (b) Preventing the client from assigning the benefit of the contract without the AI’s written consent;159 (c) Incorporating a ‘net contribution clause’: this aims to protect the AI against automatically carrying the totality of liability in a situation where it is a defendant but where another party (eg designer, developer or main contractor) is in theory also liable but in fact unable to satisfy a judgment against it because it is insolvent or no longer trading, to that extent shifting the risk of that party’s insolvency to the client;160 (d) Excluding liability (on either side) for loss of profit, ‘indirect loss or damage and/or consequential loss or damage’;161 (e) Imposing an overall financial cap on the AI’s liability; (f) Providing that where the AI is a corporate entity or partnership, the client may look for damages only to the AI, not to any individuals working in its name or on its behalf; (g) Defining the scope of work in such a way that almost all responsibility for ensuring compliance with ‘the building code’ is shifted away from the AI, back to ‘the Client’, the AI not even taking responsibility for advising the client how to meet the requirements of the Building Regulations; and (h) Providing that a Final Certificate is not a ‘warranty, representation or certificate’ that the work complies with ‘the building code’. There is also the Approved Inspector Contract, published jointly by the Construction Industry Council (the CIC, which runs the AI registration system) and the Association of

156 Changes to the Building Control System (n 63) 5. 157 The current terms and conditions of NHBC Building Control Services Ltd (dated 2013), cls 9, 5.2, 7.3–7.5, 1.11 and 1.12 respectively: www.nhbc.co.uk. Using this provider as an AI used to add extra cover within the NHBC Buildmark warranty in Years 3–10: see section [7.2]. 158 On third-party rights in contract, see section [5.3.3]. 159 Such consent may be required not to be unreasonably withheld or delayed, as in the case of the NHBC terms summarised here. 160 On the fairness of such a clause in a B2C contract, see West v Ian Finlay & Associates: section [4.10.2]. 161 On what a clause excluding liability for ‘consequential, incidental and indirect damages’ might cover, see Coulson J in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1191 (TCC), 148 Con LR 127. See also Hotel Services Ltd v Hilton International Hotels (UK) Ltd [2000] EWCA Civ 74, [2000] BLR 235, applied in McCain Foods GB Ltd v Eco-Tec (Europe) Ltd [2011] EWHC 66 (TCC).

The ‘Building Code’: England & Wales  107 Consultant Approved Inspectors (ACAI) (the representative body of individual AIs).162 The current 2013 version happily includes no clause with the effect of (b) above, instead making clear that either party may assign its rights and benefits under the contract; nor does it limit the recoverable damages, as (d) above attempts to do. It does not itself specify a monetary ceiling on the AI’s potential liability to the client, though it does invite the parties to agree one and to add the figure into the signed version of the document; if this space was left blank, presumably no overall cap would then apply.163 That apart, it contains exact or close equivalents of all the other clauses from the NHBC contract above.164 No evidence confirms how widely used the CIC/ACAI standard form actually is – most AI firms seem to have their own standard contracts, available online – and how often used unamended.165 By contrast, it is virtually certain that NHBC Building Control Services Ltd is able to insist on all its own standard terms and conditions on almost every project for which it is the AI. To be fair, both these contracts impose headline ‘skill and care’ obligations on the AI being appointed, just as statute and the common law already would.166 They also expect compliance with the CIC’s current Code of Conduct for Approved Inspectors, which includes a two-stage complaints system.167 Also relevant in assessing the conduct of any BCB – in complaints, disciplinary or court proceedings – would be the DCLG-published Building Control Performance Standards, though these do not go far in increasing the responsibilities of an AI beyond the contract terms discussed above.168 But AIs appear comfortably protected against liability, even to their immediate client (most often a developer or main contractor, and only exceptionally the first buyer of a home being built). So the apparent freedom of contract which this privatised version of building control introduced seems to impact negatively on protection of its clients, as well as on the ‘remote purchasers’ of buildings.169 This result could hardly have been intended by government when AIs were first thought of in the 1980s: this was the period of Dutton and Anns, when suing an English public sector BCB in tort for damages (unrestricted by any contractual limitations of liability) for negligently operating the building control system was still a real possibility.170 By contrast, we know from

162 Contract for the Appointment of an Approved Inspector (CIC/AppInsp, 2nd edn 2013): www.cicair.org.uk. 163 As in Temloc v Errill Properties Ltd (1987) 39 BLR 30 (CA), where the word ‘£ nil’ entered into the contract at the place where the rate for liquidated damages was to be defined meant that no damages at all were payable for late completion. The Australian cases tend the other way, allowing recovery of general damages: see, eg, Silent Vector Pty Ltd v Squarcini (2009) 25 BCL 58, [2008] WASC 246 and, generally, Waqas Ashraf, ‘$0.00 Liquidated Damages Sum: An Artificial Unpersuasive Interpretation’ (2019) 35 Construction Law Journal 418. 164 Contract for the Appointment of an Approved Inspector (n 162) cls 1-5, 3-4, 3-8, 3-13 and 3-17. 165 Approved Inspectors Ltd, with more than 40 staff, appears to use the CIC/ACAI Contract: www.approvedinspectorsltd.co.uk. 166 NHBC Building Control Services Ltd terms and conditions (n 157) cl 1.2; and CIC/ACAI Contract (n 162) cl 3-1. 167 The Code (2017 edn, with Guidance Notes) is downloadable from www.cicair.org.uk. 168 Building Control Performance Standards: n 118. 169 This phrase was used by Brennan J in Bryan v Maloney [1995] HCA 17, (1995) 182 CLR 609: see further section [5.12.1]. 170 Dutton v Bognor Regis UDC [1972] 1 QB 373 (CA) and Anns v London Borough of Merton [1978] AC 728 (HL): both are discussed at section [5.8.2].

108  Regulation of Residential Construction Murphy v Brentwood that an action in tort against an AI (indeed, any type of BCB) for negligence is very unlikely to succeed under English law;171 and from the Herons Court litigation, that suing an AI under the Defective Premises Act 1972 is equally likely to fail.172

3.6.8  Reform: Pre- and Post-Grenfell A government review of the whole building control system took place in 2010;173 and again under David Cameron’s coalition government in 2012.174 In June 2012 the DCLG announced a tightening up for England of self-certification by specific construction trades under ‘Competent Person’ schemes;175 in October 2012 the DCLG launched a new review, in parallel with the Cabinet Office’s Red Tape Challenge. Both were considering ‘areas where we could deregulate and/or reduce burdens, whilst delivering high levels of compliance’.176 Only modest results seem to have resulted, but Cameron’s widely reported speech to the Federation of Small Businesses on 27 January 2014 included this: ‘We will help house builders by cutting down a hundred overlapping and confusing standards applied to new homes to less than ten’.177 Suggesting that this aim might not yet have been achieved, in December 2015 the second Cameron government launched a further Cutting Red Tape Review. Reflecting the continuing failure to build enough new homes in England & Wales, but perhaps also the power of the housebuilding lobby, it had a specifically residential focus. The final report, Cutting Red Tape: Review of House Building, reported on aspects of planning and environmental procedures which house builders feel inhibit or delay their activities, as well as the potential overlap between planning and building control.178 Some of

171 On Murphy v Brentwood DC, see section [5.8]. At the limit, there is the possibility of legal action against an AI in the tort of deceit: see Case Study 11 at section [11.8]. 172 Lessees and Management Co of Herons Court v Heronslea Ltd [2018] EWHC 3309 (TCC), [2019] BLR 401 and [2019] EWCA Civ 1423, [2019] 1 WLR 5849: Case Study 8 at section [5.11]. 173 DCLG, Future Changes to the Building Regulations – Next Steps (2010): www.gov.uk. 174 See Hansard, HC Deb 31 January 2012, vol 539, cols 38–40WS. 175 Under sch 3 of the Building Regulations for England & Wales (n 96), the DCLG/MHCLG has authorised a number of ‘Competent Person’ (CP) schemes: for the current list, see www.competentperson.co.uk. Under each, particular technical functions related to individual lettered Parts of the Regulations may be self-certified by a CP scheme member, so that compliance with the relevant Part of the Regulations does not need separate signing off by a BCB, though the work done must still be notified to a BCB. New uniform conditions for authorisation of CP schemes came into force in April 2016 (seemingly now for England alone – see n 99): www.gov.uk. They require each scheme to meet all the requirements of BS EN ISO/IEC 17065:2012 with the UK Accreditation Service (UKAS); each scheme operator must meet a set of criteria, as must each scheme member in relation to objectively defined standards of technical competence, including by random surveillance inspections by the scheme operator; and there must be ‘appropriate financial protection’ to rectify work which is non-compliant with Building Regulations. There are separate authorisation criteria for airtightness CP schemes. 176 DCLG, Changes to the Building Control System (n 63) 5. 177 David Cameron, ‘Supporting Small Businesses’ (Speech to the Federation of Small Businesses, 27 January 2014): www.gov.uk/government/speeches. Guardian architecture and design blogger Oliver Wainwright commented on the PM’s speech: ‘Ripping up regulations will lead to a future of substandard homes with cramped rooms and small windows’. 178 HM Government, Cutting Red Tape: Review of House Building (2017): www.gov.uk.

The ‘Building Code’: England & Wales  109 these conclusions fed into the government’s White Paper on housing, Fixing Our Broken Housing Market, but no detailed recommendations for regulatory reform emerged.179 Any such proposals became quickly overshadowed by two factors: after the June 2017 election, the Conservative government of Theresa May had no overall majority in the House of Commons, relying on the support of Democratic Unionist Party MPs from Northern Ireland; in the same month, the Grenfell Tower fire took place. The Hackitt review, triggered almost immediately, was to look forward; by contrast, Sir Martin Moore-Bick’s judicial inquiry was required to look back. It concluded at the end of Phase 1 that using that form of cladding, installed as it was on such a high residential tower, did not comply with Building Regulations: [T]here was compelling evidence that the external walls of the building failed to comply with Requirement B4(1) of Schedule 1 to the Building Regulations 2010, in that they did not adequately resist the spread of fire having regard to the height, use and position of the building. On the contrary, they actively promoted it.180

The Hackitt Interim Report (December 2017) laid out a fundamental critique of the present system and its application on the ground, arguing that the Grenfell Tower refurbishment project was not an isolated example of failure, but that the whole system is ‘not fit for purpose’, especially in relation to high-rise residential buildings. Her diagnosis of what is wrong in the Final Report (May 2018) took inspiration from the way occupational health is regulated and protected under the Health and Safety Executive (HSE) and from the sector-specific CDM Regulations in construction: • the roles and responsibilities of those procuring, designing, constructing and maintaining buildings are unclear; • the package of regulations and guidance (in the form of Approved Documents) can be ambiguous and inconsistent; • the processes that drive compliance with building safety requirements are weak and complex with poor record keeping and change control in too many cases; • competence across the system is patchy; • the product testing, labelling and marketing regime is opaque and insufficient; and • the voices of residents often goes [sic] unheard, even when safety issues are identified.181

The Final Report went on to propose the comprehensive recasting of the whole regulatory structure and the roles of all those playing a part in it, starting with Grenfell Tower-type high-rise residential buildings (or equally tall mixed-use buildings, if they include residential accommodation) as the first priority. Its recommendations encompassed the following ‘key changes’: • the same regulatory body … oversees building safety across the building life cycle; • the same legislative framework applies across the building life cycle; • the existing overlaps between different legislation and different regulators (in particular the Housing Act 2004 and the Fire Safety Order 2005) have been removed; • there are no longer two parallel, but confusingly different, building control bodies providing oversight during design and construction [BCBs and Fire & Rescue Authorities];

179 DCLG,

Fixing Our Broken Housing Market (White Paper, Cm 9352, 2017). Tower Inquiry: Phase 1 Report (n 6) [2.16]. Final Report (n 5) 3. On the CDM Regulations, see n 131 and its main text.

180 Grenfell 181 Hackitt

110  Regulation of Residential Construction • there are a new set of specific interventions [by the regulator] across the building life cycle (gateway points [during initial construction] and safety case review [on any later modifications or refurbishment]); and • self-certification processes (whereby aspects of building work can be signed off by the individuals doing the work without broader regulatory oversight) have been removed.182

The UK government moved swiftly to accept all of Dame Judith’s proposals. However, it took time for the recommendations to crystallise into meaningful reform. In March 2020 the Fire Safety Bill was tabled, the resulting 2021 Act now making clear that each multi-occupied, residential building must have a responsible person or dutyholder to manage and reduce the risk of fire for the structure and external walls of the building, including cladding, balconies and windows and entrance doors opening from individual flats into ‘common parts’. In July 2020 the Housing Minister, Rt Hon Robert Jenrick MP, announced planned legislation to create a new Building Safety Regulator (BSR) for England, to be housed institutionally within the HSE and to oversee a new duty-holder regime operating over the different stages of a building’s whole life.183 This would include new requirements for digital record-keeping and a role for residents and identify an Accountable Person to have ongoing responsibility for fire and structural risks in the completed building via a Building Safety Manager. The draft Building Safety Bill was published for consultation in July 2020 but did not directly implement all Hackitt’s recommendations.184 Under the proposals as conceived by Hackitt, AIs would have no role in relation to (at least) high-rise residential buildings, which are the central focus of the Building Safety Bill; in relation to them, the BSR will become the primary BCB.185 The BSR will also advise the government on construction standards, oversee all BCBs and make rules on the competence of those active in construction. Many aspects of these proposals are unlikely to become much clearer before further development of the Bill; the report of its scrutiny in draft by the Housing, Communities and Local Government Select Committee of the House of Commons was published in late 2020.186 As Maxwell and Bell point out, much depends on how ‘safety’ and ‘safe’ are defined as regulatory goals, and on the resourcing of the new BSR.187 Dame Judith remains Chair of the Transition Board to establish the new regulator, already coming into existence in shadow form. In parallel, reforms not requiring legislation have been encouraged and monitored by the Industry Safety Steering Group, chaired by Dame Judith herself and reporting to the newly designated Minister of State for Building Safety (Lord Greenhalgh).188 Many 182 Hackitt Final Report (n 5) 15. 183 MHCLG, A Reformed Building Safety Regulatory System – Government Response to the ‘Building a Safer Future’ Consultation (2020): www.gov.uk. In April 2021, government announced an independent review into the systems which test the safety of construction materials, to report later the same year. 184 For initial critical analysis of the Building Safety Bill and high-rise residential blocks, see, eg, Professor Susan Bright’s posts (August 2020 and after) at www.law.ox.ac.uk/housing-after-Grenfell/blog. 185 Draft Building Safety Bill (2020) cl 36. 186 Housing, Communities and Local Government Committee, Pre-legislative Scrutiny of the Building Safety Bill (HC 2019–21, 466). 187 Maxwell and Bell (n 24) 15–16. 188 See Industry Safety Steering Group, The Second Report from the Industry Safety Steering Group on the Progress of Culture Change in the Construction Sector (2020): www.gov.uk.

Contrasts: Australia  111 industry-level groups continue to be active in promoting ‘culture change’, in particular via adoption in 2019 of a Building Safety Charter, supported by a large number of significant players in residential construction.189 Much work is also going on to raise levels of independently verified competence (a separate Competence Steering Group brings together more than 150 institutions and organisations) in construction as a whole.190

3.7  Contrasts: Australia 3.7.1 Background The history of building regulation in England & Wales, discussed in previous sections, has many parallels in Australia. In drawing out this history – and its current state of evolution – we focus here on the state of Victoria, but canvass aspects of the regimes in other states and territories which are particularly divergent or otherwise noteworthy.191 In Victoria, the framing of building regulations with a view to increased flexibility and efficiency via performance-based standard-setting dates back several decades.192 A few years after the end of the Second World War, a Victorian Parliamentary inquiry noted a ‘great shortage of traditional materials, rising costs, and a big leeway to make up, especially in the field of housing’, and advocated addressing these challenges by harnessing the ‘new age of scientific discovery and advancing knowledge … regulation requirements should be expressed in terms of performance instead of method of construction’.193 Thus the Victorian Board of Inquiry recommended adoption of the then Scottish approach: [If a builder] complies with the standard code or other specification which is deemed to satisfy a regulation, he will have met the requirements of that particular regulation, but he should be quite at liberty to adopt any other method if it can be shown to satisfy the relevant requirement.194

The Board applied these principles to fire protection specifically, noting that regulations to ‘prevent and control fire hazards in the interests of human life … must be regarded as being amongst the most important provisions contained in the Uniform Building regulations’; but experience overseas had shown that applying a ‘modern set of

189 www.buildingasaferfuture.org.uk. 190 Competence Steering Group, Raising the Bar (2019) and Setting the Bar (2020), followed by the Construction Leadership Council’s Industry Skills Plan (2021): www.cic.org.uk. For a draft British Standard on competence in construction, see n 55. For public sector BCBs in Scotland, a new Competency Assessment System was being developed in 2020–21, which will formally become part of the Scottish government’s Operating Framework for verification. 191 See n 35 for the primary Acts and Regulations applicable across the Australian states and territories to building regulation generally. 192 See, generally, Shergold and Weir (n 22) 9–10. 193 Victorian Parliament, Report of the Board of Inquiry Appointed to Inquire into Regulations Governing the Erection of Buildings (Melbourne, 1954) 9. 194 Report of the Board of Inquiry (n 193) 10.

112  Regulation of Residential Construction scientifically based fire protection regulations would stimulate more economical building construction’.195 In the early 1990s, a broad consensus existed across the political spectrum in Australia that microeconomic reform was required in order to increase productivity. A key driver of these reforms was the proposal for a national competition policy, arising from the 1993 report of the review chaired by Professor Fred Hilmer. One of its recommendations, explicitly designed to overcome the inertia seen to beset reforms, was reversal of the onus of proof for regulatory intervention, such that ‘there should be no regulatory restriction on competition unless clearly demonstrated to be in the public interest’.196 The Federal Industry Commission (now, Productivity Commission) took up the task of reviewing existing regulations in its 1995 report. The Commission proposed that ‘around A$750 million or 3 per cent of the cost of building activity (A$25 billion a year) might be saved if unnecessary delays due to regulation could be eliminated.’197 By the mid-1990s, this microeconomic reform programme was well underway across Australia, including, in Victoria, the passage of the legislation which is now the Building Act 1993 (Vic) and Domestic Building Contracts Act 1995 (Vic) (DBCA), and the establishment of the Victorian Civil and Administrative Tribunal (VCAT). A key reform was to remove municipal building surveyors’ monopoly on issuing building permits (acting as BCBs, in this book’s terminology), opening the market to private competition by ‘building surveyors’.198 However, as Daniel Webber has pointed out, the programme was driven by economic efficiency, rather than community sentiment: ‘public views were not included and were not represented on any committee during the policy development and process stages for the development of the privatised building regulation system’.199 Webber criticised this outcome, calling it ‘ironic, given that the main purpose of the policy development process was to develop a building regulation system that is for the public good’, and noted how it apparently resulted in the requisite standards for public safety, health and amenity in the Model Building Act being subject to qualifications like ‘adequate standards of public health’.200 The 2000s and early 2010s were the heyday of performance-based building regulation in Australia: standard-setting was largely outcomes-based and most building inspection functions in relation to most projects were undertaken by the private sector.201 This was

195 Report of the Board of Inquiry (n 193) 11. 196 Frederick G Hilmer, Mark R Rayner and Geoffrey Q Taperell, National Competition Policy (Canberra, Australian Government Publishing Service, 1993) 190. 197 Industry Commission, The Growth and Revenue Implications of Hilmer and Related Reforms: A Report by the Industry Commission to the Council of Australian Governments (Canberra, Australian Government Publishing Service, 1995) 135. 198 As an example of the disparity in terminology across Australia, NSW has ‘accredited certifiers’ under the Building Professionals Act 2005 (NSW); SA has ‘private certifiers’ under the Building Work Contractors Act 1995 (SA). See, further, section [3.7.3]. 199 Ronald Webber, ‘Microeconomic Reforms and Influences on Policy Development for the Privatisation of the Building Regulation System in Victoria, their Evaluation and an Alternative Regulatory Proposal’ (PhD Thesis, RMIT University, 2005) 54. 200 Webber (n 199) 79–80 (emphasis in Webber thesis). Webber outlines his analysis of the reports leading to the Model Building Act, and the lack of direct consumer group input, at 78–80. 201 SERC, The Need … (n 22) 48 (also noting the concurrent shift to deregulation).

Contrasts: Australia  113 exemplified by the ‘goal’ of the 2016 version of the NCC being framed by reference to economic efficiency, as indicated by the emphases in italics below: The goal of the NCC is to enable the achievement of nationally consistent, minimum necessary standards of relevant safety (including structural safety and safety from fire), health, amenity and sustainability objectives efficiently. This goal is applied so that— (a) there is a rigorously tested rationale for the regulation; and (b) the regulation is effective and proportional to the issues being addressed such that the regulation will generate benefits to society greater than the costs (that is, net benefits); and (c) there is no regulatory or non-regulatory alternative (whether under the responsibility of the Board or not) that would generate higher net benefits; and (d) the competitive effects of the regulation have been considered and the regulation is no more restrictive than necessary in the public interest.

Following the Global Financial Crisis of the late 2000s, there was a turning away from simplistic deregulation in favour of principled and carefully thought-out regulation.202 In the case of Victoria’s building regulatory system, the need for such a reassessment was highlighted by the state Auditor-General’s 2011 report into building certification: • Private building surveyors were (in the 2009–10 financial year) issuing around 85 per cent of all building permits in Victoria, worth 93 per cent of the total value of approved building work. • 96 per cent of the permits examined by the inquiry did not comply with minimum statutory building and safety standards. • The building control system in Victoria depended ‘heavily on “trust”’. • In sum, the Victorian Building Commission could not ‘demonstrate that the building permit system is working effectively’.203 These findings led to the demise of the Commission, replaced in 2013 by the Victorian Building Authority (VBA).204 The shift to renewed interest in principled regulation was also reflected in the Victorian Competition and Efficiency Commission’s recommendations (also in 2011), revolving around government setting clear regulatory objectives and adopting procedures for monitoring and reporting on outcomes.205 This coincided with the period

202 Fiona Haines, The Paradox of Regulation: What Regulation Can Achieve and What it Cannot (Cheltenham, Edward Elgar, 2011) 14. 203 Victorian Auditor-General, Compliance with Building Permits (Melbourne, 2011) viii. 204 Primarily via the Building and Planning Legislation Amendment (Governance and Other Matters) Act 2013 (Vic) ss 4, 16. See also Victorian Ombudsman, Own Motion Investigation into the Governance and Administration of the Victorian Building Commission (Melbourne, 2012). 205 Victorian Competition and Efficiency Commission, Strengthening Foundations for the Next Decade: An Inquiry into Victoria’s Regulatory Framework (Melbourne, 2011): noted in Colin Scott, ‘Evaluating the Performance and Accountability of Regulators’ (2014) 37 Seattle University Law Review 353, 366.

114  Regulation of Residential Construction within which the Lacrosse building was under construction. The fire at that building in November 2014, three years before the catastrophe at Grenfell Tower, gave additional impetus to the reform programme.206

3.7.2  ‘The Building Code’: Standard-Setting The Victorian regime includes overarching requirements with which all ‘building work’ must comply (subject to exceptions, noted below where relevant).207 Conceptually identical in this respect to the UK scheme, the Victorian ‘building code’ is presented in three levels: first, the general legislative requirement for compliance; second, the specific ‘building code’ provisions; and third, standards and other materials referred to within those building code provisions. At the top level, the primary obligation of compliance is expressed as a prohibition: persons are prohibited from carrying out ‘building work’ unless it complies with the Building Act 1993 (Vic), the Building Regulations 2018 (Vic) and the applicable building permit.208 The second level contains the core documents setting out the performance-based and prescribed performance requirements with which the completed construction must comply. In Australia, this is the NCC (the latest version is NCC2019), comprising the BCA and the Plumbing Code of Australia (PCA):209 • The NCC covers similar fields to the English Approved Documents, though in a different format and in a single document. As outlined in section [3.4.1], variations to the generally applicable provisions are in force in each state and territory.210 • A key difference between the English scheme and the NCC is that the NCC sets out an express, generally applicable process for choosing between two pathways for compliance with each of its ‘Performance Requirements’.211 • The two pathways are a ‘Deemed-to-Satisfy Solution’ (DTS – essentially, fulfilment of prescriptive criteria) or a ‘Performance Solution’ (performance-based), or a combination of these.212

206 On the Lacrosse fire, see, chiefly, sections  [2.6], [2.8.1], [2.11.2], [3.7.5], [4.13.2], [9.5.3] and [9.9.4]. The regulatory regime as it existed in the early 2010s is the subject of a detailed summary by Woodward J in Owners Corporation No 1 of PS613436T v LU Simon Builders Pty Ltd [2019] VCAT 286 [24]–[33]. 207 The Building Act 1993 (Vic) uses this term as its gateway definition (s 3): it is simply the expansive ‘work for or in connection with the construction, demolition or removal of a building’. 208 Building Act 1993 (Vic) s 16(2). 209 The states’ and territories’ primary legislative provisions in relation to the BCA are listed in n 36. In Victoria, the BCA is expressed to be ‘adopted by and [forming] part of ’ the Building Regulations 2018 (Vic), as modified by those Regulations: reg 10. A similar regime applies to adoption of the PCA: Plumbing Regulations 2018 (Vic) reg 7. 210 These variations are set out in NCC2019 sch 1. 211 The BCA comprises vols 1 and 2 of the NCC; the PCA is vol 3. Compliance with the Performance Requirements is mandated by NCC2019 cl A2.0. 212 NCC2019 cl A2.1.

Contrasts: Australia  115 • Where a Performance Solution is chosen, it must satisfactorily demonstrate compliance with the Performance Requirements by using an ‘Assessment Method’.213 There are several such methods, as set out in NCC2019 cl A2.2(2): ➢➢ Evidence of suitability (essentially, that it is fit for purpose).214 ➢➢ ‘Verification Methods’ set out in the NCC, or otherwise acceptable to the ‘appropriate authority’.215 ➢➢ ‘Expert judgement’ (defined, essentially, to be an expert with appropriate qualifications and experience to make the determination).216 ➢➢ Comparison with the corresponding DTS requirement (by way, for example, of compliance certificates).217 At the third level sit the (often extensive) lists of Standards and other documents referred to by the second-level ‘code’ documents. In Australia, they are Australian Standards (AS), though there is also reference to International Standards (ISO).218 Broadly speaking, these organisations (along with the Australian Building Codes Board for the NCC) develop and revise standards via committees of experts.

3.7.3  Building Control: Regulators and Inspectors The Victorian system for building inspection is conceptually similar to that in England, in that it provides for a ‘mixed economy’ of both public sector (‘municipal’) and ‘private’ building surveyors as BCBs.219 As suggested in section  [3.7.1], the role of inspectors within the regulatory schemes has been buffeted by shifting ideological tides over the past three decades. One of the architects of the early 1990s reforms, Kim Lovegrove, noted that introducing the performance-based BCA (its first iteration was in 1996) had not been anticipated in the regulatory design of these reforms. He and his colleagues were ‘surprised’ that private building surveyors were given the ability to sanction ‘alternative solutions’ under that Code.220 This created the

213 NCC2019 cl A2.2. 214 The relevant requirements are set out in NCC2019 cl A5. 215 The definition in NCC2019 sch 3 refers generically to the relevant statutory authority; Building Regulations 2018 (Vic) reg 240 provides that the relevant authority for this purpose in Victoria is the Building Regulations Advisory Committee. 216 NCC2019 sch 3. 217 Building Regulations 2018 (Vic) pt 17 sets out a regime for such accreditation. 218 Many of these standards are combined with New Zealand Standards (denoted ‘AS/NZ’). 219 Under Building Act 1993 (Vic) s 190, the Minister may appoint the VBA as the relevant municipal building surveyor: foreshadowing the 2019 creation of Cladding Safety Victoria, this occurred in respect of a number of buildings with ACM cladding – see, eg, Victoria Government Gazette S468, 10 October 2018. The regime in respect of private building surveyors is found primarily in Building Act 1993 (Vic) pts 4, 6. The Victorian scheme includes, in addition, an ‘assessment’ scheme, primarily to examine whether the work is defective or incomplete for the purpose of dispute proceedings (DBCA pt 4 div 5): this is outlined in section [9.9.3]. 220 Now called ‘performance solutions’ under the NCC/BCA: see section [3.4.2].

116  Regulation of Residential Construction opportunity – subsequently realised – for ‘expedient individuals to “hand pick” building surveyors open to compromise or expediency’.221 As this indicates, the fundamental tension in the role of building inspectors has never been adequately resolved in Victoria (or, for that matter, the rest of Australia). It has similar sources to the UK experience, discussed in section [3.6.7]. On the one hand, the opportunities for efficiency largely rest on private inspectors’ income being exposed to market forces, linked to the number of inspections they carry out and the fees charged.222 On the other, this market exposure also poses the greatest threat to adequate quality assurance, either through poor performance or via ‘regulatory capture’: the risk that clients ‘“shop around” for an inspector that suits their needs’.223 In the 1990s–2000s, the tide ran strongly in favour of private sector certification, but mounting evidence of regulatory failure – particularly the Victorian Auditor-General’s 2011 Report – led to a significant tightening of the collar imposed on inspectors as the ‘watchdogs’ of the regulatory scheme.224 As a result, in Victoria: • Builders are no longer allowed to appoint private building surveyors on behalf of owners in relation to ‘domestic building work’.225 • Interests in respect of a building or building work may disqualify a private building surveyor (or their ‘related persons’) from carrying out functions as a surveyor in relation to the relevant building or building work (there is also a general disqualification based on conflicts of interest).226 • An administrative regime ensures that work (other than that carried out by ‘ownerbuilders’, subject to a separate regime)227 is actually carried out by a registered builder, including through expecting the building surveyor to monitor compliance by: ➢➢ Not issuing a building permit in respect of work under a major domestic building contract unless the builder has the necessary registration and is the builder who entered into the contract; moreover, if the value of the work exceeds A$16,000, the surveyor needs to check that the name of the builder in the contract and on the certificate of insurance is identical.228

221 Kim Lovegrove, ‘Best Practice Elements of Enlightened Building Control for the Third Millennium – 2018 and Beyond’ (Lovegrove and Cotton, 2018): www.lclawyers.com.au. See, especially, Victorian Auditor-General, Compliance with Building Permits (n 203). 222 Jeroen van der Heijden, ‘International Comparative Analysis of Building Regulations: An Analytical Tool’ (2009) 1 International Journal of Law in the Built Environment 9, 14. 223 Bousmaha Baiche, Nicholas Walliman and Raymond Ogden, ‘Compliance with Building Regulations in England and Wales’ (2006) 24 Structural Survey 279, 280; van der Heijden (n 223) 15. 224 Victorian Auditor-General, Compliance with Building Permits (n 203). 225 Building Act 1993 (Vic) ss 78(1A), (1B). 226 ‘Related persons’ is widely defined in the Building Act 1993 (Vic) s 79(4) to include, as applicable: the private building surveyor’s employer and employees; if the private building surveyor is a member of a partnership, their partners; and, if the private building surveyor is a director of a body corporate, their body corporate and its other directors and related bodies corporate: s 79(1A). 227 See, primarily, Building Act 1993 (Vic) pt 3 div 3, pt 13 div 1A. 228 Building Act 1993 (Vic) ss 24A(1), 24B(4); the VBA then checks the information and issues, or refuses to issue, the permit under pt 3 div 3. The threshold for such insurance was set by the Domestic Building Insurance Ministerial Order, Victoria Government Gazette G22, 29 May 2014, 1014.

Contrasts: Australia  117 ➢➢ Updating the name of the builder on the permit (and notifying the VBA and relevant municipal council accordingly) if the owner informs the surveyor that the builder has been replaced.229 • Attempts have been made to remove ambiguities, including clarifying that the building surveyor must cause the work to be inspected ‘in person’;230 and that the surveyor can only allow others to make an inspection on their behalf if the person is appropriately registered.231 These reforms were already in the pipeline prior to the Grenfell Tower fire, but that disaster heightened calls for private building surveyors explicitly to be bound to the types of publicly oriented norms which underpinned the origins of the inspection function, as discussed in section [3.6.6]. Thus, the Tasmanian Code of Practice for Building Surveyors provides for inspectors to owe their primary duties to the public, act ethically and not act where there is a conflict. A Code of Conduct came into force for building surveyors in Victoria on 1 January 2021.232 As the Lacrosse litigation illustrates, building surveyors may bear liabilities, through a failure to take reasonable care, which can far exceed their fees.233 In addition, as registered building practitioners, private building surveyors are subject to the extensive probity and competence regimes discussed in the next section.

3.7.4  Competence and Registration Regimes The Australian requirements for practitioner registration, to varying extents reflected across all the states and territories, implement a view that ‘an effective licensing regime is necessary to protect participants from both unscrupulous and hapless operators’.234 The aspiration expressed by the Senate Economics References Committee is that this regime should cover ‘all trades and professionals involved in the building and construction industry including building surveyors, building inspectors, builders and project managers’.235

229 Building Act 1993 (Vic) ss 25AC, 25AD. The surveyor’s obligation is, however, expressed permissively (‘may change’), rather than being mandatory. 230 Building Act 1993 (Vic) s 34. 231 Building Act 1993 (Vic) s 35B. 232 Occupational Licensing (Building Surveyors) Code of Practice (Tasmania) (2018) arts 1–3; Code of Conduct for Building Surveyors in Victoria (2020). The Victorian code acknowledges the requirement to act in the public interest (art 1), but this is not expressed as a duty; likewise, its art 2 speaks of ‘integrity, honesty, objectivity and impartiality’ rather than ‘ethics’ as such; art 5 requires avoidance of conflicts of interest. Shergold and Weir (n 22) suggested that the duty to the public should be included in building inspectors’ code of conduct. 233 See n 206 for references to the Lacrosse decision; also Hyblewski v Bellerive Homes Pty Ltd [2019] ACTSC 44, upheld on appeal as Asset Building Certifiers Pty Ltd v Hyblewski [2020] ACTCA 21), where Mossop J found that the inspector was in breach of his duties under the Building Act 2004 (ACT) by allowing the work to proceed despite defects; essentially, the inspector was liable in contract damages for the difference between the contract sum and the amount required to achieve the contracted result. 234 Senate Economics References Committee, ‘I Just Want to be Paid’: Insolvency in the Australian Construction Industry (Canberra, 2015) xxii. 235 SERC, The Need … (n 22) 49.

118  Regulation of Residential Construction For residential building in Victoria, the starting-point is the prohibition against persons entering into, or carrying out work under, a ‘major domestic building contract’ unless that person is registered in the relevant class of domestic builder under the Building Act 1993 (Vic) Part 11.236 That these comprise two separate prohibitions is indicated by there being separate penalties regimes for contravention of each provision. These are substantial, running to 500 Penalty Units (about A$80,000) for natural persons and 2,500 Penalty Units (around A$400,000) for bodies corporate.237 Further penalties are available under the Building Act 1993 (Vic): for example, where a court finds an unregistered builder guilty of carrying out domestic building work ‘in contravention of this Act’, the court may direct that the builder is ineligible to apply for registration for up to three years.238 The Victorian registration scheme does, however, have gaps in its coverage. In particular, the DBCA (hence, the registration requirement) does not cover many commonly encountered types of single-trade work – for example, plumber P in Scenario 3 (Table 1.2);239 nor does the registration requirement generally apply to ‘non-major’ ‘domestic building contracts’. The categories of registration for ‘Building Practitioners’ (the overall category) are listed in schedule 9 of the Building Regulations 2018 (Vic); they cover (amongst others) building surveyors, engineers, draftspersons and builders.240 Each has sub-categories (44 for builders), containing specific and detailed threshold educational, competence and experience requirements. For example, those in the ‘domestic builder (unlimited)’ category must hold a Bachelor of Construction Management degree from specified institutions or a diploma of building and construction, as well as having more than three years’ practical experience. The Victorian regime also includes ‘fit and proper person’ requirements for registration of all Building Practitioners. These apply to individual practitioners;241 also to all directors of bodies corporate;242 and to all members of a partnership.243 These can be failed for a wide range of behaviours, including: • As ‘personal probity requirements’, during the past 10 years:244 ➢➢ Convictions for fraud, dishonesty, drug trafficking or violence offences punishable by imprisonment for more than six months. 236 DBCA s 29; Building Act 1993 (Vic) s 169F. DBCA s 29 provides, further, that this requirement may be satisfied, in the case of builders which constitute partnerships or corporations, where at least one of the partners or directors (respectively) is so registered. A ‘major domestic building contract’ is a contract to carry out ‘domestic building work’ with a value greater than A$10,000: DBCA s 3(1); Domestic Building Contracts Regulations 2017 (Vic) reg 6. 237 DBCA s 29; Building Act 1993 (Vic) s 169F. For the monetary value of Penalty Units in other Australian jurisdictions, and for conversions into other currencies, see the tables at the start of this book. 238 Building Act 1993 (Vic) s 241A. 239 Domestic Building Contracts Regulations 2017 (Vic) reg 7. Conversely, if a contract combines these types of excluded work – say, plastering and painting – then the DBCA (and its registration requirements) does apply. 240 Other construction-related activities are regulated under separate statutes, eg architects under the Architects Act 1991 (Vic) and engineers under the Professional Engineers Registration Act 2019 (Vic). 241 Building Act 1993 (Vic) s 171(1)(d). 242 Building Act 1993 (Vic) s 171A(2). 243 Building Act 1993 (Vic) s 171C(2). 244 Building Act 1993 (Vic) s 171D(a)–(c).

Contrasts: Australia  119 ➢➢ Being ‘convicted … of an offence under any law regulating building work or building practitioners’. ➢➢ Being de-registered. ➢➢ Being convicted or found guilty of certain offences against various Commonwealth and state consumer laws. ➢➢ Non-compliance with an order of a court or VCAT in relation to the Building Act 1993 (Vic), DBCA or their Regulations. • As ‘financial probity requirements’: a history of insolvency, inability to obtain insurance or undischarged debt.245 • As ‘excluded person[s]’: being oneself (or an associate) disqualified from registration or, during the past two years, refused registration due to having provided false or misleading information.246 The Victorian regime is also mindful of: • The need for consumer assurance that the practitioner they are engaging is properly registered, including requiring practitioners to include their registration number on any advertisement or written statement offering to carry out domestic building work.247 In addition, the VBA issues identification cards to registered building practitioners.248 • Behavioural aspects, through the provision for codes of conduct for Building Practitioners approved by the VBA, failure to comply with which could be grounds for disciplinary action.249 • The risk of health and safety impacts on future occupants, where a homeowner wishes to manage the construction of their home themselves, rather than engaging a registered building practitioner under a major domestic building contract. Essentially, the regime for ‘owner-builders’ seeks, for most purposes, to impose responsibility on them, under the Victorian Building Act and its Regulations, close to that faced by registered builders.250 The legislative autonomy given to the states and territories in relation to practitioner registration and competence means that there is a significant degree of divergence across the country, both as to the standards required for registration and the regulatory

245 Building Act 1993 (Vic) s 171E. This includes unpaid adjudicated amounts under the Building and Construction Industry Security of Payment Act 2002 (Vic); on security of payment legislation, see section [9.9.2]. 246 Building Act 1993 (Vic) s 171F. 247 Building Act 1993 (Vic) s 169H. 248 Victorian Building Authority, Owner-Builder Information and Study Guide (2017) 18. 249 Building Act 1993 (Vic) pt 11 div 2, especially s 179(1)(b). For the Code of Conduct for Building Surveyors, see the main text to n 232. 250 Building Act 1993 (Vic) ss 137B–137D. Notably, the regime requires owner-builders who sell homes they have built within six-and-a-half years of their completion to provide the purchaser with a defects report by a registered building practitioner and a certificate that the building is covered by insurance, like the Domestic Building Insurance discussed in section [7.5.2]; the sale contract must contain materials and workmanship warranties similar to (though more limited than) those under DBCA s 8, discussed at section [4.13.2]. See, generally, VBA, Owner-Builder Information: n 248.

120  Regulation of Residential Construction regimes for assessing those standards as they apply to individual practitioners. Thus, there is a tension between protection of the public through quality assurance and promotion of industry efficiency by removing unnecessary impediments to working across state borders. The High Court of Australia confirmed in 2019 that, under the scheme provided for under the Mutual Recognition Act 1992 (Cth), this tension is usually to be resolved in favour of industry efficiency. In VBA v Andriotis, the Court found that the Victorian Building Practitioners Board was unable to refuse registration to a waterproofer registered in NSW by relying on the ‘good character’ provisions of the Building Act 1993 (Vic), discussed above.251 In this way, the mutual recognition scheme has a tendency to drag registration requirements down to the ‘lowest common denominator’ of requirements across the country, rather than promoting the sort of ‘best practice’ in registration called for by the Senate Economics References Committee, Shergold–Weir and others.252

3.7.5  Reform – Generally In 2015, the Victorian Auditor-General summarised the endemic nature of consumer dissatisfaction with the outcomes of the residential construction process: ‘while most consumers do not experience significant issues and problems with their builder, a significant number do’.253 After the Lacrosse fire, the Municipal Building Surveyor for the City of Melbourne opined that Victoria’s building regulations were ‘not suited to dealing with large, complex and existing buildings and how we are using these buildings today’.254 In its Interim Report of December 2017, the newly established Victorian Cladding Taskforce noted: [We have been] confronted with considerable and widespread concern at the level of non-compliance with Victorian building and construction regulations beyond cladding. … there were concerns that cladding was symptomatic of broader underlying levels of non-compliance.255

251 Victorian Building Authority v Andriotis [2019] HCA 22, (2019) 372 ALR 1 [98]. See, generally, Matthew Bell, ‘VBA v Andriotis: Is Interstate Freedom of Movement a Threat to Quality Assurance in Australia’s Construction Industry?’ (2019) 31(1) Australian Construction Law Bulletin 6. 252 As of late 2020, nationally consistent practitioner competence improvement remained a priority for reform by the Building Ministers’ Meeting (until 2020, called the ‘Building Ministers’ Forum’) in its implementation of the Shergold–Weir report (Building Ministers’ Forum, Building Confidence Report: Implementation Plan (Canberra, 2019) 4). At the same time, the Federal Treasurer announced an agreement between the Commonwealth, states and territories under which the Council on Federal Financial Relations would develop a framework for occupational licences to be automatically recognised across jurisdictions, so that ‘tradies including carpenters, joiners, bricklayers, builders, electricians and plumbers … could find it easier to do business across state and territory borders’: Hon Josh Frydenberg MP, ‘Nation Wide Red-tape Reduction to Make Doing Business Easier’ (Press release, 17 August 2020): www.ministers.treasury.gov.au. 253 Victorian Auditor-General, Victoria’s Consumer Protection Framework (n 24) ix. 254 Giuseppe Genco, Lacrosse Building Fire, 673 La Trobe Street, Docklands on 25 November 2014 (City of Melbourne, 2015) 21. 255 Department of Environment Land Water and Planning, Victorian Cladding Taskforce: Interim Report (Melbourne, 2017) 27.

Contrasts: Australia  121 Others in Australia have agreed that the regimes were no longer effective to prevent catastrophes like the Grenfell Tower and Lacrosse fires and a complete reassessment of the regulatory system was required: • The Senate Economics References Committee regarded the system as ‘broken and fragmented’.256 • Shergold–Weir noted that regulatory problems ‘have led to diminishing public confidence that the building and construction industry can deliver compliant, safe buildings which perform to the expected standards over the long term’.257 • Hills made the point that adjustments to the technical requirements of the NCC would not of themselves address the ‘underlying causes of non-compliance’.258 He also noted the view expressed by presenters at the 2018 Building Regulatory Reform Summit that failings in the administration and enforcement of the performancebased regime placed Australia on the brink of ‘an impending “leaky building” syndrome … to rival that which occurred in New Zealand’.259 However, there was little appetite for abandoning the two core aspects of the building control regime, discussed in section [3.7.1]: the setting of performance-based standards and private sector based quality assurance. Rather, the reviews focused on ensuring robust checks and balances within the system: • The Senate’s Final Report identified the problem of proliferation of unsafe building products as being due to the lack of ‘proper controls, audits and enforcement, as well as the increase in product importation following the significant decline in Australia’s manufacturing base’.260 • Similarly, Shergold-Weir noted that ‘there is a strongly held industry view that the benefits of the [largely performance-based] NCC have outweighed any negative impacts’ but that there had been erosion of the necessary ‘strong public trust that the performance requirements are being met and, in particular, that health and safety is assured’.261 • Likewise, Hills highlighted the ‘significant economic benefits’ which had accrued ‘by creating competition in the delivery of building approvals and inspections’.262 Hence these observers mainly attempted to identify and address perceived failings in the way in which the regimes worked in practice in the late 2010s, rather than fundamentally reassessing the underlying policy settings. Thus the emphasis was similar to the approach taken by the Hackitt review:263 • The need to raise competence levels and formal accreditation, especially given perceptions of a ‘brain drain’ of more experienced practitioners retiring from the

256 SERC,

The Need … (n 22) 49. and Weir (n 22) 3. 258 Hills (n 22) 7; see also the comments as to the need for an holistic approach at 12. 259 Hills (n 22) 10. See section [3.8.1] on the NZ ‘leaky building crisis’. 260 SERC, The Need … (n 22) 7. 261 Shergold and Weir (n 22) 9. 262 Hills (n 22) 6. 263 See section [3.6.8]. 257 Shergold

122  Regulation of Residential Construction

•

•

•

•

•

industry, and the complexity involved in applying performance-based standards to modern, complex buildings.264 The lack of consolidated records documenting how decisions relating to performancebased standards were being made, resulting in an inability to learn lessons and ‘an uncharted morass of escalating building costs’.265 Similarly, deficiencies in information flow amongst project parties, including from owners and building surveyors to the builder about approved plans and from the builder to maintenance providers.266 Lack of clarity about each party’s respective (and collective) responsibility within the building’s planning, design, construction, and operation and maintenance (occupation) phases.267 The need to ensure that regulatory bodies (whether state- or industry-based) are adequately resourced so that they can undertake their functions, including audit of practitioners and enforcement.268 The need to ensure that products are properly tested, certified, clearly marketed and subject to oversight in their installation.269

There was particular concern across the Australian reviews about how private certification of performance-based solutions can undermine the integrity of the regulatory schemes, including: • The inherent conflict of interest, given the commercial relationship between private inspectors and the designer or builder (Shergold–Weir noted that this influence exists even where the inspector is appointed by the owner).270 • The tendency for competition to ‘[fuel] a race to the bottom’ in the price, and therefore rigour, of independent inspections of the building work (including work commonly being covered up as part of the building process before it can be inspected).271 As already explained, the response in Victoria in the late 2010s was largely by way of ratcheting up an already highly interventionist regulatory regime, including in relation to both inspection regimes and practitioner competence requirements. Other states and territories also have their own reform programmes in train, under the umbrella of the Building Ministers’ Forum response to the Shergold–Weir report.272 We note two here: the Queensland ‘chain of responsibility’ initiatives in relation to product information;

264 Hills (n 22) 9, 15. 265 Hills (n 22) 9; Shergold and Weir (n 22) 27, 29–32. 266 Hills (n 22) 18; Shergold and Weir (n 22) 11, 35. 267 Hills (n 22) 16; Senate Economics References Committee, Non-Conforming Building Products: Interim Report: Aluminium Composite Cladding (Canberra, Parliament of Australia 2017) 49, 58. 268 Hills (n 22) 13, 17; Shergold and Weir (n 22) 12. 269 Hills (n 22) 15–16; Shergold and Weir (n 22) 36–37. 270 Shergold and Weir (n 22) 11. 271 APPG for Excellence in the Built Environment, More Homes, Fewer Complaints (n 24) 38; Hills (n 22) 14; Shergold and Weir (n 22) 11. 272 See n 252.

Contrasts: Australia  123 and the powers of the NSW Building Commissioner (created as recently as 2019) to audit apartment buildings during and after construction.273

3.7.6  Queensland: ‘Chain of Responsibility’ The Shergold–Weir recommendation to establish ‘a building information database that provides a centralised source of building design and construction documentation’ was primarily directed at authorities consolidating the information they already receive through the design and construction process, rather than placing obligations on parties to the process.274 They did, however, make similar suggestions to those offered by Hackitt about the types of information which should be captured in the database and for ways in which ‘new digital technologies’ can be used to store and provide access to it.275 Shergold and Weir referred to both blockchain and BIM in this regard, as Hackitt did for BIM. These emerging technologies and how they interact with the existing regulatory regimes are likely to provide the most significant challenge in relation to these recommendations. The regulatory issues in relation to matters such as intellectual property, cross-border disputes, liability for information loss and so forth extend well beyond the realm of residential construction.276 They do, however, serve to emphasise both the possibilities for technology-based solutions to regulatory conundrums in residential construction and the complexity involved in deploying such solutions; these possibilities have been enshrined in NSW through one of the government’s ‘six pillars’ of reform: to ‘digitise the NSW building industry’.277 In late 2017, spurred on by anxieties about combustible cladding, Queensland took steps to increase responsibility and information flow across the construction supply chain by enacting the Queensland Building and Construction Legislation (Non-conforming Building Products – Chain of Responsibility and Other Matters) Amendment Act 2017.278 The core provision requires that ‘each person in the chain of responsibility for a building product must, so far as reasonably practicable, ensure that the product is not a non-conforming building product for an intended use.’279 Such persons are defined to include those who design, manufacture, import or supply the product – knowing (or being reasonably expected to know) that it is (or is likely to be) associated with a building – and those who install the product; amendments from 2018

273 Other significant reforms are noted elsewhere in this book, including the statutory duty of care, introduced in NSW in 2020, in section [5.12.4]. 274 Shergold and Weir (n 22) 27. 275 Shergold and Weir (n 22) 27–28. See section [3.6.8] about the Hackitt recommendations. 276 For explorations of the interplay between such technologies and construction procurement, see, eg, David Mosey, Collaborative Construction Procurement and Improved Value (Chichester, John Wiley & Sons, 2019) ch 14; Brydon Wang, ‘Addressing Financial Fragility in the Construction Industry Through the Blockchain and Smart Construction Contracts’ (2018) 30 Australian Construction Law Bulletin 116. 277 www.nsw.gov.au/building-commissioner. 278 The legislative scheme for the Queensland regime is set out primarily in the Queensland Building and Construction Commission Act 1991 (Qld) (QBCCA) pt 6AA. 279 Queensland Building and Construction Commission Act 1991 (Qld) s 74AF.

124  Regulation of Residential Construction made clear that architects and engineers are included, if they specify that the product be ‘associated with the building’.280 The Queensland approach is similar to that of Australia’s Heavy Vehicle National Law (HVNL). This places paramount importance on the safety of all road users by providing that ‘everyone in the supply chain shares equal responsibility for ensuring breaches of the HVNL do not occur’.281 As such, the Queensland scheme represents a radical intervention into traditional private law-based liabilities within that chain, especially those based in duties and standards of care in negligence, which look to individuals’ duties of care in the circumstances.282 The inclusion within the regime of a single responsible regulator (the Queensland Building and Construction Commission) also fills a crucial gap in the regulatory regime: at present no authority has responsibility for checking the NCC compliance of products, save in the building inspection process. The Australian (government) Border Force has no general power to undertake this role at points of entry into the country.283 The legislative scheme implementing the Queensland reforms is extensive, running to nearly 100 pages. It provides fines of up to A$130,000 for breaches of duties by individuals;284 it includes detailed procedures in relation to investigations, rectification of non-conformances, product recalls, de-registration of a building practitioner for breaches, and other matters. This onerous aspect of the scheme was noted with apparent approval by the Senate’s Final Report, which observed that evidence presented to its inquiry ‘clearly showed that the level of penalties and the application of penalties are currently inadequate in providing effective deterrence of the importation and supply of non-conforming building products’, and that the Queensland measures included additional penalties in order to, as the Queensland government noted, ‘ensure a credible level of deterrence’.285

3.7.7  NSW: Apartment Building Audits On 1 September 2020, the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) came fully into force. The centrepiece of that Act is its Part 5 Division 1. This gives power to the Secretary of the NSW Department of

280 Queensland Building and Construction Commission Act 1991 (Qld) s 74AE. 281 National Heavy Vehicles Regulator, ‘About the Chain of Responsibility’: www.nhvr.gov.au. 282 See section [5.8]. 283 SERC, The Need … (n 22) 32–33. As noted by the Committee (at 58–59), the Australian Commonwealth government exerts some control over standards within government-funded projects via the Code for the Tendering and Performance of Building Work 2016 which provides that government funded entities may only enter into building contracts with firms which can prove compliance; however, the lack of enforcement measures means that the requirement is more in the nature of a ‘box-ticking’ exercise than one which provides effective compliance. See, further, Rex Deighton-Smith, Review of the Building and Construction Industry (Improving Productivity) Act 2016 (Canberra, Department of Jobs and Small Business, 2018) 49–59. 284 Queensland Building and Construction Commission Act 1991 (Qld), s 74AJ (1,000 PU). By dint of the Penalties and Sentences Act 1992 (Qld) s 181B, the maximum penalty for bodies corporate is 5,000 PU. 285 SERC, The Need … (n 22) 43 (citing the Explanatory Notes to the Building and Construction Legislation (Non-conforming Building Products – Chain of Responsibility and Other Matters) Amendment Bill 2017 (Qld)).

Contrasts: New Zealand  125 Customer Service (in practice the NSW Building Commissioner and their staff) to intervene to require the correction of ‘serious defects’ in residential apartment buildings:286 • Under section 33, ‘building work rectification orders’ may be issued to developers (widely defined, including owners of the land) where the ‘Secretary has a reasonable belief that building work was or is being carried out in a manner that could result in a serious defect’. • The definition of ‘serious defect’ has several fairly broad gateways, including failure to comply with the performance requirements of the Building Code, defects likely to deny habitability or use of the building for its intended purpose, or the use of proscribed building products. • To make sure that these defects are rectified before residents take possession of their apartment, the Secretary can issue a ‘prohibition order’ to hold up issue of an occupation certificate.287 • The preconditions also dovetail with other recently imposed legislative requirements in NSW, including the developer’s obligation to provide a ‘defects bond’ for 2 per cent of the contract price, introduced in 2018.288 • The legislation brings a heavy penalties regime, running to 3,000 PU for bodies corporate (around A$330,000) which fail to comply with a rectification order.289 The retrospective (‘was’) aspect of the rectification regime is very significant, potentially opening a second floodgate for practitioner liability, alongside that provided by the new statutory duty of care.290 Under section 6(1)(b), the Secretary’s powers may be exercised up to 10 years after issue of the occupation certificate. This dovetails with the limitation period under the Environmental Planning and Assessment Act 1979 (NSW) section 6.20.291

3.8  Contrasts: New Zealand 3.8.1 Background New Zealand fits the standard organisational and historic template for regulation in our field: it centres on a developed ‘building code’ system closely similar to that of the UK and Australia. Almost all recent developments in New Zealand should be seen in the light of the shock to the construction industry, to consumers of its products and

286 The relevant definitions are in Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) s 3. Part of this text is adapted from Matthew Bell, ‘New Powers in NSW to Order Rectification of Apartment Buildings Before and After Occupancy: A Game Changer for Resident Safety?’ (2020) 31(5) Australian Construction Law Bulletin 58. 287 Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) s 9. 288 See Strata Schemes Management Act 2015 (NSW) pt 11 div 3. 289 Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) s 33(9). 290 On the duty of care, see section [5.12.4]. 291 See section [10.8] on that limitation period.

126  Regulation of Residential Construction to government of ‘the leaky buildings crisis’ which unfolded in the early years of this century, in which new homes formed the lion’s share of the problems.292 This led to: • Ending the possibility for private sector BCBs to implement ‘the building code’ (as these gained more ground in Australia and the UK).293 • Introducing occupational licensing for a range of residential construction activities (following the Australian model). • Adopting a new and much more comprehensive legislative framework for the process by which BCBs (Territorial Authorities) approve plans (‘consenting’) and supervise construction, ending with a ‘code compliance certificate’. In 2013 a comprehensive regime for residential B2C construction contracts was also introduced, copying the objectives but not the methods of most jurisdictions across the Tasman Sea in Australia.294 In an earlier move also following an Australian lead – but without direct copying – in 2002 New Zealand adopted its own statutory adjudication system for the resolution of construction disputes, revised in 2015.295

3.8.2  ‘The Building Code’ In 1842, less than two decades after the first arrival of European settlers in New Zealand, anxiety surfaced there about the fire risk posed by houses constructed of rushes or palm fronds – raupo, nikau and so on.296 Once the September 1888 earthquake hit the Canterbury region of the South Island, new concern arose about the structural stability of brick and stone buildings, later extended to reinforced concrete structures.297 This well-founded and territory-specific anxiety continues to find a focus, as it did in Queen Victoria’s time, on earthquake damage to the Anglican Cathedral in Christchurch, at the very heart of what began as a Church of England colonial settlement.298 292 On the ‘leaky buildings crisis’ and tort liability, see section [5.13.2]. 293 Implementing most of the Building Industry Commission report, Reform of Building Controls (Wellington, Building Industry Commission, 1990), the Building Act 1991 (NZ) provided that a private person or organisation could be approved and registered by the Building Industry Authority in order then to certify that building plans and specifications, or completed buildings, complied with the Building Code. In an about-turn triggered by the scale of the leaky buildings problem, the Building Act 2004 (NZ) prevented private sector building certifiers from taking on new work after 31 March 2005; the last active certifier finished operating in November 2005. See Dr Brian Easton, ‘Regulation and Leaky Buildings’ in The Leaky Buildings Crisis: Understanding the Issues (Wellington, Brookers/Thomson Reuters, 2011). 294 On those 2013 legislative changes, see section [4.14.2]. 295 On the Construction Contracts Act 2002 (NZ) (as amended) see section [9.10.2]. 296 Nigel Isaacs, ‘Early New Zealand Building Codes’, 90 CHS Magazine 7 (December 2011): www.constructionhistory.co.uk. 297 Lyttelton Times (5 September 1888), quoted at www.teara.govt.nz/en/historic-earthquakes: ‘the spire of the Cathedral has come to grief. Its tapering, graceful outline, a landmark for every dweller on the plains within thirty miles, and a beacon for the mariner crossing Pegasus Bay, no longer cuts the sky. Twenty-six feet of the upper spire have given way, and the melancholy appearance of the wreck strikes every eye’. This was not the first time an earthquake had damaged the Cathedral; it had already been hit in 1881. 298 The Anglican Cathedral, deconsecrated following extensive damage in the 2011 earthquake, was quickly replaced by the innovative Transitional (Cardboard) Cathedral nearby, designed by Japanese architect Shigeru Ban (for no fee) from 98 identical cardboard tubes, eight steel shipping containers and a lightweight skin; but in September 2017 the Synod decided to restore the old Cathedral (at an estimated cost of NZ$104m) in order to bring it back into use: www.restorechristchurchcathedral.co.nz.

Contrasts: New Zealand  127 The more recent 2011 Canterbury earthquakes killed 185 people in Christchurch, including 28 Japanese nationals. Most of those who died were in two multi-storey commercial buildings which collapsed – both known to have been weakened in an earthquake the previous year. The post-earthquake responses included demolishing, or marking for demolition, more than 1,250 buildings in the city; imposing more demanding building code requirements for earthquake resistance on all new buildings in Christchurch’s Green Zone; and requiring Territorial Authorities to identify earthquake-prone buildings across the whole country, three zones reflecting the degree of seismic risk, buildings at risk having to be demolished or strengthened.299 The Municipal Corporations Act 1867 (NZ) gave municipalities power to adopt bye-laws in relation to construction, but these were gradually overtaken by central government regulation of particular categories of building and by adherence locally to a model building code drafted by what is now Standards New Zealand.300 This movement came to a head in the adoption of the Building Act 1991 (NZ), which imposed a comprehensive and new performance-based code nationally under the BIA.301 The ‘leaky buildings crisis’ triggered further reforms, culminating in the Building Act 2004 (NZ). It also created a focus on after-the-event liability for inadequate implementation of ‘the building code’, which in turn led to significant broadening of the law of tort and to many awards of damages against negligent Territorial Authorities responsible for ‘code non-compliance’.302

3.8.3 Reform The 2004 Act regime has been modified and extended several times. From 1 March 2012, New Zealand followed the Australian model by imposing a licensing scheme on all those who undertake, or supervise, ‘restricted building work’.303 This includes all newbuild or renovation work critical to the integrity of a residential building, divided into seven broad types of activity and licence classes; but ‘grandfather’ provisions meant that many of those with existing professional qualifications automatically became Licensed Building Practitioners, overseen by the Building Practitioners Board.304 Even so, research in 2016 found that the builder in charge of the site for residential building was not an LBP in seven cases out of 27.305 Licensing is also in place for electrical and electronic workers; plumbers, gas fitters and drain layers; registered architects; chartered professional engineers; and engineering associates.

299 See Building Performance, ‘Canterbury Rebuild’: www.building.govt.nz and the Building (Earthquake-prone Buildings) Amendment Act 2016 (NZ), following the Canterbury Earthquakes Royal Commission of Inquiry: canterbury.royalcommission.govt.nz. 300 Municipal Corporations Act 1867 (NZ) s 186 and sch 13 pt V. The bye-laws in Invercargill played a central role in Mr Hamlin’s litigation: see Case Study 1 at section [1.12]. 301 See n 69; on the BIA, see also the main text to n 58. 302 On the ‘leaky buildings crisis’ and tort liability, see section [5.13.2]. 303 The definition comes from the Building (Definition of Restricted Building Work) Order 2011 (2011/317) (NZ); licensing is under the Building Act 2004 (NZ), as amended, ss 84–88. 304 See www.lbp.govt.nz. 305 Ian Page, Study Report SR355: Consent Documentation Quality for New Housing (Judgeford, BRANZ, 2016).

128  Regulation of Residential Construction Central government has taken the primary role in recent times, following the abolition in 2004 of the BIA. Since 2012, the Building & Housing Group within the Ministry of Business, Innovation and Employment has had this responsibility, with a Construction Sector Accord put in place between government and sector leaders in 2019 and a Construction Sector Transformation Plan launched in 2020.306 This could lead to significant changes in how ‘the building code’ is applied, perhaps ending the principle that each Territorial Authority (currently 69 in total) is also a public BCB (‘consenting authority’). The Minister responsible introduced a first package of proposed legislative changes into Parliament which became the Building (Building Products and Methods, Modular Components, and Other Matters) Amendment Act 2021.307 After the Grenfell Tower fire, the government ordered Territorial Authorities to check for combustible versions of ACM cladding and the systems by which the cladding was attached, but in 2018 Auckland Council reported that there were no comparable buildings in the city which did not also have sprinkler systems or more than one means of escape.308 In Wellington, owners of 18 buildings were told to seek an engineer’s fire assessment, with Building Research Association NZ opening a new testing station to verify the fire performance of suspect cladding.309

3.9  Contrasts: Ireland 3.9.1  Regulation of those Undertaking Construction Work Ireland has so far shared the ‘light touch’ approach and preference for self-regulation familiar from the UK for the occupational qualifications and regulation of those involved in construction work. Specific occupations have statutory status, title protection and regulation (like gas installers and electricians), but there is no general requirement across the whole sector, nor any special regime for those undertaking residential construction work as such or for those dealing directly with individual consumers. Nor is there a special legal regime for obligations and liabilities in relation to residential construction, beyond the general law of contract and tort: the Irish Law Reform Commission produced a working paper (1977) and subsequent report (1980) comprehensively discussing and advocating the introduction of legislation to protect the interests of home buyers, but reform is still awaited.310 However, registration of builders in general has been mooted for decades in Ireland.311 In 2014, the principal lobbying body for the Irish construction industry, 306 See www.constructionaccord.nz. 307 After the October 2020 General Election, the Minister responsible in Cabinet became Hon Poto Williams, Labour MP for Christchurch East. All the changes and proposals can be accessed via www.building.govt.nz. 308 ‘No Buildings in Auckland like Grenfell Tower, Council Says’: www.newshub.co.nz (13 June 2018). 309 ‘18 Wellington Buildings with Grenfell Tower-style Cladding Require Safety Check’: www.stuff.co.nz (12 June 2018); and ‘Fire Tests of Cladding are Under Way in NZ in Response to the Grenfell Tower Tragedy’: www.rnz.co.nz (14 February 2020). 310 On these Law Reform Commission proposals, see section [5.14]. 311 The Law Reform Commission (Ire) suggested that a registration and bonding system could assist with addressing the problem of builder insolvency, and that builders could be required to demonstrate their

Contrasts: Ireland  129 the Construction Industry Federation, announced the establishment of a private registration body, Construction Industry Register Ireland (CIRI). Initially no more than a ‘trusted trader scheme’, its promoters intended it to acquire statutory footing in order to make registration of builders and contractors compulsory.312 In May 2017, the general scheme was published of the Building Control (Construction Industry Register Ireland) Bill 2017, giving effect to this plan.313 Government and industry stakeholders have repeatedly called the proposals ‘an essential consumer protection measure giving those who engage a registered builder the assurance that they are dealing with a competent and compliant operator’;314 but the Bill would give CIRI no power to award compensation or provide any remedy to a consumer who has a complaint or dispute in relation to a CIRI member.315 Nor would the registration body necessarily be truly independent: no provision in the draft Bill imposes obligations on members of the boards or committees of CIRI to disclose potential conflicts of interest.316 Nor would CIRI have any obligation to report breaches of building control legislation to BCAs (on these, see below), or any enforcement powers where a matter complained of related to such a possible breach. So the Bill, if enacted, would result in ‘a private system to regulate builders, and a separate public system to regulate what they build’.317 CIRI’s investigative powers would be limited to breaches of its own establishing statute, meaning (only) the registration requirements. In the event of an investigation into misconduct, an inspector appointed to consider the alleged misconduct would have to provide a draft of their report to the member under investigation (which could prompt judicial review or interlocutory applications to prevent the investigation continuing).318 The proposals would also embed the existing opt-out mechanism from building control for one-off homes, as ‘self-builders’ would be exempt from the registration requirement. This is a crucial point from the perspective of consumer protection; in the state of Victoria, by contrast, owner-builders are required to register and must

financial stability as a condition of registration, potentially supported by the provision of a bond: The Law Relating to the Liability of Vendors and Lessors for the Quality and Fitness of Premises (Working Paper, 1977) 43–44. A registration system was also recommended in the Report of the Pyrite Panel (2012): www.housing. gov.ie/pyrite. 312 On the present status and activities of CIRI, see section [6.6.3]. 313 General Scheme of the Building Control (Construction Industry Register Ireland) Bill 2017; it is intended that the Act will apply to ‘any builder carrying out building works under the Building Control Acts 1990 to 2014 which are subject to the Building Regulations 1997 to 2017 and which are not exempt under section 3(2)’, and s 5 provides that a person shall not carry out building works or represent to the public that they are entitled to do so unless they are registered under the Act or exempt. 314 The Minister for Housing, Planning and Local Government, ‘Report on Building Standards, Building Controls and Consumer Protection’, Dáil Deb 24 May 2018, vol 969 no 6. See Joint Committee on Housing Planning & Local Government, Safe as Houses? A Report on Building Standards, Building Controls & Consumer Protection (HPLG/06, 2017). 315 General Scheme of the Building Control (Construction Industry Register Ireland) Bill 2017 cl 10. 316 Provisions regarding the avoidance of conflicts of interest are set out in various regulatory and quasiregulatory statutes: Legal Services Regulation Act 2015 (Ire), s 12(1); Competition and Consumer Protection Act 2014 (Ire), s 12(1); Central Bank (Supervision and Enforcement) Act 2013 (Ire), s 11(1). 317 Presentation by Deirdre Ní Fhloinn to the Joint Oireachtas Committee on Housing, Planning and Local Government, Pre-Legislative Scrutiny of the Draft General Scheme of the Building Control (Construction Industry Register Ireland) Bill 2017 (26 October 2017). 318 General Scheme of Building Control (Construction Industry Register Ireland) Bill 2017 cl 11(4).

130  Regulation of Residential Construction demonstrate their competence to carry out building work.319 The leading Irish home defects case of Ward v McMaster related to a house that had been built by what would now be regarded as a ‘self-builder’: the defendant who constructed the house was a taxi driver by profession.320

3.9.2  ‘The Building Code’ and its Implementation The Building Regulations 1997 (as amended) are organised in a similar fashion, and with similar content, to those of the UK jurisdictions already described. Compliance with ‘Technical Guidance Documents’ published and revised periodically by the Irish government, is presumptive evidence of compliance with the Building Regulations. A significant feature of the Irish Building Regulations is their reference to British Standards, which may require revision following Brexit.321 Ireland’s regulatory system for building control shares a regulatory ‘chassis’ with the UK, but with some local differences. The Building Control Act 1990 (Ire), as amended, provides for the making of regulations for both building control and Building Regulations; with lettered Parts familiar from the English approach, these comprise the Irish ‘building code’.322 It introduced a hybrid public–private model and can be seen as a ‘co-regulatory regime’. The public role is performed by the state’s 31 building control authorities (public sector BCBs), by ‘authorised persons’ appointed by those authorities, and by the courts.323 Enforcement powers under the 1990 Act may be exercised only by BCAs; they have powers, but no duty, to act; their authorised persons essentially act as ‘verifiers’. A parallel system of private inspection and certification was introduced by the 2014 Regulations, intended to introduce a ‘culture of compliance’.324 For most developments, design, inspections and certification has to be carried out by competent professionals.325

319 See section  [3.7.4]. NSW has a similar regime, requiring owner-builders to apply for a permit: Home Building Act 1989 (NSW) pt 3. 320 Ward v McMaster [1985] IR 29, [1986] ILRM 43 (High Court): see section [5.14.2]. 321 As discussed at section [1.11]. 322 Building Control Regulations 1997 (SI 1997/496) (Ire), as amended; most recently by the Building Control (Amendment) Regulations 2014 (SI 2014/9) (Ire) and the Building Control Regulations 2020 (SI 2020/113) (Ire) (temporary provisions for Covid-19). The original Building Regulations 1997, regularly amended, are SI 1997/497 (Ire). All these Regulations are made under the Building Control Acts 1990 and 2007 (Ire). 323 Building Control Authorities were established under the 1990 Act s 2; rather than creating entirely new bodies to discharge the role prescribed by the 1990 Act, this section simply designates existing local authorities, county councils, and borough and urban district corporations as BCAs for the purposes of the Act. The Act introduced a new statutory role of ‘authorised persons’ – to date, their functions have been exercised exclusively by employees of BCAs, the Irish BCBs. 324 The Building Control (Amendment) Regulations 2014: n 322. The Minister for the Environment, Community and Local Government, Mr Phil Hogan, commented with regard to the first iteration of the 2014 Regulations in a written answer to the Dáil on 6 November 2013: ‘These Regulations will usher in a new era of quality and a new culture of compliance in an industry where consumers have in recent times too often found that work on their homes does not comply with the minimum requirements set out in the building regulations.’ 325 Building Control (Amendment) Regulations 2014: n 322. The Regulations apply to the design and construction of a new dwelling, an extension to a dwelling involving a total floor area greater than 40m2, and works for which a fire safety certificate is required: Building Control Regulations 1997 (SI 1997/496)

Contrasts: Ireland  131 They must provide certificates of compliance with Building Regulations in respect of their design and inspection roles.326 A key role introduced by the 2014 Regulations is that of the ‘assigned certifier’, who must undertake to oversee implementation of an inspection plan, and complete and sign a certificate of compliance with Building Regulations; this must be co-signed by ‘the builder’ and lodged with the BCA before a building is opened, used or occupied. The function of both authorised persons and assigned certifiers is to assess compliance with Building Regulations, but their roles and objectives are very different. The assigned certifier does not displace the authorised person appointed under the 1990 Act. The system was criticised from the start, in part because the private individuals charged with delivering the design, inspection and certification functions are appointed and paid by landowners and developers, lacking enforcement powers or even any formal method of communicating concerns or breaches of ‘the building code’ to the local BCA.327 In England & Wales, by contrast, private sector AIs have no enforcement powers, but may (in some cases must) notify breaches to their local public sector BCB.328 This clearly presents significant problems. A designer is retained to prepare a design that complies with Building Regulations, and then issues a certificate of compliance with Building Regulations of its own design, without the need for any third-party review or verification of that design.329 An assigned certifier is retained by the developer/owner to inspect the works in the course of construction and to provide a certificate of compliance with Building Regulations on completion of the works, in respect of their own inspection, and the builder signs the same certificate in respect of compliance with Building Regulations with regard to their own work. Although the assigned certifier may not be an employee of the developer/owner, there is a clear potential for conflicts of interest and little external oversight of this role. This contrasts with the English system, which at least imposes mandatory third-party inspection of buildings in the course of construction, requiring a person undertaking work to appoint either a public or a private inspector to carry these out – though the Grenfell Tower Inquiry has shown how inadequate that can be in practice.330 No review of the effectiveness of the Irish system

(Ire) art 9(2)(b), inserted by Building Control (Amendment) Regulations 2014 (SI 2014/9) art 7. In response to complaints following the introduction of the 2014 Regulations, an ‘opt-out’ mechanism was introduced several months later by the Building Control (Amendment) (No 2) Regulations 2015 (SI 2015/365) (Ire); landowners/developers of ‘one-off ’ housing could opt out of the inspection and certification requirements of the new Regulations entirely. Certification must be carried out by an architect or a building surveyor registered under the Building Control Act 2007 (Ire), or by a chartered engineer under the Institution of Civil Engineers of Ireland (Charter Amendment) Act 1969 (Ire). 326 The assigned certifier must undertake to carry out inspections (in accordance with an inspection plan), to co-ordinate inspections by others (such as specialist subcontractors) and to certify compliance with the Building Regulations in the Completion Certificate. 327 Research undertaken by Deirdre Ní Fhloinn for her PhD indicated that no convictions had ever been secured by BCAs for breaches of Building Regulations, and that enforcement was poorly resourced and undertaken only as a last resort. 328 But this power seems rarely used: see the main text to n 154. 329 Art 9 of the Building Regulations 1997 requires a Certificate of Compliance (Design) to be furnished with a Commencement Notice, and the form required to be submitted specifies that the person signing must qualify under the Building Control (Amendment) Regulations 2014 (n 325). 330 See section [3.6].

132  Regulation of Residential Construction as a regulatory regime has been undertaken since its introduction in 2014, and enforcement activity by building control authorities continues to operate at a minimal level.331 Illustrating the limitations of the present building control system, between 2012 and 2017, the Irish State spent over €36m on rectification of the private sector Priory Hall residential development in North Dublin, together with the cost of accommodating the residents following an order made by the local (and fire) authority, Dublin City Council, prohibiting the use of the buildings under the Fire Services Act 1981 (Ire).332 The state also assisted in negotiating with lending institutions on behalf of homeowners, in order to renegotiate or write off mortgages in relation to the affected units.333 The evacuation of the development under the 1981 Act demonstrated the limited scope of the council’s power to deal with housing failures: it could require people to leave their homes, but had no corresponding obligation to re-house them, to carry out remedial works, or power to ensure that the original developer did so.334 A series of court orders made against Priory Hall’s developer also demonstrated the limitations of the legislation: the remedial orders made against him personally were overturned in court.335

3.9.3 Reform Following the Grenfell Tower fire, the Irish government set up a Fire Safety Task Force, which reported with Fire Safety in Ireland.336 The Task Force considered only buildings over 18m, despite considerable evidence in the public domain of widespread fire safety issues in lower-rise apartment stock built in the last 25 years. The report states that there are no residential buildings in Ireland with directly comparable circumstances or of a similar scale to Grenfell Tower. One of the extraordinary omissions from the report was that it failed to take account of the Hackitt Final Report, published shortly before the Task Force reported.337 The Task Force suggested that legal action to enforce legislation should be a last resort, in light of resource constraints: [T]he option of legal action in the case of even a single building requires significant resources, including legal advice. Options for undertaking this role effectively and efficiently may need to be considered.338

331 The most recent annual report of the building control authority for Dublin City, for example, contains no statistics for any enforcement carried out under the 1990 Act, referring instead to two prosecutions under the Fire Services Act 1981 (Ire): Dublin City Council, Annual Report 2018: www.dublincity.ie. 332 Olivia Kelly, ‘Priory Hall Refurbishment Bill Likely to Exceed €36.4m’ The Irish Times 22 November 2016. 333 Olivia Kelly, ‘Priory Hall Residents Accept Resolution Deal’ The Irish Times 10 October 2013. 334 Sections 20(1)–(3) of the 1981 Act allow a fire authority to service a fire safety notice on any owner or occupier of any building which appears to be a potentially dangerous building; the notice may prohibit the use of all or of a specified part of the building, with or without specifying precautions to be taken to render the building safe. 335 Dublin City Council v McFeely [2012] IESC 45. 336 Fire Safety in Ireland: Report of the Fire Safety Task Force (2018): www.housing.gov.ie. 337 Hackitt Final Report: n 5. 338 Fire Safety in Ireland (n 336) [9.2].

Contrasts: Scotland  133 This is a baffling statement about legislation already in place for 37 years – as if the appropriate resourcing of enforcement of breaches of the Fire Services Act 1981 (Ire) had never been considered, and was not regarded as urgent, even following the devastating consequences of the Grenfell Tower fire in a neighbouring jurisdiction. The ‘Programme for Government’ agreed by the coalition parties entering into government in June 2020 included a commitment to examine ‘the creation of an independent Building Standards Regulator to oversee building control nationwide and to act as custodian of the Building Control Management System, including the re-establishment of the Building Regulatory Advisory Body’.339 This was originally established under the Building Control Act 1990 to provide independent expert advice to the Minister of the day with regard to building regulation. It is not yet clear whether the proposals to create CIRI as the statutory regulator for construction in Ireland will be moved forward, when and in what form.

3.10  Contrasts: Scotland 3.10.1 Background Like the rest of the UK and Ireland, Scotland has no forms of regulation looking specifically to residential construction or to those who undertake it (save the possibility of a New Homes Ombudsman operating across the whole of the UK).340 Nor does it have any sectoral regulation of construction in general, beyond specific individual professions and activities, some of which have their own self-regulatory or independent licensing arrangements. It also shares the basic regulatory structures and techniques of building control (‘the building code’) with England, Wales and Northern Ireland: governmental adoption of mandatory standards and decentralised (in some cases privatised) implementation and enforcement of these ‘on the ground’ by Scotland’s version of building control bodies. But Scotland’s Building Regulations form their own ‘building code’, so not only the vocabulary but the rules themselves vary in detail from those in other parts of the UK. This is therefore the area of public law regulation explored in the rest of this section. In relation to liability for the cost of remedying non-compliance, the principles of contract and tort law (delict and quasi-delict) in our field in Scots law are very close to English law, though administered via its own procedures and judicial institutions, save that the Defective Premises Act 1972 does not apply; third-party warranties are offered widely for the sale of new and newly converted homes, by the same insurers also active in the rest of the UK.341 339 Programme for Government: Our Shared Future (2020): www.rasset.ie. The Building Control Management System is an online system for the submission of drawings, plans and certificates required to be furnished under the Building Control Act 1990 and the 2014 Regulations, operating (in contrast to Irish BCAs) on a nationwide, integrated basis. 340 On the New Homes Ombudsman, see section [9.8]. 341 On the Scots law of contract, see section  [4.16]; of quasi-delict, see section  [5.15.2]; on third-party warranties, see ch 7.

134  Regulation of Residential Construction

3.10.2  ‘The Building Code’ Scotland’s history shows gradually increasing statutory imposition of building controls via local authorities, from the late nineteenth century onwards.342 It most recently launched a root-and-branch reform of its building control system, triggered by an apartment block fire in 1999, resulting in the Building (Scotland) Act 2003.343 As in England, the parent statute authorises Scottish Ministers to adopt detailed regulations, for which there is guidance in Technical Handbooks (the rough equivalent of Approved Documents south of the border, but one Handbook covers all domestic buildings and one all non-domestic).344 The Act also contains the systems for considering and approving plans for construction, as well as inspecting and certifying work in progress and at completion, though the detail is in the Building (Procedure) (Scotland) Regulations 2004.345 The word most often used about the system is ‘pre-emptive’: it is an offence to start work on site without a permit (a ‘building warrant’) if one is needed.346 The top-level governmental body, created in 2004 when the reforms were new, was the Scottish Building Standards Agency (SBSA); in 2008, as part of a widespread simplification of public sector bodies, the SBSA was integrated into the Scottish government’s Directorate for Local Government and Communities as its Building Standards Division (BSD), situated in Livingston, West Lothian. Public sector BCBs, at present comprising all 32 Scottish local authorities, have a de facto monopoly as verifiers, appointed as such by the Scottish government for six years (renewable): they check plans and grant a building warrant where this is required, as well as supervising work in progress on such a project. The same local authorities have direct responsibility under the 2003 Act for enforcement. The chosen verifier will set out a Construction Compliance and Notification Plan (CCNP) with the building warrant, setting out the construction stages that have been identified for site visits or

342 For insights into the systems in Glasgow at the time of architect Charles Rennie Mackintosh (1868–1928), see Nicky Imrie, Building Process and Records in the University of Glasgow’s Mackintosh online collection: www.mackintosh-architecture.gla.ac.uk. 343 For the Garnock Court fire, see ch 1, n 49. All the 2003 Act as originally adopted was in force on 1 May 2005, except s 6 (building standards assessments – still not yet in force). Part 4 of the Act codifies local authority powers in relation to defective and dangerous buildings, not discussed here. The modest legislative changes to the parent Act come from the Public Services Reform (Scotland) Act 2010, the Housing (Scotland) Acts 2006 and 2014 and the Buildings (Recovery of Expenses) (Scotland) Act 2014. 344 The main Regulations are the Building (Scotland) Regulations 2004 (SSI 2004/406), in force from 1 May 2005, now much amended – most recently by the Building (Scotland) Amendment Regulations 2019 (SSI 2019/210). In the light of the Grenfell Tower fire, these add additional requirements to inhibit the spread of fire within cavities in the structure or fabric of a building. The Technical Handbooks are downloadable from www.gov.scot/publications. The 2003 Act s 5 provides that failure to comply with a guidance document does not render a person liable to civil or criminal proceedings, but proof of compliance may be relied on as tending to negative liability for an alleged contravention of building regulations. 345 Building (Procedure) (Scotland) Regulations 2004 (SSI 2004/428), as amended by the Building (Procedure) (Scotland) (Amendment) Regulations 2007 (SSI 2007/167) and 2009 (SSI 2009/117). 346 Building (Scotland) Act 2003 s 8(2). Any person actually carrying out such work; and the person for whom the work is done; and the owner (if different) all commit an offence under the 2003 Act s 8(3) if the work requires a warrant and does not have one. The local authority may also serve a ‘building warrant enforcement notice’ under s 27; but under the 2003 Act s 15 a warrant may be applied for late – at any time before the works on site are complete – but for a fee double what otherwise would have been charged.

Contrasts: Scotland  135 other alternative methods to check compliance. It is the responsibility of the building owner to contact the verifier at the notifiable stages, but this can be done by the owner’s agent or builder. When notified, verifiers undertake checks in line with the CCNP, as part of their responsibility for undertaking ‘reasonable inquiry’.347 Their work as verifiers is measured quarterly against a framework of key performance outcomes laid down by the BSD, last revised in 2017; this in turn requires each verifier to adopt a Customer Charter and to publish a Verification Performance Report annually.348 As a group, the current verifiers form Local Authority Building Standards Scotland, in regular dialogue with the BSD. As in England with AIs, the legislation also provides for the appointment of private sector BCBs as verifiers (under stringent conditions) – powers so far unexercised.349 Where a warrant is required, as defined by the regulations, approved certifiers are active in relation to two aspects of design (Building Structures and Energy) and two of installation (Drainage, Heating and Plumbing; and Electrical Installations to BS 7671).350 If a certifier provides a certificate saying that particular aspects of the work will comply with Building Regulations, the verifying local authority will check the validity of the certificate and the status of the certifier, but will rely on the certificate as indicating compliance. This may reduce the turnaround time with the local authority, and gives a discount on the application fee for the warrant; fees are laid down centrally, primarily relating to the value of the works.351 In two significant respects, the Scottish legislative framework differs from that in England & Wales: 1

2

The ultimate duty of compliance with building regulations remains on the owner of the site or eventual building (so verifiers and perhaps certifiers too appear to be out the frame of potential civil liability for any consequences of non-compliance);352 and The initiative for submitting a completion certificate at the end of construction to a BCB, certifying compliance with building regulations, rests with ‘the relevant person’. This is the person doing the work; the owner, tenant or developer who has employed a builder to do the work; or the owner, if none of the others who should have done so has submitted the certificate.353 So the BCB’s role is reactive

347 Scottish Government, Scottish Building Standards Procedural Handbook (3rd edn, 2010, with 2019 additions) [3.1.1]: www.gov.scot/publications. On ‘reasonable inquiry’, see n 354. 348 Scottish Government, Building Standards: Performance Framework for Verifiers (2017): www.gov.scot/ publications; see also n 190. 349 It is understood that a first appointment would be for four years (renewable), subject to ongoing audit by BSD; bodies active in England & Wales as AIs were interested but thought the conditions unacceptable. 350 For example, BRE Scotland runs Approved Certifier of Design schemes in relation to energy, in both domestic and non-domestic buildings; those taking part must have a level of PI insurance cover. SER Ltd, a trading subsidiary of the Institution of Civil Engineers and Institution of Structural Engineers, runs the Approved Certifier of Design scheme in relation to structures: www.ser-ltd.com. Others running certification systems include trade association SELECT (for electrical installations), Structural Engineers Registration, Certsure (trading as NICEIC) and the Scottish and Northern Ireland Plumbing Employers Federation (SNIPEF). 351 Building (Fees) (Scotland) Regulations 2004 (SSI 2004/508), as amended. 352 Building (Scotland) Act 2003 s 51, which otherwise appears to impose liability: see section [5.10.1]. 353 Building (Scotland) Act 2003 s 17(10).

136  Regulation of Residential Construction and supervisory, ‘accepting’ the certificate, rather than actively checking the state of the building at completion and itself issuing the certificate.354

3.10.3 Reform In January 2016, a 9-ton brick exterior wall of part of Oxgangs Primary School in Edinburgh (built in 2005) collapsed during a storm – early enough in the morning that no-one was injured. An independent inquiry for the City of Edinburgh Council, chaired by Professor John Cole, also investigating other Edinburgh schools built around the same time, concluded that the principal cause was the incorrect installation of wall ties across the cavity (the inner leaf having been built first), reducing the wall’s structural capacity and its ability to resist high winds. In addition, many examples of inadequate fire-stopping were revealed. All these defects involved failure to implement the design, resulting in non-compliance with Building Regulations.355 Although the defective fire-stopping could and should have been discovered on regular reviews of the fire integrity of each building, no post-construction visual (ie nonintrusive) inspection could reliably detect the structural problems with the cavity walls, so the last chance was missed once construction was complete; neither as-designed nor as-built drawings were reliably available. The 250-page report noted that proper procedures were not followed: Issues of non-compliance, each occurring in the case of several schools, included: failures to submit notifications of intention to start work; starting work without approved warrants; failures to submit requests for amended warrants; and occupying schools in advance of the issue of a temporary occupation or completion certificate.356

However, the City’s Building Standards Department as BCB could not do the inspections necessary to ensure compliance, nor was that its role under the 2003 Act: [R]esponsibility for compliance with the regulations lies with the relevant person (the developer or owner) and any checks undertaken by Building Standards Departments as verifiers do not remove any responsibility from the relevant person who is required to certify all the completed work as being in accordance with the approved plans.357

354 The details required to accompany the certificate are laid down in the Building (Procedure) (Scotland) Regulations 2004 (n 345); see also the Procedural Handbook (n 347) section 5. Under the Building (Scotland) Act 2003 s 18(2), the verifier is required to accept the certificate ‘if, but only if, after reasonable inquiry, it is satisfied as to the matters certified in the certificate’ – which usually means a non-intrusive inspection first. The Handbook [5.2.8] makes clear that in blocks of flats, the completion certificate for an individual flat will not be accepted until the common areas affecting that flat are complete, eg the common stairs or landings, access, and facilities for firefighting. The completion certificate for the final flat will not be accepted until works to all the common areas (internally and externally) are complete. 355 Report of the Independent Inquiry into the Construction of Edinburgh Schools (February 2017). Professor Cole found similar defects on chairing the separate inquiry for Dumfries and Galloway Council into defects at a leisure centre: Report of the Independent Inquiry into the Construction of the DG One Complex in Dumfries (April 2018). 356 Report of the Independent Inquiry into the Construction of Edinburgh Schools (n 355) [3.4.22]: to occupy a building without a completion certificate is an offence under the 2003 Act s 21. 357 Report of the Independent Inquiry into the Construction of Edinburgh Schools (n 355) [10.10.3].

Contrasts: Scotland  137 Primary responsibility was therefore shared between the main contractor and the City as construction employer, which had power under the private public partnership (PPP) contract to inspect work in progress (but not to open up work already completed). What the City really needed was its own ‘eyes and ears’ on site: even in the context of a PPP project on a design and build basis, it could have appointed a Clerk of Works or equivalent to carry out this role on its behalf. These observations, though focused on a series of large public sector non-domestic projects, suggest that statutory systems of building control do better at the verification of plans than checking compliance ‘on the ground’ – which limits the assurance which the existence of completion certificates can offer the current construction employer, let alone future owners and occupiers of buildings (including homes).358 After all, few future occupiers of homes are at the same time the project’s construction employers: they cannot directly influence build quality while the project progresses, nor can they assess how well that function was performed in the past on what is now their home. Following the Grenfell Tower fire, the Scottish government established a Ministerial Working Group on Building and Fire Safety.359 This in turn set up two Panels, one on Fire Safety (chaired by Dr Paul Stollard, who had a major role in the development of what became the 2003 Act) and one on Compliance and Enforcement of Building Standards (chaired by Professor John Cole). Both have reported on improvements necessary to regulations and to procedures: the first has led to significantly more demanding fire precautions for high-rise new buildings, as well in homes generally;360 the second to encouraging more systematic enforcement by BCBs of building standards, especially in relation to safety-critical aspects of new residential buildings.361 It is not yet clear whether the mutual recognition principles newly in the United Kingdom Internal Market Act 2020 could require construction products currently banned in Scotland to be permitted there if legal in England, as its Scottish critics have suggested: a ‘levelling down’ of protection. But building regulation itself remains devolved to the Scottish Parliament and government. Set up in 2018 by the Ministerial Working Group is the Building Standards Futures Board, grouping civil servants from BSD and a wide range of stakeholders; it monitors areas within the building control system which deserve or require reform – including most recently the impact of Covid-19 on the system, where a long-term drop in work might lead local authorities to consider collaborating in offering verification services (already widespread in England), or even contracting out building standards work, while retaining ultimate legal responsibility.362 It also has taken responsibility for implementing changes agreed by the Working Group, notably on compliance and enforcement. 358 See the main text to n 364. 359 See www.gov.scot/groups/ministerial-working-group-building-and-fire-safety. 360 Dr Paul Stollard, Report of the Review Panel on Building Standards (Fire Safety) in Scotland (2018): www. gov.scot/building-planning-and-design; see also n 344. More demanding rules requiring smoke, fire and carbon monoxide alarms in all homes were adopted by extending the definition of ‘tolerable standard’ in the Housing (Scotland) Act 1987 s 86 via SSI 2019/8. These were to come into force in 2021, but may be delayed because of Covid-19. 361 Professor John Cole, Report of the Review Panel on Buildings Standards and Enforcement (June 2018): www.gov.scot/building-planning-and-design. 362 For minutes of meetings of the Futures Board, see www.gov.scot/publications. On English LAs and innovation, see Table 3.3.

138  Regulation of Residential Construction A further theme is the digitisation of the building warrant process, which could also dovetail with post-Grenfell reforms to compile and preserve a ‘digital memory’ of a building. Record-keeping is already regulated under the 2003 Act, each local authority keeping a Building Standards Register for its geographical area, the Register’s Part I holding the applications, certificates and decisions relating to the project, and Part II collecting together all the documentation submitted to the verifier, held for at least 25 years (not necessarily the project’s full design life).363 This is a public register, much of Part I being searchable online.

3.11  Chapter Summary Table 3.4  Regulation of Residential Construction AUS/NZ REGULATION OF Detailed formal occupational CONSTRUCTION licensing and regulation of most of IN GENERAL those involved in construction: a wide range of activities and projects (including residential construction).

UK/IRE No general sector-wide occupational licensing or regulation of those involved in construction.

In public law terms, ‘the building code’ is the primary formal tool for regulation of build quality, with statutory requirements implemented by a ‘mixed economy’ of public and private BCBs (Scotland and NI: public BCBs only). Safety and protection against injury and dangers to health are a central aim everywhere. Failures at Grenfell Tower, Lacrosse etc show that ‘building control’ does not provide adequate assurance of compliance, so the future shape of regulation will follow a radical rethink – specially focusing on high-rise buildings which include homes. Wider issues of confidence in construction also on the table: education, culture, competence and ethics all relevant, as well as the impact of modern procurement techniques and fragmentation caused by projects being heavily subcontracted to specialists. REGULATION OF Statutory regimes in each jurisdiction RESIDENTIAL (great variety): a specialised form CONSTRUCTION of consumer (and broader public) protection via mandatory aspects (details in later of the law of contract: quality via chapters) implied warranties, enforceable by present homeowner.

No special overall regime, but some specific protective interventions, mostly from the private sector (Consumer Codes, third-party warranties). UK: new government commitment to ensure higher standards and more consumer protection (New Homes Ombudsman). Ire: possible additional future statutory protection.



363 See

the Procedural Handbook (n 347) section 8.

Evaluation  139

3.12 Evaluation For a variety of reasons – including high-profile failures of recently completed buildings – most of our subject jurisdictions have concluded that their existing systems of regulation (in the most comprehensive sense) of construction are in some respects failing. The response has included reversing some of the deregulatory trends of recent decades. As Graham Watts OBE, Chief Executive of the UK’s Construction Industry Council, said (with some exaggeration) in May 2021 to The Times: ‘As an exact result of deregulation, by the time of the tragedy of Grenfell you could house the number of civil servants overseeing the construction industry in a Whitehall broom cupboard’. Prevention has not been attained: standard-setting is not adequate to prevent buildings being a danger; nor is the design and specification function reliable, even when combined with a statutory safety-net regime for verifying plans and inspecting work on the ground. The system’s aims are not being achieved: protecting the community’s interest in durable, efficient and safe buildings. Nor is cure reliably within reach – as later chapters show. The difficult work now underway of diagnosing what is wrong, most obviously in Australia and the UK, shows the scale of the problem; the prescription calls for radical re-approaches, including by more intense and repurposed external statutory regulation of the industry, but also by changes in ‘culture’, education and training. The relevance of these ‘big issues’ to residential construction is obvious, since combustible cladding on blocks of flats has been one of the triggers for this reappraisal. A telling analysis from Scotland spells out how – in all our subject jurisdictions – current procedures and structures are unable to guarantee that what is built matches the plans and specifications, as well as complying with ‘the building code’: The significant resource applied to the approval of design drawings and specifications is rendered superfluous if the building is not built in accordance with the approved documents thereby undermining the fundamental purpose of the [building] regulations to ensure safe efficient functional buildings. … [T]here is no requirement for the continued involvement of professionally qualified designers in the process of inspecting and confirming that buildings are constructed in accordance with their approved designs. There has been an increased adoption … of procurement methods in which the design team are employed by contractors and which enables contractors to determine the nature and level of involvement or otherwise of the qualified design professionals in the inspection and checking of the compliance of those contractors’ work on-site. Perhaps not surprisingly this element of service, which used to be a standard part of a design team’s role, is frequently drastically reduced or even not required at all by employing contractors. Such appointments of design teams frequently contain confidentiality clauses whereby the professional design team are prevented from conveying concerns to the actual client for the project as to defective construction quality or changes from the approved design that they have observed and reported to the contractor. These arrangements have resulted in the situation where there is often limited independent professional oversight by the actual designers of the buildings of the detailed construction of projects and their compliance with Building Standards. … [C]urrently it would be inappropriate to assume that contractors’ quality assurance processes and self-certification can be fully relied on or alone can provide the necessary assurance as to compliance with the regulations or with the approved … drawings.364

364 Report

of the Review Panel on Buildings Standards and Enforcement (n 361) [21]ff.

140  Regulation of Residential Construction In order to protect future owners and occupiers of buildings against defects, some of which may be safety-critical, it may therefore be unrealistic to pin all our hopes on external forces, like new regulators or better resourced or better controlled BCBs (public or private). Instead, projects themselves must have their own new (or more reliable) internal elements of independent verification, through changes in the roles the different actors take on and play. These should be backed – as Hackitt has suggested – with clearer allocations of responsibility to identifiable ‘duty-holders’. One certainty is that these key aspects of our field are undergoing an unprecedented level of scrutiny and reform.

4 Contract Law in Residential Construction I want a house which has got over all its troubles; I don’t want to spend the rest of my life bringing up an inexperienced house. jerome k jerome1

4.1 Introduction What is the law of contract for, in each of our subject jurisdictions? The Scottish Law Commission suggests three functions: First and perhaps foremost, it is about enabling parties, whether individuals or other legally recognised persons, to make arrangements with other such parties that will be obligatory in law between them. Second, the law must provide means by which these obligations can be enforced by a party should another party not carry out its side of the contract. These two functions are sometimes respectively epitomised in the ideas of freedom and sanctity of contract. They also lead to the power of contract parties to make their own rules about when obligations come into existence between them, and about their enforcement. In this way contract law rules are generally ‘default’ in their nature rather than prescriptive or mandatory; they apply when the parties themselves have not otherwise provided. The third function of contract law is however the regulation of freedom of contract. This is achieved by the provision of rules on when obligations apparently undertaken by the parties are not treated as binding them, or when obligations are imposed upon them by the law rather than their agreement.2

This chapter looks at each of these functions in relation to our field.3 Leaving aside the rarity of inheriting a home or being given one, contract is the main legal route by 1 Jerome K Jerome, They and I (London, Hutchinson & Co, 1909), following his best-known Three Men in a Boat (1889). 2 Scottish Law Commission, Report on Review of Contract Law: Formation, Interpretation, Remedies for Breach, and Penalty Clauses (Scot Law Com No 252, 2018) [1.9]–[1.10]. 3 The classic source for English law is Hugh Beale (ed), Chitty on Contracts, 33rd edn (London, Sweet & Maxwell, 2018); for Scots law, Hector L MacQueen, MacQueen and Thomson on Contract Law in Scotland, 5th edn (Edinburgh, Bloomsbury Professional, 2020); for Irish law, Paul A McDermott and James McDermott, Contract Law, 2nd edn (Dublin, Bloomsbury Professional, 2017); for Australian law, key texts include JW Carter, Contract Law in Australia, 7th edn (Sydney, LexisNexis, 2018), NC Seddon and RA Bigwood, Cheshire & Fifoot Law of Contract, 11th Australian edn (Sydney, LexisNexis, 2017) and Andrew Robertson and Jeannie Paterson, Principles of Contract Law, 6th edn (Sydney, Thomson Reuters, 2020); and for NZ law, Jeremy Finn, Stephen Todd and Matthew Barber, Burrows, Finn and Todd on the Law of Contract in New Zealand, 6th edn (Auckland, LexisNexis NZ, 2018).

142  Contract Law in Residential Construction which anyone acquires a new home – or has construction work done on their home. This usually means an arm’s-length contract with a seller (in the case of new-build, the seller may also be a developer), a builder or another construction professional. To purchase a freehold, strata title or long leasehold, there may be linked funding arrangements with a lender (bank or other mortgagee): these are contracts too. Even those who have no long-term capital interest in their home, as short-term or periodic renters (‘tenants’), start by entering into a lease (also a contract) with a landlord. Most residential construction projects, therefore, involve at least one contract. This familiar legal device usually consists of enforceable promises, in our field reflecting the two parties’ consent that money is to be exchanged for work and materials, on a set of terms embodying each side’s rights and obligations. In an off-plan purchase, the buyer gets not just work and materials but rights in land – the new home – in return for the purchase price.4 In a mortgage or equivalent, the lender gets rights in the land also: security over it, in return for lending the borrower money with which to buy the home. ‘Enforceable’ means in court or before a tribunal if necessary: an award of damages (money as compensation) will usually be the main remedy, but in some cases, the other party will be required actually to fulfil – or complete fulfilling – their promise to do work. When a construction problem comes to light, our claimant may immediately start preparing for civil legal action. As chapter 9 explains, this is rarely the best approach towards an effective resolution. But once litigation (or the possibility of it) arrives in the frame, whatever the project and whoever the parties, our homeowner ought always to hope to have a claim in contract against someone: so much so, that situations where there is not the case are treated – by this book, and often by the law as well – as exceptional and, therefore, problematic. In Scenario 2 (Table 1.1), the new buyer of a home (B1) wishes to claim against defendant X, the home’s developer, for defects; in Scenario 3 (Table 1.2), the same homeowner has problems with the plumber (P) who installed a new shower unit; in Scenario 6, current owner B2 engages architect A to design a house and awards a contract to main contractor M2 to build it, but the site’s new owner B3 thinks the house’s foundations are in the wrong position. And in Scenario 7 (Table 1.3), B1 hopes to have a right of action in contract against the developer Y, who has sold them the flat. In all such situations, it seems simple to answer the first question: is our claimant ‘in contract with’ the (or, at least, a) target defendant? This test is clearly satisfied if B1 has bought (or committed to buy) a home from X; or if P has agreed with B1 to replace the existing shower with a larger one and has done so, problems then appearing.5 The answer is less clear in Scenario 6 (Table 1.2) because it was the site’s previous owner B2 who entered into contracts with architect A and main contractor M2.6 A homeowner may be able to claim the cost of rectifying a defect under a third-party warranty or another form of insurance (discussed in chapter 7): sometimes as effective as claiming against a project party, or even the only option. Technically, though, this is just 4 Even where a flat does not touch the ground except via the structure of the rest of the block, all our subject jurisdictions still classify the new owner’s rights as rights in land (real rights, in Scots law; real property, everywhere else). 5 There may be questions about who, or what, X and P are in law: individuals or bodies corporate – and, if the latter, what sort of entity: see n 75. 6 For ways in which B3 may be able to sue at least M2 in contract, see section [5.2.2].

Introduction  143 another example of exercising contractual rights, with litigation against the insurer in reserve if they unjustly refuse a claim.7 If the answer to the ‘in contract with’ question is ‘yes’, it is possible to move on to consider the contract’s terms (express, implied or statutory), breach and remedies. In our field, contract is the preferred ‘right of action’ (the legal basis for going to court or threatening to go to court). In chapter 5, we explain less usual situations – beyond the straightforward examples above – in which a claim in contract may still be available to resolve a construction problem.8 We consider in depth there the main alternative, a claim in the tort of negligence (quasi-delict in Scotland), explaining why, in most of our subject jurisdictions, such a claim is harder to establish and may offer less help to a homeowner than a claim in contract. The present chapter therefore looks at the part played by the law of contract in facilitating the types of projects and transactions regularly encountered in the residential sphere; and the extent to which it also protects individuals as consumers in the making and carrying out of contracts they have entered into with developers and construction professionals. The analysis starts in section [4.2] by considering what the Scottish Law Commission above treats as this body of law’s first and third functions – the freedom given to the parties to define and impose legally binding obligations, and the regulation of that freedom – and how those functions are reconciled. This forms the lens through which the detail in the rest of the chapter can be viewed. We continue in section [4.3] by considering inaccurate factual information given by one contract party to the other at a preliminary stage, before entering the contract. After Case Study 3 at section [4.4], we consider the impact in our field of two of the building blocks of contract and its law: certainty of terms at section [4.5] and the doctrine of consideration at section  [4.6]. Sections [4.7]–[4.9] discuss terms implied at common law and by statute, and section  [4.10] outlines statutory routes to challenge terms in residential construction contracts which may be ‘unfair’ in law. Section [4.11] provides an outline of other ways in which statutes intervene in the form and content of residential construction contracts. This reflects a theme running through this chapter (and the whole book): greater intervention in Australasia than in the British Isles. Section  [4.12] then examines what contractual remedies are usually available in the residential construction context – how the law fulfils what the Scottish Law Commission considers its second function.9 Contrasts in the treatment of all these

7 Technically, only the first buyer (B1) of a new home protected by a third-party warranty or insurance policy is ‘in contract with’ this product’s provider. However, in all our subject jurisdictions, providers uphold their public commitment to honour claims by a successor homeowner (B2) within the scope and overall duration of the warranty or policy: ch 7. The same applies to homeowners’ ‘rights’ under one of the UK Consumer Codes: section [6.5]. As well as threatening or undertaking legal action against an insurer, there is usually also the possibility of complaining to an insurance regulator: see section [9.4]. 8 See sections [5.2]–[5.3]. 9 This book does not offer comprehensive coverage of all potential legal issues, so it does not consider in detail all the grounds on which a contract may be terminated, whether under the general law (for breach, frustration or otherwise) or its own contractual provisions. This is in part because most situations the book discusses are problems that occur (or are discovered) once construction is over. But termination-related issues are mentioned, including repudiation, in sections [4.8.3] and [4.12.5]. General construction law textbooks give such issues extensive treatment, notably Julian Bailey, Construction Law, 3rd edn (London, London Publishing Partnership, 2020) ch 9.

144  Contract Law in Residential Construction issues in our other subject jurisdictions follow in sections [4.13]–[4.16]; the chapter concludes with a table-form summary and evaluation.

4.2  Contract: The Big Ideas What aspects of the law of contract are especially relevant to residential construction? Here is a high level starting-point: Parties are free to enter into a contract and to determine its contents, subject to the requirements of good faith and fair dealing, and the mandatory rules established by these Principles.10

So provides Article 1:102, entitled ‘Freedom of Contract’, close to the start of the Principles of European Contract Law. This document is itself ‘soft law’: not part of EU law (let alone the law of any Member State) but synthesising the approaches of each legal system of the Member States of the time towards contracts – including English and Scots law and that of Ireland, heavily influenced by English law. The Principles were intended to be a resource into whose provisions parties could opt and which might help judges in concrete cases, also encouraging a movement towards EU-wide codification – never in fact achieved.11 Such a scholarly document may seem an odd beginning for a discussion of contracts relating to homes and construction, including in the ­southern hemisphere and the post-Brexit UK. However, it is significant as directly reflecting an approach widely adopted as ‘hard law’: ‘freedom, but within limits’. Article 1:102 embodies both the first and the third functions of the law of contract, as explained by the Scottish Law Commission above.12 The starting-point is therefore party autonomy, in relation both to entering into a contract and crafting its terms: this is a fundamental principle of judge-made law, honoured in Melbourne, Auckland or even Dundee, as in Manchester or Cork. However, in a jurisdiction that has no Civil Code (or equivalent), this principle may have no legislatively entrenched status.13 Article 1:102 goes on to suggest that freedom of contract is (or should be) limited by – conditional on – other considerations: first of all, ‘good faith and fair dealing’.14 Such an acknowledgement of competing values – impacting 10 Ole Lando and Hugh Beale (eds), Principles of European Contract Law (The Hague, Kluwer Law International, 2000). For provisions of the Principles on contracts benefitting third parties, see article 6:110, with commentary and notes. 11 Had there ever been real progress towards a European Civil Code at the EU level, the Principles could have been the start of a Code of Obligations. As it was, they paved the way for the Draft Common Frame of Reference (2007), a Model Law in code form, organised like the Principles with annotated references to national legal systems. 12 See the main text to n 2. 13 A Code-based example is the Portuguese Civil Code of 1966, whose art 405 (‘Contractual Freedom’) reads (author’s translation): ‘1. Within the limits laid down by law, parties are able freely to fix the terms of their contracts, to enter into contracts other than those provided for in this Code, and to include within them whatever clauses they like’. The freedom to enter contracts may even have constitutional status, as it does under the German Grundgesetz (GG) art 2(1) (Vertragsfreiheit). 14 The ‘mandatory rules’ in the Principles include not permitting limitations on the remedies for mistakes or incorrect information if such limitations are contrary to good faith and fair dealing (art 4:118); replacing one party’s determination of the price payable or any other contractual term, where that party’s determination is grossly unreasonable (art 6:105); and preventing a party from invoking a clause restricting or excluding a remedy for non-performance, where doing so would be contrary to good faith and fair dealing (art 8:109).

Contract: The Big Ideas  145 both the process of making a contract and what the resulting contract contains – more obviously reflects the approaches of codified civil law systems than it does English law and the jurisdictions whose law it has influenced.15 Here, holding contract parties to their apparently freely entered bargain has almost theological status: ‘sanctity’ is the term often used to refer to it.16 Ideas of ‘good faith and fair dealing’ have no native roots – at least, not in so many words – in the case law of England’s common law courts (as opposed to those of equity), whose judges in the late eighteenth and early nineteenth centuries shaped the doctrines which still dominate contract law.17 However, recent judges have pointed out that English law did develop ideas to combat conduct that is unfair or suggests ‘sharp practice’ – notably, in our field, the principle that insurance contracts require the would-be insured to act with ‘utmost good faith’.18 The value for this book of Article 1:102 of the Principles is to suggest that when two parties make a legally enforceable contract, a level of equality between them is necessary if this is to be a real, not illusory, exercise of freedom. The key components of this equality are two interlinked ideas – the parties’ relative position in relation to bargaining power and access to information. All our subject jurisdictions modify their starting-point of freedom of (or to) contract in order to promote this form of equality – in almost every case by statutory intervention, and sometimes specifically in relation to residential construction. Each Australian jurisdiction has its own long-standing special legal regime for residential (or ‘domestic’) construction contracts; in the 2010s, New Zealand adopted a comparable regime.19 Under pressure from the fair trading authorities, providers of third-party warranties for new homes in the UK have similarly addressed ‘fair dealing’ issues by persuading most developers to sign up to Consumer Codes, which may yet merge (or be submerged) into a single national mandatory framework of redress via a New Homes Ombudsman.20 However, these Codes, new (non-statutory) figures in the regulatory landscape, reduce freedom of contract far less than any Australasian statutory regime; they also apply to a much narrower range of projects and problems. In addition, each subject jurisdiction includes wider forms of protection for consumers in their relations to ‘traders’; in the UK and Ireland, these have been shaped heavily by European measures. These regimes include: 1

Imposing formal requirements for pre-contractual information to be given to the consumer and the recording of aspects of contracts (writing, perhaps also giving the consumer a ‘cooling-off ’ period);

15 See Angelo DM Forte (ed), Good Faith in Contract and Property Law (Oxford, Hart Publishing, 1999); in ch 2 Hector L MacQueen (former Scottish Law Commissioner) argues, perhaps surprisingly, that good faith is not an overtly recognised or apparently very active concept in general contract law in Scotland. 16 See, eg, David Hughes Parry, The Sanctity of Contracts in English Law (Hamlyn Lectures, 1958) (London, Stevens, 1959). 17 In English legal history, questions of morality and faith (eg, enforcing a promise because it was supported by the making of an oath) featured significantly in the ecclesiastical or Chancery courts: Hughes Parry (n 16) 5–8; see also Stephen A Smith, Contract Theory (Oxford, Clarendon Law Series, 2004) pt II (General Theories of Contract). 18 See, eg, Bingham LJ in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 (CA) 439. On the special nature of insurance contracts, see ch 7. 19 See sections [4.13] and [4.14]. 20 On the New Homes Ombudsman, see section [9.8].

146  Contract Law in Residential Construction 2 3 4

Implying mandatory terms into contracts, in particular imposing obligations on those who provide services under contract (meaning almost every construction contract); Giving consumers special remedies in such contracts (in addition to those normally available for breach of contract); and Making it possible to challenge contract terms as unfair – relevant too to home buyers and homeowners.21

Such intervention in our field should be no surprise: for structural reasons, equality is seldom present between the parties to a B2C contract relating to the construction of (or in) a home. Typically, this impacts negatively not just on the consumer, but also the economic efficiency of such transactions and (more broadly) that particular market.22 Examples include the three scenarios from Tables 1.1–1.3 mentioned in section [4.1]: • In Scenario 2, home buyer B1 has to accept developer X’s standard terms in order to buy a new home off-plan, just as first buyer B1 does in buying a flat from Y in Scenario 7. • In Scenario 3, B1 commissions plumber P to install the shower unit and its associated pipework – B1 cannot rival P’s expertise in his field, and P is likely to have a much clearer idea than B1 of the choices available for the project’s contractual basis, as well as which of these he thinks best; in the UK or Irish context, this may involve little or nothing on paper.23 • In Scenario 6, B2 may never before have commissioned an architect to design a house or made a construction contract with a builder, but the two ‘insiders’ A and M2 are likely to have done so repetitively, so each may propose their preferred standard form contract for their role in the project. In addition, whenever a developer offers insurance to a home buyer against the cost of rectifying construction defects, the consumer will have no bargaining power (not even to choose between competing products), hence can have no impact on the contractual details in the policy which define its cover and the scope and duration of protection it offers.24 In all these situations, ‘good faith and fair dealing’ (or equivalent ideas) may be needed in order to achieve justice – doctrines that protect the individual consumer as, in general, ‘the weaker party’.

4.3  Representations: Pre-contractual and Contractual All legal systems have doctrines dealing with the situation where one intending contract party creates – or benefits from – a form of inequality by giving inaccurate information 21 For item 1, see ch 6; for items 2 and 3, see sections [4.9], and [4.11]–[4.12], also sections [4.13.2] and [4.13.4]–[4.13.5] (Australia), [4.14.2]–[4.14.3] and [4.14.5]–[4.14.6] (NZ) and [4.15.2] and [4.15.4] (Ireland); for item 4, see section [4.10], also sections [4.13.3] (Australia), [4.14.4] (NZ) and [4.15.3] (Ireland). 22 See section [1.5]. 23 But on consumer protection in what may be an ‘off-premises’ contract, see section [6.2.1]. 24 On insurance for projects of residential construction, see ch 7.

Case Study 3: ‘Is it a Leaky Building?’  147 (primarily meaning a false statement of existing fact) to the other. This may induce the other to enter the contract or act on the statement to their detriment.25 An example already introduced is Birch v Robek from Victoria.26 Here, the sales literature exaggerated the total area of the yet-to-be-completed flat, the actual flat being significantly smaller than the figures quoted. The accuracy of these was crucial: the buyer relied on them in applying for a mortgage, discovering that the real total size of the flat disqualified her from the loan she was seeking. She had no reason to doubt the figures she was given, nor any means of checking their accuracy before entering into the contract: the building was not yet constructed. A fraudulent or negligent misrepresentation causing loss may be actionable in tort (or equivalent), though under relatively narrow and precise conditions.27 But the common law of contract also has its own doctrines (supported and extended by statute) dealing with representations – sometimes even innocently made ones. There are in theory two alternative situations: a misrepresentation may be merely pre-contractual, simply inducing the innocent party to enter the contract – but that may still give them the power to rescind the contract (‘cancel’, in New Zealand terminology); or its accuracy may actually be a term (often called a warranty) of the contract itself, meaning that for the representation to be incorrect is itself a breach of contract. However, the same case may involve both, and statute may intervene to treat one category of representation as the other, as the next section illustrates. It may even treat false statements of particular kinds as constituting criminal offences, if made in the course of a trade, business or profession.28

4.4  Case Study 3: ‘Is it a Leaky Building?’ 4.4.1 Background On Auckland’s North Shore in 2009, Jill Grant saw a ‘For Sale’ sign on a residential unit in a row of 1970s timber-framed townhouses. Seriously interested, she came to have another look, wisely bringing a friend with her.29 During the visit, she asked the seller, Aaron Ridgway, key questions for any New Zealand home of that period: whether the unit leaked and whether it was a leaky building. If a property lawyer had been at his side, Mr Ridgway might have replied (probably losing the sale): ‘You must make your 25 English law seems now to accept that a misrepresentation of law may lead to the same remedies as one of fact: Pankhania v London Borough of Hackney [2002] EWHC 2441 (Ch), [2002] NPC 123 and (on the measure of damages under the Misrepresentation Act 1967) Pankhania v London Borough of Hackney [2004] EWHC 323 (Ch), [2004] 1 EGLR 135. Insurance contracts are a special case in relation to disclosure: see ch 7. 26 Birch v Robek [2014] VCC 68: see section  [2.6.1]. The claimant’s remedy was primarily generated via the common law of contract – our focus here – but the Court was also willing to give her a remedy under ACL s 18, on which see section [6.3.2]. 27 If fraudulent, as the tort of deceit – on which see Case Study 11 at section [11.8]; or as negligent, under the sequence of cases derived from Hedley Byrne v Heller: see section [5.8]. 28 For example, the Consumer Information Act 1978 (Ire) s 6 and the disclosure requirements under the amended Sale of Land Act 1962 (Vic): n 42. 29 The friend’s evidence was relevant in court, above all to help resolve a dispute about what questions Ms Grant asked and how Mr Ridgway replied.

148  Contract Law in Residential Construction own inquiries about that’. Instead, as the judge at trial later found, he gave an unqualified ‘no’ to both questions. Both answers were wrong. Believing that the unit did not now leak, Mr Ridgway did not disclose that, during renovations he had organised five years before, structural timber had been found to be damp and had been replaced, rainwater having got in from the deck at that level. He could not disclose (as he did not know) that rainwater was, in fact, still getting in, as Ms Grant found after buying the unit. She came under pressure from the Council to fix the problem, as moisture was migrating from a deck of her unit to part of one still owned by the Ridgway family company. Ms Grant’s legal action initially included a claim in tort for damages for negligent misrepresentation, but she abandoned this at trial. What remained were two separate contract-related legal grounds, also for damages: 1 2

The misrepresentations by Mr Ridgway, which had encouraged her to buy the unit; Breach of a warranty (a representation with contractual force) in the conditions of sale – the standard form contract between seller and buyer – that for any work needing building consent (the repair work Mr Ridgway knew about, but failed to disclose), the seller had obtained this from the Territorial Authority.

4.4.2  At First Instance: The NZ High Court The trial in Auckland in 2018 followed judicial skirmishes between Ms Grant and Mr Ridgway about the repairs Ms Grant wanted to do.30 In the High Court, Palmer J dealt first with Ground 1: the conversations at the property before Ms Grant committed to buying. He labelled the seller’s pre-sale replies as ‘an unqualified statement of present fact’, intended to induce the buyer to buy (in so doing, she reasonably relied on these representations). That statement led to liability when it turned out to be untrue: Mr Ridgway’s behaviour indicated he had expertise and familiarity with the property [he had lived in one or other of the units, owned by a family company, for most of the time since 2004]. He made a statement of fact and had superior knowledge and means of knowledge to Ms Grant. His unqualified language would induce a reasonable person to enter into the Agreement, and I consider his assurance reasonably had a material effect on Ms Grant entering the Agreement, given the publicity at the time about leaky buildings. … [I]t must have been part of Mr Ridgway’s intention that his answer would induce Ms Grant to enter the Agreement. Mr Ridgway was actively attempting to persuade Ms Grant to buy the unit. He had encouraged her to view it and gone to the trouble of erecting timber-framing to demonstrate to her that her view would not be impeded [by planned extra work on a ­neighbouring unit]. His answer must have been meant to reassure her the home was of the kind she would like to buy. The leaky building crisis was topical and he would have known concerns about leaks may well have discouraged purchasers.31

30 Ridgway v Calvert [2018] NZDC 14253. 31 Grant v Ridgway Empire Ltd [2018] NZHC 2642, (2018) NZCPR 66 [39]–[40]. Unsurprisingly, there are several reported NZ cases about representations relating to weathertightness of homes: see, eg, La Grouw v Cairns (2004) 5 NZCPR 434 (HC), Magee v Mason [2017] NZCA 502, (2017) 18 NZCPR 902 and Shen v Ossyanin [2019] NZHC 135. All were relevant in the appeal.

Case Study 3: ‘Is it a Leaky Building?’  149 On Ground 2, here is the crucial clause in the Agreement: Where the vendor has done or caused or permitted to be done on the property any works: (a) any permit, resource consent or building consent required by law was obtained; (b) the works were completed in compliance with those permits or consents; and (c) where appropriate a code compliance certificate was issued for those works.32

Should building consent have been sought for the repairs Mr Ridgway carried out on first noticing damp penetration? Palmer J, looking in detail at the Building Act 1991 (NZ) and the Building Code, concluded that in these circumstances the law did not require consent, so there had been no breach of this clause in the contract. However, success on Ground 1 was enough for the judge to award the plaintiff NZ$474,101 for ‘the cost of cure’: the rectification work necessary to eradicate longstanding and widespread damp, including rebuilding the third-floor deck (her builder’s estimate was not challenged); plus NZ$25,000 ‘general damages’ for stress and anxiety.33

4.4.3  On Appeal Mr Ridgway did not challenge the judge’s conclusion of fact about what he had said on Ms Grant’s visit to the unit; nor that it was at that time, in fact, a leaky building. But he argued that his replies did not amount to a misrepresentation of fact. Gilbert J, giving the judgment of the NZ Court of Appeal, relied on English case law to reject this challenge to the High Court judgment: Where a party with superior knowledge takes it upon itself to make a representation of fact without qualifying it by reference to the basis for its assertion [eg by adding ‘to the best of my knowledge’ or ‘in my view’], it will generally have to accept the consequences of being wrong.34 It might have been different if Mr Ridgway had passed on to Ms Grant what he knew about the history of leaks in the unit and stated that as far as he was aware these problems had been fixed. But he did not.35

So the trial judge’s findings were not overturned: these were actionable (mis)representations intended to induce Ms Grant to buy the unit and making her reliance on them reasonable.36

32 The Real Estate Institute of New Zealand Inc and Auckland District Law Society Inc standard form (8th edn, 2006(2)) cl 6.2(5). 33 On such ‘general damages’, see n 247. 34 Ridgway Empire Ltd v Grant [2019] NZCA 134 [11], (2019) 20 NZCPR 236 referring to Re Reese River Silver Mining Co, Smith’s Case (1867) LR 2 Ch App 604 (HL) 611. As this suggests, a statement which initially looks like an opinion may be treated as a statement of fact if the person making it has better access to the facts than the other party, impliedly saying, ‘This is my opinion, and I know the facts which support this opinion’: Smith v Land and House Property Corporation (1884) 28 Ch D 7 (CA). 35 Ridgway Empire Ltd v Grant (n 34) [19]. 36 See ‘Leaky Buildings: Seller Ordered to Pay $500k in Repairs After Claiming House was not Leaky’ New Zealand Herald (3 May 2019). Finally, Mr Ridgway failed in his attempt to appeal to the NZ Supreme Court: Ridgway Empire Ltd v Grant [2019] NZSC 85.

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4.4.4  Case Study 3: Significance • The positive result for the plaintiff came in part from a New Zealand statute which provides that if such a misrepresentation – even innocently made, as the judge held Mr Ridgway’s to be – induces a contract, the other party has the same remedies as if the truth of the representation (now shown to be false) had been a promise included in the sale contract as a warranty.37 Hence the damages looked to the cost of making true for the unit the assertions Mr Ridgway had made about it; Ms Grant did not attempt to cancel the whole contract and get her purchase price back, which a court would have been reluctant to consider after she had owned the unit for so long.38 • ‘Superior knowledge’ – from Mr Ridgway having lived in the unit and still living next door – was a key step down the path towards the result. So here the law is offering redress for the negative consequences of the parties’ inequality of information, which also explains why the Court labelled Ms Grant’s reliance as reasonable, as a result putting no pressure on her to have her own survey or some other independent inspection of the unit.39 As the Court of Appeal made clear, such cases turn very closely on their own facts, so to rely on Ms Grant’s win in Auckland as guaranteeing success elsewhere in different circumstances would be unwise.40 • Unlike an off-plan purchase of a yet-to-be-completed home, buying one already in existence triggers, in all our jurisdictions, the caveat emptor principle (‘let the buyer beware’): a classic example of what Lord Hoffmann once colourfully called ‘the bleak laissez-faire of the common law’.41 This ruggedly individualistic principle places the whole risk of the physical state of the home and its defects (whether easily discoverable or not) on the buyer. This is justified on the basis that the buyer can commission a professional inspection: this (in theory) should discover anything negative which the buyer might or should want to know about. The principle has only limited exceptions: in some Australian jurisdictions, the seller of land may have a legal duty to 37 Contractual Remedies Act 1979 (NZ) s 6, now substantially re-enacted as the Contract and Commercial Law Act 2017 (NZ) s 35. 38 ‘Cancellation’ in such circumstances in NZ law: see Contract and Commercial Law Act 2017 (NZ) s 37. In English law, the ability of a contracting party to ‘rescind’ the whole contract when a misrepresentation has become a term of the contract, or when the contract is already executed, is clarified by the Misrepresentation Act 1967 s 1(a)–(b), s 2(2) giving the court a discretion to award damages instead of permitting rescission. On the 1967 Act, see also the main text to n 52. The equivalent provision in Ireland is the Sale of Goods and Supply of Services Act 1980 (Ire) s 45(2). For an English example, see Powell v Ash (Central London County Court, 17 February 2020), where the buyers of an Oxfordshire rural home were justified in refusing to complete on the purchase (retrieving their deposit) and awarded interest and costs, the sellers having replied ‘no’ to a pre-contract question whether they knew of any relevant proposals for development nearby (knowing this not to be true): see ‘Former Owners of £1m Barn Conversion are Told to Pay £300,000 after Failing to Tell Prospective Buyer Couple that Soho House’s Neon-lit Mollie’s Motel and Diner would be Built “Next Door”’ Mail Online (20 February 2020). The defendants eventually sold the home to another buyer for £100,000 less than the claimants had agreed to pay. 39 On such surveys, see ch 8. 40 Ridgway Empire Ltd v Grant (n 34) [23]. 41 This phrase comes from his speech (with which Lords Slynn and Steyn concurred) in Southwark LBC v Mills [2001] 1 AC 1 (HL) 8D, on which see section [11.4.3]. For an unsuccessful argument by a developer that a ‘construct-and-transfer’ contract contained no enforceable ‘build quality’ obligations because construction was complete at the time the contract was entered into, see Butcher v Hill [2015] EWHC 1703 (TCC) [18]–[21] (Coulson J).

Case Study 3: ‘Is it a Leaky Building?’  151 disclose some categories of information;42 some obligations to disclose apply in English and (more generously) Scots law in relation to homes.43 If Mr Ridgway did not know that the unit still leaked, the law would never expect him to incur liability if he failed to disclose this; but it could, in theory, require him to have his own technical inspection (as English and Scots law both do about energy efficiency) and share the resulting report with Ms Grant. However, English common law, like its offspring round the world (Canada being the main exception in that family), has no high level ‘good faith’ doctrine which might impose a duty on one party to disclose relevant pre-contract information to the other about a home, or construction work recently completed.44 Nor does any ‘building code’ yet require detailed information about the technical side of a building as constructed, or of later work on it, to be systematically recorded and transmitted to a new owner – though post-Grenfell reforms may move in that direction.45 42 Statutory disclosure in relation to quality applies concerning contaminated land in NSW and, more generally, in both NSW and Victoria: the Conveyancing Act 1919 (NSW) s 52A and the Conveyancing (Sale of Land) Regulation 2010 (NSW), and the more wide-ranging Sale of Land Act 1962 (Vic) s 32, as most recently amended (wider offences relating to non-disclosure of ‘material facts’) by the Sale of Land Amendment Act 2019 (Vic): see also section [8.7]. See also the Civil Law (Sale of Residential Property) Act 2003 (ACT) and the Building Act 2004 (ACT), which impose warranties of quality (n 308), the Conveyancing (Sale of Land) Regulation 2017 (NSW) and the Sale of Land Act 2009 (NT); the Property Agents and Land Transactions Act 2005 (Tas) pt 10, which would have introduced a disclosure regime, was never brought into force and repealed in 2016. 43 Sales of homes in England & Wales were to have extensive disclosure requirements via ‘Home Information Packs’ under the Housing Act 2004 pt 5, but these were in the end watered down to an Energy Performance Certificate (EPC), required more widely as a result of EU measures and legislated as the Energy Performance of Buildings (England and Wales) Regulations 2012 (SI 2012/3118). In 2020, the Department for Business, Energy and Industrial Strategy and the Ministry of Housing, Communities and Local Government jointly published an Action Plan for EPCs. In Scotland, see the Housing (Scotland) Act 2006 pt 3 and the Housing (Scotland) Act 2006 (Prescribed Documents) Regulations 2008 (SSI 2008/76); see also section [8.7]. 44 The USA Uniform Commercial Code, adopted by every state in order to promote inter-state commerce, provides (s 1-304) that ‘every contract or duty within [the UCC] imposes an obligation of good faith in its performance and enforcement’: www.uniformlaws.org/acts/ucc. On Scots law, see n 15. For English law’s response to situations where contract parties have undertaken obligations phrased in ‘good faith’ terms, see Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200, [2013] BLR 265; also Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB), [2013] 1 All ER (Comm) 1321, [2013] BLR 147. On implying ‘good faith’ obligations into a long-term ‘relational’ contract, see Essex County Council v UBB Waste (Essex) Ltd [2020] EWHC 1581 (TCC). Despite strong moves towards recognising an implied duty of good faith in some states (primarily NSW in the 1990s), the Australian High Court has repeatedly passed up opportunities to rule on such a term’s existence and content: see, eg, Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5, (2002) 240 CLR 45 [40] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ). Australian law recognises an implied duty of co-operation ‘to enable the other party to have the benefit of the contract’: Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51, (1979) 144 CLR 596 [26] (Mason J; Gibbs, Stephen and Aickin JJ agreeing); but the High Court has found expressly that a duty of trust or confidence cannot be seen as an ‘expression or development’ of that duty: Commonwealth Bank of Australia v Barker [2014] HCA 32, (2014) 253 CLR 169 [26] (French CJ, Bell and Keane JJ). At the highest level of diplomacy, see ‘The Union and the United Kingdom shall, in full mutual respect and good faith, assist each other in carrying out tasks which flow from this Agreement’: Agreement on the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community [2019] OJ C384/1 art 5: central in the short-lived dispute between the EU and UK about provisions in the end dropped from what became the United Kingdom Internal Market Act 2020. In Canada, its Supreme Court’s recognition of good faith as a ‘general organising principle of the common law of contract’ in Bhasin v Hrynew [2014] 3 SCR 494 [33] (Cromwell J giving the judgment of the Court) has opened up a rich seam of new law: see, eg, Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District [2021] SCJ 7. 45 On building information, see section [3.6.5].

152  Contract Law in Residential Construction • Without such disclosure – or the benefit of the representations Mr Ridgway actually made – Ms Grant would therefore be taking a degree of risk if she went ahead with the purchase. Had she instructed her own surveyor, who negligently failed to discover or accurately to assess the significance of the problems, real or potential, she would have a basis for legal action against this professional: valuable if she had no right of action against anyone else, for example, Mr Ridgway or her lawyer.46 But this would be no substitute for having reliable and complete information about build quality at the start, which would have impacted her decision to buy or the price to offer. • An off-plan purchaser confronts different but equal risks of inadequate information, often without any possibility of a meaningful survey before committing to buy.47 The developer’s track record and reputation – so far as it can accurately be judged, which is usually not very far – may have to fill that gap, together with the ‘peace of mind’ allegedly induced by the existence of insurance-based protection against some categories of major defect and the theoretical ability to sue the developer for breach of the contract’s obligations as to build quality. • As Ridgway Empire v Grant illustrates, to ask questions of a seller, if the seller chooses to reply, can elicit information about the intended home, together with a legal remedy if the reply is in significant ways misleading. Ms Grant did not have to go the extra step of ensuring that the representations were recorded in writing as warranties in the contract documentation (the law did that for her), though relying on memory of a conversation nine years earlier led to a factual dispute in court, making the outcome less certain and increasing the costs to be allocated at the end. • What if the townhouse had been in the UK? Here the Consumer Rights Act 2015 (CRA) does something comparable to the New Zealand statute. Its Chapter 4 on services includes a section  headed ‘Information about the trader or service to be binding’. This starts by providing: (1) Every contract to supply a service is to be treated as including as a term of the contract anything that is said or written to the consumer, by or on behalf of the trader, about the trader or the service, if— (a) it is taken into account by the consumer when deciding to enter into the contract, or (b) it is taken into account by the consumer when making any decision about the service after entering into the contract.48

46 For an example of a surveyor’s liability in English law, see Hart v Large and its appeal at section [5.9.1]; and on damages for the homeowner’s loss of amenity caused by buying a house affected by aircraft noise, the defendant surveyor specifically (and negligently) suggesting that aircraft noise was not a problem, see Farley v Skinner [2001] UKHL 49, [2002] 2 AC 732. 47 On such inspections, see ch 8. 48 CRA 2015 (UK) s 50. The comparable position on the supply of goods only applies where the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134) require the trader to provide information to the consumer before the contract becomes binding, most of which the CRA s 12 then converts into terms in the contract; but reg 6(1)(e) provides that a contract ‘for the construction of new buildings, or the construction of substantially new buildings by the conversion of existing buildings’ is outside the Regulations. Only contracts for modest works of improvement or renovation, concluded ‘off-premises’, will regularly fit within the Regulations and hence trigger s 12.

Case Study 3: ‘Is it a Leaky Building?’  153 ‘Taken into account’ seems less demanding than the common law test of ‘inducement’ (which in some versions also looks to whether the misrepresentation would have induced a reasonable consumer to enter into the contract).49 This section focuses on the individual, not a representative, consumer and what in fact happens; and imposes a rule of law that cannot be contracted out of. So a clause in the written contract providing that ‘no oral representations have been made and/or relied on’ may now have no effect if the contract fits within Chapter 4 of the CRA. An ‘entire agreement’ clause will similarly not bind, to the extent that it purports to exclude those terms which the CRA (a) already implies into that category of contract; or (b) incorporates into the contract as terms, deriving from information given by or on behalf of the trader.50 • But a person selling a house is not providing a service, so a person contracting just to buy an existing dwelling could not, therefore, benefit from the CRA.51 For a B2B contract or a B2C contract outside the scope of the CRA, a similar result as in Grant v Ridgway Empire could be reached in English law under the Misrepresentation Act 1967.52 By an odd piece of statutory fiction, section 2(1) makes a misrepresentation actionable which was made by one party to a contract and has induced the other party to enter into it as if it had been made fraudulently (though by definition it has not), leading to an award of damages – on the same basis as damages in deceit – for the loss suffered.53 This short-circuits the need to satisfy the common law’s requirements for liability in tort for negligent misrepresentation.54 But the 1967 Act offers the defendant a way out unavailable in New Zealand: Mr Ridgway’s equivalent in England & Wales could escape liability if he could show that he had reasonable grounds to believe and did believe, up to the making of the contract with Ms Grant, that the facts represented were true (in a sense, proving the absence of fault). It looks as if he, like many defendants, would have difficulty establishing this defence. • Also relevant in relation to misrepresentations is general consumer law, which may treat silence as equivalent to misleading and deceptive conduct and offer forms of protection different from, and additional to, those already discussed: see chapter 6. 49 See, eg, Dadourian Group International Inc v Simms [2009] EWCA Civ 169, [2009] 1 Lloyd’s Rep 601. The Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) do clearly look to a hypothetical average consumer, in line with the parent EU Directive: see section [6.2.2]. 50 CRA (UK) s 57 and sch 3. On ‘entire agreement clauses’, see Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24, [2019] AC 119, also n 58. 51 The contract Ms Grant entered probably did qualify as a B2C contract, if that were relevant: in law, the seller was Ridgway Empire Ltd, Mr Ridgway’s family company. 52 The 1967 Act derives from the Law Reform Committee, Tenth Report, Innocent Misrepresentation (Cmnd 1782, 1962). The law in NI is identical, under the Misrepresentation Act (NI) 1967; on advice from the Scottish Law Commission, the 1967 Act was not extended to Scotland. In 1985, the Scottish Law Commission held to that view, but recommended reversal by legislation of a long-standing Scots case law principle: that misrepresentation by one contract party to the other, inducing the other to enter into the contract, does not give a right to damages unless the representation was fraudulent, negligence not being enough: Scottish Law Commission, Obligations: Report on Negligent Misrepresentation (Scot Law Com No 92, 1985). This was enacted in the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 s 10, as now amended. Irish law has a near equivalent of the Misrepresentation Act 1967 (E&W) in the Sale of Goods and Supply of Services Act 1980 (Ire) pt V. 53 Royscot Trust Ltd v Rogerson [1991] 2 QB 297 (CA). 54 See n 27.

154  Contract Law in Residential Construction

4.5  Contract: The Search for Certainty 4.5.1  What Can Go Wrong? The accumulated case law in our subject jurisdictions records many examples of things that can go wrong when parties make a contract, in our field as in any other. These are a consequence of party autonomy: preserving and upholding this principle of freedom is the first function of the law of contract, as the Scottish Law Commission points out at the start of this chapter.55 The limited extent to which the courts can protect parties against their own pitfalls when they make contracts reflects the other face of the same coin: judges’ belief in the sanctity of contracts, which defines the courts’ role as (merely) giving effect to the common intention of the parties, assuming – often a generous assumption – that this can be identified.56 Table 4.1  Contract Pitfalls PROBLEM

EXPLANATION

INADEQUATELY The common law imposes no formal RECORDED requirements (eg, writing) on any kind of contract: the fact of agreement and the terms can be evidenced by any means acceptable to the law. Exceptionally, statute imposes a requirement of writing (in some cases, signature as well) for certain kinds of contract.58

SOLUTION57 A court may have to be asked to decide what was agreed. Exceptionally, the court may be willing to rectify the text of a document.59

(continued) 55 See

the main text to n 2. 56 But the test of this intention is objective: ‘The question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’: Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 [14]. The same principles appear to apply in Scotland: @Sipp Pension Trustees v Insight Travel Services Ltd [2015] CSIH 91, 2016 SLT 131 [17]; but see also Hoe International v Andersen [2017] CSIH 9, [2017] SC 313 and Scottish Law Commission, Report on Review of Contract Law (n 2) pt 3. A similar general principle – essentially, what the contract documentation would ‘objectively demonstrate to a reasonable businessperson’ – applies to interpreting commercial contracts in Australia: C & V Engineering Pty Ltd v Hamilton & Marino Builders Pty Ltd [2020] NSWCA 103 [14] (White JA, Meagher and McCallum JJA agreeing), summarising the principles set out in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7, (2014) 251 CLR 640 [35] (French CJ, Hayne, Crennan and Kiefel JJ). 57 Each item in this column assumes that: the parties have not agreed any ADR procedures; none applies by law (see n 76), and the law does not require their class of case to go to a tribunal. If so, traditional litigation will be the default, in order to reach a binding answer. 58 In English law, contracts relating to the sale or transfer of an interest in land require writing – therefore including an off-plan sale contract of a new home: the Law of Property (Miscellaneous Provisions) Act 1989 (E&W) s 2, as amended: see Chitty (n 3) ch 5 and Downey v Stevens [2021] EWHC 752 (Ch). In Scots law, see the Requirements of Writing (Scotland) Act 1995, as amended, and the Legal Writings (Counterparts and Delivery) (Scotland) Act 2015; in Irish law, the Land and Conveyancing Reform Act 2009 (Ire) s 51. Certain B2C contracts also require writing under the EU Consumer Rights Directive: see section [6.2.1]. For Australian statutes mandating the form or content of residential construction contracts, see section [4.13.4]; in NZ, see sections [4.14.2] and [4.14.5]. In situations where the law imposes no formal requirements, the courts will enforce the parties’ own agreement that no variation to their contract may be made except in writing and signed: Rock Advertising Ltd v MWB Business Exchange Centres Ltd (n 50) (Lord Briggs adopting narrower grounds than the majority). 59 On rectification, an equitable discretionary remedy in English law, see Chitty (n 3) [3-057]ff. In Scotland, see the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 ss 8–9, as amended, implementing

Contract: The Search for Certainty  155 Table 4.1  (Continued) PROBLEM

EXPLANATION

SOLUTION

If the terms of a contract have not been recorded in writing, one party may find out, much later, that the other party disagrees with their recollection of what was agreed. Even a written document may fail to record accurately and without ambiguity what both parties intended (assuming – often not the case – that there was a shared intention in the first place which could have been expressed in words). INCOMPLETE

AMBIGUOUS

The parties have a shared memory of what was agreed (even a signed document, whose validity and provisions can only in rare circumstances be challenged). But their agreement fails to provide for an eventuality that has arisen; they cannot now agree what should happen (meaning: ‘on whom should this unanticipated risk fall?’).60

To court again: at best, the judge may be willing to imply a term dealing with the situation, one party then winning and the other losing.61

The parties have addressed a particular situation in their agreement, but the words they have adopted are not clear: competing and irreconcilable interpretations of the meaning of these words are possible.

To court again, asking it to interpret the ambiguous terms, but courts do not always clearly define their approach to interpretation and what material is (or should be) relevant or irrelevant.63

But if key features for that type of contract have not been agreed, the court may hold that no contract was ever made.62

Scottish Law Commission, Report on Rectification of Contractual and Other Documents (Scot Law Com No 79, 1983). For the Scottish Act in practice, see Petition of PHG Developments for Rectification of Deed of Conditions [2020] CSOH 58 and [2021] CSIH 12, also Briggs of Burton plc v Doosan Babcock Ltd [2020] CSOH 100. In Australia, see Icon Co (NSW) Pty Ltd v Liberty Mutual Insurance Company Australian Branch [2020] FCA 1493 [111]ff (Lee J). 60 For a dramatic example, see Barton v Gwyn-Jones [2019] EWCA Civ 1999, [2002] CLC 533. 61 On implied terms being recognised by the courts, see section [4.7]. 62 For a ‘no contract’ outcome, see Burgess v Lejonvarn [2016] EWHC 40 (TCC), [2016] TCLR 3, Case Study 6 at section [5.6]. 63 At apex court level in recent English law, see Chartbrook v Persimmon Homes (n 56); Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900; Arnold v Britton [2015] UKSC 36, [2015] AC 1619; Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173, 171 Con LR 1; and Burnett v International Insurance Co of Hanover Ltd [2021] UKSC 12. See Isabel Hitching, ‘Recent Developments in Interpretation of Contracts: A Picture of Consistency and Clarity?’ (SCL (UK) Paper 223, 2020). In Australia, the High Court has applied the principles it restated in Electricity Generation Corporation (n 56) in, eg, Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12, (2017) 261 CLR 544 and

156  Contract Law in Residential Construction These unattractive possibilities explain why parties considering entering any kind of contract are always advised, if possible, to embody the whole agreement in a single signed document, whether the law requires this or not. The parties should also together consider as many unlikely but not impossible future events as they can which could affect how the contract will or can be performed (even perhaps including events that are by definition both unforeseeable and irresistible: force majeure). They should make sure – with legal advice, if the amount potentially at stake justifies it – that the document provides a clear and workable solution for each of those possibilities. In the construction field, using a published standard form contract – if an appropriate one is available – may be a good way of limiting the risk of such problems; but to modify or add to its terms, as parties often seem tempted to do, invites legal uncertainty in through the back door.64 In any situation where there is a document which could be a contract (especially if signed), the courts will do their best to make sense of what the parties have agreed, subject to one fundamental principle: what the court considers the key aspects of the contract have to be fixed, or some machinery laid down by which any significant missing items can be supplied (other than by the parties’ themselves newly agreeing how to fill each gap). In relation to construction, what are those key aspects? There can be no definitive list, as all depends on the nature and scale of the project, but the items required by the New Zealand Regulations for residential construction would be a good start;65 or the many similar items required by law in Australia.66 If these aspects are not present, there may be no contract at all because the ‘certainty’ is lacking which is one of the core ‘elements of formation’.67 Showing that it is worth considering how construction contracts get formed, Case Study 6 at section [5.6] illustrates the danger of having nothing which even looks like a contract. Instead, a mass of communications – in a variety of media – took place between the employer (the homeowning couple, Mr and Mrs Burgess) and ‘the builder’ (in this case, architect/project manager Mrs Lejonvarn) about their garden redesign project. Thousands of pounds’ worth of work was done on site over many months (with no contract issues between the homeowners and the company doing the work), but a judge concluded that no contract had been formed between the Burgesses and Mrs Lejonvarn. So Mrs Lejonvarn had no liability to the Burgesses for the work she

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37, (2015) 256 CLR 104. At Supreme Court level in NZ, reflecting the English debates, see Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444; Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432; and Lakes International Golf Management Ltd v Vincent [2017] NZSC 99, [2017] 1 NZLR 935. In Scots law, see the Contract (Scotland) Act 1997 s 1 (admissibility of extrinsic evidence in the interpretation of a contract) and the Scottish Law Commission 2018 report: n 56. 64 Where amendment takes the form of adding ‘Special Conditions’ to a standard form contract, courts tend to give the extra text priority over the form’s standard terms, if they are in conflict; but the outcome may still need court intervention: Bailey (n 9) [3.177]. Ecosse Property Holdings (n 63) confirmed the priority of any added words (there, by way of a ‘special condition’) in Australia. 65 These are quoted at section [4.5.2]. 66 These are noted at section [4.13.4]. 67 The other ‘elements of formation’ include (depending on the taxonomy used) capacity, offer and acceptance, consideration and intention to create legal relations. On consideration, see section [4.6].

Contract: The Search for Certainty  157 did unless they could show – and here they failed – that she had been negligent in what she undertook. So a ‘no contract’ conclusion in this case meant ‘no liability’ (via ‘no implied terms’), but also (probably) ‘no pay’ for her.68 Uncertainty about exactly what is expected of someone who is to perform construction services, with no clear payment principles, can be a fatal combination. So even a project as grand as this could fail to provide for payment of one of the key parties. In a less dramatic version of the scenario, there may be no doubt that there is a contract, but this fails to provide adequately clear (or any) machinery for payment. Here the court will imply a term that the builder is entitled to ‘a reasonable sum’, which often leads to a complex and costly discussion about how that translates into hard cash.69 An apparently less fundamental issue – both the homeowning couple and ‘the builder’ accept that there is a contract, but do not agree what its key terms are – can lead to just as much unhappiness. An equally resource-intensive outing to court may be necessary, in order to find out who was right and to decide the implications of what each side said and did as the relationship foundered.70

4.5.2  Limiting the Scope for Uncertainty: Australasian Intervention Australasian jurisdictions all require a ‘domestic’ (or ‘residential’) building contract, variously defined, to be in writing and to comply with detailed requirements: these are both formal (the need for writing etc) and substantive (what the contract must contain, or not contain).71 The first aim of such statutory intervention is to reduce the risk of all the pitfalls in Table 4.1. Requiring writing should avoid the risk that the contract is inadequately recorded (though cannot guarantee that no ambiguities will emerge, especially when abstract contractual wording hits the ‘real world’ of the project); it also increases the chances that both parties will be aware of, and hence understand, their rights and responsibilities.

68 Mrs Lejonvarn was expecting nothing for this stage of the work, planning to invoice only if she had continued to the project’s next stage, and made no claim against the Burgesses. A ‘no contract’ situation is a classic one where a person who has done work benefitting another person may be able to make a claim on a restitutionary quantum meruit basis: see section [4.12.5]. 69 For an extensive refurbishment project at the client’s home in the well-to-do Auckland suburb of St Heliers, ‘the builder’ quoted rates they would charge for certain activities but no overall price, or method of calculating it, was agreed. Having paid invoices totalling over NZ$2.5 m, the client then refused to pay the last two, so the dispute ended in court: Rebnik Properties Ltd v Dobbs [2020] NZHC 3494. The contract was formed – as in Burgess v Lejonvarn (Case Study 6 at section  [5.6]) – by a mixture of emails, oral discussions and conduct. The events took place before the statutory regime for residential construction contracts in NZ came into force, which ought now to eliminate such a problem: this is described at section [4.14.2]ff. 70 See Optimus Build Ltd v Southall [2020] EWHC 3389 (TCC), where one of the issues was what an ‘estimate’ meant. For a large project where a new home got built despite gaps in the contractual documentation between the employer and many members of the project team – leading then to several trips to court – see McGlinn v Waltham Contractors Ltd (No 3) [2007] EWHC 149 (TCC), 111 Con LR 1. 71 Australia is further discussed in detail at section [4.13]; New Zealand at section [4.14].

158  Contract Law in Residential Construction Showing what can be done to avoid incompleteness, and with the building of a complete new house in mind, as in Scenario 6 (Table 1.2), here is what a ‘residential construction contract’ over NZ$30,000 in New Zealand must include, and in writing:72 (a) the names of the parties; and (b) each party’s— (i) (ii) (iii) (iv) (v)

physical address; and postal address; and address for service; and contact telephone number or numbers; and email address; and

(c) the address (or location description) of the site where the building work will be carried out; and (d) the date or dates when the contract was signed by both parties; and (e) a description of the building work covered by the contract, including— (i) (ii) (iii) (iv)

the materials and products to be used (if known); and the person or persons who will be carrying out the building work; and the person or persons who will be supervising the building work (if applicable); and which party will be responsible for obtaining the building consents and any other approvals required to carry out the building work; and

(f) the expected start date of the building work; and (g) the expected completion date of the building work; and (h) the contract price or the method by which the contract price will be calculated (for example, fixed hourly rate with materials invoiced separately); and (i) the number of payments under the contract and, if there is more than 1 payment under the contract,— (i) the interval between payments; and (ii) the amount of each payment; and (iii) the date on which each payment is due; and (iv) mechanisms for determining the matters referred to in subparagraphs (i) to (iii); and (j) (k) (l) (m)

terms prescribing how payments will be invoiced, made, and receipted; and terms prescribing how notices are to be given under the contract; and mechanisms for negotiating and agreeing on variations to the building work; and terms prescribing how possible delays will be dealt with (for example, delays as a result of force majeure events); and (n) terms prescribing how any defects in the building work will be remedied, including a reference to the existence and application of … implied warranties …; and (o) dispute resolution procedures; and (p) an acknowledgement that the building contractor has supplied, and the client has received, the disclosure information and checklist prescribed in regulation 5.73

An unambitious short-term home improvement project – like Scenario 3 (Table 1.2), where recent home buyer B1 asks plumber P to replace a shower unit – would not need, 72 See n 359 and its main text for the equivalent lists of required matters under Australian statutes. 73 Building (Residential Consumer Rights and Remedies) Regulations 2014 (NZ) (2014/361) reg 6(2). For the disclosure information and checklist in NZ under item (p), see section [4.14.5].

Contract: The Search for Certainty  159 and usually would not get, this level of detailed contractual treatment – either in practice or as a matter of law. But as a model of what a contract for a wide range of projects might address, the New Zealand list is surely a helpful start. Research suggests that NZ’s written contract requirement is not universally observed: of the respondents to a new home survey in 2018 (three years after the statutory reforms took effect), only 93 per cent had a written contract, but it is fair to assume that almost all responses related to projects well over the modest NZ$30,000 threshold.74 Even where there is a written contract, it may not be clear who ‘the contractor’ is. If the plumber P is in effect a ‘sole trader’, but also has their own company, is the contract with the individual or the company? This may become crucial if the company has no assets, and if the employer B1 learns that P may have plans to move all their personal assets to another jurisdiction. Finding the answer may not be straightforward.75 Even for a project over NZ$30,000 in New Zealand, the legal force of the items above from the Regulations is only as a checklist, imposing no particular solution for each item. The parties remain free to decide and agree on, for example, how to manage payment and dispute resolution, though the statutory regime supplies default implied terms on these and other key issues, if the parties fail to adopt and record any solution of their own.76 Such a set of requirements does not of itself affect either party’s freedom, but it does guard them against the unpredictable and unwelcome legal consequences of incompleteness: failing to address an important aspect of their relationship for the project in question. They would similarly have their minds directed to these issues if they adopted a standard form contract, perhaps one designed for ‘straightforward’ construction projects. This would almost certainly already comply with a list like the one above (it may even be designed expressly to do so), going further in regulating the parties’ relationship before, during and after the project.77 There is, however, a second – dominant – reason for intervention along the lines exemplified by this New Zealand list. In most cases, a residential construction contract will also be a B2C contract, the consumer perhaps a first-timer in the field and ‘the builder’ predictably a repeat player, more able to call the shots on the detail of what will be agreed, if free to exploit this advantage.78 As we have seen, this is clearly so of

74 Nick Brunsdon and Orin Lockyer, Study Report SR241: New House Owners’ Satisfaction Survey 2018 (Porirua, BRANZ, 2019) 5–6. The research does not report how widely used standard form contracts are (and which contracts), where home construction in NZ does involve a written contract. 75 For uncertainty about who ‘the builder’ is, contractually, see Purbrick v Cruz [2020] EWHC 1465 (QB), where the construction employer applied for continuation of a freezing injunction against the personal assets of ‘the builder’; see also Maftoon v Sayed [2020] EWHC 1801 (TCC). 76 Building (Residential Consumer Rights and Remedies) Regulations 2014 (NZ) (n 73) sch 3: see further section [4.14.5]. 77 On using NZS 3902:2004 form in New Zealand to comply with the Regulations, see the main text to n 429. 78 Even where the initial contract is B2B (eg, between developer X and main contractor M1), if made in Australia and within the jurisdiction’s ‘domestic building contract’ regime (or equivalent), the statutory framework will impose the same obligations on M1 as it would impose if the contract were B2C, with as employer the first buyer B1. This seeks to ensure that, when ownership of the home does reach B1, this individual gets – by transmission along with the rights to the home itself – all the rights attaching to a ‘domestic

160  Contract Law in Residential Construction first-time buyer B1 in Scenario 2 (Table 1.1); it may well still be so of B1 when we come to Scenario 3 (Table 1.2) (the replacement shower installation), and could also be true of both B2 and B3 in Scenario 6 (Table 1.2) (subdividing a plot in order to build a new home). Requiring this level of coverage in the contract is thus a form of protection for the consumer, but this is only the curtain-raiser to further restrictions on the choices the parties can make in the contract; and to situations where the law imposes what it thinks best, in order to guarantee the consumer a minimum level of substantive protection.

4.6  Contract as Exchange 4.6.1  The Doctrine of Consideration Central to the English law of contract is the idea of an exchange between the two parties: each contributing something of value to ‘the deal’ makes the parties’ obligations binding and enforceable at law. The doctrine embodying this idea is called consideration: for at least three centuries, it has been a required ingredient in every contract.79 English law, and the ‘common law family’ members sharing its traditions, thus makes a sharp distinction between contracts (mutual) and gifts (unilateral). The only easy way to make an intended gift, or some other form of unilateral promise, enforceable without requiring something back from the beneficiary is to embody the promise in an especially formal kind of document, a deed (‘under seal’, as it used to be called), which is enforceable as such.80 By contrast, systems influenced by civil law thinking, like Scots law, have an overall category of obligations, within which bilateral contracts constitute only one major subcategory, so promises – as unilateral acts – may also be enforceable; Scots law does not recognise deeds as such.81 In our field, the mutuality required by the doctrine of consideration is seldom a problem when a contract is formed. The start of each scenario in Tables 1.1–1.3 easily meets this test, involving some kind of arm’s-length exchange between two parties (or several pairs of parties, in Scenario 1’s large construction project): money in return for construction work, a home or both. In line with the principle of freedom of contract, the building contract’ in that jurisdiction: see further section [4.13.2]. The NZ statutory scheme achieves a similar result, but in a different way: see section [4.14.3]. 79 The classic authority still seems to be Stilk v Myrick (1809) 2 Campbell 317: Lord Ellenborough CJ held that the promise of extra pay to seamen, already committed to working the return voyage from the Baltic to London, for them to cover work that would have been performed by two seamen who had deserted, was not enforceable. 80 Deeds also have the advantage in most jurisdictions of a longer than usual limitation period for starting legal action: see section [10.5.2]. 81 See William W McBryde, ‘Promises in Scots Law’ (1993) 42 International and Comparative Law Quarterly 48–66; also Martin Hogg, Promises and Contract Law: Comparative Perspectives (Cambridge, Cambridge University Press, 2011) and ‘Perspectives on Contract Theory from a Mixed Legal System’ (2009) 29 Oxford Journal of Legal Studies 643. For recent Scots case law, see Hector L MacQueen, ‘My Word is My Bond: Unilateral Promises Once More’ 2019 Scots Law Times 103. One of the benefits of regarding promises as a distinct category of obligation is to permit a contract straightforwardly to confer enforceable rights on a third party, as the common law of Scotland did via the jus quaesitum tertio, but English case law never could: see sections [5.3.3] and [5.15.3].

Contract as Exchange  161 common law is not concerned with the objective fairness or adequacy of the exchange, as long as there is some form of exchange (so there is still consideration where the party paying is expected to make only a nominal payment, in money or in kind: English law’s famous ‘peppercorn’). If one party agrees to pay below the market price or ‘going rate’, or the other party promises too little for the price agreed, the parties will be held to ‘their bargain’, unless one of them can appeal to a competing legal principle. This could be the law of unfair contract terms, a twentieth-century invention which comes entirely from statute (also from European measures, for EU Member States), to that extent making inroads into contractual freedom and the sanctity of what the parties appear to have freely agreed.82

4.6.2  Consideration in Practice In a far from rare situation, a small-scale construction project is partway through when the employer senses from the rate of progress that ‘the builder’ is not organising or supervising the work well. The builder may have underpriced the job and be squeezed for cashflow: mobilising labour and materials to complete the job (in time, or at all) has become difficult. At worst, the employer fears becoming a victim of the builder’s insolvency with the project part-finished, and with no immediate source of cash with which to organise completing the job.83 The employer could decide to let the rights and obligations already agreed lead to their natural outcomes. After all, most standard form construction contracts impose negative financial consequences on the builder for missing the completion date (a duty to pay liquidated damages).84 But the employer’s real interest – perhaps under pressure further ‘up the line’, or for their own personal or commercial reasons – is not to have sanctions available for failure but to encourage the present builder to get the job done. If the worst-case scenario happens, it will take resources and time to find another builder to finish the job, so meeting the planned completion date may become difficult, perhaps impossible. To become an unsecured creditor in the builder’s insolvency will not help the project and probably claw back only a fraction of what the employer would then be owed for breach of the construction contract. In such a situation, it is self-interest, not generosity, for the employer to offer the builder extra money as an incentive actually to complete the job already agreed. This is what happened in 1986 in London SW6. The project was to refurbish flats for a Housing Association: ‘the employer’ was, in fact, the main contractor – hence the possibility of pressure from ‘up the line’; ‘the builder’ was a carpentry subcontractor. The main contractor agreed orally to pay the subcontractor an extra £575 for every additional flat actually completed (potentially almost half as much again as originally agreed), then failed to honour this promise fully. Sued by the subcontractor, the main contractor 82 On unfair contract terms in the law of the UK and Ireland, see section [4.10]. 83 On devices providing cash flow in case of builder insolvency – seldom available in a B2C construction contract – see section [1.4.2]. 84 On liquidated damages, see section [4.12.4]; note that a construction employer usually has no grounds for terminating the contract because the rate of progress appears too slow: see the main text to n 112.

162  Contract Law in Residential Construction argued that there was no consideration for the extra payment: all the subcontractor had agreed to do was what they were already legally committed to do under the original contract. At first instance in the County Court, newly appointed Assistant Recorder Rupert Jackson QC (later to become Jackson LJ) held that the subcontractor was entitled to the £575 for each extra flat ‘substantially completed’ (less a deduction for work outstanding); he regarded the original contract as having been varied by the oral agreement.85 In Williams v Roffey Brothers & Nicholls (Contractors) Ltd, each Court of Appeal judge upheld this outcome.86 Did this, in effect, jettison the whole doctrine of consideration? The judges clearly thought not: each affirmed the principle, but accepted that the extra payment was in the parties’ interests (no party taking unfair advantage of the other). The ‘deal’ delivered enough ‘practical benefits’ to each side to make the arrangement enforceable. As Russell LJ put it: Consideration there must still be but, in my judgment, the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties where the bargaining powers are not unequal and where the finding of consideration reflects the true intention of the parties.87

The main contractor had thus enjoyed the benefit of more actual performance than if no ‘deal’ had been struck and should pay as promised.88

4.6.3 Conclusions As Williams v Roffey suggests, the law is realistic enough to understand that both parties in a construction situation may need to renegotiate payments and payment terms midway, if there are real concerns about the builder’s ability to complete the contract as agreed. The employer should not expect to escape from a commitment to pay extra, as long as they do get a real ‘practical benefit’ from the builder actually delivering what was already promised, so long as ‘the bargaining powers are not unequal’.89 However, 85 On Rupert Jackson’s judicial career, see section  [5.5.3]; post-retirement, he was on the Bench in Manchikalapati v Zurich Insurance plc [2019] EWCA Civ 2163, [2020] BLR 1, discussed at section [11.8.4]; and the much-discussed Triple Point Technology Inc v PTT Public Company Ltd [2019] EWCA Civ 230, [2019] 1 WLR 3549, [2019] BLR 271. 86 Williams v Roffey Brothers & Nicholls (Contractors) Ltd [1991] 1 QB 1 (CA) (Glidewell, Russell and Purchas LJJ). 87 Williams v Roffey (n 86) 18. 88 The case could have been analysed differently to reach the same result. We could say that the Court refused to allow the employer to rely on technical contract law grounds in order to go back on his word, in reliance on which the builder had got significantly closer to completing work under the contract: very close to saying that the employer had not acted ‘in good faith’. For a detailed analysis of the case – noting all the commentary it has occasioned and challenging the way in which the damages awarded were calculated – see Mindy Chen-Wishart, ‘The Legacy of Williams v Roffey: Death Knell for Consideration or Infusion of New Blood?’ in Julian Bailey (ed), Construction Law, Costs and Contemporary Developments: Drawing the Threads Together – A Festschrift for Lord Justice Jackson (Oxford, Hart Publishing, 2018). Scots lawyers could argue that English law should abandon the requirement of consideration altogether and recognise that serious unilateral undertakings by contract parties (and others) are enough to create obligations: Martin Hogg, ‘Perspectives on Contract Theory’ (n 81) 671–72. 89 See the main text to n 87.

Construction Contracts: Terms Implied by the Courts  163 it remains unclear when the courts might treat the renegotiation as ‘an unfair use of a dominating bargaining position’, under which ‘the deal’ might fail to be enforceable.90 Transpose the B2B Williams v Roffey dynamic into a B2C situation – like Scenario 3 (Table 1.2), homeowner B1 and plumber P: it is easy to imagine an anxious and impressionable individual consumer coming under unfair pressure from a builder in difficulties (real or invented), who hints that without an extra cash injection the job may never be completed.91 If parties want to make such a mid-project ‘deal’ impregnable in a common law context, embodying it in a deed would protect it from arguments about consideration if they were willing to go that extra procedural mile (though not under Scots law). But the contract might still be vulnerable to being rendered voidable (able to be rescinded) if one party could successfully claim that a legally recognised ‘vitiating factor’ was present, including certain forms of ‘undue influence’ or ‘duress’.92 In a B2C context (in Australia, some B2B contexts too), the events may also amount to ‘an unfair commercial practice’ (or equivalent) on the builder’s part, so general consumer protection legislation may intervene.93 However, failing to formalise the deal in writing, as the parties did in Williams v Roffey, will add the possibility of a factual dispute on top of the existing legal uncertainty.

4.7  Construction Contracts: Terms Implied by the Courts 4.7.1 Introduction As we saw in Table 4.1, one of the ways in which courts make a real contribution to assisting commercial activity is by implying terms into contracts. The English courts recognise two types of situation where doing so is legitimate. Type 1 looks to the purpose(s) for which that category of contract is made, defining terms appropriate for that situation or activity as a matter of law (unless the parties have expressly excluded them). Type 2 looks to ‘filling a gap’ in what the parties have agreed, if necessary, in order to make their individual contract work: ‘on its proper construction, the parties must have intended to include [such a term]’.94 90 Lord Scarman, delivering the judgment of the Privy Council in Pau On v Lau Yiu Long [1980] AC 614 (PC) 634, quoted by Glidewell LJ in Williams v Roffey (n 86). 91 Such behaviour might also be an ‘unfair trading practice’: see section [6.2.2]. 92 On such vitiating factors – generally speaking, difficult to establish – see, eg, Chitty (n 3) ch 8. 93 For general consumer protection legislation, see ch 6. 94 Lady Hale in Société Générale v Geys [2012] UKSC 63, [2013] 1 AC 523 [55]. Many different names are given to these various types of implication, depending on the contractual taxonomy adopted. Most contract textbooks comment on this terminology; an accessible example is JW Carter, Carter’s Breach of Contract (Oxford, Hart Publishing, 2011) 34–38. For those familiar with the concepts of terms being implied ‘in law’ or ‘in fact’, eg, Type 1 situations are ones where terms might be implied ‘in law’ – in this case, on what is sometimes called a ‘generic’ or ‘class’ basis, into all contracts of a particular ‘genus’ or ‘type’. Construction contracts form such a class – Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 (NSWCA) 261 (Priestley JA). Type 2, the ‘gap filling’ type, is another way of referring to terms being implied ‘in fact’. We have already encountered another species of terms being implied ‘in law’ in n 44 and its main text: implied duties of good faith (as yet not generally supported) and its cousin, the duty of cooperation: these have

164  Contract Law in Residential Construction Considerable judicial energy has been spent recently in England & Wales in considering when the courts can and should recognise implied terms of Type 2 – almost as much as how to interpret commercial contracts; the two issues are, of course, linked. A constant is the idea that judges will not make (or rewrite) the parties’ contract for them: the court must be convinced that the term argued for is ‘necessary’ to make the contract workable: it is not enough for the term to be merely ‘convenient’, ‘reasonable’ or ‘fair’.95 ‘Freedom of contract’ theory holds that, in recognising implied terms, the courts are only giving effect to the intention of the parties: what the parties ‘have agreed or … “must have intended” to agree’.96 Such implied terms are, therefore, only defaults, which judges would not feel justified in applying to a situation where the parties clearly agreed something different (whether more or less demanding).

4.7.2  Quality Obligations In our field, a widely accepted case law formulation of an implied term of Type 1 is that anyone who undertakes construction work must carry it out in a ‘good and workmanlike’ manner – meaning ‘with due skill, care and judgment’.97 A long history also records judges’ recognising (not always reliably) that the circumstances are such as to imply additional terms into construction contracts: that the materials provided will be of good quality and reasonably fit for their intended purpose; and that the works on completion will also be reasonably fit for their intended purpose.98 This intervention contrasts radically with failed attempts to impose similar duties on a landlord in relation to property let to a residential tenant.99 the ambition of being ‘universal implied terms’ (ie implied into all contracts). Later in this chapter, we shall also see the vital importance in our field of a third type – terms implied by statute. 95 The UK Supreme Court moved towards consolidating these principles in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72, [2016] AC 742 [21]ff, following Equitable Life Assurance Society v Hyman [2002] 1 AC 408 (HL) and Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988. In Marks and Spencer, Lord Neuberger endorsed the five-factor test (including reasonableness, necessity and obviousness) for implication ‘in fact’ laid down in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC) 283 (Lord Simon, Viscount Dilhorne and Lord Keith), and added six observations on the test’s operation (BP reached the Privy Council from Victoria and continues to be the bedrock case for such implication in Australia). For a useful summary of these considerations in a construction context, see Essex County Council v UBB Waste (Essex) Ltd (n 44) [92]–[95] (Pepperall J); and for their application, see the main text to n 127. On necessity as the trigger for implying a term into an existing contract, see also Case Study 10 at section [11.4]. 96 Lord Carnwath in Marks and Spencer v BNP Paribas (n 95) [69]. 97 Diplock LJ in Hancock v BW Brazier (Anerley) Ltd [1966] 1 WLR 1317 (CA) 1327D. This phrase, or a near equivalent, re-appears in the statutory warranties imposed on contracts for residential construction: see sections [4.13.2] (Australia) and [4.14.3] (NZ). 98 For a review of the relevant cases, see, eg, Bailey (n 9) [3.112]–[3.121]. In Barton v Stiff [2006] VSC 307, Hargrave J noted at [16] VCAT’s recital of these implied terms as applying both at common law and under DBCA s 8 but found that the Tribunal Member had erred by not considering the ‘intended purpose’ by reference to the likely groundwater conditions at the site. The closeness between the relevant English and Australian (at any rate, Victorian) law is illustrated by the Court relying almost entirely on English authorities, including Independent Broadcasting Authority v EMI Electronics Ltd (1978) 11 BLR 29 (CA). That said, UK courts have more recently indicated a willingness to apply fitness for purpose obligations more strictly, at least in the commercial context of design life warranties: see, eg, MT Højgaard A/S v E. On Climate & Renewables UK Robin Rigg East Ltd [2017] UKSC 59, [2018] 2 All ER 22. The statutory obligations under the Defective Premises Act 1972 (E&W, NI) s 1 can be seen as versions of the same duties: see section [5.10.2]ff. 99 See section [11.5.2].

Construction Contracts: Terms Implied by the Courts  165 Where the contract is for a unit within a larger block, the builder’s workmanship obligation extends to the block as well, with the possibility that a buyer of one of the units may legitimately refuse to complete on the purchase, if defects in ‘the common parts’ are spotted in time.100 In the more usual situation, unit owners claim damages after the event, attributable to ‘the common parts’.101 The obligation may extend further than just the quality of construction: [A] contractor responsible for both the design and construction who agrees that the works will be carried out in a proper and workmanlike manner, that is with proper skill and care, cannot say that the works were constructed in a proper and workmanlike manner and avoid the same obligation applying to responsibility for the design. The works which include both the design and the construction must be carried out in a proper and workmanlike manner.102

4.7.3  Completion and Progress Obligations Other important implied terms in construction contracts include the requirement – if the contract lays down no express completion date – that the contractor shall complete its work within a reasonable time in the circumstances.103 In relation to an off-plan ‘construct-and-transfer’ contract of a new home, at least in the UK, the idea of ‘completion within a reasonable time’ will almost always hit a contractual provision watering down even this modest common law obligation: The Anticipated Completion Date is our best estimate of the date your New Home will be constructed. There are many matters outside of our control which could delay construction works or the provision of roads, services and other items so you cannot rely on this date to enter into legal commitments (such as, for example, booking removal vans or giving notice to terminate a tenancy). You will be advised of progress as your New Home nears completion until we reach the point when we can give you a binding date under clause 4 below. Legal Completion will be either the Fixed Completion Date set out in this Contract or, if no date is fixed [the usual situation], completion will be on 10 working days’ advance notice once construction is complete and therefore legal completion of the sale and purchase will take place 10 working days after we give your conveyancer a written notice that the New Home is completed and ready for occupation.104

100 See Matila Ltd v Lisheen Properties Ltd [2010] EWHC 1832 (Ch) [73]–[83], also sections [8.3]–[8.4] on inspections by buyers of new homes, and [9.8] on the New Homes Ombudsman in the UK. 101 Akenhead J in Hunt v Optima (Cambridge) Ltd [2013] EWHC 681 (TCC), 148 Con LR 27 [103], [246]. Similarly, in a claim under the Defective Premises Act 1972, damages may be recoverable for the full rectification cost of defects in ‘the common parts’, though not all flat-owners are claimants: Rendlesham Estates plc v Barr Ltd [2014] EWHC 3968 (TCC), [2015] 1 WLR 3663 [233]–[235]: see further section [5.10.2]ff; and on multi-unit developments ch 11. 102 Ramsey J in Harrison v Shepherd Homes Ltd (No 2) [2011] EWHC 1811 (TCC), (2011) 27 Const LJ 709 [43]. 103 Authority for this proposition reaches back at least to Dunedin Water Works Co v Bassett (1868) 1 NZCAR 141. Ascertaining what a ‘reasonable time’ means in particular circumstances inevitably produces disputes: for an example of the courts’ difficult forensic and interpretive task, in a shipbuilding case where ‘reasonable time’ was in an express term relating to termination notices, see Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2019] NSWCA 185, (2019) 101 NSWLR 679. 104 Edited extract from the standard sale contract used by a major UK developer (2015).

166  Contract Law in Residential Construction This example makes the actual date given in the contract ‘anticipated’ only (ie not ­binding), giving the developer generous leeway, including for work being interrupted by legal restrictions because of a pandemic. It does, however, reflect ‘best practice’, as contained in the UK Consumer Codes: these all require the developer at least to keep the buyer regularly informed about build progress.105 Making an off-plan contract like this normally assumes that the buyer already has – or reliably will have – finance for the purchase in place, so there is no let-out if the money does not materialise. In several residential developments by Berkeley Homes in London before the Global Financial Crisis struck in 2008–09, would-be buyers had committed to purchasing early on in the project. They did so without mortgage offers already in place (these normally last for only six months at a time), assuming that they could get finance when completion loomed. After the credit crunch hit, they then found that they could get finance for only 75 per cent of a flat’s value, not the 90 per cent that would have been the norm before; and the value of the flat had dropped, further reducing the amount available on a mortgage, though its purchase price remained fixed in the contract entered into before the downturn. The difference, for an upmarket new flat in London’s Docklands, could be hundreds of thousands of pounds, which the buyer would now have to find from other sources; or be exposed to legal action by the developer to forfeit the usual 10 per cent deposit if they failed to complete according to the contract’s terms. The developer could potentially insist on the whole of the agreed purchase price (plus a high rate of interest, also laid down in the contract, for late completion).106 It was not obvious what legal arguments a buyer caught in this situation could make to defend a legal action brought by a developer, though some buyers were financially so stretched as to be not worth suing.107 Covid-19 might bring a repeat of such difficulties, though loans of close to 100 per cent have all but disappeared already, and interest rates are at historic lows, but the risk of unemployment is increasing.108 All the implied terms mentioned can play an important ‘default’ role in residential construction projects: for the purchase of a ready-made complete home, a comprehensive written contract is a near-certainty, but in smaller construction projects, homeowners and their contractors often prefer a ‘handshake’ agreement. This optimistic (more negatively, wilfully blind) approach can easily mean that no express term in the contract sets

105 On UK Consumer Codes, see section [6.5]. The NHBC/HBF National New Home Customer Satisfaction Survey 2019–2020 reported that, of new homeowners surveyed, 11% were fairly or very dissatisfied with the timing of their home’s completion; 80% were very or fairly satisfied. More from the Survey in section [2.3.2]. 106 Rupert Jones, ‘Berkeley Homes: Buyers Trapped in Mortgage Nightmare’ The Guardian (8 August 2009). In a rising market, there is the opposite risk: the developer will try to bring the off-plan sale contract with a buyer to an end in order to resell the unit for a higher price by activating a ‘sunset clause’ which offers a way out if a key stage in the development has not been reached by a specific date. Victoria imposed new restrictions on such clauses in the Sale of Land Amendment Act 2019 (Vic). 107 Unless the buyer could find a reason for rescinding the contract, such as significant misrepresentation by the seller, the English law of frustration is probably too narrow to offer a way out from the obligations undertaken. 108 A sense of the initial impact of Covid-19 on construction procurement in the UK may be gained from, eg, Wendy Jones, Vivien Chow and Alistair Gibb, ‘COVID-19 and Construction: Early Lessons for a New Normal?’ (Loughborough University, 2020).

Construction Contracts: Terms Implied by the Courts  167 an actual completion date.109 Even where there is such a date, it can be rendered void (meaning that the obligation reverts to the implied requirement of completion within a reasonable time) if the ‘prevention principle’ applies – where the employer delays the builder from completing the work by the contractually agreed completion date without giving the builder an equivalent extension of time.110 This expresses a more general principle: that one party who prevents the other party from performing their side of a bargain cannot enforce the contract against them (in Scots law, this is an aspect of its broader ‘mutuality of obligations’ doctrine).111 On the other hand, consistent with the fundamental principle that a party undertaking an obligation has wide scope in the way it discharges that obligation, the courts have refused to recognise an implied term that the contractor works at any particular pace, via a suggested obligation to carry out their work in the project ‘regularly and diligently’.112 Exceptionally, the contract may spell out such an obligation: the FMB Domestic Building Contract gives the client the right to end the contract ‘if, without reasonable cause … we fail to work steadily’.113 Alternatively, the whole project could be subdivided into sections, each with its own completion date, so that there would be no single ‘sudden death’ moment at the very end of the project. Few homeowners will want to engage with this complexity unless the scale of the project justifies it; no developer would ever consider doing so, in an off-plan sale contract with a first buyer, unless required by law.

109 A recently litigated example of such lack of express provision (but the tribunal was willing to imply a reasonable time obligation) was the 2013 contract, with a value exceeding A$1.1m, to fit out an apartment on the 87th floor of one of Melbourne’s most prestigious residential developments, the Eureka Tower: Leeda Projects Pty Ltd v Zeng [2020] VSCA 192 [7] (Kaye JA); [59], [63], [79], [83], [189] (McLeish JA). Published standard forms, including those expressly designed for B2C construction contracts like the RIBA Domestic Building Contract 2018, typically prompt the parties to insert a completion date. 110 This principle is extensively considered in construction law texts, notably Bailey (n 9) [13.151]ff; recent scholarly contributions include Katrina Mae, ‘Preventing Improper Liability for Delay but not Preventing Disputes: Rethinking the Implications of the Prevention Principle in Australia and Abroad’ (2019) 36 International Construction Law Review 24; Max Twivy, ‘The Prevention Principle after North Midland v Cyden Homes: Time for Change?’ (2019) 36 International Construction Law Review 375; and Tony Marshall ‘The Prevention Principle and Making the Contractor Pay for Employer Delay: Is English Law Departing from its Roots?’ (2020) 37 International Construction Law Review 326 (part 1); (2021) 38 International Construction Law Review 88. This book does not deal with the prevention principle in detail, except in the context of liquidated damages in section [4.12.4]. However, note that several of the most important cases on the topic emerged from residential projects, including Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111 (CA); SMK Cabinets v Hili Modern Electrics Pty Ltd [1984] VR 391 (VSCFC); and North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744, [2018] BLR 565. 111 As Denning LJ observed in a seminal case on the prevention principle, Amalgamated Building Contractors Ltd v Waltham Holy Cross UDC [1952] 2 All ER 452 (CA) 455, a party ‘cannot insist on a condition if it is his own fault that the condition has not been fulfilled’. In the seventeenth century, Scottish jurist James Dalrymple, 1st Viscount Stair, proposed in his Institutes at [1.10.17]: ‘neither party should obtain implement [performance] of the obligements to him, till he fulfil the obligements by him’. However, even in Scots law, not every contractual obligation is conditional on the fulfilment of others by the other party: see Lord Hodge in Robertson Construction Central Ltd v Glasgow Metro LLP [2009] CSOH 71 [29]–[31]. 112 See, eg, Leander Construction Ltd v Mulalley & Co Ltd [2011] EWHC 3449 (TCC), [2012] BLR 152. 113 FMB Domestic Building Contract cl 22.1, which also covers stopping work (without reasonable cause) for 14 days in a row. The client must first serve a written notice giving the builder seven days to resume work properly; if the builder does not comply, the client may then terminate the contract.

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4.7.4  Build Quality: Examples from Contracts in Use In reality, written construction contracts (in particular standard form contracts) almost always include basic express obligations on ‘the builder’ about build quality. From published standard form contracts for B2C projects, the RIBA Domestic Building Contract 2018 uses almost the same words as judges: ‘carry out and complete the Works in accordance with the Contract, in good and workmanlike manner, by the Date for Completion’; the FMB equivalent is to ‘carry out the work with reasonable care and skill and to a reasonable standard’.114 Here is the key clause from an off-plan sale contract of a flat within a block under construction in England in the early 2000s: [The developer] shall cause the Premises to be completed in a good and workmanlike manner and with suitable materials pursuant to any Planning Permissions granted in respect of the Building so that the Premises shall be fit for occupation on completion and the Building will comply with all Planning Permissions and Building Regulations as soon as may be reasonably practicable …115

A further off-plan example, from Hughes v Barratt Urban Construction (Scotland) Ltd: ‘built in an efficient and workmanlike manner and of proper materials and so as to be fit for habitation’.116 And from a different volume housebuilder in England: to ‘construct the Property in accordance with planning permission, building regulations approval and the drawings and specification’ and ‘in a good and workmanlike manner and to the standards required by the NHBC [the National House-Building Council, its chosen third-party warranty provider]’.117 Where the main contractor M is a separate entity from the developer X, the sale contract between X and a home’s first buyer B1 may contain what look like watereddown obligations: The seller [X] undertakes to use its best endeavours to procure that the property is built in accordance with the terms of any relevant planning permission and building regulations consent; and to the standard of the warranty provider [the NHBC].118

In relation to this clause in Butcher v Hill, the developer X attempted to strike out claims by the first buyers, who relied on it to engage X’s liability in contract for a list of alleged defects. X argued that it had done all possible by ‘cascading’ identical obligations down 114 RIBA Domestic Building Contract 2018 cl 2.1.1; FMB Domestic Building Contract cl 1. The FMB contract makes clear in cl 12 that the client takes responsibility for the details shown in ‘the documents’ (as defined), meeting all legal requirements and being ‘fit for the intended purposes’ unless the builder has prepared those documents. 115 Hunt v Optima (n 101) [8]. 116 Hughes v Barratt Urban Construction (Scotland) Ltd: Case Study 4 at section [4.16.2]. 117 Example from Taylor Wimpey for a development in England in the early 2000s, known to one of the authors. The definition of ‘the Property’ might allow the developer to argue that it owed no quality obligations in relation to ‘the common parts’, where ‘the Property’ was a unit within a block of flats, but this is hardly tenable: see n 101 and its main text. On the NHBC and technical standards, see section [7.2]. 118 Butcher v Hill (n 41) [5]. For a similar contractual commitment by a developer ‘to take reasonable steps to procure that defects that were the responsibility of the building contractors would be remedied as soon as reasonably practicable’, and a claim under the Defective Premises Act 1972, see Tejani v Fitzroy Place Residential Ltd [2020] EWHC 1856 (TCC), 191 Con LR 165. On the DPA in general, see section [5.10.2]ff.

‘Statutory Requirements’ and Implied Terms  169 the line into its contract with the main contractor M, with whom the claimants had no contractual link. The buyers were also suing X under the Defective Premises Act 1972, which they were relying on against M too. Coulson J held that the mere fact that the result (a compliant building) had not been attained did not lead automatically to X’s liability; on the other hand, to have included identical obligations in the main construction contract did not protect X against liability: [I]t could not reasonably be said that he [X] had used his best endeavours to ensure that the work was completed in accordance with the NHBC requirements if [X] had merely engaged [M] and then sat back and let them get on with it, for better or worse.119

Conversely, freedom of contract would permit a demanding construction employer to negotiate for a higher general standard of performance than any of those quoted above, if this could be captured in clear enough terms and if ‘the builder’ were willing to commit to it.120

4.8  ‘Statutory Requirements’ and Implied Terms 4.8.1 Background Beyond the fundamental construction obligations above, which are usually straightforward – though applying them to what has actually been built is another story – the parties may, in their documentation, fail to deal with a detailed aspect of the project. If this gap has consequences as the project unfolds (in relation to cost, time or quality), the courts may find themselves brought in after the event to resolve the ambiguity, fill the gap or decide which party bears the risk of a particular aspect of the project. This can involve creating an implied term of Type 2: an ‘in fact’ implication ad hoc, which will be in respect of an individual contract, rather than in relation to a whole class or genus of contracts. Most written contracts for construction – in particular B2B and B2C standard forms – expressly require compliance with the terms of the development’s planning permission (or equivalent), as do some of those quoted in section  [4.7.4].121 In Scenario 6 (Table 1.2), an express term in the construction contract B2 made with M2 to build a new house requires M2 to respect the terms of the planning consent which the project enjoys. In an ‘owner-builder’ project in Queensland to construct a new house, the D&B contractor knew that it must comply with local planning restrictions; discovering midbuild that the height of the new house would violate these, they formally asked the client to agree a variation (costing A$8,500), lowering the pitch of the roof and changing the type of tile. As a result, the roof pitch was far shallower than the minimum required by the roofing manufacturer and rainwater regularly leaked into the house, damaging the timber roof structure. The judge held that the builder owed a duty ‘to use reasonable 119 Butcher v Hill (n 41) [16], applying IBM UK Ltd v Rockware Glass Ltd [1980] FSR 335 (CA) on what ‘best endeavours’ requires. We do not know the final outcome in Butcher v Hill. 120 For construction employers’ attempts – often unsuccessful – to ‘raise the bar’ in quality terms, see section [2.6.2]. 121 See the main text to n 117.

170  Contract Law in Residential Construction care, skill and diligence’ – which they had failed to do in changing the design, the client reasonably having gone along with this suggestion. The Court awarded damages for the cost of replacing the whole roof – more than A$500,000.122 More broadly, a contract may simply provide that the main contractor must comply with ‘the applicable law’, ‘statutory obligations’, ‘statutory requirements’ or ‘legal requirements’.123 But what do these cover, and what happens when their application to a specific issue in a project is not clear?

4.8.2  Planning and Related Permissions Jean-François Clin was the individual employer for a substantial project, using a modified JCT 05 form, transforming a pair of adjoining nineteenth-century houses in a Conservation Area in London W8 into a single six-storey residence with a basement swimming pool. Here is the wide-ranging (pre-Brexit) definition of ‘Statutory Requirements’ which he (or his advisers) drafted for the main contract and imposed on main contractor M: Any directly applicable provisions of the EU Treaty or any EU Regulation, any statute, statutory instrument, regulation, rule or order made under any statute or directive having the force of law which affects the Works or performance of any obligation under this Contract and any approvals, requirements, codes of practice, regulation or bye-law of any local authority, competent authority or statutory undertaker which has any jurisdiction with regard to the Works or with whose systems the Works are, or are to be, connected.124

Both sides accepted that M had to comply with the terms of any permissions (consents) from the Royal Borough of Kensington and Chelsea (RBKC), the local planning authority. But who had the job of obtaining such permissions? Resolving uncertainty about the planning position with RBKC suspended work for just over a year; the main contractor M hoped to be able to claim an extension of time (plus losses and expenses) for this period, thus avoiding liability for liquidated damages. The contract said nothing on the question, so the parties brought their dispute to the TCC.125 Edwards-Stuart J held that it was right to imply a term: This is not a case where, because nothing is said expressly in the contract, the parties could have intended that nothing should happen about planning permission: planning permission had to be obtained in order for the development to go ahead.126 122 Nel v Octoclay Pty Ltd [2020] QDC 200. 123 See, eg, FIDIC Conditions of Contract for Construction (‘The Red Book’, 2nd edn 2017) cl 1.13 (‘applicable Laws’); RIBA Domestic Building Contract 2018, cl 2.1.4 (‘statutory obligations’); JCT Standard Building Contract With Quantities 2016 (SBC/Q 2016), cl 2.1 (‘Statutory Requirements’). In Ireland, cl 2(2) of PW-CF1, Public Works Contract for Building Works Designed by the Employer (Ireland, Office of Government Procurement, June 2019) uses the phrase ‘Legal Requirements’, defined as including ‘the requirements of any person having authority in connection with the Works under any Law’. 124 Walter Lilly & Co Ltd v Clin [2016] EWHC 357 (TCC), [2016] BLR 247 [12]. In the second TCC case (n 130) [142] Waksman J doubted, obiter, whether planning counted as a ‘statutory requirement’ even within this wide contractual definition but accepted that it did for the purpose of the litigation. 125 We assume that the contract included no ADR clause and avoided statutory adjudication by fitting within the ‘residential occupier’ exception of the Housing Grants, Construction and Regeneration Act 1996 (UK) s 106: see section [9.7]. 126 Walter Lilly & Co Ltd v Clin (n 124) [56]; for the content of the implied term, see [54]–[63].

‘Statutory Requirements’ and Implied Terms  171 He had in mind copious authorities and views at the apex court level on the appropriateness of court intervention: [T]he overriding point to be borne in mind is that before implying any term the court must conclude that the implication of that term is necessary in order to give business efficacy to the contract or, to put it another way, it is necessary to imply the term in order to make the contract work as the parties must have intended. [T]he court is concerned only to ascertain the objective intention of the parties, it is not to have regard to the private intention of either party or to imply a term that the court considers to be fair and reasonable. The search is to find the meaning which it would convey to a reasonable person having all the background knowledge that the parties to the contract could reasonably be expected to possess.127

Edwards-Stuart J relied, in particular, on the (then recent) restatement of principle by Lord Neuberger in the Marks and Spencer case.128 He considered it the employer’s responsibility to obtain all such permissions, and in a timely way, adding that main contractor M would have responsibility for obtaining planning permission concerning any portion of the works going beyond the Employer’s Requirements. The employer then appealed. Lindblom LJ, giving the judgment of the English Court of Appeal, was more nuanced: [I]t is not the law that, in the absence of an express term dealing with the obtaining of planning permission for the contract works, a term is always to be implied that the employer is responsible for obtaining the necessary planning approvals, or ensuring that all such approvals have been obtained, before work is begun. But some support may be found in the authorities for the proposition that the employer will generally bear the responsibility of obtaining the necessary planning permission, given that the execution of the work would otherwise be unlawful.129

The Court diluted the employer’s obligation significantly: no implied term could expect the employer actually to obtain planning permission (or equivalent), as this depended on the decision of RBKC. Nor could the employer guarantee to M that the planning authority would act lawfully. ‘To use all due diligence to obtain …’ was, therefore, the right level of obligation on the employer.130 The case went back a second time to the TCC, where Waksman J concluded that the project had needed Conservation Area Consent and the employer (including via his architect, appointed as Employer’s Agent) had not used ‘all due diligence’ to obtain it. The main contractor M therefore won the contractual entitlement claimed.131 The case illustrates that ad hoc is the right designation for this type of ‘gap-filling’: the breadth of the applicable elements of the test gives the courts wide scope to shape the exact content of the implied term – or deny its existence, if the claimant frames it inappropriately. Hence, dealing expressly with important issues like responsibility for planning

127 Walter Lilly & Co Ltd v Clin (n 124) [39]–[40] (apparently redundant ‘with’ edited from the first line of the second paragraph). 128 See n 95. 129 Clin v Walter Lilly & Co [2018] EWCA Civ 490, [2018] BLR 321 [26]. Flaux and Davis LJJ concurred. 130 Clin v Walter Lilly (n 129) [37]. 131 Walter Lilly & Co Ltd v Clin [2019] EWHC 945 (TCC), 184 Con LR 34.

172  Contract Law in Residential Construction and related consents is always a surer route to enforceability. But greater clarity in the contractual documentation might still not have avoided the planning law issue: was Conservation Area Consent necessary for the project? This led the employer to appeal a second time, attempting to overturn the judgment of Waksman J. Carr LJ, with whom Lewison and Asplin LJJ concurred, upheld the judgment below.132 If the contract does deal expressly with planning and related consents, it may go further than the first Court of Appeal did in Clin v Walter Lilly. As a default, it may put responsibility for obtaining all necessary consents expressly on the main contractor M, as the RIBA Domestic Building Contract 2018 does, at the same time requiring the parties to list the required consents and to record who is responsible for each under Item I of the project-specific Contract Details.133 Or, in a Scottish homeowner construction contract which includes a consultant: ‘The consultant has applied, or will apply, for planning permission and building regulations approval that may be needed’.134 The residential construction contract regime in New Zealand, for a contract of NZ$30,000 or over, places this responsibility on the builder as an implied term, if the parties fail to deal with this issue themselves.135 By contrast, between employer and architect, the RIBA Domestic Professional Services Contract 2018: Architectural Services provides: The Client acknowledges that the Architect/Consultant does not warrant: that planning permission and other approvals from third parties shall be granted at all or, if granted, will be granted in accordance with any anticipated timescale.136

4.8.3  Complying with ‘The Building Code’ In most jurisdictions, ‘the building code’ has – indirectly, if not directly – statutory status, so a contractual obligation on a ‘builder’ to comply with all ‘statutory requirements’ should include compliance with this code or its equivalent.137 Specifying or installing what turns out afterwards to have been non-compliant materials (or used in a way not conforming with the code) could be classed as failure to comply with one of these ‘requirements’ or ‘obligations’, with heavy consequences in liability. Grenfell Tower may yet illustrate this in court in relation to cladding and external insulation systems; the Lacrosse building case in Melbourne already reached this conclusion for ACM cladding.138

132 Clin v Walter Lilly & Co Ltd [2021] EWCA Civ 136. 133 RIBA Domestic Building Contract 2018 cl 2.1.2. Sub-Cl 1.13(a) of the FIDIC Conditions of Contract for Construction (‘The Red Book’, 2nd edn 2017) requires the Employer to ‘have obtained’ planning and related consents. The FMB Domestic Building Contract cl 9 puts responsibility for getting ‘all permissions’ on the client, cl 1 making the builder responsible for complying with these only if the client has notified the builder of them in writing. 134 Building Contract for a Homeowner/Occupier who has Appointed a Consultant to Oversee the Work (HO/C/Scot 2015 – SBC583) pt 1. 135 Building (Residential Consumer Rights and Remedies) Regulations 2014 (NZ) (n 73) sch 3, item 1 (Building consents). 136 RIBA Domestic Professional Services Contract 2018: Architectural Services [2.3]. 137 See n 123. 138 See section [4.13.2].

‘Statutory Requirements’ and Implied Terms  173 In England & Wales, for a contract to look to ‘the building code’, in effect incorporating this by reference, will as a result also impose on main contractor M the ‘materials and workmanship’ obligations of Regulation 7 of the Building Regulations – if not already present in equivalent terms in the contract.139 Where the duty to comply with ‘the building code’ is spelt out in the contract and placed on ‘the builder’, this obligation could extend to indemnifying the employer if that party suffers any penalty or incurs a liability as a result of such non-compliance. Even without such devices, English courts have reasoned that, since the main contractor commits offences by failing to comply with ‘the building code’, there must be an implied term in the contract with the employer requiring such compliance.140 If so, breach of ‘the building code’ may in contract terms amount to repudiation by the contractor, permitting the employer to treat the whole contract as at an end and turn the contractor off the site, but retaining a right to damages for breaches of contract already committed.141 In Antino v Epping Forest, a building control inspector found several alleged breaches of ‘the building code’: the defendant self-employed builder had covered the oversite and new foundations without their being inspected; two rafters were overstressed; floor voids were filled with fibreglass and inadequately ventilated; there was no flashing at the junction of the new roof and the existing gable wall; and insufficient fire resistance on the steelwork supporting a new room over a garage. Prosecuted for offences under the Building Regulations, the builder argued that there could be no breaches of the Regulations until practical completion – the point where he would lose his chance to remedy any defects. That time, he said, had not yet arrived, and he intended to remedy all the breaches; he was unable to do so, as he had been turned off the site by the employer, who treated the breaches as repudiating the contract and terminated his employment. The Divisional Court held that the builder could commit offences under the Building Regulations if the relevant part of the project were complete and if the builder could be shown to have no intention of remedying the defects. Covering up work or carrying on, so that putting right earlier work would be difficult, if not impossible, would satisfy this test: the necessary intent not to remedy the defects could be inferred, at least where the builder had been warned by the building inspector and then done nothing.142 But this high-risk strategy is not the employer’s only possibility. Most published B2B standard forms also include machinery by which the employer can require extra work to rectify non-compliance while the project is ‘live’, as well as: 1

A rectification period (often called a ‘defects correction period’ or ‘defects liability period’), running for a defined duration after the project has been handed over to the employer at what is often called practical completion; and

139 See section  [3.6.1]. The FMB Domestic Building Contract cl 1 imposes a specific responsibility on the builder to comply with ‘all building regulations’, but under cl 12, documents from the client put this responsibility back on to the client. 140 Street v Sibbasbridge Ltd (1980), quoted in Vincent Powell-Smith and Michael J Billington, The Building Regulations Explained and Illustrated, 10th edn (Oxford, Blackwell Science, 1995) at s 5.9. 141 See Ellis Baker and Anthony Lavers, ‘Temporary Disconformity Revisited’ (Society of Construction Law (UK) Paper 139, 2007). 142 Antino v Epping Forest (1991) 53 BLR 56 (DC).

174  Contract Law in Residential Construction 2

A retention: the employer holds back a proportion of the final sum otherwise due (perhaps also of interim sums due), against the cost of any remedial works, in case the builder fails to do what is then required or leaves the project incomplete.143

As we already know from chapter 1, neither a contractual rectification period nor a retention is usually present in off-plan sale contracts of new homes. However, the UK’s major housebuilder Persimmon announced in 2019 that its standard terms for selling new houses would permit buyers to hold back a modest 1.5 per cent of the purchase price, against the rectification of problems identified during the first week of occupation.144 Nor is either device common in small B2C construction projects between a homeowner and provider of construction services, unless a published standard form contract is used. But a well-informed residential buyer/employer is free to negotiate and draft such a retention into their contracts, as long as they do so clearly.145

4.9  Construction Contracts: Terms Implied by Statute Construction contracts are examples of contracts for the provision of services; most also involve the supply (rather than sale) of goods: the materials and equipment to be used in constructing the home or carrying out the project, whatever it is. The Supply of Goods and Services Act 1982 (E&W, NI) implies terms into the supply of services.146 These require ‘reasonable skill and care’ in the provision of the service, carrying this out within a reasonable time and the supplier of the service being paid a reasonable amount (if time or payment are not already fixed); but these are only default terms, so may be ‘negatived or varied by express agreement, or by the course of dealing between the parties, or by such usage as binds both parties to the contract’.147 Contractual obligations less demanding than those implied by law could be challenged as unfair.148 The 1982 Act also implies terms into all UK contracts for the supply of goods, requiring them to be ‘of satisfactory quality’; this requires them to ‘meet the standard that a reasonable person would regard as satisfactory, taking account of any description of

143 See eg, JCT Standard Building Contract With Quantities 2016 (n 123), clauses 2·1–2·3, 2·17–2·18, 2·38 and 3·17–3·20 (and sch 4); also NEC, Engineering and Construction Contract (NEC3, 2013 edition, Core clauses 40–45 and the Contract data); also now NEC4 (2017), Option X16. Condition 8 of the Building Contract for a Homeowner/Occupier who has Appointed a Consultant to Oversee the Work (n 134) authorises the employer to retain 5% of the price until the consultant certifies that there are no outstanding defects three months after the work is complete; on retentions, see also section [1.4.2]. 144 Hamish Champ, ‘Persimmon Extends Customer Retention Period to a Week’ Building (5 July 2019). 145 For a situation where a retention clause in a project to build a new house in London NW3 left gaps for the courts to fill by implying terms, in litigation between homeowner and developer, see Relicpride Building Co Ltd v Cordara [2013] EWCA Civ 158, 147 Con LR 92. Though beyond the scope of this book, the case law and legislation relating to ‘security of payment’ in non-residential projects increasingly limit parties’ freedom to apply retentions and other forms of security, especially in Australia: see, eg, Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5, (2018) 264 CLR 46. 146 Supply of Goods and Services Act 1982 (E&W, NI) ss 13–16. The legal treatment of B2B services contracts in Scotland appears still to derive from Scots common law. 147 Supply of Goods and Services Act 1982 (E&W, NI) s 16(1). 148 On challenges to the fairness of terms under UK law, see section [4.10] (and the corresponding discussion for each other jurisdiction later in the chapter).

Construction Contracts: Terms Implied by Statute  175 the goods, the price (if relevant) and all the other relevant circumstances’.149 The Act contains no provisions about remedies for breach of any of these terms, save for breach of an implied term about the quality of materials, so remedies are otherwise as already available, via the common law or under other statutes.150 If a contract for the supply of goods or of services is also a ‘consumer contract’ (B2C), the law adds extra protection. These would apply to a construction contract between an individual acting on their own account and a construction professional or developer – the off-plan purchase contract between X and B1 in Scenario 2 (Table 1.1) or between B1 and P in Scenario 3 (Table 1.2).151 Such contracts now come within the Consumer Rights Act 2015 (UK), the 1982 Act applying only to contracts that do not fit within the CRA. In relation to B2C contracts for the supply of services, Chapter 4 of the CRA implies terms almost identical to those under the Supply of Goods and Services Act 1982 (as to quality, time and payment); in addition, pre-contract information given by the would-be supplier to the consumer is generally treated as a term of the contract.152 Such services contracts also have special statutory remedies available where the service does not conform to the terms of the contract. The main one is the oddly named ‘right to repeat performance’ (the consumer calls on the service provider to ‘get it right’ – within a reasonable time and at the service provider’s own cost); or instead a right to a reduction in the price for the service, which might mean a complete refund.153 These are expressly in addition to any others available under the general law of contract; most importantly, neither the trader’s obligations nor the consumer’s remedies under the CRA can be limited or excluded.154 Chapter 4 of the CRA contains a saving for any other statutory obligations resting on the provider of services.155 This could include the (modest) obligations imposed by the Defective Premises Act 1972 (E&W, NI) on all those who ‘take on work’ for the construction or conversion of a dwelling – whether or not via a contract with the present claimant. This person does not need to be a ‘consumer’, legally speaking, to be able to claim under the DPA.156 In relation to the B2C supply of goods, Chapter 2 of the CRA implies terms in relation to their quality and fitness for purpose, as well as their matching any description and (especially relevant to construction) being installed correctly.157 Special rules in

149 Supply of Goods and Services Act 1982 (E&W, NI) ss 2 and 2A. The Act contains closely similar provisions on the supply of goods in Scots law in Part 1A, added by the Sale and Supply of Goods Act 1994. 150 Supply of Goods and Services Act 1982 (E&W, NI) s 5A. 151 The Consumer Rights Act 2015 (UK) s 2(3) defines a consumer as ‘an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession’. 152 CRA (UK) s 50: the main text to n 48. 153 CRA (UK) ss 55–56. 154 CRA (UK) ss 54(7), 58. 155 CRA (UK) s 53. 156 On the DPA, see section  [5.10.2]ff. Exclusion or restriction of liability, or the remedies available, for pre-contractual misrepresentation in any contract not covered by Part 2 (the unfair contract terms sections) of the CRA (UK) requires the test of reasonableness in the Unfair Contract Terms Act 1977 to be satisfied: Misrepresentation Act 1967 (E&W, NI) s 3(1), as amended. There are similar rules in Ireland: Sale of Goods and Supply of Services Act 1980 (Ire) s 46. 157 CRA (UK) ss 8–11, 15.

176  Contract Law in Residential Construction some circumstances treat pre-contract information given by the would-be supplier to the consumer about such goods as a term of the contract.158 None of these implied terms can be diluted or excluded.159 Such contracts for the supply of goods have the remedies for breach listed in the CRA, which include a short-term right to reject, the right to repair or replacement and the right to a price reduction or a final right to reject.160

4.10  Challenging Contract Terms as ‘Unfair’ 4.10.1 Background For the first time in English (and Scots) law, the Unfair Contract Terms Act 1977 (UCTA) declared contract terms (and notices) invalid if they attempted to limit or exclude liability for death or personal injury caused by negligence.161 In relation to other defined categories of contract term, UCTA gave the courts a new discretion to strike them down as unenforceable, unless shown to meet a test of reasonableness (the burden of showing this being on the party wishing to uphold the term).162 However, despite its title, the Act only applies to contract terms that aim (broadly speaking) to limit or exclude liability or have an equivalent effect. When first enacted, some of UCTA’s provisions applied specifically to consumers, but the statute contained no power to deal with unfairness in B2C contracts generally; however, where UCTA did ‘bite’, it did so specifically in situations where one party’s written standard terms were imposed on the other; and the relative bargaining power of the parties could be relevant in assessing reasonableness.163 In 1994, UCTA acquired European support and extension, but also a kind of rival, in the first set of Regulations transposing into UK law the 1993 Directive on Unfair Terms in Consumer Contracts – an EEC measure requiring a minimum ‘floor’ of protection in each Member State, but not preventing Member States from going further, if they wished.164 The 1994 Regulations were replaced in 1999 by a set whose text is closer to ‘copying out’ the parent Directive.165 A wide-ranging review by the two Law Commissions argued strongly for integration between UCTA and the 1999 Regulations for all types of contract; the first Cameron

158 CRA (UK) s 12: n 48. 159 CRA (UK) s 31. 160 CRA (UK) ss 19–24. 161 UCTA 1977 pt I applies to England & Wales and NI; pt II to Scotland; pt III to the whole of the UK. 162 ‘Reasonableness’ is defined in UCTA s 11 (‘the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made’) and ‘Guidelines’ are in UCTA sch 2. 163 For discussion of what ‘deals … on the other’s written standard terms of business’ means in UCTA s 3(1), see African Export-Import Bank v Shebah Exploration and Production Co Ltd [2017] EWCA Civ 845, [2018] 1 WLR 487, [2017] BLR 469. 164 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts [1993] OJ L95/29, first implemented by the Unfair Terms in Consumer Contracts Regulations 1994 (SI 1994/3159). 165 The Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083), as amended by SI 2001/1186.

Challenging Contract Terms as ‘Unfair’  177 government opted instead to include aspects of unfair contract terms law in a general update of consumer rights, which became the Consumer Rights Act 2015 for the whole of the UK.166 So those provisions of UCTA which could apply to consumers have now been integrated with the UTCCR 1999 – themselves recast and expanded – into Part 2 of the CRA.167 This therefore deals in one place with all unfair contract term issues between ‘traders’ and (individual) ‘consumers’, as defined; this appears to exclude buyto-rent investors as off-plan purchasers of homes.168 The result is that UCTA now has a rather vestigial role in B2B contexts alone: given this book’s focus on individual home buyers and homeowners, the CRA is centre stage. The arrival into UK law of consumer protection provisions of supranational European origin is a perfect example in our field of the trend identified in section [4.2]: legal rules limiting the scope of the general principle of freedom of contract and expressly referring to ideas of ‘good faith’.169 In this context, therefore, civil law influences have staked a position in all the UK’s jurisdictions; measures implementing the parent Directive are also in force in Ireland, as a continuing EU Member State.170 English judges have had to adjust to the new thinking, supported by extensive case law at the European level interpreting ‘autonomously’ the text of the Directive, authoritative in all official EU languages.171 However, Brexit means that the status of the Directive and its linked European case law – both past and future – is susceptible to change in relation to UK courts and judges.172 ‘Unfairness’ in a B2C contract can take an infinite number of forms. The CRA continues – as it had to do while EU law was still part of UK law – the approach of the 1993 Directive by including ‘the Grey List’. This is an ‘indicative and non-exhaustive list’ of terms in consumer contracts that may be regarded as unfair.173 ‘Grey’, because inclusion in the list does not make a term necessarily unfair, nor does not being included protect

166 Law Commissions, Unfair Terms in Contracts (Law Com No 292, Scot Law Com No 199, 2005); followed by Unfair Terms in Consumer Contracts: Advice to the Department for Business, Innovation and Skills (March 2013). 167 ‘Expanded’: some of the original restrictions on the scope of the 1993 Directive do not appear in the CRA, notably the ‘not individually negotiated’ requirement. Similarly, the ‘written standard terms’ condition in UCTA s 3 no longer applies to ‘consumer contracts’ within the CRA. 168 On the present position, see Zagora Management Ltd v Zurich Insurance plc [2019] EWHC 140 (TCC), 182 Con LR 180 [7.1.36]; the case is discussed as Case Study 11 at section [11.8]. The European Court of Justice has confirmed that national legislation may validly extend the protection of the 1993 Directive to legal persons which are not ‘natural persons’, eg, a ‘commonhold association’ for a block of flats: Case C-329/19 Condominio di Milano, via Meda v Eurothermo SpA EU:C:2020:263. 169 CRA (UK) s 62(4): definition of unfairness, as discussed in Director General of Fair Trading v First National Bank [2001] UKHL 52, [2002] 1 AC 481. 170 The European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 (SI 27/1995) (Ire), as amended – most recently by SI 336/2014 (Ire): see also section [4.15.3]. 171 See, eg, Case C-415/11 Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa EU:C:2013:164, [2013] 3 CMLR 89; and Commission Notice, Guidance on the interpretation and application of Council Directive 93/13/ EEC on unfair terms in consumer contracts [2019] OJ C323/04. 172 See the European Union (Withdrawal) Act 2018 (UK) s 6. On the relationship between post-Brexit UK law and EU law, see section [1.11]. To change the current position in domestic law in the consumer rights context would require Parliament to modify the CRA, save where the CRA itself already provides for the possibility of its own modification – see, eg, n 174. 173 The ‘Grey List’(recast) is now the CRA (UK) sch 2.

178  Contract Law in Residential Construction it against challenge.174 To demonstrate unfairness, though, requires a ‘significant imbalance’ between the parties to the consumer’s detriment, ‘contrary to the requirement of good faith’.175 If a term is written, it may also fail the test of fairness unless it is in ‘plain, intelligible’ language – if not, it will be construed against the party relying on it.176 More generally, the Directive requires doubt in the meaning of a written term to be resolved in the consumer’s favour.177 If a challenge is successful, this leads to the unenforceability of that term; assuming that the contract can survive without it, it is simply severed. All UK courts are now required, ex officio, to consider the fairness of any term in a B2C contract relevant to a dispute before them.178 However, this does not apply to tribunals, adjudicators, arbitrators or others offering versions of ADR.179

4.10.2  Examples from Residential Construction Three areas in our field stand out as having generated significant case law on unfair contract terms in England & Wales, all before the arrival of the CRA: between a builder and consumer, dispute resolution clauses and limitations of liability; between a developer and off-plan buyer, terms seeking to limit the developer’s liability. However, the judges do not speak with one voice on these issues, in part because the tests the law requires them to apply are open-textured and heavily (and intentionally) fact-sensitive.180 Example 1: A case with a consumer-friendly outcome is Mylcrist Builders Ltd v Buck, where the employer Mrs Buck had a written contract presented to her by the builder who was to add an extension to her seaside bungalow in Kent. The contract provided for arbitration; this was one of the building contractor’s standard terms, which Mrs Buck agreed by signing and returning a copy of a letter containing them. Partway through the project, a dispute arose about which figures were or were not included in the price. The builders started arbitration proceedings, in which Mrs Buck (on advice) took no part; this led to an award finding her liable to pay over £12,000 (for breach of contract, Mylcrist’s costs and the arbitrator’s fees), with interest on top. Mylcrist then attempted to enforce the award in the TCC. Mrs Buck (appearing in person) resisted this on two grounds: (i) the arbitrator had not been validly appointed; and (ii) the arbitration clause was unfair under the 1999

174 The text of the ‘Grey List’ can be changed under the CRA (UK) s 63(3). 175 In Zealander v Laing Homes Ltd (2000) 2 TCLR 724 (TCC) (a case on the UTCCR 1994), Judge Havery QC concluded that the arbitration clause with new-build buyers of domestic dwellings under the then wording of the NHBC Buildmark warranty was unfair. The outcome and reasoning are criticised in the unsigned editorial, which follows the report of the judgment. 176 CRA (UK) s 68. 177 CRA (UK) s 69(1). 178 CRA (UK) s 71; see Case C-511/17 Lintner v UniCredit Bank Hungary Zrt EU:C:2020:188. 179 For the impact on a residential consumer, as the responding party in a construction adjudication, see ICCT Ltd v Pinto [2019] EWHC 2134 (TCC), discussed at section [9.7.5]. 180 See, further, Philip Britton, ‘Court Challenges to ADR in Construction: European and English Law’ (Society of Construction Law (UK) Paper 152, 2009).

Challenging Contract Terms as ‘Unfair’  179 Regulations, so should not be enforceable against her.181 She won on both. On (ii), the ‘Grey List’ shows a special concern with access to courts: [A term which has the object or effect of] excluding or hindering the consumer’s right to take legal action, or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration …182

In line with European case law, Ramsey J held that an arbitration clause does exclude or hinder a consumer’s right to take legal action in the traditional court sense.183 It could cause a significant imbalance between a professional and a lay person, to that person’s detriment. This disadvantage would not be obvious unless adequately drawn to the consumer’s attention before they agreed to the contract containing it.184 Whilst the box signed by Mrs Buck properly drew her attention to the existence of terms, the impact of the arbitration clause would not be apparent to a layperson and was not apparent to Mrs Buck who was not aware of its effect, as her subsequent conduct shows. The requirement of fair and open dealing means that for consumer transactions the arbitration clause and its effect need to be more fully, clearly and prominently set out than it was in this case. I do not consider that the reference in paragraph 11 of the Contract to matters in dispute being ‘referred in accordance with the Arbitration Act 1950 or any statutory modification or re-enactment’ can be said to be sufficient. Equally, whilst there is no suggestion that the Claimant deliberately took advantage of Mrs Buck’s necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract or weak bargaining position, I consider that the Claimant by including arbitration in the Claimant’s standard terms did take such disadvantage, albeit unconsciously.185

As the judge said, if Mrs Buck had understood the impact of the arbitration clause, she would probably have been surprised by it and objected to its inclusion. More generally, this suggests that a contractual ADR clause is not protected from challenge as unfair merely because it provides machinery which both sides are free to activate; or because it mimics what statute would make available (adjudication) in a non-residential construction context. It is the substance of the contractual procedure and how well or 181 The arbitration would have been statutorily unfair if the claim had been for less than £5,000: Arbitration Act 1996 s 91 and the Unfair Arbitration Agreements (Specified Amount) Order (SI 1999/2167). The NI equivalent is the Unfair Arbitration Agreements (Specified Amount) Order (Northern Ireland) 2005 (SR 2005/219). 182 Item 1(q) in the ‘Grey List’ in the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) sch 2; now (insignificant text changes) CRA 2015 (UK), sch 2, pt 1, item 20(a). This could equally apply to time restrictions on the consumer’s right to take legal action, shortening the otherwise available general limitation period for that category of claim: see ch 10. 183 Joint Cases C240/98–244/98 Oceano Grupo Editorial SA v Rocio Murciano Quintero EU:C:2000:346, [2000] ECR I-4941; see Simon Whittaker, ‘Judicial Interventionism and Consumer Contracts’ (2001) 117 Law Quarterly Review 215. See also Case C-237/02 Freiburger Kommunalbauten GmbH Baugesellschaft & Co KG v Hofstetter EU:C:2004:209, [2004] 2 CMLR 13. 184 This echoes the common law argument exemplified in the oft-cited dicta of Lord Denning MR in Spurling Ltd v Bradshaw [1956] 1 WLR 461 (CA) 466: ‘the more unreasonable a clause is, the greater the notice which must be given of it [for it to successfully become one of the terms of the contract]’. This approach was later approved in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd: n 18. Perhaps regrettably, signature by the consumer of the document containing the term – as in Mylcrist itself – whether they have read it or not, seems still to foreclose all such arguments, at least in English law: L’Estrange v F Graucob Ltd [1934] 2 KB 394 (DC). 185 Mylcrist Builders Ltd v Buck [2008] EWHC 2172 (TCC), [2009] 2 All ER (Comm) 259, [2008] BLR 611 [56]. We do not know whether, following the TCC judgment, Mylcrist started a new claim in court against Mrs Buck, as they had a right to do.

180  Contract Law in Residential Construction badly it compares with traditional litigation from the consumer’s point of view which determines the issue, as well as how effectively it has been explained to the consumer. As this suggests, issues relating to the fairness of dispute resolution arrangements in B2C construction contracts can arise about adjudication, statutorily imposed in the UK since 1998 under Part II of the Housing Grants, Construction and Regeneration Act 1996. Where a construction contract is subject by law to adjudication, this statutory status protects it against a challenge of unfairness.186 But the legislation includes a ‘residential occupier exception’, so a fairness issue can arise in a B2C contract for construction work on a home, where the facts fit within the exception – as Mrs Buck’s did – but where the contract nonetheless provides for (contractual) adjudication.187 Example 2: For a home renovation project in London SW15, the homeowners Mr & Mrs West made a contract with architect A, then with main contractor M. By the end of the eight-day trial in the TCC, A (or rather, A’s insurers) accepted liability for most of the defects for which the clients were claiming (they needed to move elsewhere for 20 months). But A’s own standard contract, which the West agreed to use, included a clause intended to replace the common law’s usual ‘joint and several liability’ principle with a ‘net contribution clause’ (it could have been called a ‘proportionate liability’ clause).188 This read: ‘Our liability for loss or damage will be limited to the amount that it is reasonable for us to pay in relation to the contractual responsibilities of other consultants, contractors and specialists appointed by you’. What was the impact of this clause on A’s liability? In West v Ian Finlay & Associates, Edwards-Stuart J held that its drafting and context meant that it applied only to those other than M – those with whom the clients would contract directly and whose work A would not supervise. It did not ‘bite’ on A’s contractual liability to the clients for work in fact carried out by M; here was an appropriate case for applying the principle that any doubt in a written B2C contract should be resolved in the consumers’ favour.189 The judgment does not make clear on what precise grounds the clients were also challenging the fairness of this key clause in their contract with A. From ‘the Grey List’ in the 1999 Regulations, they could, like Mrs Buck, have treated the term as one which ‘excluded or hindered the consumer’s right to take legal action, or exercise any other legal remedy’.190 They could also have pointed to Item 1(b): [A term which has the object or effect of] inappropriately excluding or limiting the legal rights of the consumer in relation to the trader or another party in the event of total or partial non-performance or inadequate performance by the trader of any of the contractual obligations …191 186 A term is protected against a challenge as unfair ‘to the extent that it reflects … mandatory statutory or regulatory provisions, [including] rules which, according to law, apply between the parties on the basis that no other arrangements have been established’: CRA (UK) s 73, in part quoting art 1(2) of the 1993 Directive (n 170). In our view, this protects parties’ own contractual arrangements on adjudication (and on any other aspect of the HGCRA regime) from challenge as unfair, insofar as the terms which the parties adopt match any of the eight requirements in the ‘shopping-list’ in the 1996 Act s 108, provided also that these requirements do apply to the particular contract. This would cover adjudication arrangements which the parties make in order to avoid the Scheme’s default provisions applying. 187 The ‘residential occupier exception’ is the HGCRA 1996 (UK) s 106. See, further, section [9.7]. 188 For discussion of the Australian statutory schemes for proportionate liability, see section [9.5.3]. 189 West v Ian Finlay & Associates [2013] EWHC 868 (TCC) [195]–[203]; and see main text to n 177. 190 See the main text to n 182. 191 The 1999 Regulations (n 182) sch 2, item 1(b); now the CRA (UK) sch 2, pt 1, item 2.

Challenging Contract Terms as ‘Unfair’  181 But the judge did not accept their challenge, considering that A had not failed to show ‘good faith’ in suggesting the key clause, which A understood was encouraged by the RIBA. When A appealed against liability, the Court of Appeal held that Edwards-Stuart J had interpreted the net contribution clause incorrectly: its plain and ordinary meaning was as A claimed, so the damages awarded against A should have been reduced by the percentage attributable to M.192 The result was to transfer the risk of M’s insolvency – by then a fact – to the Wests. It is doubtful whether they (two highly qualified professional people, though neither had a legal or construction background) understood this at the time; they had no legal advice when the project started. This conclusion on the common law position newly pushed the unfair contract term issues into the spotlight: was such a clause unfair in a B2C contract, in the context in which it was used? After a long enumeration of the relevant factors, the Court rejected the clients’ challenge under the 1999 Regulations: Starting with significant imbalance, plainly the NCC [net contribution clause] caused an imbalance, but we do not, consider that, viewed in isolation, that imbalance was significant for the following main reasons: (a) the prevalence of the usage of the NCC in standard RIBA forms, (b) the fact that the clause would be regarded as not unusual in a commercial contract, and (c) the fact that it was the Wests who in this case would be taking the final decision on the future choice of main contractor, very likely being alive (bearing in mind Mr West’s banking background) to the fact that that contractor’s financial stability was a matter of importance. We do not, therefore, conclude that the NCC is properly to be regarded in the circumstances of this case as so weighted in favour of [A] as to tilt the parties’ rights and obligations under the contract significantly in [A’s] favour. But even if we were wrong about that, we have no doubt that the NCC does not cause a significant imbalance in the parties’ rights and obligations in a manner or to an extent which is contrary to the requirement of good faith.193

What would the clients have done if the clause had been explained to them (Ramsey J’s test from Mylcrist v Buck)? It seems highly likely they would have objected; for the Court of Appeal to say that such clauses are common in standard form contracts in a B2B construction context and therefore are not unfair in a B2C context misses the point of the 1993 Directive. Example 3: In relation to off-plan purchase contracts for new homes, part of the unfair contract terms rules in Part 2 of the CRA 2015 are inapplicable to contracts relating to land.194 However, this has no impact on the construction part of an off-plan new home contract.195 Illustrating the point, in Harrison v Shepherd Homes Ltd, a group of off-plan new home buyers in Hartlepool claimed damages against their developer for the costs of rectification of cracks and movement in the houses, caused by insufficient 192 West v Ian Finlay & Associates [2014] EWCA Civ 316, 153 Con LR 1, [2014] BLR 324 (Vos LJ giving the judgment of the Court). 193 West v Ian Finlay & Associates (n 192) [59]. The judgment went on to conclude that the clause also satisfied the reasonableness test of UCTA. 194 CRA (UK) s 66(1)(b). The scope of this exclusion from control on fairness grounds relates only to s 65 (exclusion or restriction of negligence liability for personal injury or death). London Borough of Newham v Khatun [2004] EWCA Civ 55, [2005] QB 37 holds that the 1993 Directive (n 164) does apply to contracts in relation to land. 195 See section [4.4.4].

182  Contract Law in Residential Construction compaction of the landfill on which the houses were built and inadequate piling as part of each house’s foundations.196 Before Ramsey J in the TCC, the developer X argued (unsuccessfully) that terms in the standard sale contracts with each buyer (including an ‘entire agreement’ clause) excluded all those implied terms which at common law or under statute would otherwise impose liability on X for defects in the foundations coming to light after completion. This would have reduced the buyers’ rights to whatever they could claim under their Buildmark third-party warranty. But could such terms in the sales contracts, if they meant what the defendants were asserting, be separately attacked as unfair? At that time, this involved both the UTCCR 1999 and UCTA. Within the Regulations, item 1(b) in the ‘Grey List’, quoted above, was once again relevant, as it could have been in West v Ian Finlay Associates.197 The claimants pointed out that they – like almost all off-plan buyers of new homes – had no chance to influence the terms of the sale contract; they had been advised by solicitors recommended by X (paying, admittedly, low fees for that advice); and having Buildmark cover was not equivalent to having common law rights against the developer. Ramsey J concluded: [T]hose terms would be unfair [under the 1999 Regulations] because they were not individually negotiated and contrary to the requirement of good faith they would cause a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the Claimants as consumers.198

For a consumer to be able to argue that a term which is, on all ordinary tests, agreed as part of the contract is unenforceable because it is unfair: this is a revolutionary inroad into freedom of contract. The long ‘shopping-list’ of potentially unfair terms now in Schedule 2 of the CRA provides ammunition for challenges to a wide range of terms, in our field as in others; but a term may not be challenged to the extent that ‘it specifies the main subject-matter of the contract’ or where the appropriateness of the price payable would have to be assessed.199 With such drafting, few can be sure when a challenge of unfairness will be accepted or rejected; even so, in some situations, the English courts may have taken too cautious and literal an approach to the EU law on unfair contract terms.200 The value of the CRA’s restatement and modest extensions of the 1993 Directive relies on well-resourced and well-informed consumers being willing to assert their rights, in either defending a claim brought by ‘the builder’ – as Mrs Buck did in Mylcrist v Buck – or taking on serious ‘litigation risk’ by becoming claimants – as the homeowners did in West v Ian Finlay & Associates (losing in the Court of Appeal and having

196 The developers had already successfully sued their specialist piling subcontractors in Shepherd Homes Ltd v Encia Remediation Ltd [2007] EWHC 1710 (TCC) (Jackson J). 197 Item 1(b): the main text to n 191. 198 Harrison v Shepherd Homes Ltd (n 101) [114], [117] and [120]. The judge went on to find that the sale contract clauses could also be challenged within UCTA, failing its test of reasonableness. 199 CRA s 64(1). 200 Notably, the leading apex court authority on the 1993 Directive: Director General of Fair Trading v First National Bank (n 169), applied in West v Ian Finlay & Associates (n 192). See also Cavendish Square Holding BV v El Makdessi [2015] UKSC 67, [2016] AC 1172 [102]–[114] (Lords Neuberger, Sumption and Carnwath), [200]–[213] (Lord Mance) and [299]–[315] (Lord Toulson).

Residential Construction Contracts: Other Regulatory Interventions  183 then to go back to the TCC for final quantification of their damages) and in Harrison v Shepherd Homes. Such bravery, occasionally leading to success in court, will always be rare. That is why much of the focus of contemporary consumer protection law, including in the CRA itself, includes empowering public and other authorities to take action generically against trade practices and contract terms that fail to respect ‘good faith and fair dealing’.201 These possibilities, in the UK and Ireland deriving mainly from a sequence of EU measures, are summarised in chapter 6.

4.11  Residential Construction Contracts: Other Regulatory Interventions The main sections of this chapter compare the contract law landscape, as laid out primarily in relation to England & Wales above, with the corresponding situation in our other subject jurisdictions. Australasia’s extensive statutory regimes intervene in construction contracts and behaviours under them in the following ways: • Statutory warranties:202 ○○ A minimum set of mandatory obligations on ‘the builder’ about build quality (often called ‘warranties’, operating as implied terms in the contract). ○○ Transferability of those mandatory obligations with the home to a new owner, who can therefore take action against ‘the builder’ if defects come to light after the original owner has sold on. • Rules on topics the contract must address, with default provisions if these topics are not addressed:203 ○○ Requirements about the making of the contract (in some cases requiring precontract information) and its form (writing, signature etc), possibly also giving a consumer a ‘cooling-off ’ period. ○○ In some cases, a ban on procurement approaches or payment provisions which place too much risk on the consumer – or special warnings if one of these options are chosen. Beyond these specific interventions into the form and terms of contracts, Australasia’s jurisdictions regulate behaviours under those contracts in other ways: • Regulating those who provide construction services, via occupational registration or licensing run by a public sector regulator, with disciplinary and other sanctions for doing work without the appropriate authorisation and public access online to the regulator’s records.204 201 The main bodies currently responsible for enforcement in the UK are the Competition and Markets Authority (CMA), local trading standards officers and the Department of Enterprise, Trade and Investment in Northern Ireland (DETINI). 202 See sections [4.13.2] (Australia) and [4.14.3] (NZ). 203 See sections [4.13.4] (Australia) and [4.14.5] (NZ). 204 See sections [3.7.4] (Australia) and [3.8.3] (NZ).

184  Contract Law in Residential Construction • Mandatory insurance, protecting the home buyer or owner against failure by ‘the builder’ to complete the project and against the cost of rectification of major defects within a defined period after the completion of construction.205 • Provisions for relatively low cost and speedy resolution of disputes, eg, via adjudication (sometimes including informal specialist assistance first) or a specialist tribunal.206 By contrast, the UK and Ireland at present impose no sector-specific statutory requirements on residential construction contracts, nor are there any general sectoral occupational registration or licensing schemes. However, several features offset what may otherwise start to look like ‘the law of the jungle’ in the British Isles: • Off-plan sale contracts, though not standardised or published, are usually comprehensive, always in writing and signed by both developer and new home buyer; drafted by the developer, they anticipate most eventualities. At the same time, though, they are standard form contracts imposed by the party with the greater bargaining power and give little or no scope for individual negotiation. • In the UK, Consumer Codes add an extra layer of quasi-legal buyer protection during the construction phase and immediate post-completion period (usually Years 1–2) of new home sales, provided that the home comes with a third-party warranty from a provider signed up to one of the Codes.207 • Where the construction employer is already the owner of the home (or site), a published standard form contract intended for B2C situations may be used, achieving at least the goals of comprehensiveness and certainty of the Australasian statutory regimes. Two examples mentioned are the ‘plain English’ RIBA Domestic Building Contract 2018 and the FMB Domestic Building Contract, both including guidance notes; but it will be rare for any one-off individual construction employer to make an informed choice of contract.208 • Some of those standard form contracts which are not specifically B2C-designed are nonetheless appropriate for simpler projects and ‘balanced’ between the rights and obligations of employer and builder – but the employer is still likely to rely on the builder (or architect, if there is one) to select or propose such a contract, which may be chosen simply on the basis of the builder’s (or architect’s) familiarity with it.209 And, as already noted in this chapter: • Most construction contracts qualify as contracts for the supply of services, often also of goods; in the UK, this brings in mandatory statutorily implied terms, and (if also B2C) the full range of rights and remedies under the CRA.210 205 See section [7.5]. 206 See sections [9.9] (Australia) and [9.10] (NZ). 207 See section [6.5]. 208 RIBA Domestic Building Contract 2018. 209 In the Australian context, though primarily in relation to commercial construction projects, a 2014 study found that ‘familiarity with the form of the party choosing it’ was the most frequently cited factor in choosing a standard form contract: John Sharkey, Matthew Bell, Wayne Jocic and Rami Marginean, Standard Forms of Contract in the Australian Construction Industry: Research Report (The University of Melbourne, 2014) 33. 210 See section [4.9].

Remedies for Breach of Contract  185 • Throughout the UK, protection against unfair contract terms (and notices) is available for both B2B contracts (a closed list of possible grounds for challenge) and B2C contracts (a wider and not closed list, also applicable in Ireland thanks to its European origin).211 The EU Consumer Rights Directive of 2011, in force in both UK and Irish law, imposes different requirements on B2C contracts depending on the circumstances in which the contract is made; not all B2C contracts are covered.212 Moreover, the UK’s and Ireland’s present landscape of minimal statutory intervention is currently subject to change in at least the following three respects (two positive, one less so): 1 2

3

Proposals for legislation in Ireland will, if adopted, enhance home buyers’ and homeowners’ rights under Irish law, with corresponding statutory obligations on ‘builders’;213 Plans are under active development in the UK to impose basic build quality obligations on all developers of new homes for sale and to empower a New Homes Ombudsman to investigate complaints from home buyers, with power to compensate and require other forms of redress from developers;214 but The end of the ‘implementation period’ in the UK’s departure from membership of the EU on 31 December 2020 meant that all those rules which in domestic law were once mandatory as implementing EU measures – notably in relation to most forms of consumer protection – have now lost this protected status.215

4.12  Remedies for Breach of Contract 4.12.1 Introduction So far, this chapter has been concerned primarily with the formation of contracts for residential construction and those contracts’ terms. What remedies are available where those terms are not complied with? Depending on the circumstances, a smorgasbord of potential remedial outcomes may be made enforceable by a court, tribunal or other decision-making body, in accordance with processes described in chapter 9. We do not give detailed consideration here to all possible remedies, nor even to all the elements of the legal cause of action for damages in contract.216 A potential claimant needs to be aware that issues of causation, remoteness and failure to mitigate may 211 See section [4.10]. 212 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and the Council [2011] OJ L304/64; discussed at section [6.2.1]. 213 For more detail, see section [5.14.3]. 214 See section [9.8]. 215 On the relationship between post-Brexit UK law and EU law, see section [1.11]. 216 The discussion of Scenario 6 (Table 1.2) in section [5.2.2] mentions the possibility of the owner being entitled to bring the contract to an end; but section [4.12.5] illustrates that exercising this without justification may expose the employer to a counterclaim from ‘the builder’.

186  Contract Law in Residential Construction restrict recovery of such damages.217 We concentrate here on four aspects of contract remedies with particular relevance in our field: 1 2 3 4

Rectification: may the owner look to the law to require ‘the builder’ to rectify the work (via an order for ‘specific performance’)? Must the owner give ‘the builder’ a chance to rectify before seeking other remedies? Damages: how does the law assess damages for defective construction work amounting to a breach of contract? Liquidated damages: what is the effect of an agreement at the time of making the contract that a certain amount will be due if a defined trigger occurs: if ‘the builder’ misses the contractual date for completion? Counterclaim: may ‘the builder’ make a counterclaim against the owner on a quantum meruit basis, if the owner has wrongfully terminated the contract?

These specific issues are now dealt with in order, with an English law focus; variations in our other subject jurisdictions are noted in the ‘Contrasts’ sections below.218

4.12.2  Allowing (or Requiring) ‘The Builder’ to Rectify the Work It is simplest, and usually cheapest all round, for ‘the builder’ to come back, assuming that both sides agree what is wrong and what now needs doing. All published advice to unhappy homeowners (and many of the formal dispute resolution systems too) encourage or require an attempt to resolve the problem informally first. But is there any legal force behind what may be just common sense? If there is, it could reflect an idea that perhaps the claimant would be exaggerating their loss by not giving the builder at least a chance to do the rectification work. In this way, it goes both to the reasonableness of the damages claimed and to what lawyers and judges call mitigation – the extent to which the homeowner can or should take reasonable steps to protect their position, especially if by failing to do so (not putting a tarpaulin over a leaking roof) the problem will get worse.219 By behaving unreasonably, the claimant may, as a result, forfeit the right to the full cost of employing a third party to do the repair work. This would certainly be true if the contract spelt out – as many standard forms do – that the builder should be notified of any defects and be given a chance to remedy them.220 There may also be what we could call over-mitigation: anxious to protect the situation from further deterioration, the owner goes ahead and organises a third party to do repairs urgently, hoping to claim those costs back from ‘the builder’ – who then argues that repairs costing less would have been adequate to remedy all the alleged 217 The context in which these elements come into play is, however, evident from examples discussed in this chapter: mitigation becomes important to the analysis in section [4.12.2] about giving ‘the builder’ an opportunity to rectify, where they have the ability to have the work done by their subcontractors. For fuller discussion, see, eg, Chitty (n 3) chs 26–27, Carter (n 94) and Bailey (n 9) chs 13–14. 218 For Australia, see section  [4.13.5]; NZ, section  [4.14.6]; Ireland, section  [4.15.4]; and Scotland, section [4.16.3]. 219 Part of this section is taken from Philip Britton, ‘Judicial Remedies for Construction Defects: Common Law, Equity or Statute?’ (Society of Construction Law (UK) Paper 200, 2016). 220 See, eg, RIBA Domestic Building Contract 2018 cl 10.2ff (Defects Fixing Period). The FMB Domestic Building Contract contains similar provisions in cl 25 (Defects Liability Period).

Remedies for Breach of Contract  187 defects and may challenge the owner’s reliance on ‘experts’ to determine what work should be undertaken.221 One version of such arguments arises in an increasingly common situation: where a building has defects for which main contractor M1 is legally responsible to the construction employer, but where the work in question was actually done by subcontractor S1. In such a situation, M1 may be able to pass any liability ‘down the line’ to S1 via an indemnity clause in the subcontract, designed to be ‘back-to-back’ with the obligations M1 took on in the main contract. Where it will cost the builder, in the end, nothing (or next to nothing) to get the work done, does the owner have to allow the builder back, at the risk (if the builder refuses) of instead being awarded only nominal damages, or none at all? Such an argument gains support from a decision of the English Court of Appeal. Woodlands Oak Ltd v Conwell concerned a ‘cost plus’ contract, agreed orally between the Conwells, a married couple, and a small local construction company.222 The law report notes that about £250,000 of work was involved. The site of the project was to be a new home near England’s south coast. When work was complete, and the Conwells had already moved in, the builders sent in their final bill. The Conwells raised issues about the underfloor heating, the roof and a lintel over one window, as well as some smaller ‘snagging’ items. The builders sued the Conwells, for the balance allegedly owing, in the Southampton County Court. The trial took six days – the long period partly explained by easy-to-imagine arguments about the terms of the contract and even who its parties were, as well as about the existence of the claimed defects, the cost of the work already done and the extra costs to the Conwells of moving out for six months while major defects were rectified. The first-instance judge found for the defendant Conwells on the main defects they were asserting – so what they owed the builders was reduced by that amount. But he refused to allow the couple anything for the smaller ‘snagging’ items, holding that they had failed to mitigate their loss. They had given the builder no chance to come back and resolve the problems via one of its subcontractors, which would have been at no cost either to the Conwells or the builder. On appeal, the Conwells argued that this part of the judgment was wrong in law, as their contract contained no provisions at all about the builder coming back to remedy snagging. Sir Anthony May, with whom the other two judges agreed, stood behind what the first-instance judge had said: on the facts, it would have been reasonable to give the builder a chance to deal with the smaller items. This finding could, therefore, not be overturned on appeal. What Sir Anthony did say, however, was that, as a matter of law, to give the contractor no opportunity to rectify defects is not necessarily failing to mitigate the employer’s losses. But on the facts, it may be, as it was here. Where does this leave future construction employers? One thing is clear: if the contract expressly requires the builder to be given a chance to come back – not the case for the Conwells – then failing to do so may put a cap on the damages available of whatever it would have cost the builder to do the extra work, which may be zero.223 221 Cyril Chern, The Law of Construction Disputes, 3rd edn (Abingdon, Informa, 2020) 247–49. For a dramatic example, see McGlinn v Waltham Contractors Ltd (No 3) (n 70), where Coulson J held that the homeowner’s decision to demolish his newly constructed home was unjustified by the defects attributable to the defendants’ breaches of contract; the house was never rebuilt. 222 Woodlands Oak Ltd v Conwell [2011] EWCA Civ 254, [2011] BLR 365. 223 This approach is supported by Sandy Island Pte Ltd v Thio Keng Thay [2020] SGCA 86. B1 had triggered the construction contract’s one-year Defects Liability Period provisions, notifying the developer of a long list

188  Contract Law in Residential Construction However, why should the builder’s primary liability to the owner for defective work ever be cancelled out by the secondary liability of one of its subcontractors to the builder for the same defects? If such a mitigation argument is available at all, it should surely only operate if the builder is, in fact, able to pass on legal responsibility, as well as the cost, to a subcontractor still in existence – conditions that will not always be satisfied. Worse still, they may turn out not to be satisfied only when it is too late – after the court (or, as appropriate, a different tribunal or an adjudicator) has fixed, once and for all, the amount of the owner’s damages. This dispute resolution process may take place, as it did for the Conwells, with the subcontractors playing no part in it. A later TCC case suggests some situations where the employer does not have to give the builder a second chance, unless the contract says otherwise. Here from Mul v Hutton Construction Ltd are three examples from Akenhead J: 1 2 3

Where the defects are so fundamental and widespread that no reasonable employer could be expected to have that contractor back on site;224 Where there has been fraudulent behaviour on the part of the contractor relating to the works; or Where the contractor has made it clear that they are not prepared to return to put right alleged defects.225

This approach gains support from the NSW Supreme Court, where in The Owners – Strata Plan 89041 v Galyan Pty Ltd, Stevenson J accepted this summary of the common law principles: (a) [A] plaintiff is not entitled to recover losses attributable to its own unreasonable conduct;226 (b) in cases involving building contracts, the owner is required to give the builder an opportunity to minimise the damages it must pay by rectifying the defects, except where its refusal to give the builder that opportunity is reasonable or where the builder has repudiated the contract by refusing to conduct any repairs;227 (c) the question of what is reasonable depends on all the circumstances of the particular case – one relevant factor is what attempts the builder has made to repair the defects in the past and whether, in light of the builder’s conduct, the owner has reasonably lost confidence in the willingness and ability of the builder to do the work;228 of alleged defects in the new home, but then refused the developer X access to rectify these. The key clause’s scope and wording did not disable B1 from claiming damages at common law for such defects as could be proved and linked consequential losses. But the Singapore Court of Appeal held, following English authorities, that by employing a third party to rectify the defects in these circumstances, B1 was taking the risk that the damages then allowable would be limited to what it would have cost X to do the same rectification – almost always less than employing a third party. 224 This is echoed by the Guidance Notes to the FMB Domestic Building Contract, which self-deprecatingly suggest: ‘this obligation (to allow us to put the defect right) may not apply if you can prove that we are so incompetent that we would not do the work properly, even if given the chance to do so’! 225 Mul v Hutton Construction Ltd [2014] EWHC 1797 (TCC), [2014] BLR 529 [25]. Akenhead J also refused to permit ‘the builder’ to come back and do repairs in Hunt v Optima (Cambridge) Ltd (n 101) [241]: they had proved unreliable in dealing with the defects over many years since the development was completed and some of the work would be hard to supervise. On Hunt, see Case Study 7 at section [5.9]. 226 The Owners – Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067 at [42], citing Hasell v Bagot, Shakes & Lewis Ltd [1911] HCA 62, (1911) 13 CLR 374, 388. 227 Di Blasio (n 226) [44]. 228 Di Blasio (n 226) [45].

Remedies for Breach of Contract  189 (d) it is for the defendant to prove that the plaintiff has acted unreasonably – it is not for the plaintiff to prove that it acted reasonably;229 and (e) once a defendant puts in issue the reasonableness of the plaintiff ’s conduct, all circumstances relevant to an objective assessment of the plaintiff ’s position become examinable …230

What about the opposite possibility? Assuming that the contract contains no provisions on rectification, can a homeowner require a builder or developer to come back and rectify defects – most obviously by an order from a court or tribunal for specific performance (of the contract, or of obligations classed as contractual), or a mandatory injunction?231 There is no rule – as was once thought – that a court will never actively require construction work to be undertaken by mandatory injunction or by order for specific performance.232 An obligation to achieve a specific end-result – the essence of every construction contract – poses fewer potential problems of supervision and enforcement over time than a more general and open-ended ‘process’ obligation, eg, to keep a business running or a shop open.233 In Airport Industrial GP Ltd v Heathrow Airport Ltd, Morgan J was willing to enforce a landowner’s obligation in a lease to construct a fixed number of new car park places, making an order for specific performance in these terms.234 This was so, though legal action had been started well in advance of the deadline by which the new spaces had to be ready. But the Court realised that it was probably already too late for design and construction to be organised so as to meet the deadline. The judge took the view that, where a breach was almost certain, there was no need for the court to wait. There was a further twist: the key defendant was clearly at fault for not yet having mobilised so as to deliver the new parking places. But the Court said that it would approve an order drawn up by the parties giving extra time beyond the deadline, as long as (a) enough temporary car parking spaces could be found elsewhere; and (b) this defendant paid damages for being late. When then, might a court be persuaded to make an order requiring rectification work from a builder? Here we meet what is often described as a difference of approach between common law jurisdictions and those belonging to, or influenced by, the civil law tradition, like Scotland.235 Should requiring a contracting party to perform (including remedying earlier defective performance) be one of the ordinarily available remedies, or should it 229 Di Blasio (n 226) [46]. 230 The Owners – Strata Plan 89041 v Galyan Pty Ltd [2019] NSWSC 619 [21]. Added in 2014, the Home Building Act 1989 (NSW) s 18BA introduces specific rules about mitigation, relevant to a claim under one of the statutory warranties; these include provisions about giving the builder access. 231 Note that statute may give a regulator power to make ‘a rectification order’ against a builder (functionally equivalent to an order for specific performance, though not necessarily with the same high-profile sanctions): see section [3.7.7]. Statute may also give a consumer a power to require rectification, with additional possibilities in reserve if the supplier fails to comply at all, or in a reasonable time, as with the ‘right to repeat performance’ under the CRA 2015 (UK) ss 55–56: see section [4.9]. 232 For examples of cases where specific performance has been ordered, in the US as well as English law, see Howard L Oleck, Specific Performance of Builders’ Contracts (1952) 21 Fordham Law Review 156. 233 See Lord Hoffmann’s speech – with which all other Law Lords concurred – in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 (HL). For the court being brought in to supervise execution of an undertaking to the court to do repairs, see Stratton v Patel [2016] EWHC 2032 (TCC). 234 Airport Industrial GP Ltd v Heathrow Airport Ltd [2015] EWHC 3753 (Ch). 235 On Scotland, see section [4.16.3].

190  Contract Law in Residential Construction be exceptional?236 In English law, like most remedies derived from now distant equitable origins, such an order against a builder will not be even semi-automatic; it will be made only where the court considers that an award of damages on any of the accepted bases would not be adequate. An English Court of Appeal authority, showing greater willingness to consider making such an order, puts the question differently: ‘Is it just, in all the circumstances, that a plaintiff should be confined to his remedy in damages?’237 Assessing whether this is so brings in a judicial discretion, exercised according to ‘settled practice’ deriving from case law: another hallmark of this kind of remedy. Unfortunately, there are few case law examples, though many claimants in breach of contract cases against builders or developers request specific performance in tandem with a claim for damages. As in Airport Industrial, the only well-known example arose out of a lease and a repairing covenant it contained – not a ‘pure’ construction contract, but directly relevant to construction defects in a development where owners have long leases (or even short tenancies) from a landlord.238 This lack of reported cases in which specific performance was actually ordered may not be significant. Most defect cases, whatever the cause of action, will settle ahead of trial; and many which do go before a judge or tribunal will involve a builder who is happy to agree to do whatever rectification work is ordered, as a cheaper option than paying damages, the claimant being equally content with that outcome. In such a setting, whether an order for a specific performance could or should be made will not be a live issue: the court is not likely to object to a form of order agreed between the parties. One key which should open the door to specific performance is where the construction site is not, no longer, or not completely, owned by the claimant, nor one to which they have reliable access. This fulfils one of the settled conditions for the grant of specific performance in a construction context: ‘the defendant is in possession of the land so that the claimant cannot employ another person to build without committing a trespass’.239 Conversely, a claimant who wants specific performance may have to show that the defendant builder will have unproblematic access to the parts of the building where work is needed (which may mean already having the consent of other residents or of the block’s new freeholder).240 236 Art 9:102 of the Principles of European Contract Law (n 10) attempts a compromise, making a right to performance the starting-point, but listing situations where it will not be available, damages then being available under art 9:103. 237 Sachs LJ in Evans Marshall & Co Ltd v Bertola SA [1973] 1 All ER 992, 1005–06; applied in a construction context by Ramsey J in Liberty Mercian Ltd v Cuddy Civil Engineering Ltd [2013] EWHC 4110 (TCC). 238 Jeune v Queens Cross Properties Ltd [1974] Ch 97, 101C: ‘in a case such as the present where there has been a plain breach of covenant to repair and there is no doubt at all what is required to be done to remedy the breach, I cannot see why an order for specific performance should not be made’ (Pennycuick V-C). There are suggestions that judges in Australia may be open to awarding specific performance in appropriate circumstances, though little guidance about what those might be. In Ippolito v Cesco [2020] NSWSC 561, Ball J noted at [65] that the Home Building Act 1989 (NSW) s 48MA seems to indicate a preference for specific performance over awarding compensation. For specific performance of landlords’ statutory obligations in the rented sector in E&W, see section [11.4.3]. 239 John McGhee (ed), Snell’s Equity, 33rd edn (London, Sweet & Maxwell, 2015) [17-017]; Morgan J made the same point in Airport Industrial v Heathrow (n 234) [115]. As this suggests, if the developer has parted with the freehold of a block before a defects claim is made, the developer may be able to resist any courtimposed obligation to do further work on ‘the common property’. In such a scenario, the way forward for flat-owners is very unclear: see section [11.5]. 240 See Downer Construction (New Zealand) Ltd v Silverfield Developments Group Ltd: the main text to n 433.

Remedies for Breach of Contract  191 Where an order for specific performance (or a mandatory injunction) is in the frame, the court or tribunal will want to know that the order asked for does not expose the builder or developer unfairly to what the House of Lords has called the ‘heavy-handed’ sanctions for contempt of court: an unlimited fine (supported by the right to seize the defendant’s assets via sequestration) or committal to prison.241 So the terms of a proposed order requiring the defendant to undertake further work must be framed with adequate precision – but this should be no more demanding than the parties themselves would expect, if they agreed the terms of a settlement that included rectification work. The aim here is to avoid a situation where the parties have to co-operate (having, by definition, already fallen out) or one leading to repetitive further court hearings to decide whether the obligations in the order (eg, ‘to reach practical completion’) have been carried out.242

4.12.3  Damages for Defective Residential Construction Work This chapter’s earlier sections considered how quality-related terms in a contract might arise.243 Where they do, the general principle – applicable to breach of any term of a contract – is that a right to damages accrues on such a breach.244 English law holds that if the other party does not perform one of its primary obligations (to do work), and if the situation does not fall into the unusual category of case where the law will enforce actual performance, then a secondary obligation to pay damages to the innocent party comes into existence: equivalent to performance, and an adequate remedy.245 If a claimant wants to recover more than nominal damages for such a breach (a symbolic £1, €1 or $1), they need to prove their loss.246 This leads to the issue here: if the parties have not agreed in advance what the recoverable loss is for the breach in question (liquidated damages, discussed in section [4.12.4]), what legal principles apply in order to calculate the amount in money (the ‘quantum’) which will be recoverable (unliquidated damages)? This assumes that the claimant can show that their loss is caused by the defendant’s breach of contract.247 More than 170 years after Baron Parke said that a claimant ‘is, so far as money can do it, to be placed in the same situation … as if the contract had been performed’, his

241 Lord Hoffmann in CIS v Argyll Stores: n 233. In English law, pt 81 of the Civil Procedure Rules governs issues of contempt of court; there is also copious English case law on the principles applicable to sentencing in contempt cases: see, eg, Financial Conduct Authority v McKendrick [2019] EWCA Civ 524, [2019] 4 WLR 65 and Oliver v Shaikh [2020] EWHC 2658 (QB). 242 See Xiamen Xinjingdi Group Co Ltd v Eton Properties Ltd [2020] HKCFA 32. 243 See, especially, sections [4.7]–[4.8]. 244 See, eg, Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 (HL) 829. 245 Morris-Garner v One Step (Support) Ltd [2018] UKSC 20, [2019] AC 649 [35] (Lord Reed, with whom Lady Hale, Lord Wilson and Lord Carnwath concurred). The Principles of European Contract Law (n 10) use almost the same words in art 9:502. 246 See, eg, Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 (HL) 366. 247 On causation, see the often quoted Judge Newey QC in Board of Governors of the Hospital for Sick Children v McLaughlin & Harvey plc (1987) 19 Con LR 25 (OR) 96: ‘However reasonably the plaintiff acts, he can only recover in respect of loss actually caused by the defendant. If, therefore, part of a plaintiff ’s claim does not arise out of the defendant’s wrongdoing, but is due to some independent cause, the plaintiff cannot recover in respect of that part’. For a B2B case where the claim was for more than £3m but on causation grounds produced an award of only £2,000, see Beattie Passive Norse Ltd v Canham Consulting Ltd [2021] EWHC 1116 (TCC).

192  Contract Law in Residential Construction statement remains the starting-point for answering this question.248 Underpinning that approach are (at least) two ideas. The first focuses on what is always referred to as the ‘expectation measure’: damages seek to bridge the gap between what the party was expecting to gain from the contract and the diminished outcome they received because of the breach. The second is bound up in the ‘so far as money can do it’ qualification. Contract law is adept at calculating compensation for actual economic loss (‘special damages’) – not only those directly caused by construction defects, but also consequential on those defects (like the cost of having to move out while rectification work is done, or having to accept a reduced rent from a tenant whose life has been or will be disrupted). However, judges have traditionally been reluctant to give compensation for intangible non-pecuniary matters (‘general damages’), such as the disappointment and distress felt by homeowners in the face of work they regard as defective.249 When it comes to assessing the quantum of ‘special damages’ available for defective construction, it is worth bearing in mind that rectification – that is, fixing the work so that it achieves the contractually agreed outcome – tends to be substantially more expensive for the losing defendant than doing the job properly the first time: a fact that ought, more often than it does, to encourage ‘the builder’ to do better at the first attempt. The extra cost is especially striking where original work needs to be demolished and redone. In the seminal Australian case on rectification, Bellgrove v Eldridge, the original contract value of building the house was £3,500, but the homeowner was awarded £4,950 to demolish and rebuild it.250 The legal position in England & Wales is relatively settled: the cost of rectification is the default measure of damages, subject to qualifications around the reasonableness of the work to be carried out.251 The leading case in the residential construction context remains Ruxley Electronics and Construction Ltd v Forsyth.252 Mr Forsyth had a swimming pool built next to his house in the Kent market town of Cranbrook, south-east of London.253 The agreement with the builder (trading as Home Counties Swimming 248 Robinson v Harman (1848) 1 Ex 850, 154 ER 363, 365. Recent confirmation that this passage remains the starting-point comes from Leeda Projects (n 109) [136] (McLeish JA). 249 It is well established that damages may be awarded for distress caused by a breach of covenant by a landlord, as by a breach of contract generally; but that this is exceptional: Watts v Morrow [1991] 1 WLR 1421 (CA) 1445 (Bingham LJ), discussed in Farley v Skinner (n 46). It seems necessary to show that ‘peace of mind’ (or equivalent) was one of the objectives of the contract, or (in a tenancy case) that the landlord’s ‘covenant for quiet enjoyment’ has been violated: McCall v Abelesz [1976] 1 QB 585 (CA) (Lord Denning MR). In a residential context this may be easy, as it was for ‘diminution of pleasure’ for Mr Forsyth in relation to his swimming pool in Ruxley Electronics v Forsyth: n 246. As Mr Forsyth’s £2,500 in damages shows, under this non-pecuniary head a court’s award will be ‘not excessive, but modest’, bearing in mind that having to deal with a breach of contract (or covenant) affecting your home is stressful for everyone: Perry v Sidney Phillips & Son [1982] 1 WLR 1297 (CA) 1303A (Lord Denning MR). For an English example against a developer for breaches of contract unremedied for up to 10 years, see Hunt v Optima (n 101) [256]ff; from NZ, see Grant v Ridgway Empire: the main text to n 31. For third-party warranties and claims for distress, see section [7.2.9]. 250 Bellgrove v Eldridge [1954] HCA 36, (1954) 90 CLR 613, 614. Until 1966, when dollars were adopted, Australian currency was based on the pound: since the passage of the Australian Notes Act (Cth) in 1910, that of the Commonwealth of Australia; prior to that, those issued by various colonial banks. See also section [4.13.5]. 251 See, eg, Solène Rowan, ‘Cost of Cure Damages and the Relevance of the Injured Promisee’s Intention to Cure’ (2017) 76 Cambridge Law Journal 616. 252 Ruxley Electronics v Forsyth: n 246. 253 The facts are taken primarily from Lord Lloyd’s speech at [1996] 1 AC 344, 361–3. Further insights into the case’s background come from Ian Duncan Wallace, ‘Cost of Repair or Diminution of Value: An Intermediate Measure? (Or, the Too Shallow Deep End and How Both Sides Lost)’ (1996) 13 International Construction Law Review 338.

Remedies for Breach of Contract  193 Pools) was that the deep end would be 7 feet 6 inches deep (2,286 mm). The first pool, built by a subcontractor, cracked, so the builder replaced it free of charge, then started proceedings against Mr Forsyth to recover the amount owed (later agreeing a £10,000 price reduction to compensate Mr Forsyth for disturbance during the rebuilding). Three days into the trial, Mr Forsyth amended his defence and counterclaim to argue, for the first time, that the deep end of the pool was only 6 feet 9 inches deep (2,057 mm) – nine inches (229 mm) shallower than had been agreed.254 The trial judge awarded Mr Forsyth £2,500 for loss of amenity (the diminished pleasure from the pool being not as deep as expected) but dismissed his counterclaim of £21,500 for the cost of rebuilding the pool. By a majority, the Court of Appeal allowed Mr Forsyth to recover damages representing that cost.255 The House of Lords disagreed, restoring only the modest £2,500 award at trial. The Law Lords thus confirmed the possibility of recovery in contractual damages for non-pecuniary loss as a third – but exceptional – measure of damages in defective work claims.256 They also provided guidance on the circumstances in which the other two measures – rectification and diminution in value – would apply. Lord Mustill characterised these as examples of a single means of establishing the quantum – ‘namely, the loss truly suffered by the promisee’ – observing that other measures may apply in appropriate circumstances.257 As an example, an award of damages for the cost of rectification may be accompanied – subject, as always, to adequate evidence – by an award for ‘stigma’, which may well apply to many residential tower blocks after their combustible cladding has been replaced: [A] court may award damages representing residual diminution in value following completion of remedial works to reflect any ongoing difficulty in selling a property or realising the market value it would have commanded if the defects had never existed.258

Back in Ruxley v Forsyth, Lord Lloyd emphasised the central importance of reasonableness in selecting the appropriate measure of damages: If reinstatement is not the reasonable way of dealing with the situation, then diminution in value, if any, is the true measure of the plaintiff ’s loss. If there is no diminution in value, the plaintiff has suffered no loss. His damages will be nominal.259

That reinstatement (in this book, usually called ‘rectification’) was not reasonable came from the fact that the pool was still usable as such, even for diving: it fulfilled its intended function, even if some aspects failed to meet the agreed contractual specification; and the

254 Individual Law Lords gave different figures for the shortfall; happily, this does not affect the outcome or the reasoning. 255 Ruxley Electronics and Construction Ltd v Forsyth [1994] 1 WLR 650 (CA). Duncan Wallace (n 253, 342) pointed out, however, that Mr Forsyth claimed the cost of rectification as £33,800. 256 See, generally, Ewan McKendrick and Katherine Worthington, ‘Damages for Non-Pecuniary Loss’ in Nili Cohen and Ewan McKendrick, Comparative Remedies for Breach of Contract (Oxford, Hart Publishing, 2005) 305–06. 257 Ruxley Electronics v Forsyth (n 246) [35]. 258 Naylor v Roamquest Ltd [2021] EWHC 567 (TCC) [46] (O’Farrell J), relying on Strange v Westbury Homes (Holdings) Ltd [2009] EWCA Civ 1247 [15]–[17] (Dyson LJ) and Rendlesham Estates plc v Barr Ltd (n 101) [290]–[297] (Edwards-Stuart J). On Rendlesham v Barr, see also section [5.10.3]. 259 Ruxley Electronics v Forsyth (n 246) [77].

194  Contract Law in Residential Construction diminution in value (residual, as well as immediate) was indeed zero.260 In so holding, Lord Lloyd referred to the Australian High Court decision in Bellgrove.261 This linkage provides a prominent example of the interplay (and strong similarity) between English and Australian case law in this area. However, as explained in section [4.13.5], Australian courts have laid down additional principles, especially on what ‘reasonableness’ requires.

4.12.4  Liquidated Damages We have already suggested that proving a claim for damages for breach of a contractual term, according to general principles, can be a difficult and highly contested exercise. Not only are there potential ‘hurdles’ to recovery, but there is also the question of how a judge, tribunal or other decision-makers will calculate the amount of damages for a breach involving defective building work, often presented with wildly differing estimates by the two sides of what is needed and how it translates into money. To avoid such expensive debates, parties to construction contracts frequently consider that it makes good business sense to provide instead for liquidated damages (LDs) (sometimes called ‘liquidated and ascertained damages’), often by using a published standard form contract including such provisions.262 Parties adopting this approach are relying on two principles: 1 2

The claimant (construction employer) is entitled to recover LDs in accordance with the contractual mechanism, even where its actual losses in the circumstances are less than the amount available as LDs, or even no loss at all;263 and Where enforceable, LDs impose a limit on the employer’s right of recovery: they set a cap on damages for that event such that, absent a contrary intention reflected in the contract, the claimant cannot claim compensation at general law for its losses, even if they exceed the applicable LDs.264

The second can represent a ‘double-edged sword’ for a claimant if the contract specifies a minimal rate. In Onethree Pty Ltd v Seaman, for example, the right to damages for late completion was a mere A$1.00 per day.265 260 Some judges in Ruxley (eg Lords Bridge and Jauncey) suggested an opposition between ‘function’ and ‘aesthetics’, suggesting that the wrong colour of bricks in a decorative course might lead to a small award for loss of pleasure (in part because there ought to be some remedy for a breach of contract), but not to recovering the cost of rebuilding the whole wall. However, aesthetics can go to a building’s capital value and ability to generate income too. For a case where the TCC required a form of rectification whose aim was in part to restore the aesthetic appearance of the building as designed (relevant to its ‘iconic’ status as a hotel), see Blue Manchester Ltd v North West Ground Rents Ltd [2019] EWHC 142 (TCC), 182 Con LR 59 and [2020] EWHC 2777 (TCC), discussed at section [11.5.3]. 261 Bellgrove v Eldridge (n 250). 262 This phrase comes from Robophone Facilities Ltd v Blank [1966] 1 WLR 1428 (CA) 1447 (Diplock LJ). This section includes material previously published in Matthew Bell and Richard J Manly, ‘Liquidated Damages and the Doctrine of Penalties: Rethinking the War on Terrorem’ [2012] International Construction Law Review 386. 263 See, eg, BFI Group of Companies Ltd v DCB Integration Systems Ltd [1987] CILL 348. That LDs may be recoverable where there is no provable loss does not necessarily apply beyond this book’s subject jurisdictions, notably in Malaysia and the Middle East. 264 Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933] AC 20 (HL). 265 Onethree Pty Ltd v Seaman [2018] NSWCATCD 83. For the impact of failing to enter any figure for LDs in the contract, see ch 3, n 163. Whether LDs do in fact constitute an exclusive remedy for the specified events

Remedies for Breach of Contract  195 LD clauses take various forms, using a range of terminology, but the essential elements are that an entitlement to a specified amount of money crystallises on the occurrence of a specified event.266 Thus, the Housing Industry Association’s New Homes Victoria standard form contains what is in effect an LD clause, though using the term ‘agreed’, rather than ‘liquidated’: If the Building Works have not reached Completion by the end of the Building Period the Owner [Employer] is entitled to agreed damages in the sum set out in Item 9 of Schedule 1 for each week after the end of the Building Period to and including the earlier of: ○ the date the Building Works reach Completion; ○ the date this Contract is ended; and ○ the date the Owner takes Possession of the Land or any part of the Land.267

This is a typical LD provision for a breach of contract deriving from late completion: • The occurrence which triggers the employer’s entitlement to LDs (accruing weekly – the default under Schedule 1 is A$250) is that the works have not reached ‘Completion’ (as defined in clause 1) at the end of the ‘Building Period’. • That period is adjustable via the contract’s own extension of time regime. • The clause’s overall effect, therefore, is that LDs will accrue from the adjusted date on which ‘the builder’ was required to achieve completion until the works in fact achieve completion (unless the contract is terminated, or the owner takes possession, earlier than the completion date). When the contract is formed, the benefit of the upfront certainty which such a clause supplies may be obvious and acceptable. However, when construction risks place the stipulated completion date in jeopardy, the builder may find that even a modest daily rate of LDs leaves them vulnerable to a substantial total claim.268 They may then challenge the legal enforceability of the LDs: if this is successful, the employer will have to depends on interpreting the particular contract, so a given case may swing either way. In Cappello v Hammond & Simonds NSW Pty Ltd [2020] NSWSC 1021 Ball J found that LDs (A$1.00 per working day again, the default under the HIA standard form used) were not an exclusive remedy, in part because if the clause limited the available damages it would be void under the Home Building Act 1989 (NSW) s 18G: see n 344. 266 The focus here, as in most construction law texts, is on liquidated damages for failure by ‘the builder’ to achieve the time stipulations in the contract. However, LD clauses may be applicable to any breach: eg, in engineering process plant contracts, they commonly apply to failures by the completed plant to produce the specified output. In Australia, the penalties doctrine may apply to circumstances beyond breach of contract: Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30, (2012) CLR 205. The UK Supreme Court expressly rejected such an expansion in English law, regarding it as a ‘radical departure from the previous understanding’: Cavendish Square (n 200) [41] (Lords Neuberger and Sumption). The Singapore’ Court of Appeal and New Zealand Supreme Court have similarly declined to embrace this expansion beyond breach: Denka Advantech Pte Ltd v Seraya Energy Pte Ltd [2020] SGCA 119 [99]; 127 Hobson Street Ltd v Honey Bees Preschool Ltd (n 279) [56]. 267 HIA New Homes Victoria Contract cl 40. Words in bold are defined terms in the form (emphasis in original). 268 For example, a road building contract with LDs of A$8,000 per day resulted in a potential (and ultimately upheld) liability of approximately A$1.8m when the delay ran to seven months: see State of Tasmania v Leighton Contractors Pty Ltd (2005) 15 Tas R 243, 245 (Slicer, Evans and Tennent JJ). Alternatively, the LD clause could impose a ceiling on the LDs payable of a percentage of the total contract sum, as in Global Switch Estates 1 Ltd v Sudlows Ltd [2020] EWHC 3314 (TCC); or there could be a contractual cap on damages across all (or specific parts) of the contract, as in Triple Point Technology Inc v PTT Public Company Ltd (n 85). For a further example, see section [4.8.2].

196  Contract Law in Residential Construction prove its legally recoverable actual loss in accordance with the general law.269 Research about residential construction projects in New Zealand identifies the financial consequences of ‘the builder’ not meeting a completion date as a type of dispute over final cost occurring in 23.5 per cent of cases reported.270 At least conceptually, there are many grounds on which the enforceability of LDs may be challenged; a claimant is free to argue a combination of these, where circumstances permit. Four of them are: The LD provisions are ineffective because they are statutorily unfair contract terms; As a matter of construction, the circumstances of default fall outside the provision, or the term is void for uncertainty; 3 The prevention principle applies in the circumstances, reducing or eliminating the claimant’s right to damages;271 or 4 The penalties doctrine applies, making the LD provisions unenforceable. 1 2

The availability of a challenge on Ground 1 is outlined in section  [4.10]. Ground 2 will turn on the specific terms and their meaning in the particular contract.272 As for Ground 3, the principle was summarised by McColl JA in the NSW Court of Appeal: The prevention principle may preclude an owner recovering liquidated damages for delay in the completion of works by the contractor where that delay has been caused by an act or omission of the owner in breach of the contract. This is because, if it applies, the contractual date for practical completion ceases to be the proper date for the completion of the works and, if there is no contractual mechanism for the substitution of a new date in the events which have occurred, then there is no date from which liquidated damages can run and the right to liquidated damages will be lost. In other words, the time for performance is ‘at large’, although it should be undertaken within a reasonable time.273

This potentially dire impact on a construction employer – loss of all LDs – emphasises how important it is for a residential construction contract to include robust provisions allowing for extensions of time, where the employer has delayed ‘the builder’; and that these are properly administered. This is another argument against relying on ‘goodwill’ or a ‘handshake’ and in favour of carefully selecting a published standard form contract (where there is scope to do so). Such a contract should protect not just the construction employer against the builder’s culpable lateness, but also the builder against the financial consequences of being delayed in fact by the employer, even where this party may not be in breach of contract.274 269 See n 265 and its main text. 270 Nick Brunsdon and Orin Lockyer (n 74) 12–13. 271 See n 110 and its main text. 272 This argument was successful in, eg, Arnhold & Co Ltd v Attorney General of Hong Kong (1990) 47 BLR 129, (1989) 5 Const LJ 263 (HKHC). 273 Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151, (2017) 95 NSWLR 82, 110 (Beazley ACJ and Macfarlan JJA agreed with McColl JA). For its part, the Victorian Court of Appeal considered the prevention principle (including its jurisprudential basis) in a unanimous judgment in Bensons Property Group Pty Ltd v Key Infrastructure Australia Pty Ltd [2021] VSCA 69. In the English law context, perhaps the most important judicial treatment of the scope of the principle was by Coulson LJ (Sir Terence Etherton MR and Sir Ernest Ryder concurring) in North Midland v Cyden Homes: n 110. 274 See, eg, the RIBA Domestic Building Contract 2018, where cl 10.1 provides for LDs (the daily amount is for the parties to insert in the Contract Details); but cl 9 provides for the original completion date to be ‘revised’

Remedies for Breach of Contract  197 By far the most common challenge relies on Ground 4: the penalties doctrine. The basic principles in all our subject jurisdictions derive from Lord Dunedin’s summary of the law in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd in 1914.275 He identified and described four ‘authoritative’ propositions for the guidance of courts concerning the doctrine of penalties.276 These included (propositions 2 and 3): The essence of a penalty is a payment of money stipulated as in terrorem of the offending party [inducing it to change its behaviour by a threat]; the essence of liquidated damages is a genuine covenanted pre-estimate of damage … The question whether a sum stipulated is a penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the making of the contract, not at the time of the breach.277

He went on to note various tests ‘to assist this task of construction, which if applicable to the case under consideration may prove helpful, or even conclusive’. These included that it ‘will be held to be a penalty if … the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach’.278 The suite of considerations laid down by Lord Dunedin has not stood still. The modern focus compares the outcome from application of the LDs not simply against the monetary loss but looks – potentially more broadly – at whether the clause offers a form of protection for a ‘legitimate interest’ of the harmed party which is not extravagant, exorbitant or unconscionable. Encouraging the actual performance of the contract is a legitimate interest for these purposes. So concluded the judgments from a seven-judge panel in the leading English Supreme Court case, Cavendish Square v El Makdessi, with its linked case ParkingEye Ltd v Beavis.279 In this second case, the Court upheld the right of the manager of a shopping centre car park, ParkingEye, to charge Mr Beavis £85 for parking his car in the car park in Chelmsford for longer than the two hours’ free parking offered. This was largely on the (ie extended) on a number of grounds, including delay or disruption by the client. The FMB Domestic Building Contract contains no provisions for damages for loss caused by the builder’s lateness, which must be claimed as special damages for breach of contract at common law; but cl 24 provides for ‘extending the contract period’ for reasons including prevention by the client. 275 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 (HL). All continental jurisdictions start, like English law, by recognising the enforceability of contractually agreed payments due on breach as replacing a right to damages, but some Civil Codes empower the court to reduce the amount payable if this is ‘manifestly excessive’ in relation to the claimant’s actual loss – greater flexibility than under the English ‘all or nothing’ doctrine: see Principles of European Contract Law (n 10) art 9:509. For similar proposals in relation to Scots law, see n 458. For more detail on individual jurisdictions and LDs in a construction context, see European Society of Construction Law, Studies in European Construction Law (ESCL, 2015) (Q8.1.8 in each national report). 276 Dunlop v New Garage (n 275) 86. 277 Dunlop v New Garage (n 275) 86–87. 278 Dunlop v New Garage (n 275) 87. 279 Cavendish Square v El Makdessi (n 200) [32] (Lords Neuberger and Sumption). See, similarly at apex court level: (Australia) Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28, (2016) 258 CLR 525, 554 (Kiefel J); 581 (Gageler J); 595, 612 (Keane J); 627 (Nettle J); (NZ) 127 Hobson Street Ltd v Honey Bees Preschool Ltd [2020] NZSC 53, [2020] NZCCLR 30 [56] (Winkelmann CJ, O’Regan, Ellen France, Williams and Arnold JJ). Singapore’s Court of Appeal has declined to take similar paths towards expansion, preferring to endorse the continued applicability of the guidance laid down in Dunlop v New Garage (n 275): Denka Advantech Pte Ltd v Seraya Energy Pte Ltd (n 266) [151].

198  Contract Law in Residential Construction basis of the Court’s assessment that the centre was seeking by that charge to achieve two commercial objects which it viewed as ‘perfectly reasonable’: managing the efficient use of parking spaces for the benefit of retail outlets and shoppers; and providing the centre with an income stream from which it could make its parking services available.280 For similar reasons, the appellant Mr Beavis also failed in his separate argument that the charge was invalid as an unfair term in a B2C contract, claiming that it fell under this item in the 1993 Directive’s ‘Grey List’: ‘requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation’.281 Lord Toulson alone would have allowed this part of the appeal.282 The relevance of the penalty doctrine to the specific problem of private parking systems may be alleviated in England, Wales and Scotland by a new Code of Practice.283

4.12.5  A Counterclaim by ‘The Builder’ Residential construction employers need to be aware that their behaviour may expose them to counterclaims by ‘the builder’, especially where they put at risk the builder’s primary interest in the project: finishing it and getting paid for doing so. In the context of construction projects, one of the most complicated types of claim arises where ‘the builder’ has provided valuable works or services to the employer but there is no contract under which the builder can recover money (compensation, not damages) for that work. In these circumstances, the law of restitution – in this case, for unjust enrichment of the employer – may allow ‘the builder’ a reasonable sum (or quantum meruit), thus filling a gap left by the law of contract.284 Restitution in this guise and its relationship with contract law stretches back several centuries, but remains highly contested in both doctrine and debate.285 The case law and commentary are replete with statements illustrating this tension: The general rule should be to uphold contractual arrangements by which parties have defined and allocated and, to that extent, restricted their mutual obligations, and, in so doing, have

280 Cavendish Square v El Makdessi (n 200) [98] (Lords Neuberger and Sumption). 281 The Grey List item 1(e): now the CRA (UK) sch 2, pt 1, item 6. 282 On unfair contract terms under the 1993 Directive, see section [4.10]. A similar result was reached in Scotland in the Dundee Sheriff Court: ‘Nurses Ordered to Pay Private Parking Charges at Hospital’ BBC News (19 September 2017). 283 In August 2020 the UK government announced consultation on a new Parking Code of Practice and Framework under the Parking (Code of Practice) Act 2019 (E&W, Scotland). It would impose a maximum cap on parking fines, a 10-minute grace period before a late fine can be issued and a requirement for parking firms to clearly display pricing and terms and conditions, as well as offering wider possibilities for challenging fines on appeal. As long as a parking system complies with the new Code of Practice and thus has statutory status, this will make it impossible to challenge its rules as unfair: see n 186. Echoing the approach of the common law, in March 2021 the government summary of responses to the consultation said: ‘There was strong support for the principle that the parking charge should be proportionate to the nature of the breach’: www.gov.uk. 284 Literally, ‘the amount deserved’. 285 The current state of play may be gleaned from, eg, Chitty (n 3) ch 29, also Andrew Burrows, The Law of Restitution (Oxford, Oxford University Press, 2011). As Lord Burrows, he was appointed a Justice of the UK Supreme Court in 2020, opening an opportunity for further development in this area. In Australia, the direct parallel is James Edelman and Elise Bant, Unjust Enrichment, 2nd edn (Oxford, Hart Publishing, 2016); James Edelman was appointed a Justice of the High Court of Australia in 2017 and so was on the Bench for the 2019 Mann case (n 290), among other significant private law cases.

Remedies for Breach of Contract  199 similarly allocated and circumscribed the consequences of non-performance. That general rule reflects a sound legal policy, which acknowledges the parties’ autonomy to configure the legal relations between them and provides certainty, and so limits disputes and litigation.286 [U]njust enrichment … constitutes a unifying legal concept which explains why the law recognises, in a variety of distinct categories of case, an obligation on the part of a defendant to make a fair and just restitution for a benefit derived at the expense of a plaintiff.287

In this context, there are two categories of case where builders may recover against homeowners; both parties ought to be aware of these. In Category 1, ‘the builder’ may have a right to reasonable remuneration from the owner where: 1 2 3 4

No applicable contract is in place between the parties; The owner has requested that the work or services be performed (or perhaps has ‘freely accepted’ the services); That work or services confer a benefit on the owner; and The work or services were not done on a gratuitous basis (not intended as a gift).288

In Pavey, for example, the High Court of Australia allowed the builder to recover via unjust enrichment what was in effect a market rate for undertaking a home renovation; there was a contract, but this was unenforceable because it failed to comply with the then NSW statutory requirements for writing, signature and so on.289 Category 2 is where work or services have been delivered under a contract, but that contract has been brought to an end due to the owner’s default (‘wrongful repudiation’), yet the builder continues to perform work or services under it and wishes to recover a reasonable amount. This situation is more difficult to resolve on a principled legal basis because it brings squarely into play the tension between contract and restitution, as illustrated by the High Court of Australia in Mann v Paterson Constructions Pty Ltd.290 The builder, Paterson Constructions, claimed money it regarded as unpaid (mostly relating to variations requested by the owners) arising out of the construction of two townhouses in Melbourne for Mr and Mrs Mann. As often in construction disputes, each party claimed that the other had repudiated the contract; only when the dispute reached the courts (via VCAT) was it established that it was the Manns, through incorrectly asserting that Paterson had done so.291 286 Costello v MacDonald [2011] EWCA Civ 930, [2012] QB 244 [23] Etherton LJ (with whom Patten and Pill LJJ concurred). 287 Pavey & Matthews Pty Ltd v Paul [1987] HCA 5, (1987) 162 CLR 221, 256 (Deane J). 288 For detailed commentary and case law, see, eg, Bailey (n 9) [II.6.46]ff, especially the application of the constituent principles of unjust enrichment in this context. For another possible example in England, see Case Study 6 at section [5.6]. In Australia, this simple framework is complicated by Lumbers v W Cook Builders Pty Ltd [2008] HCA 27, (2008) 232 CLR 635 [90] (Gummow, Hayne, Crennan and Kiefel JJ), which casts doubt over elements 3 and 4. It suggests that there is no need to show a benefit to the owner (perhaps because this is implied by the request for the works or services). More curiously, it also suggests that whether the owner objectively knew that the builder expected to be paid is irrelevant. 289 Pavey v Paul (n 287): the Builders Licensing Act 1971 (NSW) s 45. 290 Mann v Paterson Constructions Pty Ltd [2019] HCA 32, (2019) 267 CLR 560; in NZ, see Electrix Ltd v The Fletcher Construction Co Ltd [2020] NZHC 918. For an English equivalent, though complicated by adjudication, see ICCT Ltd v Pinto [2019] EWHC 2134 (TCC), discussed at section [9.7.5]. 291 For a closely similar English residential example, where the individual employers and builder each claimed that the other had repudiated the contract, see Optimus Build Ltd v Southall (n 70). Judge Stephen Davies held that it was the employers who had wrongfully ended the contract, thus owing damages to the builder (there was no quantum meruit issue).

200  Contract Law in Residential Construction The High Court Justices agreed the starting-point: termination of a contract for repudiation does not rescind the contract ab initio (from the beginning). Rights which have accrued up to the point of termination, in accordance with the contract, remain enforceable (including, potentially, accrued rights to payment).292 They also agreed that, where an uncompleted contract contains an ‘entire’ payment obligation (where payment is due in full only when the entirety of the work is done), the builder will be entitled to a quantum meruit for the work and services provided up to the point of termination, recoverable either in breach of contract or restitution.293 ‘Entire’ contracts are the norm in residential construction projects for low-value work: ‘the builder’ is paid the agreed lump sum for its work (only) when all of it is finished. Conceptually, contracts for more substantial renovations or new builds are likely to be ‘entire contracts’ too. Where a project does include ‘progress payments’ (accruing to ‘the builder’ monthly for work done, or on completing defined stages), these are generally presumed to be payments ‘on account only’ – towards the total lump sum contract price.294 However, in Mann v Paterson Constructions, the Court characterised the arrangement with the Manns as a contract divisible into several ‘entire’ stages, some of which had been completed; for those, Paterson had a right to payment for that work – based on the contract, not restitution.295 The more difficult issue, however – on which the Court was divided – was Paterson’s entitlement in respect of the uncompleted stages.296 Four Justices (a bare majority) maintained the prevailing case law view that ‘the builder’, as the innocent party in the repudiation, had a right of election: it could sue either for breach of contract or for restitution in quantum meruit in respect of the work it had done towards completion of the uncompleted stages.297 Three Justices disagreed: allowing ‘the builder’ the option of claiming a quantum meruit ‘would be to allow [it] a windfall’ inconsistent with the compensatory nature of damages, here grounded in ‘the contract made by the parties as the charter whereby their commercial risks were allocated between them’.298 292 Mann v Paterson Constructions (n 290) [8]–[9] (Kiefel CJ, Bell and Keane JJ); [62] (Gageler J); [165] (Nettle, Gordon and Edelman JJ). 293 Mann v Paterson Constructions (n 290) [26] (Kiefel CJ, Bell and Keane JJ); [67] (Gageler J); [166] (Nettle, Gordon and Edelman JJ). 294 The main text to nn 346–347 describes the default stages of work applicable to payments under the Victorian DBCA s 40, along with the opportunity to modify them by contract (the contract between the Manns and Paterson Constructions used the Act’s default percentages: Mann v Paterson Constructions (n 287) [114] (Nettle, Gordon and Edelman JJ). Bailey (n 9) describes the relevant cases at [6.331]–[6.336]; they suggest, essentially, that whether a construction contract is, in fact, an ‘entire’ contract depends on the intention of the parties, as reflected in the contract’s wording. 295 Mann v Paterson Constructions (n 290) [26]–[27] (Kiefel CJ, Bell and Keane JJ); [177]–[178] (Nettle, Gordon and Edelman JJ). Where under UK law the builder has a statutory right to interim payments (under the Housing Grants, Construction and Regeneration Act 1996), these are certainly ‘accrued rights’ to payment, to which the builder will certainly have a right (if unpaid) on wrongful repudiation by the employer, restitution to that extent being irrelevant. 296 It appears not to have been argued in Mann that progress payments could still mean that the whole contract was ‘entire’: Laina Chan and John Carter, ‘Mann v Paterson Constructions Pty Ltd – New Law for Quantum Meruit Claims in Building Contracts’ (2020) 36 Building and Construction Law 4, 7. 297 Mann v Paterson Constructions (n 290) [61], [78], [105] (Gageler J), [175]–[176], [179] (Nettle, Gordon and Edelman JJ). 298 Mann v Paterson Constructions (n 290) [21] (Kiefel CJ, Bell and Keane JJ).

Contrasts: Australia  201 Thus only the four majority Justices considered in detail the crucial matter of how a quantum meruit might be valued where ‘the builder’ chooses that route. All agreed that the (now repudiated) contract was relevant to that calculation, and compensation was usually to be measured at a reasonable market value for the work or services.299 However, they differed in formulating the applicable principle: Gageler J would let the contractually agreed remuneration cap that valuation, whereas Nettle, Gordon and Edelman JJ wanted to recognise exceptional situations in which it would be unconscionable to restrict recovery to the contractual measure.300 Mann v Paterson Constructions was recognised immediately as significant in the development of construction law in general.301 Clearly, though, it leaves open a number of vital questions that will only be resolved by further judicial or legislative consideration, in Australia and elsewhere. Parties in future projects may seek to avoid the unresolved issues via contract, but the fact that uncertainties about the boundaries between contract and restitution lie at the heart of the matter makes the efficacy of such intervention itself uncertain.

4.13  Contrasts: Australia 4.13.1  General Law of Contract In a 2016 judgment, the then Chief Justice of Australia, Robert French, reflected on the common yet divergent legal heritage of the UK and Australia: [Australia and the UK] have an historical connection that Australia does not have with any other jurisdiction. … The countries of the common law world have a shared heritage which they owe to the unwritten law of the United Kingdom. That shared heritage offers the undoubted advantage, but does not import the necessity, of development proceeding on similar lines. … The common law in Australia is the common law of Australia.302

Australia’s general law of contract matches this observation – judge-made law broadly represents ‘variations on themes’ composed in England, as opposed to the oftenradical departures which characterise Australia’s legislative framework, especially in our field.303

299 Mann v Paterson Constructions (n 290) [92], [107] (Gageler J); [203] (Nettle, Gordon and Edelman JJ). 300 Mann v Paterson Constructions (n 290) [91], [101]–[102] (Gageler J), [215]–[216] (Nettle, Gordon and Edelman JJ). English law has no firm view yet on the impact on the restitutionary remedy of what would have been paid under the contract: Benedetti v Sawiris [2013] UKSC 50, [2014] 1 AC 938. 301 See, eg, the case note by Andrew Stephenson, Jey Nandacumaran and Sophie Lawes at [2020] International Construction Law Review 64; Nicholas Dennys and Robert Clay, Hudson’s Building and Engineering Contracts, 14th edn (London, Sweet & Maxwell, 2020) vii; Michael Christie, ‘Editorial: A Major Recent Legal Landmark’ (2020) 36 Building and Construction Law 3. 302 Paciocco v ANZ (n 279) [2016] HCA 28 [7]–[9]. French CJ was commenting on the divergence in the scope of the penalties doctrine between Australia and the UK: see n 266. See, generally, Patrick Parkinson, Tradition and Change in Australian Law, 5th edn (Thomson Reuters, 2013) pts 2–3. 303 See, eg, the discussion about implied duties of good faith in n 44.

202  Contract Law in Residential Construction

4.13.2  Statutory Warranties The intervention by statute to provide warranties to homeowners (legally enforceable obligations resting on those who undertake construction work) is at the heart of Australia’s residential construction consumer framework.304 Indeed, it is one of the main reasons why Australia has been said to have ‘a fully trained lifesaving patrol on hand’ for the protection of residential building work consumers who get out of their depth, compared to the mere ‘plank in a shipwreck’ offered by the equivalent statute in the UK (minus Scotland), the Defective Premises Act 1972, supported by other non-statutory mechanisms.305 Their impact on Scenario 6 (Table 1.2), where B2 subdivides a plot, commissions a new house to be built and partway through construction sells the new plot and house to B3, is illustrated by Figure 5.2 within chapter 5. The essential elements of the state-based warranty schemes are: 1 A ‘gateway definition’ of contracts to which the warranties apply (under the Victorian DBCA, these are ‘Domestic Building Contracts’);306 2 The terms of the warranties themselves; and 3 The benefit of the warranties ‘running with the building’ – that is, extending to subsequent owners of the dwelling or development, subject to applicable limitation periods.307 Table 4.2 summarises each jurisdiction’s provisions relating to aspects 2 and 3.308 The only state with no equivalent scheme is WA; there, the legislation sets out a non-exhaustive list (with exemptions) of ‘defects’ which the ‘Builder’ is required to rectify, including failures to perform the work in a proper and workmanlike manner, provided that these are notified within four months after practical completion (or any longer period set out in the contract).309

304 The main statutory sources, referred to here and in section  [4.13.4], are: ACT: Building Act 2004 (ACTBA), Building (General) Regulation 2008 (ACTBR); NSW: Home Building Act 1989 (NSWHBA); NT: Building Act 1993 (NTBA), Building Regulations 1993 (NTBR); Qld: Queensland Building and Construction Commission Act 1991 (QBCCA); SA: Building Work Contractors Act 1995 (SABWCA); Tas: Residential Building Work Contracts and Dispute Resolution Act 2016 (TRBWCA), Residential Building Work Contracts and Dispute Resolution Regulations 2016 (TRBWCR); Vic: Domestic Building Contracts Act 1995 (DBCA), Domestic Building Contracts Regulations 2017 (Vic) (DBCR); WA: Home Building Contracts Act 1991 (WAHBCA), Home Building Contracts Regulations 1992 (WAHBCR). 305 Philip Britton and Julian Bailey, ‘New Homes and Consumer Rights: England and Australia Compared’ (2011) 3(3) International Journal of Law in the Built Environment 269, 271. On the DPA, see section [5.10.2]ff. 306 These threshold definitions are crucial, varying significantly between jurisdictions: in Victoria, key exclusions include work between builders and subcontractors, most types of design and residential accommodation for students or prisoners: DBCA ss 4–6; DBCR reg 8. 307 The limitation periods for statutory warranties vary considerably across the states and territories – in many cases shorter than those generally applicable to building actions: see ch 10. 308 This table provides an approximation only of broadly equivalent provisions: the wording and application varies between the states and territories. Under the ACTBA, the warranties apply to contracts for sale of residential buildings, as well as building contracts; under the NSWHBA (s 18BA), persons seeking to have the benefit of the warranties have ‘duties’ as well as rights, including an express duty to mitigate loss. 309 WAHBCA s 11.

Contrasts: Australia  203 Table 4.2  Statutory Warranties under State-Based Australian Schemes ACT

NSW

NT

ACTBA

NSWHBA

NTBA

s 88(2)(b)

s 18B(a)

s 54B(1)(a), (e)

IN ACCORDANCE s 88(2)(b)(i) WITH PLANS AND SPECIFICATIONS

s 18B(a)

s 54B(1)(a)

s 23

MATERIALS GOOD AND SUITABLE, NEW

s 88(2)(c)

s 18B(b)

s 54B(1) (b)–(c)

IN ACCORDANCE WITH LAWS

s 88(2)(a)

s 18B(c); sch 2 ss 2(1),4(1)

REASONABLE s 88(2)(d) CARE AND SKILL, ON TIME SUITABLE FOR OCCUPATION

LEGISLATIVE SOURCE310

Qld

SA

Tas

Vic

QBCCA SABWCA TRBWCA sch 1B

DBCA

ss 20, 22 s 32(2)(a)

ss 23, 25

s 8(a)

s 32(2)(a)

s 27

s 8(a)

s 20

s 32(2)(b)

s 23

s 8(b)

s 54B(1)(d)

s 21

s 32(2)(c)

s 24

s 8(c)

s 18B(d)

s 54B(1)(e), (f)

s 25

s 32(2)(d)

s 29 (diligence, not time)

s 8(d)

–

s 18B(e)

–

s 24

s 32(2)(e)

s 28

s 8(e)

s 88(2)(e)

s 18B(f)

–

s 20

s 32(2)(f)

s 23

s 8(f)

PROVISIONAL SUMS CALCULATED WITH REASONABLE CARE AND SKILL

–

–

–

s 26

–

–

s 20

‘RUN WITH THE BUILDING’

s 88(3)

s 18D

ss 54AD (‘current owner’), 54BB

s 27

s 32(4)

s 31

s 9 (s 8 warranties only)

WARRANTIES: PROPER AND WORKMANLIKE MANNER/DUE CARE AND SKILL

FIT FOR SPECIFIED PURPOSE

Also relevant is the Australian Consumer Law: this provides nationally applicable ‘consumer guarantees’ in respect of ‘goods’ and ‘services’ (each as defined, and the latter potentially including construction work).311 The regime has been characterised as

310 The acronyms for these statutory and other measures are explained in n 304, as well as in the List of Abbreviations at the start of the book. 311 ‘Services’ is broadly defined to include ‘any rights …, benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce … [including those under] a contract for or in relation to the performance of work (including work of a professional nature), whether with or without the supply of goods’: ACL s 2. The definition of ‘Goods’ is by way of a non-exhaustive list.

204  Contract Law in Residential Construction creating statutory duties rather than implied terms; it is the subject of a complex series of gateways, primarily that the supply is to a ‘consumer’ (as defined).312 The guarantees include: • In respect of goods, that they: • are of ‘acceptable quality’ (section 54)313 • are fit for their stated purpose (section 55) • correspond with their descriptions or samples, where sold on the basis of such descriptions or samples (sections 56, 57) • will have repair and spare parts reasonably available (section 58) • comply with applicable express warranties (section 59).314 • In respect of services, that they will be fit for their stated purpose (sections 55, 61). The statutory warranties under the residential building legislation (in those states and territories where they apply) and ACL are a staple of residential construction claims against ‘the builder’ in Australia. The case on liability arising from the Lacrosse building cladding fire in Melbourne illustrates their potency. The inclusion of the DBCA section 8(b), (c) and (f) warranties in the contract between the developer and builder at the Lacrosse tower, and their extension to subsequent apartment owners via section 9, was the bedrock on which the builder’s liability to the owners was founded, for around A$12m in rectification and other damages.315 Woodward J devoted relatively little of his approximately 150-page judgment to the central issue of the builder’s liability, apparently on the basis that the builder advanced no firm argument against its liability under those warranties. Reflecting the conception of these warranties as being akin to strict liability, the judge noted that failure to mount a substantive defence was ‘not surprising’ because ‘there is none’.316 To found the breach of the section 8(b) warranty, for example, the judge accepted that the ACM panels ‘were obviously not good or suitable for the purpose of being used in the external walls of a high-rise residential building such as Lacrosse’; similarly, he found that section 8(c) was breached by the builder because there was no pathway under the Building Code of Australia in which the panels could be compliant.317 312 See the discussion in JW Carter and Laina Chan, Contract and the Australian Consumer Law (Sydney, Federation Press, 2019) 19–21. Because the definition revolves around the type and value of goods and services being supplied, rather than the personality of the ‘consumer’, it can include supplies to corporations. 313 Defined in ACL s 54(2), including that the goods are fit for purpose, acceptable in appearance and finish, free from defects, safe and durable, each to the standard expected by a reasonable consumer. 314 ACL s 59. 315 See Owners Corporation No 1 of PS613436T v LU Simon Builders Pty Ltd [2019] VCAT 286 (‘PS613436T’), discussed in section  [2.6]; the most relevant passages of the judgment include [48]–[52] and [282]–[292]. This aspect was undisturbed on appeal: Tanah Merah Vic Pty Ltd v Owners’ Corporation No 1 of PS631436T [2021] VSCA 72. For another example of the statutory warranties in action, see Janbar Pty Ltd v Arborcrest Pty Ltd [2020] FCA 1519, where the builder’s liability for defects ultimately hinged on a breach of the fitness for purpose warranty in the SABWCA s 23(2)(f): see White J’s conclusion at [596]. This is the equivalent in SA of the warranty in DBCA s 8(f). See also Oikos Constructions Pty Ltd v Ostin [2020] NSWCA 358, illustrating that the NSW statutory suitability for occupation warranty (which includes a qualification absent in other states’ equivalent warranty) may not assist a subsequent purchaser where the scope of work taken on by the defendant builder was not expressly directed to achieving a dwelling free of water penetration. 316 PS613436T (n 315) [284], referring at [285] to Barton [2006] VSC 307 (n 98) [33], [37] for the proposition that the warranty of fitness for purpose was absolute. 317 PS613436T (n 315) [290]–[291]. For an example of the evidentiary issues involved in proving a breach of the warranties relating to fitness for purpose and statutory requirements, see Janbar (n 315) [328]–[382].

Contrasts: Australia  205 The overall habitability warranty also is noteworthy when compared with the provisions in the Defective Premises Act 1972 (E&W, NI).318 In contrast to the DPA, this provision explicitly extends to renovations and other alterations. On the other hand, there is no ambition to saddle ‘the builder’ with whole-life responsibility (other than to the extent of residual liabilities arising from the state of the construction at completion): the builder’s responsibility to achieve a habitable state expressly looks only at the point where the work is completed.

4.13.3  Challenging Unfair Contract Terms The Australian unfair contract terms regime is in the Australian Consumer Law, so its application is broadly uniform across the country.319 Its provenance is largely the UK scheme before the enactment of the CRA in 2015.320 Its key provision is section 23(1), which renders a term of a contract void if it is ‘unfair’ within the meaning of section 24. The relevant contract must be in a standard form and either a ‘Consumer Contract’ or ‘Small Business Contract’.321 A similar regime, via equivalent unfair contract terms provisions in the Australian Securities and Investments Commission Act 2001 (Cth), is expected to apply to many types of insurance contracts, including domestic building insurance contracts, entered into after 5 April 2021.322 In determining whether a contract is ‘standard form’, the court may take into account any matter it considers relevant, but must consider a range of factors, including the parties’ respective bargaining power, which party prepared the contract, whether it was presented on a ‘take-it-or-leave-it’ basis and so forth.323 The onus of proof rests on a party seeking to have a contract not to be found to be standard form.324 ‘Consumer Contracts’ and ‘Small Business Contracts’ both can include contracts for the supply of goods or services, as well as the sale or grant of an interest in land, so potentially covering off-plan sales contracts, at least if ‘standard form’.325 ‘Consumer’ applies to supplies to an individual whose acquisition is ‘wholly or predominantly for personal, domestic or household use or consumption’;326 ‘Small Business’ is where at least one party to the contract is a business employing fewer than 20 persons and either 318 DBCA s 8(e) and equivalents, as noted in Table 4.2 above. On the DPA, see section [5.10.2]ff. 319 Helpful summaries of the regime include Carter and Chan (n 312) ch 7. 320 On the UK position, see section [4.10]. The high degree of similarity between the basic elements of the English and Australian unfair contract terms regimes is illustrated by Australian cases often referring interchangeably to English and Australian case law: see, eg, the summary of the key provisions of the ACL regime in Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224 [18]–[32] (Moshinsky J). 321 The provision applies to Small Business Contracts entered into, renewed or varied after 12 November 2016: ACL s 290A. Certain classes of contracts are excluded from the unfair contract terms regime under s 28: none of these is likely to be relevant to residential building contracts. 322 The extension was effected by the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2019 Measures)) Act 2020 (Cth) (FSR Act). The extension captures domestic building insurance contracts, as the Insurance Contracts Act 1984 (Cth) (IC Act) applies to them: see FSR Act sch 1 and IC Act ss 8–9. 323 ACL s 27(2). 324 ACL s 27(1). 325 ACL s 23. 326 ACL s 23(3).

206  Contract Law in Residential Construction the upfront price under the contract is A$300,000 or less, or the contract has a duration of more than 12 months and the upfront price is A$1m or less.327 To decide that a term is ‘unfair’ under the ACL, the following three tests all need to be satisfied:328 1 2 3

It would cause a ‘significant imbalance in the parties’ rights and obligations arising under the contract’; It is ‘not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term’ (that party bearing the onus of proof in respect of this aspect);329 and It would cause detriment if applied or relied upon.

The court must take into account the ‘transparency’ of the term (including its language, presentation and availability) and the contract as a whole.330 The ACL provides a number of examples of terms that ‘may be unfair’, including limitations of liability or an ability unilaterally to alter the terms of the supply under the contract.331 Again as in the UK (and EU), it also provides that certain types of term – including those defining the subject-matter of the contract or those required or permitted under another law – cannot be challenged as unfair under the ACL.332

4.13.4  Residential Construction Contracts: Other Regulatory Interventions Each Australian state and territory legislative scheme whose statutory warranties were introduced in section [4.13.2] also limits the freedom of parties to residential building contracts to agree on matters in those contracts – to varying (but always substantial) extents. This section focuses on the regime in Victoria under the DBCA, referring also to other state and territory provisions.333 The builder is required to provide a ‘contract information statement’ to the owner before entering into the contract.334 This is a two-page document in plain language that provides a summary of the DBCA’s provisions, covering matters such as inspections, the appointment of a building surveyor, warranties and the processes for variations.

327 ACL s 23(4). 328 ACL s 24(1). An example of how the court considers these provisions (and how Australian courts look to English cases on equivalent unfair contract terms provisions) is Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd [2015] FCA 1204, (2015) 239 FCR 33: Gageler J found that a ‘HeadStart’ provision, debiting amounts from consumers’ accounts towards the following year’s Christmas hamper, was ‘unfair’ and therefore void under the ACL scheme. 329 ACL s 24(4). 330 ACL ss 24(3)–(4). 331 ACL s 25. On the equivalent ‘Grey List’ in the UK, see n 173. 332 ACL s 26. 333 The abbreviations for statutes’ names in n 304 also apply in this section. 334 DBCA s 29A. This statement has been published by Consumer Affairs Victoria as its Building Consumer Guide (1 August 2017): www.consumer.vic.gov.au/buildingguide. The builder is liable to a fine of around A$10,000 (60 PU) for failure to provide this statement. See also NSWHBA s 7AA; QBCC sch 1B s 18; SABWCA s 28(1)(f), SABWCR sch 3; TRBWCA s 39; WAHBCA s 4(2), WAHBCR sch 1.

Contrasts: Australia  207 It also provides advice to owners directly engaging with factors identified in chapter 2 as being causative of defects, including: ƒƒ Beware of ‘an extremely low quote compared to other builders – this may indicate a risk that the quality of the job may be compromised, that the builder may not fully understand what is required or may not be properly registered or insured’. ƒƒ ‘Many disputes can be avoided when there is good communication’ between owner and builder.335 The DBCA provides for a ‘cooling-off period’, by which the owner may ‘withdraw from’ a Major Domestic Building Contract by written notice within the first five business days after receiving a copy of the signed contract.336 This right also applies if a notice of the owner’s right to withdraw is not set out in the contract, as required by section 31(1)(n), in which case the right must be exercised within seven days337 of ‘becoming aware that the contract should have contained such a notice’.338 However: • If the contract is terminated, the builder is entitled to retain A$100 plus the cost of any out-of-pocket expenses incurred with the approval of the Owner before the withdrawal.339 • If the contract is terminated, the builder is entitled to a reasonable price (capped by the amount which would have been payable under the contract) for work carried out under the contract up to its termination.340 • The owner cannot withdraw if the owner and builder have previously entered into a Major Domestic Building Contract that ‘is in substantially the same terms for the carrying out of work in relation to the same home or law’ or if the owner received independent legal advice before entering into the contract.341 • The rights under DBCA sections 34–35 do not apply to Major Domestic Building Contracts for ‘Public Construction’.342 The DBCA renders void those terms in ‘Domestic Building Contracts’ which are contrary to the DBCA or that purport to annul, vary or exclude its provisions, also terms of other agreements which seek to exclude modify or restrict rights conferred by the Act in relation to such contracts. However, the parties may include terms that are more onerous on the builder than the Act imposes.343 More specifically, parties cannot

335 For similar guidance in NZ, see section [9.2.2]. 336 DBCA s 34(1): a Major Domestic Building Contract is one where the contract price exceeds A$10,000 (DBCA s 3; DBCR reg 6). The prescribed form of the notice under s 34 is set out at www.consumer.vic.gov. au/buildingindustry. See also NSWHBA s 7BA, NSWHBR reg 7; QBCCA sch 1B ss 35–39; SABWCA s 36; TRBWCA s 33. 337 In most cases, this means calendar days – ie, the same as the five business days period in DBCA s 34. 338 DBCA s 35(1). 339 DBCA s 34(3). 340 DBCA s 35(4)–(5). 341 DBCA s 34(4). 342 DBCR reg 9(2). This is defined in the Project Development and Construction Management Act 1994 (Vic) s 3: essentially any construction-related matter by, or on behalf of, government departments or public bodies. 343 DBCA s 132.

208  Contract Law in Residential Construction agree to exclude their rights in respect of the warranties set out in section 8, unless the relevant breach was known or ought reasonably to have been known when the agreement was made.344 The DBCA restricts the amounts which the builder may claim: • The deposit is to be no more than 5 per cent of the contract price (or if the contract price is less than A$20,000, 10 per cent).345 • Default maximum percentages of the Contract Price by way of progress payments are prescribed for various types of contract. For example, where the contract is to build all stages, the maximum recoverable is (in addition to the deposit): 10 per cent at ‘Base Stage’, 15 per cent at ‘Frame Stage’, 35 per cent at ‘Lock Up Stage’ and 25 per cent at ‘Fixing Stage’.346 However, the parties may depart from these defaults so long as a prescribed warning and documentation of the alternative basis are included in the contract.347 • Overall, the builder is prohibited from seeking more than the contract price (unless authorised by the Act or in respect of an extra-contractual claim).348 • The builder cannot seek additional payment under a Major Domestic Building Contract if that additional amount ‘could reasonably have been ascertained’, had the builder obtained the Foundations Data required under section 30.349 On consumers’ behalf, the DBCA shows a preference for ‘lump sum’ contracting: under this, the price ultimately payable may not be ‘fixed’, but will be ascertainable, the contract identifying both an initial contract price and the circumstances in which it may be varied.350 Builders may not enter into ‘cost plus’ contracts (widely defined under the DBCA, but generally understood as where ‘the builder’ is entitled to reimbursement of 344 DBCA s 10. For other states’ prohibitions on excluding the warranties, see NSWHBA s 18G; NTBA s 54BA(2); QBCCA sch 1B s 28; SABWCA s 42; TRBWCA s 78; WAHBCA s 28. In Cappello (n 265), Ball J considered the effect of a liquidated damages clause set at A$1.00 per day in view of NSWHBA s 18G. He said that such a provision could be void under s 18G because, in respect of breach of the statutory warranty requiring the work to be completed within the time stipulated in the contract (NSWHBA s 18B(1)(d), corresponding to the time-related aspect of DBCA s 8(d)), it ‘substitutes for a substantial right for its breach a nominal one’ (at [31]). Ball J preferred to interpret the contract so as to avoid the provision being void, finding that, ‘by specifying the amount of liquidated damages at $1 per working day, the parties intended not to provide for a substantive right to claim liquidated damages and intended instead to leave the plaintiffs a right to claim damages they could prove they had actually suffered’ (at [32]). As noted in n 265, Ball J found that the homeowners had failed to prove any loss at general law arising from the delay, so their delay damages were, in any event, limited to A$1 per day (totalling A$152). This aspect was not in issue in the appeal: Cappello v Hammond & Simonds NSW Pty Ltd [2021] NSWCA 57. 345 DBCA s 11. See also NSWHBA s 8; NTBR regs 41H(e), 41HE(1); QBCCA sch 1B s 33; TRBWCA s 41; WAHBCA s 10(1). 346 DBCA s 40(2). See also NSWHBA s 8A, NSWHBR reg 11; NTBR regs 41H(f), 41HA; QBCCA sch 1B s 33; WAHBCA s 10. For a case in which these stages were applied, see Mann v Paterson Constructions (n 290). 347 DBCA s 40(4), DBCR reg 12. These restrictions do not apply to contracts with the Crown or a Public Statutory Authority, defined widely under Constitution Act 1975 (Vic) s 96, essentially resting on it being established ‘by or under an Act for a public purpose’. 348 DBCA s 16. See also NTBR reg 41HE(2); SABWCA s 30(1). 349 DBCA s 30(7). On foundations data, see the main text to n 367. 350 SABWCA s 29(1) goes further, stating that contracts to which the Act applies ‘must stipulate a specific price for the performance of the building work specified in the contract, being a price that is fixed and not subject to change’; the Act goes on to note exceptions, however, including s 29(5) explicitly allowing ‘cost plus’ contracts, so long as the percentage added does not exceed 10% of the cost.

Contrasts: Australia  209 its costs and expenses, plus a margin on those costs and expenses to cover its profit and overhead) unless specified exemptions apply.351 Where a ‘cost plus’ contract is permitted, it must include a fair and reasonable estimate by the builder of the total payment which the builder is likely to receive.352 Contravention of these provisions renders the builder liable to a penalty of 100 PUs and unable to enforce the contract against the building owner. However, VCAT is empowered to award what in effect is a quantum meruit – the cost of the work carried out plus a reasonable profit – where it considers it not unfair to the building owner to do so.353 ‘Cost escalation clauses’ – by which the contract price can be increased to reflect increased costs of labour or materials or costs of delay – cannot be included in Domestic Building Contracts unless the contract price exceeds A$500,000 ‘or the clause is in a form approved by the Director [of Consumer Affairs Victoria] and complies with any relevant requirements set out in the regulations’.354 The builder is not permitted to demand payment under a Major Domestic Building Contract until the work ‘has been completed in accordance with the plans and specifications set out in the contract’ and the owner receives a copy of the occupancy permit under the Building Act 1993 (Vic) (or if no such permit is required, the certificate of final inspection).355 Variations are (with limited exceptions) to be agreed in writing before being carried out.356 In addition to the warranty in respect of provisional sums in section  20(2), the builder is prohibited from entering into a Domestic Building Contract which includes prime cost items or provisional sums less than the reasonable cost of the relevant item, unless the item is to be supplied or specified by or on behalf of the building owner.357 The DBCA also makes provision for the owner’s and builder’s respective rights in relation to the building site (this may be the owner’s own home): ƒƒ Domestic Building Contracts give the builder no greater rights of occupation than a contractual licensee, nor the right to lodge a caveat over the site (which would

351 These are that: the work is reasonably estimated to cost A$500,000 or more (DBCA s 13(1)(a), DBCR reg 11(a)); the contract is for Public Construction (as defined – see n 342) and the Crown or a Public Statutory Authority is a party to it (DBCA s 13(1)(a), DBCR reg 11(b)); or the work involves the renovation, restoration or refurbishment of an existing building and ‘it is not possible to calculate the cost of a substantial part of the work without carrying out some [D]omestic [B]uilding [W]ork’: DBCA s 13(1)(b). 352 DBCA s 13(2). 353 DBCA s 13(3). On quantum meruit generally, see section [4.12.5]. 354 DBCA s 15(2)(a)–(b); Australian Consumer Law and Fair Trading Act 2012 (Vic) s 3(1). Effectively, this second limb (and its use of the disjunctive ‘or’) means that cost escalation clauses can be included in contracts of any value, so long as the approved form has been given to the Building Owner on entry into the contract explaining its effect and the Building Owner has signed, sealed or initialled the relevant clause: s 15(3). In any case, the DBCR excises from this restriction contracts where the relevant work is ‘Public Construction’: reg 9(1). See also SABWCA s 29(2)–(4); WAHBCA s 13. 355 DBCA s 42. In another departure from generally accepted construction project terminology, the Act does not use or rely on the concept of ‘practical completion’ except in s 45 (which deals with referral of disputes): see Shaw v Yarranova Pty Ltd [2006] VSCA 291, (2006) 15 VR 289. 356 DBCA s 37: the scheme was examined in Mann v Paterson Constructions (n 290) – see section [4.12.5]. See also NSWHBA sch 2 s 1(2); QBCCA sch 1B ss 40–41 (s 42 similarly regulates extension of time claims); TRBWCA s 17; WAHBCA s 7(1). 357 DBCA s 21; on provisional sums, see section [4.13.2].

210  Contract Law in Residential Construction prevent the owner of the land from dealing with it, including selling, without notice to the builder).358 ƒƒ Builders must give owners (and their authorised representatives) reasonable access to the site and to view any part of the works, provided that owners do not interfere with the work.359 Arbitration clauses in Domestic Building Contracts (or in any other agreement purporting to require disputes under the contract to be referred to arbitration) are void.360 Other jurisdictions go further in their prohibition of terms, to an extent overlapping with (and, because they apply to contracts other than ‘standard forms’, extending beyond) the ACL unfair contract terms regime, discussed in section [4.13.3].361 The DBCA also requires certain matters to be included in Major Domestic Building Contracts, as set out in section 31.362 They include checklists and warnings as to price changes.363 Much of this information goes primarily to the consumer’s understanding of, and contractual acceptance of, the nexus between the price they have agreed to pay for the work and the quality of the work, including in respect of ‘prime cost items’ (typically, standards of finishes, kitchen appliances and the like).364 The extensive nature of these mandatory inclusions impacts significantly on the standard forms used for residential construction: contracts in the widely used suite of forms published by the Housing Industry Association devote entire pages to the warnings and checklists required under the DBCA.365 The lack of a properly documented agreement can lead to significant legal complications: in Lumbers v W Cook Pty Ltd, the construction of a substantial house in Adelaide under such circumstances was largely responsible for a dispute which took nearly a decade to run its course, its legal ‘journey’s end’ being the High Court.366 The DBCA also seeks to implement practical measures to minimise the risk of unforeseen site conditions. For example, where a Major Domestic Building Contract requires the construction or alteration of footings (or may adversely affect existing footings), the builder must obtain ‘Foundations Data’ before entering into the contract,

358 DBCA ss 17–18. See also NSWHBA s 7D; QBCCA sch 1B s 43. By contrast, SABWCA s 28(1)(d) and SWBWCR reg 14A allow the builder to include a term giving them a right to lodge a caveat provided the requirements set out there are met. 359 DBCA s 19: the Builder is not liable for costs or delays where permitted access by the Owner does so interfere, and the Builder notifies the Owner within five business days of that interference. See also WAHBCA s 26. On pre-completion inspections in general, see ch 8. 360 DBCA s 14. See also NSWHBA s 7C; NTBA s 54BA(2)(b); QBCCA sch 1B s 32. 361 For example, ACTBA s 89E and ACTBR reg 38B render void some terms regarding certifiers, SABWCA s 38 potentially renders void ‘harsh or unconscionable terms’, and WAHBCA s 15(1) prohibits ‘unconscionable, harsh or oppressive’ terms. 362 See also ACTBA s 89C; NSWHBA ss 7AAA and 7E, sch 2 pt 1; QBCCA sch 1B ss 13–14 (depending on the type of contract); SABWCA s 28(1); TRBWCA ss 13, 14. 363 See, primarily, DBCA ss 15, 22, 24, 28, 30, 31, 33, 35. See also TRBWCA s 14(j). 364 This acceptance is rendered explicit by the contract being required (under DBCA s 31(r)) to include a checklist of 17 questions that prompt the Owner to answer ‘yes’ or ‘no’ to each. 365 These forms are available via the HIA’s ‘Contracts Online’ portal at www.hia.com.au/Contracts. 366 Lumbers v W Cook Pty Ltd: n 288.

Contrasts: Australia  211 failing which the builder is liable to a fine of 50 PUs.367 The extent of Foundations Data which the builder is to obtain is regulated in detail, resting on what ‘a builder exercising reasonable care and skill would need’ to prepare proper footings design and adequate cost estimates.368 The DBCA also gives some protection to consumers against significant price or time blowouts. Under section  41, the owner may ‘end’ a Major Domestic Building Contract if the contract price rises by 15 per cent or more (other than due to crystallisation of prime costs or provisional sums, or a variation) or if ‘the contract has not been completed’ (presumably, this refers to ‘the work under the contract’) within 1½ times the period ‘it was to have been completed by’ (presumably, as defined by the contract). However, the reason for the increased time or cost needs to be ‘something that could not have been reasonably foreseen by the builder on the date the contract was made’, apparently limiting the provision’s operation to events in the nature of force majeure, rather than defaults by the builder. This interpretation is reinforced by the entitlement of the builder to receive a ‘reasonable price for the work carried out under the contract to the date the contract is ended’, that is, recovery on a quantum meruit (though limited to the amount the builder would have been entitled to recover under the contract).369

4.13.5  Remedies for Breach of Contract By and large, the Australian treatment of remedies for breach of contract (at least, the specific aspects dealt with in this book) is close to the English position; some Australian variances were already noted in section [4.12]. To the English position – rectification is the default measure for contract damages arising from defective building work, subject to qualifications relating to the reasonableness of such rectification – Australian law adds a further requirement. Rectification must be necessary to achieve conformity with the contract: where the dual tests of reasonableness and necessity are not satisfied, damages representing the diminution in value of the asset will be the usual measure.370 Stone v Chappel, a 2017 Full Court decision of the Supreme Court of SA, confirms that the English and Australian approaches start, for practical purposes, largely congruent.371

367 DBCA s 30. See also QBCCA sch 1B s 31. 368 DBCA s 30(3). 369 DBCA ss 41(5) and (6). Contrast the position under the general law, as discussed at section [4.12.5]. 370 Bellgrove v Eldridge (n 250) (1954) 90 CLR 613, 618, 619 (Dixon CJ, Webb and Taylor JJ). See, generally, Matthew Bell, ‘After Tabcorp, for Whom Does the Bellgrove Toll? Cementing the Expectation Measure as the “Ruling Principle” for Calculation of Contract Damages’ (2009) 33(3) Melbourne University Law Review 684. 371 Stone v Chappel [2017] SASCFC 72, (2017) 128 SASR 165. For further comparisons see, eg, Nuwan Dias and James Claridge, ‘Venial Faults and ‘Oppressive Retribution’: The Relationship Between Substantial Performance and Damages for Breach of Construction Contracts’ (2018) 34 Building and Construction Law 92; Jonathan Korman, ‘The Measure of Damages for Breach of Construction Contract Where There is No Economic Loss: An Examination and Evaluation of the Law in England and Australia’ (2018) 34 Building and Construction Law 159.

212  Contract Law in Residential Construction This is indicated, in particular, by the Court’s willingness to adopt a touchstone for departing from the rectification measure in appropriate circumstances – that it would be ‘manifestly disproportionate to the attaining of the contractual benefit’372 – which aligns with the proportionality tests underpinning Ruxley Electronics v Forsyth in English law.373 Like Mr Forsyth, the apartment owners were awarded loss of amenity damages only, although the ceiling of their architect designed luxury apartment was on average 40 mm lower than required by the contract.374 In reaching that conclusion, two of the three judges separately identified factors relevant to the ‘reasonableness’ limb.375 There was a divergence between them, but some common elements: • The extent of the departure from the contractual requirement that the breach (defective work) represents, along with – more generally – the nature of the breach.376 • How practical it is to rectify the work (taking into account, eg, the effect on third parties).377 • Whether the claimant intends to carry out the rectification work.378 • The degree of proportionality between the cost of rectification and benefits to the claimant of having the work done (including, potentially, aesthetic considerations and the effect on the value of the building).379 The additional expenses of rectification do not mean only the direct cost of the labour and materials: the High Court in Bellgrove allowed ‘appropriate consequential damages’

372 Stone v Chappel (n 371) [55] (Kourakis CJ); Hinton J found similarly at [453]. 373 See section [4.12.3] and, especially, Ruxley (n 246) 361 (Lord Mustill) and 367 (Lord Lloyd). 374 Stone v Chappel (n 371) [91] (Kourakis CJ). Mrs Stone gave evidence that she felt like the ceiling was ‘coming down on me’ and that she and her husband were unable to exhibit their artwork as intended. 375 Stone v Chappel (n 371) [55] (Kourakis CJ), [257]–[265] (Doyle J). 376 Thus in Kirkby v Coote [2006] QCA 61, Keane JA said clearly that rectification would be reasonable (or rather, not unreasonable) where the defendant’s defective work had affected the stability of a house’s structure. 377 There is significant case law in Australia on whether an owner who originally contracted with the builder but has sold the building on to a new owner can recover the cost of rectification of defects under that original contract. The cases – including Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253 and UI International Pty Ltd v Interworks Architects Pty Ltd [2008] 2 Qd R 158 – revolve around the extent to which the original owner intends to use their damages to rectify the work, and in fact, can carry it out (bearing in mind that they are no longer the owner). As was recently demonstrated before the NCAT Appeal Panel in Taylor v Clientel Development Pty Ltd [2020] NSWCATAP 136, it will, in many cases, be difficult for the owner to recover damages because of their inability to prove any recoverable loss (see section [4.12.2] for this core principle). English law certainly takes that line, allowing (rare) exceptions to it: see St Martins Property Corporation Ltd v Sir Robert McAlpine and Sons Ltd [1994] AC 85 (HL), discussed in section [5.3.2]. 378 In Bellgrove v Eldridge (n 250), the Court dismissed the possibility that the claimant might not use her damages to rectify the house as ‘quite immaterial’ to the decision to award damages: (1954) 90 CLR 613, 620. However, it is now well established in Australia, though not in English law, that intention can be relevant: see, eg, the survey of the relevant cases (as at 2008) by Rares J in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd [2008] FCAFC 38, (2008) 166 FCR 494, 520–3 and Stone (n 371) [2017] SASCFC 72 [55] (Kourakis CJ), [263] (Doyle J); Hinton J declined to express an opinion on this point: [442]. 379 Proportionality is, of course, at the heart of the Ruxley formulation. In Tincknell v Duthy Homes [2020] SASCFC 24, Parker J at [97] confirmed that the cost of rectification is to be compared to the benefit to be obtained, not the overall contract value. On ‘aesthetic considerations’, see also n 260.

Contrasts: New Zealand  213 alongside the cost of rectification itself.380 In Willshee v Westcourt, for example, the WA Court of Appeal allowed the plaintiff ’s claim for rental accommodation (A$16,900) and storage and insurance of his furniture and personal effects (A$20,339) in addition to the direct rectification cost of A$257,977.91.381 However, other significant losses may turn out not to be recoverable – for procedural reasons. The High Court decision in Tabcorp v Bowen Investments illustrates the risk which even the most ‘innocent’ plaintiff takes.382 The landlord, Mrs Maria Bergamin, sought damages to reinstate a foyer which her tenant, the gaming company Tabcorp Holdings Ltd, had demolished in breach of the lease. In upholding a damages award based on the rectification measure, the Court said that it was ‘not hyperbolic’ to describe Tabcorp as displaying ‘contumelious disregard’ for the landlord’s rights.383 Despite having the law on her side, Bergamin had to wait a long time to enforce her rights. The High Court judgment came nearly 12 years after Tabcorp demolished the foyer and seven years after her company issued proceedings.384 Although her company was ultimately awarded its costs in the Full Court and High Court appeals, it was awarded only 70 per cent of its costs at trial, despite receiving judgment in its favour there.385 As the trial ran for nine days and involved a phalanx of barristers and solicitors, her side’s unrecovered costs would have been several hundred thousand dollars. The case also shows that where a claim for damages (or other remedies) arising out of construction derives from breach of a covenant in a lease, the same principles apply as where a breach of a construction contract is alleged.386

4.14  Contrasts: New Zealand 4.14.1  General Law of Contract New Zealand’s inheritance of the general law of contract from England means that the key principles in case law are shared, with only small variations. In statutory terms, New Zealand led the way in permitting contracts to confer enforceable benefits on third parties (more than 15 years ahead of England & Wales); it has also legislated on a range of contract-related matters which make the detail – but not the underlying thinking – different from that in England and our other common law subject jurisdictions.387 It seems likely that one of these reforms eliminated the possibility for the courts to award damages on a quantum meruit basis at common 380 Bellgrove v Eldridge (n 248) (1954) 90 CLR 613, 618. 381 Willshee v Westcourt [2009] WASCA 87 [77]. 382 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8, (2009) 236 CLR 272. 383 Tabcorp v Bowen (n 382) [4]. 384 See the headnote to Bowen Investments Pty Ltd v Tabcorp Holdings Ltd [2007] FCA 708. 385 Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 [6] (Finkelstein and Gordon JJ; Rares J (at [14]) would also have reduced the landlord’s costs of the appeal by 30%); Tabcorp v Bowen (n 382) [27]. 386 For the same similarity in relation to other remedies for breach of contract, see the main text to n 238. 387 Notably, the Contract and Commercial Law Act 2017 (NZ) brings together statutory provisions from most or the whole of 13 earlier Acts.

214  Contract Law in Residential Construction law, giving them instead a statutory discretion on remedy after a contract has been ‘cancelled’.388 In the law of tort, for decades New Zealand has taken different directions from both English and Australian law (but closer to Irish law).389 The cutting of the formal links to the Privy Council as the final court of appeal and the establishment of New Zealand’s own Supreme Court have encouraged independence in the law of contract too: the recent discussion in 127 Hobson Street v Honey Bees of the distinction between an LD clause, specifying what a party in breach is to pay (enforceable) and one which constitutes a penalty (unenforceable) illustrates the Supreme Court judges’ detailed awareness of what the rest of the common law world is doing, but also their determination to choose their own path.390

4.14.2  A Statutory Regime for Residential Construction Contracts: Introduction New Zealand has followed Australia’s lead in regulating residential construction contracts; this was another consequence of the ‘leaky buildings’ crisis.391 But New Zealand came late to this particular party: Part 4A of the Building Act 2004 arrived only in the Building Amendment Act 2013, in effect from 1 January 2015. Introducing in Parliament what became the 2013 Act, Hon Maurice Williamson, Minister for Building and Construction in the National Party minority government, explained the official thinking: The bill introduces new consumer protection measures to help New Zealanders who are building or renovating their homes. New Zealand’s housing stock – and this is a good number for members – is worth about [NZ]$613 billion. That is about 10 times the value of the New Zealand stock exchange. So consumers and builders in the housing market deserve, I believe, to have clear rules about how they are expected to behave in such a ginormous industry with such a phenomenal asset base. The new measures in the bill will help homeowners to hold to account those responsible for building work and get any faults fixed quickly and more efficiently.392

388 Contractual Remedies Act 1979 (NZ) s 9, as applied in Baxter v Coleman [2016] NZHC 2693; now the Contract and Commercial Act 2017 s 43, but the Act seems irrelevant where there was no contract to start with, as in Electrix Ltd v The Fletcher Construction Co Ltd: n 290. 389 See Case Study 1 at section [1.12] and section [5.12.2]. 390 127 Hobson Street v Honey Bees (n 279), notably discussing at length Cavendish Square v El Makdessi (n 200) and Paciocco v ANZ (n 279). 391 On ‘leaky homes’, see, chiefly, section [5.13.2]; on other NZ regulatory reforms of the same period, see section [3.8]. 392 Hansard (NZ), vol 678, page 1454 (28 March 2012). Williamson held a range of Ministerial posts between 2008 and 2014. As Building and Construction Minister, he memorably said of the leaky home crisis: ‘A Government who’s running very large surpluses would still struggle to find the money to help with this. But a Government who’s running deficits – and has a forecast track of deficits for many years out – has to just sit there with its head in its hands, saying, “Well, I just don’t know how to do this”’: ‘Govt Stumped as Leaky Home Bill Skyrockets’ New Zealand Herald (27 February 2010).

Contrasts: New Zealand  215 The simplest way to understand this part of the government agenda is the shopping-list now contained at the start of this Part of the 2004 Act: This Part protects consumers (referred to in this Part as clients) in relation to residential building work by— (a) requiring certain information to be provided before a residential building contract is entered into; and (b) prescribing minimum requirements for residential building contracts over a certain value; and (c) implying warranties into residential building contracts; and (d) providing remedies for breach of the implied warranties; and (e) requiring defective building work under a residential building contract to be remedied if notified within 1 year of completion; and (f) requiring certain information and documentation to be provided on completion of building work under a residential building contract.393

Comparing this intervention with the Australian regime, outlined in section  [4.13], shows that it closely copies (intentionally or not) many features common to most of its predecessors on the other side of the Tasman Sea – notably items (a)–(c) above. But it also includes some distinctive New Zealand variations (or refinements) of the other items. Following section  362A come definitions of the key terms. A residential building contract is one where ‘the building contractor’ agrees to do building work – design work alone not counting as building work – for ‘the client’ in relation to a ‘household unit’; unsurprisingly, this does not include a subcontractor doing such work for a building contractor.394 The 2004 Act itself cross-refers to existing definitions of ‘consumer’, making clear that none of the general statutory protections for consumers under New Zealand law is excluded or modified by this Part of the Act.395 The detailed working-out of the list above is in the substantial Regulations made under this Part of the 2004 Act.396 They flesh out the ‘over a certain value’ element in item (b) above: contracts within Part 4A for which the price is NZ$30,000 and above (including applicable Goods and Services Tax) bring in the full statutory regime,

393 Building Act 2004 (NZ) s 362A (emboldening as in the original). 394 Building Act 2004 (NZ) s 362B(1); similarly, ‘client’ does not include a building contractor: s 362R(1)(b). ‘Building’ is defined by the 2004 Act ss 8–9 (as amended); ‘household unit’ by s 7, on which also see Wanaka Gym Ltd v Queenstown Lakes DC [2012] NZHC 284; both the NZCA (twice) and Supreme Court refused the defendant building owner leave to appeal against fines of NZ$64,000 for offences under the Building Act: see [2014] NZSC 198. The case also illustrates public powers in relation to dangerous buildings, on which see ch 3, n 84. 395 Building Act 2004 (NZ) s 362C, specifying the Fair Trading Act 1986 (NZ) and the Consumer Guarantees Act 1993 (NZ): see section [6.4]. The 1986 and 1993 Acts share an identical definition of ‘consumer’ in s 2: as (broadly) a person acquiring goods or services from a supplier (separately defined) which are ordinarily for personal, domestic, or household use or consumption and without holding themselves out or in fact, intending to use them in a trade or business. 396 Building (Residential Consumer Rights and Remedies) Regulations 2014 (NZ): n 73.

216  Contract Law in Residential Construction including a pre-contractual disclosure form and a written contract covering specific prescribed items.397

4.14.3  Statutory Warranties All projects which fit within Part 4A of the Building Act 2004 – written or only oral, and of any value – also impose mandatory obligations (called implied warranties) on the building contractor: these are ‘taken to form part of the contract’. They are thus owed to the client but can also be enforced by the current owner of the building or land within the applicable limitation period, including by adjudication, arbitration or a claim under the Weathertight Homes Resolution Services Act 2006 (NZ).398 In the Australian sense, these are ‘transmissible’ beyond the normal rules of privity of contract. The warranties are mandatory in that they cannot normally be contracted out of.399 They also apply, by extension (but with no scope for contracting out), between an ‘on-seller’ (as defined) and the buyer of one or more household units.400 Unlike Australian regimes, where the statutory warranties may confer on the buyer of a home a right of action against the original builder, this makes the ‘on-seller’ owe the buyer the same statutory obligations about build quality as a building contractor would (and perhaps did) to the ‘client’, including for off-plan sales where construction is not yet complete. The mandatory implied warranties are listed in the 2004 Act. They build on what the common law would in most circumstances imply in any case, and are closely aligned with the statutory warranties across the Australian states and territories, already summarised in Table 4.2: In every contract to which this section  applies, the following warranties about building work to be carried out under the contract are implied and are taken to form part of the contract: (a) that the building work will be carried out— (i) in a proper and competent manner; and (ii) in accordance with the plans and specifications set out in the contract; and (iii) in accordance with the relevant building consent: 397 The written contract requirements are quoted as the main text to n 73. The disclosure form and/or checklist become obligatory for a contract under NZ$30,000 if the client requests one or both: Building Act 2004 (NZ) s 362D(1)(b). For the disclosure form, see section [4.14.5]. 398 Building Act 2004 (NZ) ss 362J and Construction Contracts Act 2002 (NZ), as amended, s 25(2)(b): see section [9.10.1]. The 2002 Act cannot be contracted out of (s 10). ‘Ordinary’ court proceedings are not mentioned in the 2004 Act but are expressly still available under the 2002 Act s 26, as the default method of state-supported civil dispute resolution. On the time limits for any of these forms of dispute resolution, see section [10.8]. 399 Building Act 2004 (NZ) ss 362I(2) and 362K. They can be limited or excluded only by a person who knew or ought reasonably to have known of an existing breach of any of the warranties when executing an instrument or agreement achieving this aim. 400 Building Act 2004 (NZ) s 362H: ‘on-seller’ clearly covers a developer whose purpose in building is to sell on by way of trade and an owner-builder who builds with the same purpose.

Contrasts: New Zealand  217 (b) that all materials to be supplied for use in the building work— (i) will be suitable for the purpose for which they will be used; and (ii) unless otherwise stated in the contract, will be new: (c) that the building work will be carried out in accordance with, and will comply with, all laws and legal requirements, including, without limitation, this Act and the regulations: (d) that the building work will— (i) be carried out with reasonable care and skill; and (ii) be completed by the date (or within the period) specified in the contract or, if no date or period is specified, within a reasonable time: (e) that the household unit, if it is to be occupied on completion of building work, will be suitable for occupation on completion of that building work: (f) if the contract states the particular purpose for which the building work is required, or the result that the owner wishes the building work to achieve, so as to show that the owner relies on the skill and judgement of the other party to the contract, that the building work and any materials used in carrying out the building work will— (i) be reasonably fit for that purpose; or (ii) be of such a nature and quality that they might reasonably be expected to achieve that result.401

The content of each of these obligations is not absolute under the 2004 Act: if the client takes action for breach or asserts a defect, the building contractor or ‘on-seller’ may escape liability if they can show that the cause of the defect or breach was not the fault of the building contractor or ‘on-seller’, by one or more of: • ‘A cause independent of human control’ (in New Zealand, earthquakes, presumably). • An act or omission of someone who is not the building contractor, their subcontractor or anyone else for whom the building contractor is legally responsible (employees). • Failure to carry out normal maintenance. • Failure to carry out, or cause to have carried out, repairs as soon as practicable after the defect becomes apparent.402 As for taking action for breach of any of these warranties, the 2004 Act makes clear that the contract itself can provide remedies (eg, a ‘defects correction period’ and a holdingback of the final payment until all defects are remedied). The statute adds to these in an amalgam of the common law and a regime reminiscent of B2C contracts for services in the UK under the CRA. At the start, a simple ‘right to have defects remedied’ is available for the first year; in part, this fills the gap left by insurance not at present being required for residential construction work in New Zealand.403

401 Building Act 2004 (NZ) s 362I(1). 402 Building Act 2004 (NZ) s 362S. 403 On remedies for breach of contract at common law, see section  [4.12]; on remedies under the CRA, see section [4.9].

218  Contract Law in Residential Construction Table 4.3  Client’s Remedies in NZ Residential Construction Contracts PRIMARY REMEDY

ALTERNATIVE REMEDY

ADDITIONAL REMEDY

DEFECTIVE CONSTRUCTION, NOTIFIED TO THE BUILDING CONTRACTOR WITHIN ONE YEAR OF COMPLETION OF CONSTRUCTION404

The client may require the building contractor to remedy the defect: an evidential presumption applies in favour of the client that the work is defective and can be remedied.

–

The client may claim damages for loss or damage reasonably foreseeably resulting from the defect (not including any reduction in the value of the product of the building work).

BREACH OF IMPLIED WARRANTY WHICH CAN BE REMEDIED405

The client may require the building contractor to remedy the breach.406

If the building contractor refuses, or does not act in a reasonable time, the client may: •• Have someone else do the work and recover the cost from the building contractor, or

The client may claim damages for loss or damage reasonably foreseeably resulting from the breach (not including any reduction in the value of the product of the building work).

SITUATION

•• Cancel the contract, whatever the contract itself provides.407 BREACH OF IMPLIED WARRANTY WHICH CANNOT BE REMEDIED, OR ‘SUBSTANTIAL BREACH’408

The client may claim damages in compensation for any reduction in the value of the product of the building work.

The client may cancel the contract, whatever the contract itself provides.

As above.

The final piece of this regulatory structure relates to the end of the project: an obligation on the building contractor to give the client a copy of any relevant insurance policy, 404 Building Act 2004 (NZ) s 362Q. 405 The statute does not make clear when a breach can or cannot be remedied, so the client’s judgment must be relevant. 406 Because an on-seller may owe duties under the 2004 Act, the ‘building contractor’ in this Table may, in fact, be an on-seller. 407 Building Act 2004 (NZ) ss 362M and 362P; cancellation takes place in line with the Contract and Commercial Law Act 2017 (NZ) ss 42–48; the English law equivalent would be where an innocent party is empowered to terminate the contract for the future in case of (repudiatory) breach by the other party. 408 ‘Substantial breach’: Building Act 2004 (NZ) s 362O.

Contrasts: New Zealand  219 guarantee or warranty and any maintenance requirements necessary for continued compliance with ‘the building code’. What about sanctions? Failing to provide disclosure information or a checklist is an offence, as is making a false or materially misleading statement (or omission) in a disclosure statement or entering into an unwritten contract where writing was required. Prosecutions must be rare: no cases involving the contractual side of this regime seem yet to have been reported from the New Zealand courts, and failing to follow any of the prescribed procedural steps has no effect on the private law rights of the parties. The current text of the Consumer Guarantees Act 1993 (NZ) imposes implied terms (‘guarantees’) in contracts for the supply of goods and of services between suppliers and consumers (as defined). It does so in ways closely comparable to the CRA in the UK.409 In the B2C construction context, contracts to supply materials (goods) and to do work (services) usually occur together; the obligations under the 1993 Act apply whether they do or not.410 Even in B2B transactions, these obligations can only be contracted out of expressly and in writing, satisfying a test of reasonableness.411 Goods specifically includes ‘goods attached to, or incorporated in, any real or personal property’, so covers materials for use in construction.412 The first main guarantee is that they should be of acceptable quality, defined against a long list of criteria, which also look to what a reasonable consumer would regard as acceptable.413 The second is that they should be fit for the purpose the consumer made known to the supplier, or for any particular purpose for which the supplier represents that they are or will be fit; and should correspond with a description or sample, if that is the basis on which they have been supplied.414 Where the supplier is not the manufacturer, and where the manufacturer gives an express guarantee (covering an undertaking, assertion or representation about the goods), the consumer can take action directly against the manufacturer if the goods fail to comply with the guarantee, as well as where the goods do not meet the quality standard in the Act or do not comply with a description supplied by or on behalf of the manufacturer.415 As in the UK, the consumer has statutory remedies if the goods supplied fail to comply with any of these guarantees: to require the supplier to remedy it in a reasonable time, to have the failure remedied and claim the cost from the supplier, or to reject the goods, with a right to compensation (a) of the difference between the value of the service actually provided and what was paid or payable; and (b) for other loss or damage reasonably foreseeable from the failure.416 As for services, the definition has no exception for contracts to do with the creation of buildings or transfer of land; construction will usually be included within ‘a contract for, or in relation to, the performance of work (including work of a professional nature), 409 See section [4.9]. 410 Consumer Guarantees Act 1993 (NZ) ss 15, 34. 411 Consumer Guarantees Act 1993 (NZ) s 43. It is an offence under the Fair Trading Act 1986 (NZ) s 13(i) to purport to contract out of the 1993 Act outside the conditions the Act itself lays down: s 43(4). 412 Consumer Guarantees Act 1993 (NZ) s 2. 413 Consumer Guarantees Act 1993 (NZ) s 7. 414 Consumer Guarantees Act 1993 (NZ) ss 8–10. 415 Consumer Guarantees Act 1993 (NZ) ss 13–14, 25–27. 416 Consumer Guarantees Act 1993 (NZ) s 18ff.

220  Contract Law in Residential Construction whether with or without the supply of goods’.417 As under the CRA (UK), the main guarantees relate to quality (‘reasonable care and skill’), fitness for purpose, completion in a reasonable time (where no time is specified) and payment of a reasonable price (if not determined by the contract). As also in the UK, the consumer has statutory remedies if the service fails to comply with any of these guarantees: to require the supplier to remedy it in a reasonable time, to have the failure remedied and claim the cost from the supplier, or to cancel the contract, with a right to compensation (a) of the difference between the value of the service actually provided and what was paid or payable; and (b) for other loss or damage reasonably foreseeable from the failure.418

4.14.4  Challenging Unfair Contract Terms New Zealand’s Fair Trading Act 1986 (FTA) has since 2015 empowered the courts to declare terms in standard form B2C contracts unfair – not at the initiative of one of the contract’s parties, but only at the request of the NZ Commerce Commission (which can start proceedings itself, or intervene at the request of a consumer in litigation already under way).419 The criteria for determining whether a contract is ‘standard form’ include many of the considerations discussed in chapter 1: inequality of bargaining power, contract terms pre-prepared by one party before any discussion about the transaction, contract offered on a ‘take-it-or-leave-it’ basis and so on.420 Exactly as under the 1993 EEC Directive and as in Australia, terms defining the main subject-matter of the contract and setting the upfront price payable are protected against challenge.421 The three-part test of unfairness copies the ACL word-for-word (avoiding any mention of ‘good faith’): A term in a consumer contract is unfair if the court is satisfied that the term— (a) would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and (b) is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and (c) would cause detriment (whether financial or otherwise) to a party if it were applied, enforced, or relied on.422 The FTA even includes an equivalent of the European ‘Grey List’: examples of terms which may be declared unfair, including ones which permit one party (but not the other) to avoid or limit their performance of the contract or limit one party’s right to

417 Consumer Guarantees Act 1993 (NZ) s 2. But whole buildings and parts of buildings are not included, unless easily removable from land and not designed for residential accommodation. 418 Consumer Guarantees Act 1993 (NZ) s 32ff; the supplier is not responsible for a failure in relation to fitness for purpose or completion time which is not caused by him or his servants or agents or coming from a ‘cause independent of human control’. Compare the Building Act 2004 (NZ) s 362S: the main text to n 402. 419 For the NZ Commerce Commission, see www.comcom.govt.nz. 420 See section [1.5], and for Australia section [4.13.3]. 421 See the main text to n 199. 422 Fair Trading Act 1986 (NZ) s 46L(1). Item (b) raises issues equally relevant at common law concerning ‘penalty’ clauses in contracts; see section [4.12.4]. On the ACL s 24(1), see the main text to n 328.

Contrasts: New Zealand  221 sue the other party.423 A person must not in future use a term a court has labelled as unfair in a standard form contract unless they do so in compliance with the terms of the court’s decision; they cannot apply, rely on or enforce it. Failure to comply is a criminal offence and may also lead to civil liability to the contract’s other party.424

4.14.5  Residential Construction Contracts: Other Regulatory Interventions The Building Act 2004 (NZ) imposes additional formal requirements on the building contractor: 1 2

To give the client a completed disclosure form and checklist before they enter into the contract, precisely following the templates in Schedules 1 and 2 of the Regulations; and To ensure that the contract document contains all the items in regulation 6(2).425

Under 1, the disclosure form requires background information about the building contractor, including how long it has been trading, a contact person for the project and their role, what insurance(s) it currently holds or will hold for the project and any guarantees or warranties (other than those imposed by law).426 It looks directly to ensuring some basic equality of information between builder and client. The second item, the prescribed checklist, is no more and no less than good project management advice to the client, suggesting a sequence of considerations that should be thought through and addressed (then ticked off) before the client agrees to appoint a building contractor and enters into a contract with them.427 Under 2, regulation 6(2) contains a long list of topics the contract must address, already quoted at section  [4.5.2].428 Unlike some Australian jurisdictions, the law imposes no particular form on this, beyond the need for writing. The list reflects what any construction insider would think essential – items which would be included in a published standard form appropriate for smaller B2C projects. If the written contract fails to include any of these items, Schedule 3 of the Regulations fills the gap by supplying default provisions as implied terms; unsurprisingly, many of these place the risk on the building contractor, but for dispute resolution, only ‘good faith negotiations’ and mediation are imposed. 423 Fair Trading Act 1986 (NZ) s 46M. 424 Fair Trading Act 1986 (NZ) ss 26A and 40. The Commission’s first High Court proceedings under the unfair contract term provisions of the FTA were launched in 2018: one concerned a clause used by Viagogo, the secondary ticketing website, which required consumers to sue Viagogo only in Switzerland and under Swiss law, but Viagogo could sue customers in their own country. Viagogo changed its website terms to meet the Commission’s objections. 425 For the Regulations, see n 73. 426 Interestingly, the parent statute in s 362E(1)(b) mentions ‘the dispute history of the building contractor’ as one of the items which the Regulations may require on the disclosure form – something many intending clients would be eager to know; but this does not figure within sch 1 of the Regulations. 427 Unlike many Australian jurisdictions (see the main text to n 336), NZ law offers no automatic statutory cooling-off period for a residential construction contract – or most other B2C contracts. 428 See the main text to n 73.

222  Contract Law in Residential Construction In order to facilitate compliance with the Regulations, in 2018 the New Zealand government made an arrangement with Standards New Zealand: a ‘plain English’ Word version of an agreement, compliant with the Regulations and linked to its Housing, Alterations and Small Buildings Contract can be downloaded free, for completion and use on an individual project.429 This goes significantly beyond the basics, including guidance notes on completing those boxes which record what the parties have agreed. Other standard form contracts used in New Zealand have been significantly modified to comply with the new rules.430 It goes almost without saying that official advice to consumers is always to have a written contract for any building project, whatever the price; and take legal advice before committing.431

4.14.6  Remedies for Breach of Contract The choice of remedies – and between remedies – in New Zealand law is closely similar to those already discussed for other common law systems; authorities from Australian and English case law are widely cited in specialist textbooks on NZ construction law.432 So the rules on remoteness of damage, and for what items damages may be claimed (including intangibles like distress) are familiar from English law. A chapter of the many-sided litigation deriving from ‘leaky building’ construction at the start of the century illustrates the New Zealand courts’ willingness to order specific performance of a building contract. In Downer Construction (New Zealand) Ltd v Silverfield Developments Group Ltd, a development of 65 townhouses in Auckland failed to meet the express watertightness requirement in the main contract. The employer (‘principal’) started legal action against the design-and-build main contractor, which turned into a sequence of arbitrations in which the possible remedy became the central issue. The arbitrator ordered the main contractor to rectify, though the whole development had already been sold on. Had damages alone been available, the employer’s loss would have been only the cost of investigating the defects; it had so far incurred no liability towards any of the townhouse buyers (which would have been covered by a separate indemnity clause in the main contract). Harrison J upheld the arbitrator’s order, which laid down precise aims, conditions and timing for the rectification work (including requiring each unit owner’s consent), saying ‘there is no principled reason why [construction] contracts should not be the

429 See NZS 3902:2004: www.shop.standards.govt.nz. The Introduction makes clear that the Contract is not intended for use where the owner engages an architect or other professional as a designer and contract administrator (here, the more ambitious and complex NZS 3910 is appropriate). 430 Notably, the CBANZ (now NZCB) contracts; see Geoff Hardy, ‘The 2015 Changes to the CBANZ Building Contracts’ (27 January 2015): www.madisonhardy.com. The Master Builders Association (NZ) strongly recommends its members use only its RBC1-2016 contract with consumers as the main route towards then qualifying for the Master Build 10-year Guarantee: see section [7.5.1]. 431 See www.consumerprotection.govt.nz. Help finding a lawyer with appropriate construction experience is available via www.lawsociety.org.nz. 432 See, eg, Tómas Kennedy-Grant, Kennedy-Grant on Construction Law, 2nd edn (Auckland, Lexis-Nexis, 2012). Kennedy-Grant was the arbitrator in Downer Construction v Silverfield Developments: n 433.

Contrasts: Ireland  223 subject of awards for specific performance’.433 He added that it should not be a fixed rule that the claimant in such a case must (still) have possession of the land on which work is to be done, as long as access could be managed; as a matter of contract, the main contractor would have had to remedy all the defects anyway, had these been discovered while the developer still owned all the townhouses (so the order was not disproportionate to the breach).

4.15  Contrasts: Ireland 4.15.1  General Law of Contract Irish law’s close and continuing relationship with English law – but awareness of other common law jurisdictions’ approaches to the same problems – means that in essential respects its judge-made law of contract mirrors that of England, Wales and Northern Ireland. So English law’s nuanced approach to the requirement for consideration, as expressed in Williams v Roffey, is likely to be followed by Irish judges.434 Although not all commentators have welcomed it, the authors of a leading contract textbook say: ‘Given the economic crash that Ireland recently experienced [2008–2013], the Williams approach provides useful flexibility and permits the courts to take a practical approach to resolving disputes’.435 Where English law has moved in new directions – as in the doctrine of penalties, discussed in section [4.12.4] – Irish law is not bound to follow, but may choose to do so if the new approach seems to have merit and principle on its side. In statutory intervention too, Irish law has in many situations chosen solutions that are very close (in some situations identical) to the position in England & Wales. Many of these are noted in earlier sections of this chapter, notably in relation to the treatment of pre-contractual representations.436

4.15.2  Statutory Warranties Statute implies terms into contracts for the sale of goods (the old English Sale of Goods Act 1893, as amended) and into contracts for the supply of services (including goods) – more relevant to residential construction. These apply where the supplier acts in the course of a business and are contained in the Sale of Goods and Supply of Services Act 1980 (Ire): (a) that the supplier has the necessary skill to render the service; (b) that he will supply the service with due skill, care and diligence;

433 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2006] NZHC 486, [2007] 1 NZLR 785 [63]. The dispute led to two other court appearances: see [2006] NZHC 60 (earlier); and [2007] NZCA 355, [2008] 2 NZLR 591 (later). 434 Williams v Roffey: section [4.6.2]. 435 McDermott and McDermott (n 3) [3.43]. 436 See sections [4.3]–[4.4].

224  Contract Law in Residential Construction (c) that, where materials are used, they will be sound and reasonably fit for the purpose for which they are required; and (d) that, where goods are supplied under the contract, they will be of merchantable quality within the meaning of section 14(3) of the Act of 1893 (inserted by section 10 of this Act).437 A comparison with comparable obligations in the UK’s CRA shows that the Irish equivalent is more limited but nonetheless valuable; unlike the CRA, the Irish 1980 Act brings with it no purpose-built remedies in addition to those already available under general contract law.438

4.15.3  Challenging Unfair Contract Terms The law of unfair contract terms in Ireland has two main sources, both very close to the comparable position in England & Wales. In relation to limitations or exclusions of liability for breaches of terms implied by statute in contracts for the sale of goods or supply of services to consumers, or liability for misrepresentations, the Sale of Goods and Supply of Services Act 1980 (Ire) limits contracting out, in some cases imposing a test of reasonableness, with the burden of proof on the party seeking to uphold the limitation or exclusion. A statement in a range of possible contexts suggesting that consumers’ rights are more restricted than the statute allows is a criminal offence.439 More generally, Ireland, as an EU Member State, was obliged to transpose the 1993 EEC Directive on Unfair Terms in Consumer Contracts into domestic law.440 The result creates in Ireland a regime permitting individual challenges to B2C contract terms on fairness grounds very close to the regime now in force in the UK under the CRA; but without the extensions of protection beyond the 1993 Directive which the CRA introduced.441 The European-level case law is, of course, also equally relevant and has the same status in Ireland as (until Brexit) in the UK; reported English case law which has (in effect) applied the 1993 Directive could, therefore, be relevant in litigation in Ireland. In relation to the application of the law of unfair contract terms to our field in Ireland, two developments should be noted. In 2001, the Director of Consumer Affairs, with the support of the Law Society, obtained a High Court order prohibiting the use of a list of unfair clauses in ‘building agreements’. Among them included a power for the builder to resell the house or apartment if any payment from the buyer was late by more than 14 days, even where the buyer had made stage payments, a clause limiting the buyer

437 Sale of Goods and Supply of Services Act 1980 (Ire) s 39 (subject to s 40). 438 For the CRA and the supply of services, see section [4.9]. 439 Sale of Goods and Supply of Services Act 1980 (Ire) s 41. 440 The 1993 Directive (n 164) was implemented by the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 (SI 27/1995) (Ire), as amended. 441 See section [4.10].

Contrasts: Ireland  225 to one ‘snag list’ only, and (extraordinarily) excluding any liability on the builder for defects unless acknowledged in writing by the builder.442 Despite this, the Law Society has issued practice notes twice since to warn practitioners that the prohibited clauses continue to be included in building agreements for new houses and apartments; but has started no disciplinary proceedings against solicitors who have allowed this practice to continue.443 The 2009 decision in Healy v Whitepark Developments Ltd is an unreported ex tempore decision of the Irish High Court, set out in a 2018 Practice Note of the Law Society Conveyancing Committee.444 The parties had entered into the standard Law Society/Construction Industry Federation form of Building Agreement in connection with the construction of a new home. The defendant was a member of the Construction Industry Federation, at the time one of the joint appointing bodies for an arbitrator under clause 11 of the Building Agreement. Kelly J refused to stay proceedings to arbitration, holding that to require the plaintiff to submit to arbitration in circumstances where one of the appointing bodies for the arbitrator was a representative body of the defendant builder ‘offended the notion of natural and constitutional justice’, as well as falling foul of the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 (Ire). The parallels with Mylcrist v Buck in England are obvious.445

4.15.4  Remedies for Breach of Contract On the creation of the Irish Free State in 1922, the law in force included the whole of English law (where Ireland did not already have its own rules).446 This included the penalties doctrine deriving from the House of Lords in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd.447 Although full independence in 1949 confirmed the Irish courts’ freedom to depart from English case law, at Irish Supreme Court level Lord Dunedin’s tests were applied in 1998 in Pat O’Donnell & Co Ltd v Truck and Machinery Sales Ltd: the Court struck down a monthly 2.5 per cent interest payment on an overdue account as way above an acceptable commercial rate.448 Courts below the Supreme Court have decided that only Ireland’s apex court can depart from the Dunlop

442 In the matter of an application pursuant to Regulation 8 (1) of the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995, High Court (Kearns J) 20 December 2001. 443 Law Society of Ireland Conveyancing Committee, Breach of Unfair Terms Order may be deemed to be misconduct (13 December 2015); and Unfair terms in building contracts – reminder (4 March 2016). As this suggests, a High Court injunction may not alone be ‘appropriate and effective means … to prevent the continued use of such terms’, as required by the 1993 Directive (n 162) art 7(1). 444 Healy v Whitepark Developments Ltd (IEHC 15 June 2009) (ex tempore, Kelly J), referred to in Law Society of Ireland, Conveyancing Committee and ADR Committee Practice Note: Change to Arbitration Clause in Building Agreement (Law Society of Ireland, 5 October 2018). 445 On Mylcrist v Buck, see section [4.10.2]. 446 Constitution of the Irish Free State art 73. 447 Dunlop v New Garage: n 275. On the penalty doctrine in Ireland, see McDermott and McDermott (n 3) [23.308]–[23.345]. 448 Pat O’Donnell & Co Ltd v Truck and Machinery Sales Ltd [1998] 4 IR 191 (IESC).

226  Contract Law in Residential Construction principles, but its eagerness to do so is unclear.449 Meanwhile, judges will continue to be guided by Dunlop principles, not yet following English law’s change of direction in Cavendish Square v El Makdessi.450 One of the few Irish authorities on specific performance of residential construction contracts is the High Court decision in O’Reilly v Neville. The defendant builder successfully resisted a claim for damages for breach of a building contract and instead had imposed on it, on its own application, an order of specific performance.451 The builder argued that the building contract, in the Law Society standard form, entitled them to re-enter the property to carry out the rectification works; the Court accepted this and rejected the plaintiffs’ damages claim.452 O’Reilly v Neville is noteworthy also because the judge refused to award damages for distress and inconvenience, notwithstanding several recent High Court decisions where substantial sums were awarded under this heading following damage to family homes.453 In assessing the principles applicable to the reinstatement of a building damaged during construction works, those set out by the House of Lords in Ruxley Electronics v Forsyth were cited with approval in Gilmore v Galway County Council.454 The High Court held that a court must, in a property damage claim, take account of the existing condition of the damaged building. The point in time at which damages are assessed can be highly contested in defects cases, as the cost of carrying out remedial works can increase significantly over time. In Corrigan v Crofton, the High Court awarded damages based on the cost of remedial works as at the date of the hearing, rather than the date of commencement of proceedings, on the basis that the defendant builder/vendor had caused the delay by contesting liability; the plaintiff had no option but to wait until the outcome of litigation before starting the remedial works.455 This was consistent with the Court’s earlier decision in Johnson v Longleat Properties Ltd, in which the costs of repair of a defective home were assessed at the date on which the plaintiff might reasonably have commenced such repairs.456 The authorities present challenges to plaintiffs in deciding whether to mitigate their losses by undertaking repairs in advance of awards of damages in their favour.

449 See eg McKechnie J in Launceston Property Finance Ltd v Burke [2017] IESC 62 [40]–[41]. 450 Eg Sheehan v Breccia [2018] IECA 286. 451 O’Reilly v Neville [2017] IEHC 554. 452 O’Reilly v Neville (n 451) [119]. 453 O’Reilly v Neville (n 451); see also Mitchell v Mulvey Developments [2014] IEHC 37 and McGee v Alcorn [2016] IEHC 59. There is a debate in the case law whether claims for distress, anxiety and inconvenience (for which damages were awarded in both Mitchell and McGee) are in fact injury. The Irish Supreme Court decision in Hanrahan v Minister for Agriculture, Fisheries and Food [2017] IESC 66 [25] affirmed the principle that ‘in general, damages for breach of contract do not include damages for distress, upset and inconvenience’ (O’Donnell J), but Hogan J in Mitchell awarded substantial damages for distress and anxiety without specifying the basis for doing so, referring to both negligence and breach of contract. 454 Gilmore v Galway County Council [2010] IEHC 483. For Ruxley v Forsyth, see the main text to n 252. 455 Corrigan v Crofton [1984] IEHC 28, [1985] ILRM 189. 456 Johnson v Longleat Properties Ltd (IEHC, 19 May 1976) (McMahon J).

Contrasts: Scotland  227

4.16  Contrasts: Scotland 4.16.1  General Law of Contract References to the law of Scotland are spread among earlier sections of this chapter, reflecting the ‘separate, but often similar’ relationship between Scots law and English law in our field. Martin Hogg summarises the overall situation for contract: Scots contract law has retained a number of distinctive features … a separate obligation of promise, the absence of a doctrine of mutual consideration, an ancient recognition of jus quaesitum tertio, and an emphasis on performance in contract, to name but a few. At the same time, it has made a number of borrowings from the Common Law, a unified concept of breach, ‘self-help’ remedies for breach, the categorisation of repudiation as breach, and much of the doctrine of misrepresentation, among them.457

So there are areas where the Scots law of contract: • Closely shares principles and approaches with English law (notably in relation to the implying of terms, the interpretation of contracts and measure of damages, as well as the LD/penalty distinction).458 • Has encouraged change in English law, notably in relation to the doctrine of frustration.459 • Reaches similar results but from different sources (notably the requirement for writing in contracts).460 • Offers a sharp contrast to English law (the absence of any doctrine of consideration, the possible enforceability of unilateral promises and a very different system of time limits for legal action in contract and tort). Some of these could impact on the legal treatment of the scenarios in Tables 1.1–1.3, as could the very different structures and vocabulary of land law in Scotland. In its application to the contract side of residential construction, Scots law shares the ‘hands-off ’ attitude of English (and Irish) common law, simply applying general principles of contract law to construction situations. As the Scottish Law Commission suggests in the opening quotation at section [4.1], judges in the Court of Session in Edinburgh value freedom of contract, sharing the approach of all our other subject jurisdictions. However, they more openly aim in their procedures and remedies to encourage parties

457 Martin Hogg, ‘Perspectives on Contract Theory’ (n 81) 671. 458 On penalties, see n 279. The Scottish Law Commission recommended that the courts should be given power to modify a ‘manifestly excessive’ penalty clause, but this proposal was not legislated: Report on Penalty Clauses (Scot Law Com No 171, 1999). 459 In Scots law, Cantiere San Rocco SA v Clyde Shipbuilding & Engineering Co [1924] AC 226 (HL) indirectly led to Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 (HL) in English law and to the Law Reform (Frustrated Contracts) Act 1943 (E&W, NI). 460 See n 58.

228  Contract Law in Residential Construction to perform the obligations they have undertaken.461 The thinking and vocabulary which inform Scottish legal attitudes come from a unique intellectual and judicial tradition, inflected by centuries-old close contact with continental European legal thought. It is, after all, a ‘mixed’ legal system, but one whose apex court, based in London, is a court for the whole of the UK, at least in civil cases. There are several areas in practice in which Scottish consumers of construction may find themselves in a different position from those in England & Wales. For an off-plan buyer of a newly built (or converted) home, the contract will be the outcome of the to-and-fro of missives between the solicitors for developer and off-plan buyer. Given the structural inequality between them and the likely unfamiliarity of the buyer’s solicitor with construction risks and how to protect against them in law, this process will seldom produce such clear express build quality obligations as would usually be found south of the border in a developer’s comprehensive standard form ‘construct-and-sell’ contract.462 As a result, if there is a dispute about defects, the legal principles will often be found in implied rather than express terms, the English and other authorities already discussed coming into play. If the new home has a Buildmark third-party warranty (the NHBC having a nearmonopoly in Scotland), the obligations on ‘the builder’ in Years 1–2 may fill some of the documentary gaps; and the planned New Homes Quality Code may add further detail about build quality, in particular helping to define what is a defect and acceptable tolerances.463 Where a developer is willing to commit to complying with what look like objective standards, this may be no more than to produce a completion certificate under the Building (Scotland) Act 2003. However, in Scotland the developer, main contractor or other project party takes the initiative to draft and submit this certificate to a local authority, which acts only as a verifier, so it is not the result of independent inspection and verification and cannot easily form the basis of a claim, even if the building turns out to be non-compliant with ‘the building code’.464 As in England & Wales, any Date of Entry in the missives (what would be ‘completion’ in the standard two-stage sale process in English law) will give the developer the same leeway in completing the home as the example quoted in section [4.7.3]. As for regulatory intervention towards the goal of consumer protection, impacting on the law of contract, the position is virtually identical on both sides of the border; for national implementation of measures from Brussels, while the UK was still an EU Member State, this had to be so. This uniformity is likely to remain largely in place, even if the substance of the law may change now that the final legal stages of Brexit appear complete.465 Consumer protection is a ‘reserved matter’ to Westminster, like trade and industry, whereas housing (including building control) in Scotland is devolved to the Scottish government in Edinburgh.466 461 See section [4.16.3]. 462 This is the case, despite the Law Society of Scotland publishing non-mandatory Scottish Standard Clauses (4th edn, 2021), intended mainly for C2C sales of existing homes. 463 On the Code and the New Homes Ombudsman, see section [9.8]. 464 See section [3.10.2]. 465 On the relationship between post-Brexit UK law and EU law, see section [1.11]. 466 The Scotland Act 1998 s 30A. The Scotland Act 2016 s 50 empowered the Scottish Parliament to pass the Consumer Scotland Act 2020, creating a new public body as a consumer advocate and information source.

Contrasts: Scotland  229

4.16.2  Case Study 4: A Residential Construction Claim in Glasgow In Hughes v Barratt Urban Construction (Scotland) Ltd, the pursuer (claimant) sued the well-known national developer, whose Scottish subsidiary in 1982 had sold him (off-plan) a new end-of-terrace ground floor flat in a two-storey block in east-central Glasgow, opposite Glasgow Green. As damages for breach of contract, he wanted the difference between what the home would have been worth, had it been properly constructed, and what it had become worth, reduced by the impact of gradually increasing structural movement (cracks in the brickwork and around window openings). Barratts (or rather, their insurers) eventually accepted that the problems resulted from insufficient compaction of the infill materials on which the block of homes had been built. The City Council had declared some of the adjoining flats unsafe, and others in the same development had been demolished instead of being repaired. By the time the case got to court, Mr Hughes’s house was uninsurable and hence also unmortgageable (even Barratts themselves would not take it in part-exchange, to allow Mr Hughes to buy a new house from them). It was a dramatic example of the classic ‘inadequate foundations’ case and one where, self-evidently, the cost of rectification would make no sense as the measure of damages. Mr Hughes relied on an express contractual obligation on the developer in the NHBC’s then Scottish equivalent of the Buildmark warranty (the Scottish House Purchaser’s Agreement): ‘built in an efficient and workmanlike manner and of proper materials and so as to be fit for habitation’. Whether intended or not, this in effect translates into contract terms the threefold statutory obligation on ‘builders’ imposed by the Defective Premises Act 1972 – applicable across the whole of the UK except Scotland.467 He also alleged that a term should be implied into the construction part of the contract: ‘erected to a reasonable workmanlike standard using proper materials’. But he added a third ground – in words which recur in the tort law discussions in chapter 5: that the defender developer had ‘assumed responsibility to the pursuer to take reasonable care in the construction of structural elements of the property such as the foundations’ in relation to the type of loss and damage now complained of.468 None of these grounds specifically referred to failure to meet any of the mandatory construction standards under Scotland’s own ‘building code’ (the Building Regulations under the Building (Scotland) Act 1970 – now the 2003 Act). However, the developer was committed contractually to comply with the NHBC’s Requirements (since 2010 called Standards), which may have cross-referred to Scotland’s construction regime or included equivalent rules. In 2002 in the Outer House of the Court of Session, Lord Carloway accepted only part of the defender’s request to (in English terminology) strike the whole action out.469



467 For 468 On

duties under the DPA, see section [5.10.2]ff. ‘assumption of responsibility’, see section [5.5]. v Barratt Urban Construction (Scotland) Ltd [2002] ScotCS 87.

469 Hughes

230  Contract Law in Residential Construction Although the pursuer had made no claim under the third-party warranty against the developer in Years 1–2 or the NHBC in Years 3–10 (the cracks first appearing in about Year 12), he should not now be prevented from arguing a breach of the developer’s fundamental express construction obligation, even though NHBC cover had already expired. But he did not need to argue an implied term to do that. The parties’ relationship, the judge said, was contractual only: there could be no duty of care added on top of the developer’s contractual obligations (or, if there was, the pursuer seems to have accepted that it was co-extensive with those contractual obligations). Murphy v Brentwood DC, as interpreted by later authorities, held that a defect in the house itself caused by negligence gave rise to no liability in ‘the builder’ unless the defect caused imminent danger to persons or other property – not argued here.470 The pursuer’s claimed reliance on the developer’s skills in housebuilding did not bring the situation into the special ‘assumption of responsibility’ category: ‘the defenders do not seem to have tendered any advice to the pursuer upon which reliance was placed’.471 The judge, therefore, held this part of the claim ‘irrelevant’ (struck it out). When the case came to ‘proof ’ (‘trial’, as English lawyers would call it) in 2003, before Temporary Judge Leeona Dorrian QC, the developer accepted that they were in breach of their primary contractual obligation, so the only remaining issue was the quantification of damages.472 An engineer gave evidence that it would not be economical to repair the home, even if that could be done separately from the rest of the block; instead, valuation evidence suggested that the negative impact of the structural problems, when first noticed in 1994, on the home’s value amounted to £23,000.473 There was a final debate in court on the date from which interest should run (from the date of judgment, no argument for back-dating it to 1994 having been made at that stage).474 Ideas familiar from English case law were used to evaluate what liability should mean in hard cash: is rectification reasonable, or should the court instead compensate for the loss in capital value? How are the differing views of expert witnesses to be assessed? Anyone used to the current English or Australasian rules on time limits for civil claims in building cases will be surprised that Mr Hughes could start litigation close to 20 years after his home had been completed, well after his NHBC third-party warranty ran out.475 The defender argued at the second hearing that the claim was

470 Murphy v Brentwood DC: discussed at section [5.8]; Lord Carloway quoted Lord Keith in the House of Lords in Department of Environment v Thomas Bates & Son: ch 5, n 162. 471 Hughes v Barratt Urban Construction (Scotland) Ltd (n 469) [19]. 472 As Lady Dorrian, she succeeded Lord Carloway in 2016 as Lord Justice Clerk: the second most senior judge in Scotland and the first woman in the role. 473 ‘Homeowner Wins £23,000 Damages for Worthless Sinking Property’, The Herald (17 April 2003). Mr Hughes had claimed £56,500 for loss of value and £9,000 for additional losses: Hughes v Barratt Urban Construction (Scotland) Ltd [2003] ScotCS 345, 2004 SCLR 338 (Extra Division, Inner House) [3]. 474 Hughes v Barratt Urban Construction (Scotland) Ltd [2003] ScotCS 115. The interest issue was resolved by reference to the Interest on Damages (Scotland) Act 1958 and related case law. Interest was in the end backdated to 1994 after an appeal was determined on the award of costs: Hughes v Barratt Urban Construction (Scotland) Ltd (n 473). 475 On time limits in general, see ch 10; the main statute in Scotland at the time was the Prescription and Limitation (Scotland) Act 1973, as amended. The existence of the NHBC warranty was irrelevant to

Contrasts: Scotland  231 time-barred; however, the proper test under the current law was: could Mr Hughes, with reasonable diligence, have acquired the necessary level of knowledge earlier than he did?476 The judge held that he acted reasonably, first attempting to claim on his buildings insurance; the report he then received from an engineer analysing what had gone wrong, following the digging of trial holes, was also within a reasonable time frame. Time, therefore, only started running against him in 1995, so his litigation was not ‘timed out’.477 Analysis of what would have happened, had the pursuer not been Mr Hughes himself, but the current owner of the flat as his successor, is at section [5.15.1].

4.16.3  Remedies for Breach of Contract In its rules for awarding damages for a breach of contract in a construction context, Scots law appears very close to English law; its doctrine on the distinction between an enforceable LD clause and an unenforceable penalty already shared English law’s approach. As Lord Hodge JSC, the only judge of Scottish origin, suggested in Cavendish Square v El Makdessi, Scots law would follow the Supreme Court’s changes.478 More recent case law from the Inner House of the Court of Session confirms this.479 Two specific features of Scots law should be noted. First, its ‘mutuality of obligations’ doctrine, reinforcing ‘the prevention principle’ in construction law, may have a wider operation in our field: disabling a contracting party from taking action for a breach by the other party while the pursuer (claimant) is also in breach.480 Second, unencumbered by the common law idea that damages are contract’s primary remedy and that requiring a party to perform therefore requires special conditions to be met (moving into the area of discretionary equitable remedies), Scottish judges appear noticeably less reluctant than English judges to award a ‘decree of specific implement’. This is the equivalent of an order for specific performance of a contract, including one requiring construction work, as long as what has to be done is adequately clear.481 As in English law, failure to comply creates the risk of imprisonment; in reviewing the available sanctions, the

the possibility of Mr Hughes making a freestanding claim against the developers, as in its own terms it was additional to, and not in substitution for, any rights of action Mr Hughes might have against any other party: for modern equivalent wording, see the main text to ch 5, n 76. Unlike in Robinson v Jones, there was no argument that Mr Hughes had abandoned his rights at common law against the developer for his rights under the warranty, but any payment made by the NHBC for a successful claim under the warranty would have reduced the damages payable by the builder. 476 Compare the limitation issue in Hamlin: Case Study 1 at section [1.12]. 477 Hughes v Barratt Urban Construction (Scotland) Ltd (n 474) [1]–[15]. For the current Scottish rules, see section [10.10]. 478 Cavendish Square v El Makdessi (n 200) [216]. 479 Gray v Braid Group (Holdings) Ltd [2016] CSIH 68. In 2018 the Scottish Law Commission concluded, in the light of Cavendish Square v El Makdessi, that there was no strong reason for reforming Scots law: Report on Review of Contract Law (n 2) chs 19–20. 480 On the ‘prevention principle’, see section [4.12.4]. 481 David M Walker, Principles of Scottish Private Law, 4th edn (Oxford, Clarendon Press, 1988) vol II (Obligations) 159.

232  Contract Law in Residential Construction Scottish Law Commission reported in 2018 that no-one had actually been imprisoned on those grounds between April 2011 and April 2015.482 An example of ‘specific implement’ in a construction context is Kier Construction Ltd v WM Saunders Partnership LLP.483 Lord Woolman in the Outer House of the Court of Session was asked to order WMSP, consultants to Kier, main contractor for the DG One leisure centre complex in Dumfries for the local Council, to produce a collateral warranty to Kier. This was to be in the form which Kier, under its head contract with the Council, was in turn required to procure from all its design consultants and subcontractors. Long after the project was complete, with the Council employer already aware of significant defects, Kier formally requested the warranty from WMSP, which in return claimed fees unpaid by Kier. Having been paid the outstanding fees, WMSP still failed to produce the warranty. In court, Lord Woolman held that there was a binding agreement in relation to the warranty, and Kier had not waived its right to require it to be produced. The judge clearly felt no need to justify accepting Kier’s request for the warranty (rather than settling for damages) and therefore made the order; the sting in the tail, if WMSP did not sign and deliver the warranty, was that the Deputy Principal Clerk of Session (head of the Scottish Courts Service) would be authorised to do so on WMSP’s behalf.484

4.17  Chapter Summary Table 4.4  Contract Law in Residential Construction ISSUE WHAT ARE THE FUNCTIONS OF THE LAW OF CONTRACT?485

GENERAL POSITION

SUBJECT JURISDICTIONS

1 Facilitates commerce by encouraging parties to make their own contracts. 2 Upholds the parties’ bargains via courts, which offer remedies for breach and resolve disputes about the contract’s meaning and terms. 3 Protects consumers (via limitations on freedom of contract).

All subject jurisdictions start from freedom and sanctity of contract: judgemade principles. But the judges have nowhere developed general protections for consumers as such – these are all statutory or equivalent, existing in different forms in each subject jurisdiction.

(continued)

482 Scottish Law Commission, Report on Review of Contract Law (n 2) [15.17]. 483 Kier Construction Ltd v WM Saunders Partnership LLP [2016] CSOH 17. For a similar issue about a collateral warranty in English law, see Liberty Mercian v Cuddy Civil Engineering: n 237. 484 On the disastrous project in general, see Professor John Cole, Report of the Independent Inquiry into the Construction of the DG One Complex in Dumfries (2018). 485 See the Scottish Law Commission quotation: the main text to n 2.

Chapter Summary  233 Table 4.4  (Continued) ISSUE HOW DOES THE LAW DEAL WITH EVENTS BEFORE THE CONTRACT IS MADE?

GENERAL POSITION No duty at common law to negotiate ‘in good faith’. Pre-contractual misrepresentations made by one party to the other may be actionable if relevant to the other party’s decision to enter the contract. No duty at common law on one contract party to disclose relevant information to the other.

SUBJECT JURISDICTIONS The legal treatment of negotiations and misrepresentations is very similar in all subject jurisdictions. The law may impose a duty to disclose in specific cases or (Aus, NZ) treat failure to disclose as misleading and deceptive conduct under statute. Aus, NZ: the statutory regime for residential building contracts requires the building contractor to give the client specific information before the contract is concluded. UK, Ire: Regulations require the trader to disclose key information to the consumer in relation to B2C ‘off-premises’ contracts before the contract is concluded.486 UK: a Consumer Code, if relevant, will add modest extra consumer protections to the sales process for new homes.487

WHAT IS NECESSARY, IN ORDER TO MAKE A CONTRACT?

The common law ‘elements of formation’ need to be satisfied, including agreement on the contract’s essential terms, in any way that this can be proved: usually means ‘the scope of works’ (what is to be done?) and the price payable. Specific formalities (writing etc) are only exceptionally required.

All subject jurisdictions except Scotland require an exchange between the parties for a binding contract to exist (the doctrine of consideration): seldom a problem at the start of a project. Aus, NZ: statutory regimes (varying widely in detail) require writing for some residential (‘domestic’) building contracts; may also specify what the contract must (or may not) contain. UK, Ire: Regulations may require writing (copy of contract given to the consumer), may also give the consumer a ‘cooling-off’ period; some Aus regimes do so in relation to a residential construction contract. (continued)



486 For 487 For

these protections, see section [6.2.1]. UK Consumer Codes, see section [6.5].

234  Contract Law in Residential Construction Table 4.4  (Continued) ISSUE WHAT TERMS ARE IMPLIED, IF THE PARTIES FAIL TO INCLUDE THEM IN THEIR AGREEMENT?

GENERAL POSITION Courts imply terms – in a construction contract, basic quality standards and completion in a reasonable time.

SUBJECT JURISDICTIONS UK: statutes imply terms about quality into a contract to supply goods and quality, time and payment into all contracts for services (= construction). Ire: terms about skill, care, fitness of materials and goods supplied are implied into every contract for a supply of services if the supplier is acting in the course of a business. UK: a Consumer Code, if relevant, will add modest extra protection during the construction and completion processes for off-plan new homes.488 NZ: in residential building contracts, statute implies terms if parties’ own contract fails to deal with specific issues. Aus, NZ: common law of contract and statute impose obligations and warranties on the building contractor.

CAN UNFAIR CONTRACT TERMS BE CHALLENGED?

No general right to do so: depends on individual jurisdiction’s legislation.

UK: some protection against specific categories of term in B2B contracts under UCTA (reasonableness test). UK, Ire: protection against a wide variety of unfair terms in B2C contracts (1993 European Directive, extended in the UK). Aus, NZ: unfair contract terms prohibitions in similar terms to UK, with some extension to B2B contracts in Aus.

WHAT OTHER None at common law. FORMS OF PROTECTION GIVE INDIVIDUAL CONSUMERS ENFORCEABLE RIGHTS?489

UK, Ire: protection against unfair commercial practices (EU origin). Aus: Australian Consumer Law. NZ: Fair Trading Act.

(continued)



488 For

UK Consumer Codes, see section [6.5]. are all discussed in ch 6.

489 These

Chapter Summary  235 Table 4.4  (Continued) ISSUE WHAT REMEDIES ARE AVAILABLE FOR BREACH OF A RESIDENTIAL CONSTRUCTION CONTRACT?490

GENERAL POSITION

SUBJECT JURISDICTIONS

While a project is underway, the construction employer may have a right to bring the contract to an end if the builder is significantly in breach of the contract.491

UK: special additional remedies available by statute for breach of a B2C contract for services or supply of goods.

The standard common law remedy for breach of contract is an award of damages, seeking to put the claimant in the position as if the contract had been fully performed (expectation damages). These are special (proved from the facts of the case) but may also be general (non-specific, eg, for distress). An alternative (discretionary) remedy is an order from the court for specific performance (requiring the builder to perform – or return and complete – the contract by rectifying defects). ARE THE BUILDER’S OBLIGATIONS, IN A RESIDENTIAL CONSTRUCTION CONTRACT WITH THE FIRST BUYER (B1), ENFORCEABLE BY A LATER BUYER OF THE HOME (B2)?493

In common law jurisdictions, not usually and not easily; a theoretical possibility in Scots common law.

UK: a Consumer Code, if relevant, will add modest extra consumer protections to the after-sales position for all new homes.492 Ire: general law remedies only. Aus: court or tribunal may have the statutory power to order rectification of residential building work, as may a building regulator. NZ: remedies available by statute for defective construction and breaches of a residential building contract. Scotland: ‘order for specific implement’ (the equivalent of an order for specific performance) easier to obtain than in common law jurisdictions: does not require damages to be shown to be inadequate, nor case law conditions for the exercise of judicial discretion to be satisfied. UK, parts of Aus, NZ: statute allows original contract parties to agree to confer rights on B2 – rarely used.

E&W, NI: B2, like B1, can claim under the Defective Premises Act 1972 – not limited to action against a ‘builder’ who was in contract with B1.494 Aus, NZ: the implied statutory warranties in an original residential building contract are enforceable by the current homeowner (B2), subject to applicable limitation periods.

All jurisdictions: B2 can claim on a third-party warranty or equivalent insurance, if the home has one (within its scope, financial limits and duration). (continued)

490 Remedies

are discussed in ch 9. noted in section [4.1], the detail of rights of termination is beyond the scope of this book. 492 For UK Consumer Codes, see section [6.5]. 493 ‘Third party rights’ are discussed in section [5.3]. 494 The Defective Premises Act 1972 is discussed at section [5.10.2]ff. 491 As

236  Contract Law in Residential Construction Table 4.4  (Continued) ISSUE IF THERE IS A DISPUTE BETWEEN THE PARTIES TO A RESIDENTIAL CONSTRUCTION CONTRACT, WHERE AND HOW WILL IT BE RESOLVED?495

GENERAL POSITION The ordinary courts are the default dispute resolution bodies for all contracts.

SUBJECT JURISDICTIONS UK, Ire: consumers are protected by unfair contract terms law against agreeing to waive or limit the right to go to court. UK, Ire: statutory adjudication for construction contracts has a ‘residential occupier exception’ – adjudication not mandatory. Aus: the residential construction contract regime may be separate from any ‘security of payment’ regime.496 Some Aus jurisdictions: disputes about residential construction are allocated to a specialist tribunal, eg, VCAT, and may require an attempt to conciliate first (Vic). UK: each Consumer Code has its own dispute resolution system, as do most third-party warranties (insurers are also subject to a regulator, which can determine consumer complaints).497 NZ: parties to a residential construction contract can use statutory adjudication in relation to the implied warranties.

4.18 Evaluation This chapter aimed to show how the law of contract is central to most situations in which residential construction takes place; also that, in our field, the law has a range of objectives and a range of techniques. In its age-old common law form, it provides the legal framework under which parties’ arrangements can include promises which are enforceable at law. In this sense, the law of contract is initially facilitative: makes possible what parties together want – but also offers remedies which define what ‘enforceable’ means in practice. Does the law undertake that a claimant actually gets the building as specified, with work done by – or on behalf of – the party which initially undertook to do this? Or does it mean being given enough money to organise rectification work – with the power to leave the project as it is and spend the damages on something else? 495 Dispute resolution is discussed in ch 9. 496 For a discussion of whether residential construction work is covered by those security of payment regimes, see section [9.9.2]. 497 For UK Consumer Codes, see section [6.5].

Evaluation  237 But our field also provides a laboratory in which other functions of contract law can be seen in operation, with a range of interventions into the relations between parties to construction projects. These limit and channel the freedom that parties would otherwise enjoy. This is most obvious in Australasia in relation to residential construction contracts: informing consumers upfront about key legal aspects of the project and ‘the builder’; then imposing a minimum ‘floor’ of obligations on those who undertake construction work; and empowering those who are ‘strangers’ to the original contract to enforce those obligations by reason of their ownership of the home (or block of flats) in question. These regimes operate with a consumer protection goal, which in the judgment of governments and legislatures needs to take priority over ‘party autonomy’ where homes are concerned. The impact of protective governments and legislatures can also be seen wherever a broader ‘consumer’ focus is at work: imposing obligations on those whose business is the provision of services and preventing (or at least limiting) the scope for consumers to sign away a statutory ‘floor’ of protection. These protections look in part to procedure (what happens before the contract is entered into): trying to ensure that the consumer has information so knows what is on offer from a ‘trader’ and therefore has a chance of assessing it fairly before agreeing, or declining to agree, what is on the table. They are concerned with substance too (the terms of the contract): what does a trader as the provider of services – whatever the specific service – promise, or what should they be required to promise, as a minimum? Standing back from the detail, it is striking just how much law there is which is contract-related or contract-derived and relevant to residential construction. It relies heavily on judge-made remedies to make it work ‘on the ground’; these, in turn, presuppose that a credible threat of civil proceedings may cause a party who is (or may be about to be) in breach of contract to think twice about trying to avoid the consequences of their wrongful conduct. But instinct and experience tell us that this is – regrettably – not always the case.

5 Beyond Contract: Other Rights of Legal Action If a builder has built a house for a man and his work is not strong, and if the house he has built falls in and kills the householder, that builder shall be slain. If it cause the death of a son of the owner of the house, they shall put to death a son of that builder. CODE OF HAMMURABI1

5.1  Contract and Beyond A potential claimant who has problems with their home might wish the Hammurabi Code still in force, with its attractively straightforward ‘eye for an eye, tooth for a tooth’ idea of punitive retaliation for inadequate construction work.2 But houses seldom completely collapse, nor do they necessarily kill when they do, and when construction is defective, the primary focus in modern times is getting rectification done or the equivalent in compensation, if need be via civil courts or tribunals. However, the reaction to the Grenfell Tower tragedy by survivors and the broader community shows that there can still be an understandable thirst for criminal penalties, especially where a building has contributed to personal injury or death.3 Prosecutions sit alongside civil remedies and – if necessary – regulatory reform: all are routes towards preventing or minimising future occurrences of unacceptable risks and giving victims ‘their due’.

1 Sections 229–30 of the Babylonian law code from Mesopotamia (about 1800 BC), written in ­Akkadian in cuneiform script and incised into a 2.25m high stone stele; text online (Harper translation) at www. en.wikisource.org. The original is in the Richelieu Wing of the Louvre in Paris. Perhaps coincidentally, Roman law made provision for buildings at risk of collapse, its approach surviving in a different form via Domat and Pothier to re-appear as strict liability for collapse in the original art 1386 (now art 1244) of the French Code civil: Cees van Dam, European Tort Law (Oxford, OUP, 2006) [1501]ff and Alan Watson, Roman Law and Comparative Law (Athens GA, University of Georgia Press, 1991) 195ff. 2 ‘If a man destroy the eye of another man, they shall destroy his eye’ is also part of the Code of Hammurabi (n 1) s 196; see also Deuteronomy 19:21. 3 This aspect of the reaction has manifested the full gamut of human emotion, from the raw outrage of protests at Kensington Town Hall in the immediate aftermath of the fire through to the dignified eloquence of the silent walks each month since June 2017. It has been documented extensively, notably in Andrew O’Hagan, ‘The Tower’ London Review of Books, vol 40 no 11 (7 June 2018); and documentaries such as the BBC’s Grenfell (2018).

Why Prefer a Contract Claim?   239 This chapter looks at examples of construction operations that regularly involve individual home buyers or homeowners but do not produce a simple and straightforward answer to the question at the start of chapter 4: is our claimant ‘in contract with’ the (or a) target defendant? To make a claim in contract, if at all possible, is almost always ideal: better than relying on the most usual alternative, a claim in the tort of negligence. We explain why at section [5.2]. Some situations in English law do allow a claim in contract, but beyond the ‘in contract with’ paradigm, as section [5.3] explains; or a claim in tort (primarily the tort of negligence) in parallel with one in contract, discussed in section [5.4] and in relation to Case Study 5 at section [5.5]. However, our claimant may find no target defendant against whom to assert contractual rights, so must rely on tort alone, considered in sections [5.6]–[5.9]; or may make a claim under statute, at section [5.10]. These later sections of the chapter look specifically at those whose role is not actually to design or build but instead to inspect plans and work in progress or the complete building. BCBs (public or private) certify compliance with ‘the building code’, but there can be other possible ‘inspectors and certifiers’, as well as valuers – all concerned in different ways with build quality. If any of these fails to do their job well, the negative impact on a homeowner and other residents can be severe, so we consider them as additional potential defendants – with the tactical benefit that they are usually insured against this form of legal liability. The chapter ends with a sequence of explanations, in sections [5.12]–[5.15], of how our other subject jurisdictions converge and diverge in their responses to the same questions. A table-form summary, then a final evaluation, end the chapter.

5.2  Why Prefer a Contract Claim? Why is it that suing – if it comes to that – in contract is preferable to what may seem the obvious alternative – suing in tort (usually the tort of negligence)?4

5.2.1  Clarity of Obligations The obligations of the party who would be the defendant may be more completely defined if there is a contract than for an action in tort – at least if what has been agreed is clear. Here statute and common law may help by laying down some of the terms for the category of contract in question (more on this in chapter 4). In an ideal situation, there is an agreement in writing, signed by or on behalf of both parties, who accept that this document represents the totality of what they have agreed.5 If a published 4 There are two relevant additional possible bases for liability in tort. The first could apply in our field only to BCBs: the courts may conclude that a breach of statutory duty is actionable in tort, where a statutory scheme imposes duties which appear intended to protect a defined class of claimants and contains no remedies of its own for failures to carry out the duties imposed. This seems never to have been argued in relation to the Building Act 1984 (E&W) – perhaps because of its own liability rules in s 38 (never fully brought into force and subject to repeal in the 2020 draft of the Building Safety Bill (sch 5 pt 1 cl 29): see section [5.10.1]. The second is the separate tort of deceit: see Case Study 11 at section [11.8]. 5 This assumes that duties in tort do not arise out of a relationship in contract between the same parties – on which see section [5.4].

240  Beyond Contract: Other Rights of Legal Action s­ tandard form is used, help may be available in interpreting key clauses via the contract’s guidance notes, commentary in textbooks or reported case law. The contract may also contain its own machinery for claims and remedies under it, or where one party wishes to assert that the other is in breach, and may make available dispute machinery quicker and cheaper than litigation. Alternatively, statutory adjudication may be imposed, as an option or even as a requirement.6 These apparently technical details should mean that the way forward in contract for an unhappy would-be claimant (whether they are an original party, assignee or third party) is clearer than having to confront the questions a tort claim will pose – notably the $64,000 threshold question of law: did this target defendant owe a duty of care to this claimant, in relation to the type of harm for which the claimant wants a remedy?

5.2.2  Establishing the Liability of ‘The Builder’ At least some of the obligations in a construction contract may allow for simple yes/no answers about liability, if the contract includes terms containing what lawyers sometimes call ‘end-result obligations’ – a duty to reach a specific outcome or to achieve compliance with a defined standard (‘what?’). The examples in Table 2.1 illustrate this; they also show that deciding what standard applies and whether it has been reached may not be straightforward, especially if it looks to a test of the reasonableness of the result. An ‘end-result obligation’ is usually contrasted with a ‘process obligation’: for example, a duty to perform activities with reasonable skill and care (ie not to be at fault). Figure 5.1  Scenario 6 in England & Wales



6 On

adjudication and other forms of ADR, see ch 9.

Why Prefer a Contract Claim?   241 This brings in Scenario 6 (Table 1.2); its key parties and transactions are represented in Figure 5.1 above. The construction contract between the site owner B2 (individual construction employer) and their main contractor M2 for building a new home includes a specific obligation to respect ‘all statutory obligations applicable to the Works’.7 This certainly includes the terms of planning permission. If there was a more project-specific provision in the contract, it could run along these lines: ‘The Works shall conform with the conditions laid down in the Permit to Build No 2019/XXX issued on [date] by [the local planning authority]’. One of these conditions prescribes ‘a building line’ (sometimes called a ‘set-back’) – a minimum distance between the boundary of the site, against the public road, and the front elevation of the new house itself. It is clear that, contractually, the builder must respect this requirement, so it will be in breach if the house is positioned too close to the road.8 To set out foundations for the house – worse, to pour a concrete slab and build on it – in the wrong place would in due course expose the owner to public law enforcement procedures at the initiative of the local planning authority: these could include an enforcement notice, stop notice or injunction.9 There may be a question about the responsibility of architect A for allowing this situation to arise: what exactly was A’s role in the project, under both the main construction contract and their appointment by B2? Did A take on the role of ‘contract administrator’?10 As Figure 5.1 suggests, A is not ‘in contract with’ M2, even though A’s role may include exercising in relation to M2 some of the powers B2 has as the employer under the construction contract. If the front elevation of the house is clearly over ‘the building line’, B2 may be entitled to treat the contract as at an end, throwing M2 off the site, employing a new contractor to complete the project in the right place and looking to M2 for damages representing the extra costs of doing so and incidental expenses.11 M2 cannot argue, as a defence, that they took all reasonable care to set the house out correctly; and that a reasonable builder with their background and skills would (or could) have done the same. They have simply failed to produce one of the end-results required by the contract – a situation we could also call one of strict liability (no requirement for proof of fault). In contract, M2 has responsibility to B2 at common law not only for their employees but for anyone else whom M2 engages to take on work on the project, like specialist groundwork subcontractor S1.12 M2 cannot limit or shift their contractual ­responsibility 7 In these precise terms: the RIBA Domestic Building Contract 2018 cl 2.1.4. The same result in law may be achieved by a more general obligation on the main contractor, like ‘The Contractor warrants that the Works when completed shall comply with the Requisite Consents and Statutory Requirements’: see, further, section [4.8.2]. 8 There could still be arguments about how to measure the distance and about acceptable tolerances – whether positioning the house a few millimetres too close to the road is really, or not really, a breach of that clause in the contract. The significance of a small discrepancy may, in turn, depend on the attitude of the local planning authority, the risk of sanctions and the possibility of regularising such a technical breach. 9 In English law, under the Town and Country Planning Act 1990 ss 171E, 172, 183 and 187B, as well as the Local Government Act 1972 s 222: on injunctions, see South Bucks DC v Porter [2003] UKHL 26, [2003] 2 AC 558 and (on an interim basis) London Borough of Hackney v Shiva Ltd [2020] EWHC 2489 (QB). 10 See Anthony Lavers, ‘An Officer of the Contract? The Delicate Position of the Contract Administrator’ (Society of Construction Law (UK) Paper 224, 2020). 11 On the employer’s right to bring the contract to an end, see eg, the RIBA Domestic Building Contract 2018 cl 12.1–2 and the FMB Domestic Building Contract cl 22 (requiring notice first). 12 This will be so unless the contract specifies otherwise; alternatively, it may make the main contractor’s liability for all subcontractors clear, as in the RIBA Domestic Building Contract 2018 cl 2.6, NEC4 ­Engineering and Construction Contract (2017) cl 26 and FMB Domestic Building Contract cl 26. For the extremes to which this principle may lead, see Houlahan v Pitchen [2009] WASCA 104 (Newnes JA; Pullin and Miller JJA

242  Beyond Contract: Other Rights of Legal Action by showing that S1 was appointed because they are reputable in their field. So M2 undertakes responsibility to employer B2 – and to anyone else who has a right of action against M2 in contract, including by statutory intervention – for the quality of the work, no matter whether it is done by M2 individually, employees of M2 or ‘independent contractors’ (in this case, S1). If B2 successfully sues for breaches of the main construction contract, M2 may have a right of recourse against a third party like S1, based on the contract M2 has with them. If so, this will reduce the amount M2 must find in order to ensure that the construction employer receives all the damages owed – but will not affect the principle of the liability of M2 to B2 (or B3, in due course).13 So M2 is in effect carrying the risk of the insolvency of all of those whom M2 engages for the project. Scenario 6 also includes an adjudication clause in the construction contract between B2 and M2: this may prevent or delay immediate court action, as chapter 9 explains, but will not affect the legal rights and duties of the parties. By contrast, if M2 were sued in tort for negligence, based on what S1 had done, they could argue that they are not responsible in law for ‘independent contractors’ – those who are not their employees or equivalent.14 The English law of tort only exceptionally imposes liability on someone in the position of M2 for the work of an independent contractor; when it does do so, for policy reasons, it then labels the duty as ‘non-delegable’. Such rare cases are now treated as anomalous.15 Australian tort law offers even fewer possibilities of pinning liability on a party who has delegated tasks to an independent contractor, as long as the independent contractor is appropriately qualified and has been carefully chosen and briefed;16 by contrast, the law in New Zealand seems more generous in this area.17 agreeing). The WA Court of Appeal upheld a finding at trial that the home builder’s responsibility (reduced to 25% via the applicable apportionment legislation) was to ensure that ‘all work which fell within [the building contract] (whether or not the work in question was carried out by the [builders] personally or by some other party such as a sub-contractor) was carried out in a proper and workmanlike manner’ [72]. This included a balustrade installed by a contractor ultimately engaged directly by the owners. In support of that finding, the balustrade had originally been part of the builder’s scope of work and never expressly omitted; and the owners paid the balustrade contractor via the builder [73]. 13 On a defendant’s right of contribution from a concurrent wrongdoer, see section [9.5.3]. For a classic example of ‘death by subcontracting’, see Greenwich Millennium Village Ltd v Essex Services Group plc [2013] EWHC 3059 (TCC), 151 Con LR 1. 14 On ‘a non-delegable duty of care’ and ‘relationships akin to employment’, see also Armes v Nottinghamshire County Council [2017] UKSC 60, [2018] AC 355. On the limits of an employer’s vicarious liability for torts of an employee and possible liability for a non-employee, see WM Morrison Supermarkets plc v Various Claimants [2020] UKSC 12, [2020] 2 WLR 941 and Barclays Bank plc v Various Claimants [2020] UKSC 13, [2020] 2 WLR 960. 15 Note that no issue about the scope of liability for others was raised in Robinson v Jones, either in the TCC or on appeal: see section [5.5]. English law retains, very reluctantly, a principle that a party who undertakes activities which are ‘ultra-hazardous’, whatever precautions are taken, retains primary liability for them in tort, even if in fact delegated to a carefully chosen and appropriately qualified independent contractor: Biffa Waste Services Ltd v Maschinenfabrik Ernst Hese GmbH [2008] EWCA Civ 1257, [2009] QB 725, [2009] BLR 1, discussed by Ben Patten, ‘Ultra-hazardous Acts: Where Do We Go After Biffa?’ (Society of Construction Law (UK) Paper D104, 2009). Biffa has been followed by Tinseltime Ltd v Roberts [2011] EWHC 1199 (TCC), [2011] BLR 515. For Scots law’s similar approach, see McManus v City Link Development Co Ltd [2015] CSOH 178 [43]–[74] (Lord Jones); on this case, see Francis McManus, ‘Employer’s Liability for the Performance of Hazardous Activities by an Independent Contractor in the Law of Scotland – Time for Change?’ [2017] Juridical Review 231, also n 123. 16 The High Court of Australia has confirmed its rejection of the English doctrine of ‘ultra-hazardous’ acts (n 15), as well as setting strict limits to the notion that some activities are by law ‘non-delegable’: Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1, (1986) 160 CLR 16. 17 New Zealand law appears to hold that where a builder does owe a duty of care in relation to build quality, this is ‘non-delegable’: the builder’s liability is not reduced or eliminated by employing independent contractors: Mount Albert BC v Johnson [1979] NZLR 234 (NZCA).

Why Prefer a Contract Claim?   243 But in Scenario 6, our claimant is not B2 but B3, to whom B2 sells the plot midway through construction. Buying the plot does not automatically put B3 in a contractual relationship with M2, nor give B3 any necessary ability (at least in English law) to rely on the terms of the construction contract B2 had made. Practically, this would be an ideal situation for B2 to assign the benefit of their main contract with M2 to B3; alternatively, to get agreement from M2 for B3 to step in as construction employer (novation).18 And to do the same for the consultancy contract with architect A. If those steps cannot be organised, our new owner may have no choice but to frame a claim arising out of the same facts in the tort of negligence. No ‘quick and dirty’ dispute resolution procedures will be available – those, whatever they are, apply only to claims in contract, so unless M2 or A agrees to ADR, B3 has to be ready to go to court. There, the first task will be to get over the duty of care hurdle, as explained in section [5.8]. Our claimant must go on to convince the court of the defendant’s fault (their failure to meet an objective standard of the reasonable ‘builder’ or architect in their position). Finally, as in a contract case, B3 must demonstrate a right to damages for expenses or losses flowing – not too remotely – from the defendant’s breach of duty. Many sorts of argument which may be irrelevant in contract become live issues in tort – their outcome often hard to predict. Figure 5.2  Scenario 6 in Australia

Many of these uncertainties are swept away in an Australian context if the initial contract between B2 and M2 comes within one of the ‘residential construction contract’ regimes

18 There is no certainty that B2 has the power to assign midway through construction; or that B2 and M2 would agree to novation: on assignment and novation, see section [5.3.2].

244  Beyond Contract: Other Rights of Legal Action established by statute. Figure 5.2 above illustrates how, when B2 transfers the plot (and partly completed house) to B3; the new owner acquires the right to enforce statutory warranties against M2 – all by operation of law and without the need for any assignment of rights or the construction contract to B3. The detail of how this works in each Australian jurisdiction is explained in section [4.13.2].

5.2.3 Remedies A further reason for preferring to claim in contract, if possible, is that there is often no difficulty in getting damages for the cost of rectification of defects or the resulting drop in the building’s value, provided that the defendant’s acts or omissions can be shown to be a breach of contract which has caused the need for extra expenditure, or such a loss.19 In our ‘building line’ example, it may be possible to convince a court or ­tribunal – in the language of the law of negligence – that a reasonable builder would have foreseen that to position the house in the wrong place would lead to a situation not conforming with the planning permit, creating the risk that B2 (or B3) would be forced to restart the project in the right place. But the problem might be harder to detect, harder to prove and harder to remedy. In Scenario 7 (Table 1.3), consider the problem of inadequate fire-stopping in a block of flats, the responsibility during construction of specialist subcontractor S2. This leads to a situation not compliant with ‘the building code’, impacting negatively on all the present homeowners, none of whom ever had any contractual relationship with subcontractor S2, nor even (in those who are successors to first buyers) with the developer X, unless statute creates such a link.20 To succeed in tort in either scenario requires engagement with complex case law attempting to answer this question: when does negligence, resulting in a building failing to comply with mandatory external standards, lead to damages being recoverable? Meeting all the tests is exceptional in many of our jurisdictions. Although damages are the central remedy for a breach of contract which has already occurred, we noted above that an innocent contract party (B2 and, in due course, B3 in our ‘building line’ Scenario 6) might also have the option to treat the whole contract as terminated, going forward.21 Additionally, our claimant may be able to request an injunction – a court order restraining the other contract party from committing an anticipated breach or continuing an ongoing breach. Similarly, an order for specific performance (or its equivalent) may be available: requiring a party who has not yet done so (or not done so completely) to perform their side of a contract or their obligations in 19 The items for which damages are claimed must not be ‘too remote’ from the breach of contract, for which the main case law tests derive from Hadley v Baxendale (1854) 156 ER 145, 9 Ex Ch 341 and Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 (CA): see Julian Bailey, Construction Law, 3rd edn (London, London Publishing Partnership, 2020) II.13.111ff and Attorney General of the Virgin Islands v Global Water Associates Ltd [2020] UKPC 18, [2020] 3 WLR 584 [21]–[35]. To show an adequate causal link between defective construction and the need for rectification will seldom be difficult, as this is ‘direct’ damage. Remedies in contract for defects, and the choice between rectification costs and drop in value, are discussed in section [4.12.3]. 20 Scenarios 7 and 8 are discussed in ch 11. 21 On the employer’s right to terminate a construction contract for breach by ‘the builder’, see also section [4.12.5].

Why Prefer a Contract Claim?   245 a deed. Neither of these remedies, though labelled in common law jurisdictions as equitable (ie discretionary), is available in relation to a claim framed in the tort of negligence alone. Here, a court’s power is only to award after-the-event damages. Such a monetary award will look to restoring the claimant, so far as money can do, to the position as if the tort had not occurred. This sounds like the opposite of the contractual approach: ‘put the claimant in the position as if the contract had been performed’. But since time cannot be rewound to before the tort occurred, in building defect cases the main category of ‘special damages’ in tort will represent the cost of rectification or (less often) the drop in value of the building.22 A further distinction between contract and tort is that a successful negligence claimant may find their damages reduced if the defendant convinces the court that the claimant has been guilty of contributory negligence: failing to take the precautions to protect themselves which a reasonable person in their position would have done.23 In all our subject jurisdictions, this can lead (by statute) to a reduction in the damages awarded, according to the percentage by which the court considers that the claimant shares responsibility for their loss.24 The scope of such a defence depends directly on the wording of each statute. In English law, at least, the risk of losing part or all of what would otherwise been the damages is not present in contract-based claims if the defendant’s obligations are framed as ‘end-result’ duties, as in Scenario 6 above; or if the defendant would not anyway have owed the claimant a duty of care in tort.25

5.2.4  Possible Advantage of Suing in Tort There is only one main situation in which suing in tort could be advantageous: if the time limit for suing in contract has already expired (so it is too late to start legal action on that basis) but has not yet done so in tort. This depends on how the law of limitation works in a given jurisdiction: in England, the law may define differently in contract and in tort the date on which time starts to run. In tort, it may look to the suffering of a recoverable form of harm as an essential part of the ‘cause of action’; and knowledge of what has gone wrong may be relevant to start or extend the period – not usually the case 22 For E&W examples, see Dutton and Anns v Merton in section [5.7]; from NZ, see Case Study 1 at section [1.12] and the sequence of ‘leaky building’ cases in section [5.13.2]. 23 Even in jurisdictions that generally allow claims in tort for pure economic loss caused by building defects, examples of such a defence are rare, but Elias CJ confirmed the possibility in the NZSC in Sunset Terraces/ Byron Avenue (n 325). For a high profile NZ example, see Southland Indoor Leisure Centre Trust v Invercargill City Council: n 337 and its main text. On whether a new home buyer is at risk if they fail to inspect the home, under construction or at completion, see section [8.5]. 24 Law Reform (Contributory Negligence) Act 1945 (E&W, Scotland) and Law Reform (Miscellaneous Provisions) Act (NI) 1948; Civil Liability Act 1961 (Ire) s 34; Australia: Civil Law (Wrongs) Act 2002 (ACT) s 47, Law Reform (Miscellaneous Provisions) Act 1965 (NSW) Part 3 and Civil Liability Act 2002 (NSW) div 8, Law Reform (Miscellaneous Provisions) Act 2006 (NT) pt V, Law Reform Act 1995 (Qld) s 10, Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 7, Wrongs Act 1954 (Tas) s 4, Wrongs Act 1958 (Vic) pt V and Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA) pt 2; Contributory Negligence Act 1947 (NZ). 25 See Hugh Beale (ed), Chitty on Contracts, 33rd edn (London, Sweet & Maxwell, 2018) [26-085]–[26-086]; also Barclays Bank plc v Fairclough Building Ltd [1995] QB 214, 38 Con LR 86 (CA) and Oakapple Homes (Glossop) Ltd v DTR (2009) Ltd [2013] EWHC 2394 (TCC), 150 Con LR 110.

246  Beyond Contract: Other Rights of Legal Action for a claim in contract. As a result, it may be a claim in tort – if one can be asserted – or nothing.26 Where the factual background allows, an argument in tort may be mounted as an alternative to one in contract, in case the court rejects the assertion that there was a contract – see Case Study 6 at section [5.6].

5.3  Contract Rights and ‘Third Parties’ Under the combined effect of two venerable common law doctrines (shared by all our subject jurisdictions, except Scotland) – privity and the necessity for ‘consideration’ in a contract – those who are outsiders to a contract can usually acquire no enforceable rights under it.27 Exceptionally, however, the right to take action under a contract can be exercisable by a claimant who was not one of its original parties – in this context, a ‘third party’. In our field, given how often homes change hands over time, these special situations can be vital in facilitating a contract claim where one in the tort of negligence might be unavailable or impractical.

5.3.1  Making Statutory Warranties ‘Run with the Land’ As discussed in sections [4.13]–[4.14], Australasian jurisdictions protect consumers by controlling the content of residential (‘domestic’) construction contracts, limiting what the original parties are free to agree, imposing some terms as standard and in some cases adding formal requirements about how the terms must be recorded and the parties’ agreement to them. But the real magic of this intervention goes further: if the first buyer of a home (B1) enters into a purchase contract with the developer X – whatever the contract’s detailed terms, as long it attracts the statutory obligations (‘warranties’) imposed on all providers of such construction services – then when B1 sells the home to B2, the new owner can rely on the same warranties against the main contractor M, or in some cases against the developer X, as if they were ‘in contract with’ M or X. Figure 5.2 above illustrates Scenario 6 under such a regime.

5.3.2  Assigning Contractual Rights to a Third Party Although legislation does not intervene in residential (or any other) construction contracts in the UK or Ireland in the same way as in Australasia, all our subject jurisdictions offer one way around the impact of privity of contract. In Scenario 2 (Table 1.1),

26 For more detail on time-limit issues in our subject jurisdictions, see ch 10, including the specially long limitation period for a written and signed contract which takes the form (or equivalent) of a ‘deed’. Some Australasian jurisdictions offer no scope in our field for preferring a tort claim, having a single 10-year ‘long stop’ limitation period for both contract and tort actions in respect of defective building work, residential or other. Scotland does the same more generally, seeing contract and tort as branches of a broader ‘law of obligations’. 27 On consideration, see section [4.6].

Contract Rights and ‘ Third Parties ’  247 first buyer B1 could assign to a third party their rights under the contract with developer X – meaning the right to call on X to perform the contract (if not yet fully performed) and the right to whatever remedies for breach are available under the general law and the contract itself. This is exactly what B1 does to B2 in Scenario 5. Similarly, in Scenario 6, B2 could, in theory, assign their rights under the construction contract with M2 to the new owner of the plot, B3; they could do the same for their contract with architect A. Such a ‘bundle of rights’ deriving from a contract forms an example of a chose in action: a special kind of intangible property, capable of being realised (turned into money) only by going to court (‘action’), but usually also capable of being transferred to someone else.28 We are here considering the assignment of the benefit of a contract; such a transaction can, in theory, take place at any time once the contract exists (so B1 could assign the benefit of their purchase contract with X even before the home is completed). However, the benefit of a contract relating to a home is most likely to be assigned when the home itself is sold – as in Scenario 5 (Table 1.2), if B2 is well advised.29 The result is that the right to sue the developer X travels with ownership of the home to which it relates.30 Once B1 has sold on and moved away, they may have no interest in helping B2 out, even for a fee and their legal expenses.31 English law’s default assumption is that the benefit of any arm’s-length contract (whether B2B or B2C) can be freely assigned, so consent by the other original contract party is unnecessary.32 However, clauses in the contract itself may validly impose conditions on the possibility of assignment – including time restrictions (eg, in construction, only after practical completion) or even a complete ban.33 An assignment in violation 28 See, generally, Beale (n 25) ch 19. 29 Assignment may be crucial in empowering all the current inhabitants of a block of flats to take action in contract against a developer if not all of them are still first buyers, and there is no statutory regime to help them – as ch 11 explains. 30 If the home is on a long leasehold, selling takes effect by another form of assignment: B1 assigns the remaining period of the lease to the ‘purchaser’ B2, who steps into the shoes of B1 in relation to the landlord, in return for (in effect) a capital payment equivalent to a purchase price. 31 In a residential context, it is hard to imagine B1 being willing to sue X for the damages B2 would have expected after B1 has sold the home to B2; but it is a theoretical possibility in order to avoid a legal ‘black hole’: St Martins Property Corporation Ltd v Sir Robert McAlpine and Sons Ltd [1994] AC 85 (HL), considered in BV Nederlandse Industrie van Eiprodukten v Rembrandt Enterprises Inc [2019] EWCA Civ 596, [2020] QB 551 (Coulson LJ). This exceptional route to a substantive remedy will not be available if B2 already has a direct claim, eg, under a collateral warranty (though it is rare for a homeowner to have the benefit of one): Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 508 (HL). Alternatively, B1 can, in theory, become a constructive trustee for B2 of the benefit of a construction contract (equally unlikely in our field): Darlington Borough Council v Wiltshier Northern Ltd [1994] EWCA Civ 6, [1995] 1 WLR 68 (Dillon LJ). 32 The benefits of contracts which the law considers personal in nature cannot be assigned, like a contract to paint a portrait – but the right to have building work done apparently can: Charlotte Thirty Ltd v Croker Ltd (1990) 24 Con LR 46 (QB). The right to claim under an insurance policy cannot be assigned: Peters v General Accident Fire & Life Assurance Corp Ltd [1938] 2 All ER 267 (CA), considered by Simpson v Norfolk & Norwich University Hospital NHS Trust [2011] EWCA Civ 1149, [2012] QB 640; in some cases, even an accrued claim under the policy may not be assignable: see ch 7, n 23. 33 The two main B2B forms from the UK’s Joint Contracts Tribunal (JCT), the Standard Building Contract With Quantities 2016 (SBC/Q 2016) and the Design and Build form (DB 2016), both start in clause 7.1 with a general prohibition on assignment except with the other party’s consent. But clause 7.2 provides specifically for a version of assignment: the construction employer may transfer its ‘right to bring proceedings in the name of the Employer’ to a later owner or lessee of ‘the Works’ after practical completion, provided that the Contract Particulars expressly apply this clause to the project.

248  Beyond Contract: Other Rights of Legal Action of such restrictions (or an outright prohibition) confers no rights on the purported assignee against the other original contract party.34 In relation to an off-plan sale of a new home from X to B1 in England & Wales, we have no published ‘construct-andtransfer’ standard forms, but an example from a sale contract from developer to the first buyer of a flat in a new block includes the following: You are entitled to sub sell the Property in which case the Lease will be granted to the sub purchaser nominated by you. You are entitled to assign the benefit of this Contract (but not the burden) once only. You shall procure that notice of any assignment or sub-sale (or notice of any intended assignment or sub-sale) is given to us.35

One of the recent B2C standard forms designed for residential building work for an individual employer, the RIBA Domestic Building Contract 2018, expressly permits either party to assign (with no time restriction) but makes this subject to the written consent of the other party.36 The FMB Domestic Building Contract makes no express provision, so the common law must apply here, permitting assignment without conditions. The result of a successful assignment, which can only happen expressly (never by implication), is that the assignee ‘steps into the shoes’ of the assignor: they can claim against the other contract party whatever the assignor could have claimed (no more and no less).37 In Scenario 5 (Table 1.2), if the developer X has committed a breach of contract (the cause of action arising, even if no damage had yet been suffered) and some damage has been suffered while the first buyer B1 is still in the picture, then the successor B2 as assignee can, in theory, claim substantial damages for all of the loss they have actually suffered (ie the need to rectify the positioning of brickwork over the edge of the concrete slab, assuming this is also a breach), just as the assignor B1 could have done, had the transfer of the land not happened.38 But the assignee is in the same limitation position as the assignor: time does not restart, nor is it extended, because of an assignment, so in Scenario 5, the second owner B2 will in all likelihood lose the right to sue the developer X (in contract or under the Defective Premises Act 1972) six years after the original sale to the first buyer B1, even 34 Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 85 (HL), considered in Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd [2020] EWHC 2537 (TCC), 192 Con LR 79; English law assumes that a valid assignment transfers not only any accrued rights to sue under the contract but also the right to sue for any future breaches. Where an attempted assignment is invalid, the would-be assignor may be able to claim substantial damages for losses in fact suffered by the would-be assignee: St Martins Property Corporation Ltd v Sir Robert McAlpine & Sons Ltd: n 31. Assignment may require formal steps – writing and notice to the debtor – in order to take effect as a legal (or statutory) assignment: Law of Property Act 1925 (E&W) s 136(1), on which see Shaw v Lighthousexpress Ltd [2010] EWCA Civ 161. 35 Edited extract from the standard sale contract used by a major UK developer (2015). 36 RIBA Domestic Building Contract 2018 cl 4. 37 Even where the right to assign has not been restricted or prohibited, the words used may require interpretation in order to decide exactly what rights have been assigned: see eg, Tinseltime Ltd v Roberts Ltd (n 15) [29]–[40]. 38 Technotrade Ltd v Larkstore Ltd [2006] EWCA Civ 1079, [2006] 1 WLR 2926. However, on the same facts, the court held that, where the assignment of any right of action in tort follows the transfer of the land (the assignor suffering no damage before the assignment, essential to the creation of a cause of action in tort), the assignee acquires no right to sue in tort. See also this case’s curious sequel Starglade Properties Ltd v Nash [2010] EWCA Civ 1314, [2011] Lloyd’s Rep FC 102. The right to sue X (or anyone else) which B1 may have had under the Defective Premises Act 1972 (E&W, NI) transfers automatically to B2 with ownership of the home: section [5.10.2]ff.

Contract Rights and ‘ Third Parties ’  249 though new evidence has come to light meanwhile of problems with build quality.39 An assignment does not (and cannot) affect or transfer any obligations of the assignor under the same contract; for these to be transferred to a new party, the other original contract party would have to agree. This would (in effect) be the making of a new contract, even though its terms may remain unchanged. In a construction context, this is usually called novation; it could occur in Scenario 6 (Table 1.2), where B2 sells B3 the plot on which M2 is building a new house.40

5.3.3  Conferring Rights Under a Contract on a Third Party Taking a more direct and radical approach, the Contracts (Rights of Third Parties) Act 1999 imports into English and Northern Irish law a device familiar from the stipulation pour autrui of the French Code civil and most other civil law systems (including uncodified Scots law); it empowers the parties to a contract to give a third party the right to enforce terms of that ‘parent contract’.41 In Scenario 2 (Table 1.1), this would permit (but never compel) developer X, in their contract to sell a home to first buyer B1, to confer on B2 – or anyone else – the right to enforce one or more of its terms.42 It can be done even where B2 is not yet in existence or can be identified only as a (future) member of a class, for example, ‘the owner (or lessee) for the time being of the home’.43 The result is that the third party acquires a right of action which – unlike the result of assignment – benefits the third party in their own right, not derivatively (hence will lead to whatever remedies are appropriate for the impact on the third party of the breach of any relevant term in the ‘parent contract’).44 However, the third party’s right to enforce such terms is subject to (a) the same restrictions or limitations as that contract contains (which could mean an arbitration or other ADR clause); and (b) the same defences, setoff, exemption clauses etc as the present defendant could have relied on, if sued by the other original party.45

39 On time limits in general, see ch 10. 40 Although there are no formal requirements for a successful novation, it is wise to do it in writing, ideally as a deed, so there will be no ‘consideration’ issues: see section [4.6]. 41 For the situation in other subject jurisdictions, see sections [5.12]–[5.15]. For statutory reform in Singapore and Hong Kong, see Bailey (n 19) I.2.07. 42 The 1999 Act gives general effect to the Law Commission’s Privity of Contract: Contracts for the Benefit of Third Parties (Law Com No 242, 1996) and came fully into force in May 2000. It also applies (slightly modified) in Northern Ireland: s 9. On enforceable contractual stipulations in favour of a third party, see Ole Lando and Hugh Beale (eds), Principles of European Contract Law (The Hague, Kluwer, 2000), Article 6:110, with commentary and notes. On French law, see Jean-Sébastien Borghetti, ‘The Effect of Contracts and Third Parties’ in John Cartwright and Simon Whittaker (eds), The Code Napoléon Rewritten: French Contract Law after the 2016 Reforms (Oxford, Hart, 2017). 43 Contracts (Rights of Third Parties) Act 1999 (E&W, NI) s 1(3). The beneficiary must be expressly identified in the contract. 44 Contracts (Rights of Third Parties) Act 1999 (E&W, NI) s 1(5). 45 Contracts (Rights of Third Parties) Act 1999 (E&W, NI) ss 1(4), 3 and 8(1). The 1999 Act does not treat the third party as a ‘party to the contract’ (s 7(4)), so a consumer third party cannot challenge its terms as unfair under the Consumer Rights Act 2015, nor claim the statutory remedies made available by that Act. However, if the ‘third party’ has a concurrent right of action in tort, as in section [5.4], it can use this unfettered by any conditions that would apply if exercising a right in contract under the 1999 Act.

250  Beyond Contract: Other Rights of Legal Action As in an assignment, the 1999 Act allows a third party to acquire rights expressly – where the contract clearly says that they shall.46 But the Act can also apply by implication, where a term of the contract ‘purports to confer a benefit’ on the third party.47 The original parties may make clear their intention not to confer such a benefit, opting out of impliedly giving rights to a third party.48 In the 1999 Act’s early years, most B2B standard forms of construction contract chose to exercise this opt-out; many off-plan sale contracts from developers to first buyers of homes still do. But in construction in general, the situation is no longer so uniform.49 Hence the FMB Domestic Building Contract provides wording – into which the parties may opt – giving the future owner or lessor of the site the right to benefit from the construction contract.50 However, in an English residential context, no-one has yet argued, in relation to Scenario 2 (Table 1.1), that because developer X and first buyer B1 both know that the home may at some point be sold on to B2, the build quality provisions of the off-plan sale contract purport to confer a benefit on B2, giving B2 a right of action against X. Nor, in Scenario 6, is it likely that B3 who buys the half-built new house from B2 can enforce any of this contract’s terms against M2 without one of the following: 1 B2 assigns the benefit of the construction contract to B3 (if the contract allows); 2 Express provisions in the construction contract between the current owner B2 and the builder M2 opt in to the 1999 Act, empowering the site owner for the time being to enforce its terms (as in the FMB contract example above); 3 A tripartite agreement with M2 substitutes B3 for B2 in the ongoing contract with M2 (novation); or 4 Australasian-style statutory intervention.51 Tellingly, the published contracts in England & Wales for appointing a private sector BCB to do building control work on a project as Approved Inspector appear all to exclude the 1999 Act completely, at least in relation to those most likely to want to sue the AI: the building’s future owner, lessee or occupier.52 Even X, as the developer, may not be ‘the client’ in appointing an AI (the main contractor M, if there is one, often 46 Contracts (Rights of Third Parties) Act 1999 (E&W, NI) s 1(1)(a). 47 ‘A benefit’ could include being able to rely on an exemption clause or one limiting liability (s 1(6)); this is an unlikely scenario in relation to a consumer in our field but used by private sector BCBs: see the main text to n 52. 48 Contracts (Rights of Third Parties) Act 1999 (E&W, NI) ss 1(1)(b) and 1(2). The original parties appear to have the burden of proof of showing no intention that a term should be enforceable by the ‘third party’ if the threshold condition of ‘purporting to confer a benefit’ is fulfilled. 49 SBC/Q 2016 and DB 2016 (n 33) start with a general exclusion of the 1999 Act in cl 1.6 but provide for the possibility of conferring third-party rights on purchasers and tenants, offering optional clauses to achieve this. By contrast, the RIBA Domestic Building Contract 2018 (n 36) excludes the 1999 Act in clause 11, save where other provisions in the contract may confer a benefit on a third party (which none obviously do); by contrast, clause 23 of the closely similar RIBA Concise Building Contract 2018, not intended for use in a B2C context for a resident employer, provides for the possibility of a separate Third Party Rights Agreement or Collateral Warranty. 50 FMB Domestic Building Contract cl 29. 51 See sections [4.13] (Australia) and [4.14] (NZ). 52 The 2013 CIC/ACAI form of appointment of an AI allows assignment by both parties, but expressly excludes the application of the 1999 Act; the standard terms and conditions of the NHBC’s AI subsidiary, BCS Ltd, prevents assignment except with the other party’s consent (not to be unreasonably withheld) and excludes the 1999 Act except for attempting to protect those working for the NHBC or BCS against legal action by the client. On AIs, see further sections [3.6.7] and Case Study 8 at section [5.11]; on the scope of Buildmark in the past if BCS Ltd was used, see section [7.2.6].

Rights in Both Contract and Tort?   251 has that role); the first buyers of homes or flats in a new development are never directly ‘in contract with’ the AI; nor therefore are later acquirers of homes. But for such an ‘opt-out’, the contract with the AI could otherwise be seen as ‘purporting to confer a benefit’ on all those third parties, via the assurance the AI’s work is intended to give them about build quality and compliance with ‘the building code’. However, these ‘third parties’ acquire no right to sue the AI, at least in contract under the 1999 Act, even if armed with evidence that the AI was negligent, causing loss.53 In contrast, the standard text of certificates given by those commissioned by developers to inspect and certify the quality of new-build developments for the benefit principally of lenders (a Professional Consultant’s Certificate or PCC) does the opposite. It includes wording apt to activate the 1999 Act in favour of ‘the owner for the time being’ of the home in question, otherwise a stranger to these arrangements; or in parallel to impose a duty of care in negligence on the giver of the PCC in favour of the same category of potential claimant. In either case, liability depends on loss being shown, flowing from reliance on a negligently misleading certificate.54

5.4  Rights in Both Contract and Tort? One contract party may owe the other identical obligations in tort, at the same time as under the contract. This is one form of what lawyers call ‘a concurrent duty in tort’, meaning, in this case, a duty (of care) in negligence coming into existence in parallel with, but derived from, the obligations the defendant has taken on in contract to the same claimant.55 The common law accepts this possibility even though, in theory, duties in tort are imposed on the parties by the courts or statute (ie from outside) for policy reasons, whereas the parties themselves voluntarily take on contractual obligations.56 It is a question of law – meaning for the court or tribunal to decide, in the light of abundant case law and of the facts – whether a concurrent duty exists in each case. As we saw in section [5.2.4], the main reason for asserting such a duty in English law is tactical: to benefit from a more favourable limitation period in tort within which to 53 On the ultimate consumer’s rights in tort against a BCB, see section [5.8]; and under statute, see section [5.10]. 54 On PCCs, see further Case Study 7 at section [5.9]. 55 The other meaning of ‘concurrent liability’ concerns liability in contract to one party, which creates a duty of care in negligence to one or more other ‘third parties’: Donoghue v Stevenson (n 116) is a simple example in relation to physical injury. Many situations where homeowners attempt to pin liability in tort for original construction defects on a ‘builder’ with whom they have no contract are examples of such a scenario: eg, Dutton v Bognor Regis UDC (n 150) and D&F Estates Ltd v Church Commissioners for England (n 157). An extreme example from beyond our field is White v Jones [1995] 2 AC 207 (HL), where a solicitors’ firm was held liable in tort to the deceased testator’s daughters, the firm having failed (a breach of contract with their client, the testator) to prepare a fresh will in time – under which the daughters would have inherited – before the testator died; Lords Keith and Mustill dissented. This situation could now be reframed in contract alone under the Contracts (Rights of Third Parties) Act 1999 (E&W, NI): section [5.3.2]. 56 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL). Following his judgment in Robinson v Jones (n 64), Jackson LJ went on to argue that the Lords took a wrong turning in accepting the possibility in any circumstances of concurrent liability between contract parties, but Henderson v Merrett prevented him from adopting this approach in court: ‘Concurrent Liability: Where Have Things Gone Wrong?’ (Society of Construction Law (UK) Paper 191, 2015). He then expanded these ideas for an article with the same title at (2015) 23(1) Tort Law Review 3.

252  Beyond Contract: Other Rights of Legal Action launch legal action, where available. Any claimed duty of care in tort must be consistent with what the parties have agreed in their contract, so the terms of the contract may rule it out – notably if it: 1 2 3

Contains obligations more demanding (perhaps even less demanding) than a general duty to act with reasonable care; Includes an appropriately drafted and enforceable ‘entire agreement’ clause;57 or Provides expressly (rare) that there is to be no concurrent duty in tort, in one or both directions.

Here is how Ramsey J put the point in the TCC: [I]n considering whether a contractual provision affects the existence or scope or extent of a duty of care, the test is whether the parties have so structured their relationship that it is inconsistent with any such assumption of responsibility or with it being fair, just and reasonable to impose liability [on either of the contract parties in negligence]. In particular, a duty of care should not be permitted to circumvent or escape a contractual exclusion or limitation of liability for the act or omission which would constitute the tort.58

The English courts lean against interpreting the parties’ behaviour as leading to a concurrent duty in tort: they prefer the more straightforward purely contractual analysis and wish to consider tort as well only when there is a good practical or tactical reason for doing so.59 This is especially true in a construction context: the detailed provisions of most standard form construction contracts make it reasonable to conclude that its parties intend the provisions they have agreed (and the underlying general law of contract) to define their relationship comprehensively and exclusively. Not so, however – at least, not necessarily so – in a residential construction context.

5.5  Case Study 5: Faulty Gas Flues in Cheshire 5.5.1 Background In 1991, Mr Robinson (B1) agreed to buy 12 Magnolia Rise in Prestbury off-plan from long-established Cheshire developer, PE Jones (Contractors) Ltd (X).60 The main obligations X took on in the construction part of the contract were: The vendor will in an efficient and workmanlike manner complete the work shown on the drawings and specifications relative thereto already produced to and made available for 57 This is a clause providing – in effect – that the written document contains all the rights and obligations linking the parties concerning the subject-matter of the contract. As well as preventing any concurrent duty in tort arising, such a clause also aims to prevent the party relying on it from being liable for any statements or representations (including pre-contractual representations) except those expressly set out in the document. Statute may override such a clause or permit a challenge to it as unfair: see section [4.10]. 58 BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 862 (TCC), 131 Con LR 42 [356]. 59 Lord Scarman, delivering the opinion of the Privy Council in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80, 107: ‘Their Lordships do not believe that there is anything to the advantage of the law’s development in searching for a liability in tort where the parties are in a contractual relationship.’ 60 In 1971, PE Jones Contractors Ltd became a subsidiary of the Emerson Group, now (2020) a member of the HBF. From the Emerson Group’s celebratory ‘The First 50 Years’ (2009), it seems likely that its homes

Case Study 5: Faulty Gas Flues in Cheshire  253 inspection by the purchaser at the offices of the vendor with such additions variations or omissions as may from time to time be agreed in writing between the parties.

More than 12 years after completing the purchase, Mr Robinson learned that the flues (built by X) for a pair of gas fires, installed in the house when it was built, were defective; he then started legal proceedings. However, he was already too late to sue in contract, even if the ‘construct-and-transfer’ contract had been executed as a deed; cover under the NHBC Buildmark third-party warranty expired 10 years after construction was complete.61 So the main part of Mr Robinson’s legal action had to be in tort. He asserted that X owed him a duty of care deriving from the contract, under which the company had undertaken to build the new house competently; this they had failed to do, with the result (according to a building surveyor’s report) that the flues did not conform with best practice or ‘the building code’ at the time the house was built.62

5.5.2  The Legal Issues X raised several legal issues in response: these ‘preliminary points’ came before the TCC in Manchester.63 Mr Robinson then appealed to the Court of Appeal (Civil Division).64 On both occasions he lost, so his action against the developer could not continue. As a result, we never learn whether the flues were non-compliant (and in what way), whether X was really negligent, or (if X had been liable) whether a court would award Mr Robinson the full amount he was claiming for rectification work.65 The issues in court and how each level dealt with each, are summarised in Table 5.1 below. Note the interaction between the general principles, the precise detail of the contract, the law of unfair contract terms (at the time), the NHBC Buildmark warranty and the law of limitation.66 The warranty was promised by a clause in the construction part of the contract with the Robinsons, X (then as now) being registered with the NHBC. Note also that not every issue was still ‘live’ when the case reached the Court of Appeal.

division developed all the houses in Magnolia Rise, as in many other locations in the affluent Cheshire suburbs south of Manchester: www.jones-homes.co.uk. Perhaps significantly, from Land Registry data, most recent sales of houses in the road appear to be on a long leasehold basis: www.streetcheck.co.uk/houseprices/ sk104ux. 61 On the scope of cover under Buildmark, see section [7.2]. 62 He also asserted that X had been guilty of misrepresentation in relation to the flues but did not pursue this claim in court, so no details appear in either judgment. 63 Robinson v PE Jones (Contractors) Ltd [2010] EWHC 102 (TCC), [2010] TCLR 3. 64 Robinson v PE Jones (Contractors) Ltd [2011] EWCA Civ 9, [2012] QB 44, [2011] BLR 206. 65 Theoretically, Mr Robinson could – with leave – appeal a second time to the Supreme Court, but the costs of doing so would have been disproportionate to the amount at stake – £35,000 was the repair cost he was claiming, and the costs of his own legal team alone must have already been way over that figure, combined with his liability for X’s reasonable costs in two courts. 66 For specific types of B2C contract, the separate provisions of UCTA 1977 for E&W, NI and Scotland have now been replaced by the Consumer Rights Act 2015 (UK): see section [4.10].

254  Beyond Contract: Other Rights of Legal Action Table 5.1  Robinson v Jones FOR THE DEFENDANT DEVELOPER (X)

RESPONSE BY CLAIMANT HOMEOWNER (B1)

1

X owes no duty of care in tort to the buyer because clause 10 of the construction part of the contract provided that all the buyer’s rights against X were to be as defined by the terms of the Buildmark warranty.

Clause 10 is unfair under the Unfair Contract Terms Act 1977 (UK): it excludes a consumer’s normal legal remedies against the party responsible and is therefore unenforceable.

Clause 10 satisfies the Agrees with test of reasonableness TCC. in UCTA – having Buildmark cover gives benefits (rights against NHBC for up to 10 years) in return for the contract taking away the buyer’s normal remedies (but B1 in fact had remedies against X under Buildmark in Years 1–2 of the warranty).

2

UCTA does not apply, as this is a contract for the sale of land.

Although title to the plot would be transferred from X to B1 with the house on it, when constructed, part of the contract is for the supply of services – construction – to which UCTA does and should apply.

Agrees with B1 (but clause not unfair – Issue 1).

Issue not before the CA; UCTA assumed to be relevant.

3

Even if clause 10 is unfair, as a matter of law, a builder owes no duty of care in tort to a buyer for the quality of what is built: it owes such duties only in contract.

X had assumed responsibility for the quality of the build in its contract; this brings in a duty of care in tort in relation to pure economic loss (the cost of repair or drop in value caused by the defects).

There is no rule that a builder cannot owe a concurrent duty of care in tort to a buyer or client, if the builder assumes responsibility for the quality of what they build. Not so on these facts, considering the answer to Issue 1, since clause 10 of the construction part of the contract is incompatible with a duty of care in tort.

X did not assume responsibility so as to undertake a duty of care in tort.

ISSUE

TCC

COURT OF APPEAL67

(continued) 67 Jackson LJ gave the first long judgment; Stanley Burnton LJ gave his own shorter judgment, agreeing with Jackson LJ; Maurice Kay LJ concurred with Jackson LJ.

Case Study 5: Faulty Gas Flues in Cheshire  255 Table 5.1  (Continued)

ISSUE 4

FOR THE DEFENDANT DEVELOPER (X) Even if X does owe a duty of care in tort, legal action was not started within the extended time period for actions in tortious negligence based on latent defects.68

RESPONSE BY CLAIMANT HOMEOWNER (B1) Action was started in time – within three years of learning that there was a problem with the gas fire flues.

TCC Agrees with B1 on the evidence – but B1 still has no right of action in the light of the answer to Issue 3.

COURT OF APPEAL67 Issue not before the CA.

5.5.3  Case Study 5: Significance • The difference between the TCC and Court of Appeal on the fundamental question (Issue 3) is one of emphasis, not principle. All judges agree on the (case law) tests for deciding whether one contract party owes a duty of care in tort to the other at the same time, in relation to pure economic loss: the cost of repairing the two flues, which Mr Robinson argued had been made necessary by the defendant developer’s negligence. Awarding damages on this basis would have been unproblematic if the duty of care issue had gone in Mr Robinson’s favour, though there might then have been a debate about what was a reasonable specification (hence cost) for this work. • In the background is the general rule that no-one normally owes a duty of care to anyone else (not just another contracting party) in relation to such a form of harm, illustrated in the construction context by Murphy v Brentwood DC.69 But English case law (in effect Scots too) at apex court level recognises that exceptional situations may justify recognising such a duty of care in relation to pure economic loss, provided that such harm is reasonably foreseeable.70 • For this, the key test seems to be: should the defendant be held to have ‘assumed [ie voluntarily undertaken or accepted] responsibility’ for the financial consequences of their negligence in relation to this claimant (or to others in the same position)? The two courts in Robinson v Jones disagree on how easily this test should be regarded as satisfied in a construction context, where a contract already links the two parties. • Judge Stephen Davies was willing to class builder–purchaser relationships as ones where there could be ‘an assumption of responsibility’ (but for clause 10, he might 68 On this issue, see section [10.5.3]. 69 Murphy v Brentwood DC is discussed at section [5.8]. 70 This strand of authority at apex court level starts with Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL), passing via Caparo Industries plc v Dickman [1990] 2 AC 605 (HL), Henderson v Merrett, n 56, Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL) (Lord Steyn) and Customs & Excise Commissioners v Barclays Bank plc [2006] UKHL 28, [2007] 1 AC 181 to N v Poole BC [2019] UKSC 25, [2020] AC 780. Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520 (HL) may be treated as an outlier: see n 364. For the difficulty of applying these tests to a B2B construction situation, see Sainsbury’s Supermarkets Ltd v Condek Holdings Ltd [2014] EWHC 2016 (TCC), [2014] BLR 574.

256  Beyond Contract: Other Rights of Legal Action have found one by the developer towards Mr Robinson). By contrast, the leading appeal judgment from Jackson LJ – whose particular understanding of construction issues, as Presiding Judge in the TCC and then a member of the Court of Appeal, led him to make significant contributions to the field – took the opposite approach.71 He held that a ‘construct-and-transfer’ contractual relationship needs some extra element of reliance by the buyer on the builder – seldom present, and not present here – for responsibility to be assumed, in order for a duty of care in tort to arise: I see nothing to suggest that the defendant ‘assumed responsibility’ to the claimant … The parties entered into a normal contract whereby the defendant would complete the construction of a house for the claimant to an agreed specification and the claimant would pay the purchase price. The defendant’s warranties of quality were set out and the claimant’s remedies in the event of breach of warranty were also set out. The parties were not in a professional relationship whereby, for example, the claimant was paying the defendant to give advice or to prepare reports or plans upon which the claimant would act.72

• The contrast here seems to be with consultant–client relationships, including in construction, where a concurrent duty of care in tort is relatively easier to establish.73 As Jackson LJ suggests, the contract is really what counts, and a standard construction contract between developer and buyer (or, probably, individual construction employer and builder) will usually have no tort duty added on top, even where the developer or builder is responsible for design.74 This is so, even though its key obligation is expressed – like the ‘efficient and workmanlike’ clause in Robinson v Jones – in terms of a duty to exercise reasonable skill and care (ie fault liability), itself consistent with a parallel duty of care in tort. For a home buyer like Mr Robinson, starting legal action within the limitation period for contract is, therefore, the only sure approach: defects which appear once that period has expired will be very hard to pin on the builder/developer, even where in time terms it would still be possible to start an action in tort. • The case confirms, between the lines, that where a ‘construct-and-transfer’ contract imposes obligations (express or implied) about build quality on the ‘builder’, these do not automatically cease to be actionable when the ‘transfer’ part of the contract takes place and ownership passes to B1.75 It also illustrates that the old principle of caveat emptor (‘let the buyer beware’), though applying in general to land transactions, does not apply to that part of a contract to buy or lease a building (or part of a building) which includes obligations to construct.

71 For the Festschrift in honour of Jackson LJ on his retirement, see n 81. As Assistant Recorder, he gave the first-instance judgment in the significant construction contract case of Williams v Roffey: see section [4.6]. 72 Court of Appeal judgment (n 64) [83]. 73 For example, it is established that the relationship between a client and their solicitor imposes concurrent duties of care, so a tort claim may be possible when one in contract would already be timed out: see Holt v Holley & Steer Solicitors [2020] EWCA Civ 851, [2020] 1 WLR 4638. 74 As Akenhead J noted in Broster v Galliard Docklands Ltd (n 137); see also Case Study 9 at section [10.6]. 75 As in Harrison v Shepherd Homes Ltd [2011] EWHC 1811 (TCC), (2011) 27 Const LJ 709 [72]–[73] (Ramsey J). Here the defendant argued unsuccessfully that the contract terms displaced this principle. On terms at common law relating to build quality, see section [4.7].

Case Study 5: Faulty Gas Flues in Cheshire  257 • The terms of the Buildmark third-party warranty – now, as then – make clear that the policyholder’s rights under the policy against the builder in Years 1–2 are in addition to, not in substitution for, any rights the policyholder may already have: Your rights under this policy are in addition to and do not replace or prevent you from using other legal rights (for example, rights you have under a contract or by law) that you may have against the builder or anyone else in connection with your home.76

• ‘Rights … under a contract’ clearly contemplates the first buyer’s rights under a separate ‘construct-and-transfer’ contract for the home, and ‘rights … by law’ would cover rights in tort or under statute. However, Robinson v Jones shows that the terms of the contract with a developer, if expressed clearly, can cut the buyer’s rights down to the (different, and noticeably narrower) scope of protection provided by the warranty.77 In its 2016 report, the All Party Parliamentary Group for Excellence in the Built Environment criticised this contract term, whose frequency in use is not known.78 How clearly a buyer would understand the implications of such a clause may be doubted, and the more amply protective regime for B2C contracts under what is now the Consumer Rights Act 2015 might offer wider grounds for challenging its enforceability than UCTA 1977 did in the case itself.79 • This Court of Appeal judgment significantly clarifies the law and narrows the scope for finding a concurrent duty in tort, so not all earlier cases where such a duty was accepted or assumed may still be reliable on this point.80 It has been loyally followed at first instance, so judges remain willing, but only in exceptional cases, to find a duty of care in tort between contracting parties, usually where a claimant then has the chance of pursuing legal action which would be too late in contract.81 Of later cases, Burgess v Lejonvarn is also about residential construction, with a pair of consumers as claimants, and discusses Robinson v Jones; however, in the end, it turned out to be in a different legal category, as there was no contract.82 • Robinson v Jones is unlikely to be the last word on an issue of such importance. A differently constituted appeal court – or the Supreme Court, given a claim big enough to justify it or a litigant to whom the expense is less important than the principle – could easily tilt the balance back. Our apex court could even reconsider the principle of recognising concurrent liability between contract parties altogether. But Jackson LJ is certainly on solid ground in arguing that, at present, the procedural 76 NHBC Buildmark (applicable to homes registered from 1 October 2019) pt F: General information F1. This text is, in essence, unchanged from many earlier versions. On Buildmark in general, see section [7.2]. 77 But B1 (and B2, for that matter) retain their rights under the Defective Premises Act 1972 (E&W), if relevant: these cannot be ‘signed away’ in contract: section [5.10.2]ff. 78 All Party Parliamentary Group (APPG) for Excellence in the Built Environment, More Homes, Fewer Complaints (2016) [4.4]: www.cic.org.uk. For another example of such a clause, see Harrison v Shepherd Homes Ltd (n 75) decided when Robinson v Jones was new, and Butcher v Hill [2015] EWHC 1703 (TCC): see section [4.4.4]. 79 It is not clear why the claimant in Robinson v Jones did not also argue that clause 10 was unfair as contrary to the 1993 European Directive on Unfair Terms in Consumer Contracts: see section [4.10]. 80 For example, Bellefield v Turner: n 138. 81 For a valuable discussion of Robinson v Jones and its sequels, see Fiona Sinclair, ‘Rectifying the Defects in Builders’ Concurrent Liability’, in Julian Bailey (ed), Construction Law, Costs and Contemporary Developments: Drawing the Threads Together: A Festschrift for Lord Justice Jackson (Oxford, Hart Publishing, 2018). 82 Burgess v Lejonvarn: Case Study 6 at section [5.6].

258  Beyond Contract: Other Rights of Legal Action ‘tail’ is wagging the substantive law ‘dog’. The answer would be to harmonise the time limits for legal action: stopping a contract claim getting ‘timed out’ before a potential claimant knows they have one, then imposing the same time limit on a tort claim against the same defendant arising out of the same facts.83 • Had the Robinsons already sold 12 Magnolia Rise to B2 before the problems with the gas flues became apparent, but within any relevant limitation period, their successor would have had – by definition – no breach of contract claim against X (B2 not being a party to the ‘construct-and-transfer’ contract between X and the Robinsons).84 Nor is it likely that B2 would have any right of action in tort against X: without some special factual or causal link back to X, B2 would fail the same tests as Mr Robinson. However, up to 10 years from the completion of construction, B2 would, in theory, have been able to make a claim on the Buildmark third-party warranty – if the problems with the flues were within the warranty’s scope, which Jackson LJ correctly suggests they were not.85

5.6  Case Study 6: A New Garden in London N6 5.6.1 Introduction As we saw in sections [5.4]–[5.5], there can be situations where it is absolutely clear that there is an arm’s-length B2C contract in relation to residential construction, but unclear whether the same relationship has given rise to a duty of care in tort and hence possible liability for pure economic loss. We now consider a different version of uncertainty. Is there a contract at all between the defendant and the potential claimant? If there is no contract, could the defendant nonetheless owe the claimant a duty of care in tort? If so, what is the scope of such a duty?

5.6.2 Background This cautionary tale involved litigation over four years, with three published judgments from the TCC and two from the Court of Appeal, about a complex and ambitious project to landscape the steeply sloping back garden of a house in a modern gated development, between Highgate Village, Kenwood and Hampstead Heath in north London.86 83 Lord Goff in Henderson v Merrett Syndicates (n 56) 187 regarded reforming the law of limitation as ‘crying for the moon’; but in 2001 the Law Commission made proposals along exactly these lines, described in section [10.5.2]. 84 We assume here that Mr Robinson did not assign his rights under the purchase contract to B2 and that B2 could not rely on the Contracts (Rights of Third Parties) Act 1999 (E&W, NI). 85 Jackson LJ in the Court of Appeal (n 64) [88]. On the scope of cover under Buildmark, see section [7.2]. The Contracts (Rights of Third Parties Act) 1999 (E&W, NI) supports the right of B2 to claim on the policy: see section [5.3.2]. 86 Only the published judgments in the case are summarised here; for a list of all the pre-trial stages and interventions by TCC judges, see the table attached to Martin Bowdery QC’s judgment on costs in the TCC: n 102.

Case Study 6: A New Garden in London N6   259 Alexander Nissen QC, Deputy High Court Judge at the first TCC hearing in Burgess v Lejonvarn, summarised the story at the start of his long judgment: [T]he Burgesses [claimants] decided to move forward with a project to landscape their garden at [their home] Highfields … They obtained a quote from a well known landscape gardener to carry out the work at a cost in excess of £150,000 plus VAT. Believing this to be too expensive, they decided to ask for professional assistance from their friend and former neighbour, Mrs Lejonvarn. There is an issue between the parties as to whether she was engaged by a contract with the Burgesses and, if so, on what terms. By spring 2013 Mrs Lejonvarn secured the contractor to carry out the earthworks and hard landscaping at Highfields in pursuit of the Garden Project. The works involved the relevelling of the steep slopes, the formation of terraces and banks supported by railway sleepers, and the creation of paths and lawns. Paving and drainage works were also to be carried out. Mrs Lejonvarn’s intention was to provide subsequent design input in respect of the ‘soft’ elements of the Garden Project such as lighting and planting, when that stage was reached. For that she intended to charge a fee. Sadly, the project never reached that stage.87

5.6.3  First TCC Hearing The parties fell out after the first (hard landscaping) phase, largely because of different understandings between Mr Burgess, Mrs Burgess and Mrs Lejonvarn about the ‘budget’ and the meaning of the figures discussed: £78,000 or (more realistically) £130,000? In court, the Burgesses (as claimants) argued that the work done by the contractor which Mrs Lejonvarn (as defendant) organised was defective; as a result, they had to engage their originally intended contractor to complete the project. The final version of their claim was for the difference between the original quotation from their first garden designer (£150,000) and what the total project eventually cost (over £359,000). The Burgesses framed their action in contract, alleging that Mrs Lejonvarn had agreed to act as architect or project manager (arguably both) and as such would exercise reasonable skill and care (hence fault liability), which she failed to do in supervising the quality of work and controlling cost.88 Although there was no time-limit issue for their claim, they also alleged that, whether or not there was a contract, Mrs Lejonvarn had ‘assumed responsibility’ in tort – in line with the case law discussed in Robinson v Jones89 – and therefore owed them a duty of care, leading to the same liability in damages. As ordered by the judge at the first Case Management Conference, the TCC first considered a series of preliminary issues on the validity in law of the different claims, in the light of the copious but not decisive evidence (notably e-mail exchanges between the parties at the start and during the first phase of the project, as well as conflicting recollections of who said what to whom at social events and site meetings). At the end of a three-day hearing, the judge summarised the result of Mrs Lejonvarn’s involvement 87 Burgess v Lejonvarn [2016] EWHC 40 (TCC), [2016] TCLR 3 [4]. 88 The defendant had a distinguished record of work internationally in high profile architectural practices and projects but had no PI cover and was not registered as an architect in the UK – which the claimants said they did not know – though she described herself to them as an architect. The judge said that the claimants were relying on her ‘for her experience and expertise, not her title’: Burgess v Lejonvarn (n 87) [19]. 89 See section [5.5].

260  Beyond Contract: Other Rights of Legal Action in a previous construction project for Mr Burgess’s company, where the same key Polish individual was used whose company was the lead contractor on the first phase of work at Highfields: Mr Burgess would reasonably have been left with the impression that Mrs Lejonvarn was professionally capable of carrying out design work, of project managing a small construction project involving third party contractors, of supervising their work, of reviewing applications for payment and of providing a budget and monitoring costs against it.90

Other projects had been discussed between Mr Burgess and Mrs Lejonvarn, though none, in fact, came to fruition. This background was significant, the judge held: [T]here was a willingness on the part of Mrs Lejonvarn to provide a variety of architectural services, both on an informal and formal basis, to Mr Burgess or his company in the period before the commencement of the Garden Project. Mrs Lejonvarn gave every impression that she, personally, was capable of providing all the services described and Mr Burgess was reasonably left with that impression.91

The evidence clearly showed that Mrs Lejonvarn was eager, following Mr Burgess’s request, to be involved at Highfields. Using the plans the Burgesses had been given by their initial designer, she approached her own contact, whose company then provided a ‘Cost Estimate’ for the groundwork and first phase, eventually undertaking this part of the work. She also organised an estimate from an electrician. Mrs Lejonvarn was on site from time to time (speaking Polish to the main contractor’s key man), triggering cash payments and transfers from Mr Burgess to the contractors: she was, as the judge put it, ‘heavily involved’ in the project.92 The claimants argued that they had made a contract with Mrs Lejonvarn for her services on the project, but the judge concluded that too many essential elements were missing: Leaving aside the absence of discussion about remuneration [crucial as to ‘consideration’, in the legal sense, from the Burgesses’ side], nothing was said about the duration of services, provision for their termination or any other clauses of the type typically to be expected in a professional’s terms of engagement. In addition, the parties never discussed, or even mentioned, the notion that they would be entering into a contract between themselves.93

But that was not the end of the story. Though Mrs Lejonvarn was supplying services for no immediate reward (or no reward yet defined), she hoped for a fee for later parts of the project and saw her involvement as part of establishing a UK practice.94 The judge concluded that she was acting as a professional (architect and project manager) in a situation ‘akin to contract’, so owed a duty of care in the tort of negligence: [I]n law a duty of care extends to the protection against economic loss in respect of both advice and any service in which a special skill is exercised by a professional. The duty can extend to negligent omissions as well as the performance of negligent acts. For present purposes, the 90 Burgess v Lejonvarn (n 87) [44]. 91 Burgess v Lejonvarn (n 87) [62]. 92 Burgess v Lejonvarn (n 87) [181]. 93 Burgess v Lejonvarn (n 87) [146]. 94 Her firm, Linia Studio Ltd, was incorporated in January 2014, with Mrs Lejonvarn as sole director. Mr Burgess had given her initial office accommodation free of charge.

Case Study 6: A New Garden in London N6   261 relevant ingredients giving rise to the duty are an assumption of responsibility by the provider of the service coupled with reliance by the recipient of the service, all in circumstances which make it appropriate for a remedy to apply in law.95

The judge then summarised the functions in relation to which this duty was owed; but the hearing was limited to the defined preliminary issues, leaving unresolved whether Mrs Lejonvarn was in breach of her duty of care (if so, to what extent); and the scale of her resulting liability (if any). No costs were awarded at this stage: these were left for the trial judge to determine after a decision on the merits.

5.6.4  First Appeal The defendant went to the Court of Appeal, challenging the TCC judge’s findings on her duty of care in tort – its existence and scope.96 Hamblen LJ, with whom Gloster and Irwin LJJ concurred, restated much of the material from the TCC – the evidence and the relevant legal authorities. The judge agreed that, despite the absence of a contract, there were enough factors to justify a finding of an assumption of responsibility on Mrs Lejonvarn’s part, leading to a duty of care, but reduced its scope significantly: [T]his was a case in which Mrs Lejonvarn said that she would provide professional services acting as an architect and project manager on the Garden Project; in which she did in fact provide such services; in which she confirmed that she had provided such services and in which the Burgesses relied on her to properly perform those services, as she knew.97 Whilst accepting that the [TCC] judge was entitled to find that a specific duty arose, given the importance of the detailed facts I would define the duty in the following terms: ‘In providing the professional service acting as an architect and project manager of project managing the Garden Project and directing, inspecting and supervising the contractors’ work, its timing and progress Mrs Lejonvarn owed a duty to exercise reasonable skill and care.’98

In other respects too, the Court of Appeal defined the duty of care more narrowly than the (first) trial judge (deriving this from the activities Mrs Lejonvarn undertook): providing designs sufficient to allow a fairly firm budget estimate to be prepared and the project to be constructed; receiving applications for payment from the contractor and advising the Burgesses on payment; and preparing a budget and overseeing expenditure against it. What became the most significant point in this judgment was that Mrs Lejonvarn had as a matter of law undertaken no positive duties (there being no contract), so could not be liable for failing to do anything, only for carrying out negligently those activities she in fact undertook.99 The quotation above from the first TCC hearing, therefore, overstated her legal exposure.100 To that extent, Mrs Lejonvarn succeeded on appeal, so she was ordered to pay half the costs of this first appeal, the other half waiting on a decision by the trial judge in due course. 95 Burgess v Lejonvarn (n 87) [174]. 96 Lejonvarn v Burgess [2017] EWCA Civ 254, [2017] BLR 277, 171 Con LR 118. The claimants did not seek to challenge the TCC judge’s dismissal of their claim in contract. 97 Lejonvarn v Burgess (n 96) [85]. 98 Lejonvarn v Burgess (n 96) [99]. 99 Lejonvarn v Burgess (n 96) [67]–[68] and [88]. 100 The main text to n 95: ‘negligent omissions as well as the performance of negligent acts’.

262  Beyond Contract: Other Rights of Legal Action

5.6.5  Second TCC Hearing The first judge had strongly encouraged the parties towards mediation, but they were back in court two and a half years later, this time before Martin Bowdery QC as a Deputy High Court Judge. The trial lasted five days (including a site visit), with 11 witnesses of fact and four experts.101 This was the moment to apply the Court of Appeal’s re-interpretation of Mrs Lejonvarn’s duty of care to the facts, in order to reach a judgment on the merits of the Burgesses’ claim. As a result, aspects of the Burgesses’ case became unsustainable, as they were asserting that Mrs Lejonvarn should have done more, for example, in supervising the project (more site visits); had she done so, they argued that aspects of the work which they considered defective would not have happened. This could not be reconciled with the Court of Appeal’s insistence that she could be liable for negligence only in those services she actually undertook; the trial judge was not persuaded that any work was defective at the point where the Burgesses’ relationship with Mrs Lejonvarn broke down. There was no negligence in the drawings she produced or design changes undertaken once work was under way. Also for her production of a budget, setting up the main contractors (whom Mr Burgess already knew and liked) and advising the Burgesses on interim payments: no evidence of negligence there. Further detailed analysis of criticisms of work on site followed, which the claimants attributed to Mrs Lejonvarn’s failure to notice defects or non-compliance with the plans, but the judge rejected each allegation. The Burgesses’ claim for damages was, at this point, doomed; but the judge was also critical of their figures, starting from everything they had in fact spent, including completion costs; and no clear evidence of losses actually derived from the breaches of duty they were asserting.

5.6.6  Final Procedural Stages After a later hearing, Martin Bowdery QC gave an ex tempore judgment on those litigation costs not yet determined.102 He noted that Mrs Lejonvarn had, in fact, incurred almost £725,000 as her own costs (even this figure was not complete, against an approved costs budget of £415,000), and he took into account the formal but confidential offers to settle which each side had already made. Counsel for Mrs Lejonvarn argued – ­ unsuccessfully – that the claimants’ conduct during the litigation and the impact of the court cases on her professional and family life justified her being awarded her costs on the indemnity basis (ie all costs actually incurred, but these can be challenged if shown to be unreasonable). Instead, the judge awarded her costs against the Burgesses on the ‘normal’ basis, which came to £365,000; they also had to absorb all their own legal team’s costs not already allocated to Mrs Lejonvarn.



101 Burgess 102 Burgess

v Lejonvarn [2018] EWHC 3166 (TCC), 181 Con LR 204. v Lejonvarn [2019] EWHC 369 (TCC), [2019] Costs LR 549.

Case Study 6: A New Garden in London N6   263 Mrs Lejonvarn successfully challenged this refusal of indemnity costs on appeal. Giving the Court of Appeal’s judgment, Coulson LJ said: [T]he judge [in the TCC] should … have been asked to consider whether, at any time following the commencement of the proceedings, a reasonable claimant would have concluded that the claims were so speculative or weak or thin that they should no longer be pursued.103

The claimants should have realised, following the Court of Appeal’s first judgment, that it was unwise to continue: the level of their offers to settle which followed was evidence of this, but they had not drawn the correct overall conclusion. On this and other grounds, Mrs Lejonvarn got her award of all costs incurred from May 2017 onwards (a month after the first Court of Appeal judgment) on an indemnity basis.

5.6.7  Case Study 6: Significance • This long and tortuous story illustrates the dangers of informal – or insufficiently formal – construction projects: such confusion and uncertainty should not happen in Australasia if the statutory regimes applicable there are observed. In residential contexts, it seems especially tempting, but particularly dangerous, to look to friends (even if – perhaps especially if – they have a relevant professional background) to advise on, or manage, aspects of construction. The bigger the project’s value, the greater the danger if the parties fall out, but the size of the budget is no predictor of the strength of feelings that a falling-out between friends can evoke. • Relying on an existing social relationship (the Burgesses were once Mrs Lejonvarn’s neighbours, and they had all holidayed together) creates a risk of failing to reach the level of clarity and formality desirable for so grand a project, with so much money at stake. At Highfields, nothing was adequately discussed or recorded about the basis on which Mrs Lejonvarn’s input was sought or provided: what was to be done, who was to take responsibility for which aspects of it and on what financial or legal basis. One or a few key signed documents would have been enough. • The need for this level of clarity is especially true of someone acting as an architect – whether formally registered with the Architects Registration Board or not – and more broadly of anyone with responsibility for design. There are, of course, many published standard forms for the appointment of an architect, some specially designed for projects where the client is an individual consumer.104 Martin Bowdery QC, giving judgment in another case where an expensive home improvement project for a well-to-do couple had gone wrong (in this case, London N20), made the point well: To avoid misunderstandings at the very least, a written brief is essential and changes to that brief must be recorded in writing whether by drawings, sketches and/or minutes of meetings. If that is not done, the absence of such written records must be explained to the

103 Lejonvarn v Burgess [2020] EWCA Civ 114, [2020] Costs LR 45 [54]; Rose LJ and Sir Jack Beatson concurred. 104 See, eg, the (plain English) RIBA Domestic Professional Services Contract 2018: Architectural Services.

264  Beyond Contract: Other Rights of Legal Action clients in writing and they must make an informed decision not to receive a written brief and written records of any changes or developments of that brief.105

• Something is very wrong if, as at Highfields, the exchanges between the parties fail the most basic tests for the existence of a contract, with several ‘elements of formation’ missing. However, this occurs surprisingly frequently, even in larger B2B projects: eagerness on all sides to ‘get going’ overtakes the need to clarify the relationships formally. Uncertainty then arises later on: is there a contract, and, if so, what are its terms?106 • Paradoxically, reliance on e-mails and texts for instant communication – a­ pparently efficient in the moment – can make disputes harder to resolve, providing a rich harvest of (often incomplete and ambiguous) messages, written off-the-cuff and never sent with a view to later litigation: both sides’ lawyers can mine these resources if a fight later develops. Even worse would be instant messages which auto-delete, leaving no trace at all. • The case illustrates how subtle the relevant legal principles are, derived from an inherently open-textured and generous body of case law; how difficult it is to apply them to individual fact-situations; and how opposing parties’ legal teams’ can – perfectly properly – exploit these uncertainties. The key issue is: when is a professional person providing a service for no immediate financial reward treated as ‘assuming responsibility’ for their conduct, so becoming liable to the ‘client’ in tort if they do not act with reasonable skill and care, causing extra expenditure or loss? Here is Lord Reed JSC in a recent Supreme Court case, Poole BC v GN: [T]he concept of an assumption of responsibility is not confined to the provision of information or advice. It can also apply where, as Lord Goff put it in Spring v Guardian Assurance plc, the claimant entrusts the defendant with the conduct of his affairs, in general or in particular.107 Such situations can arise where the defendant undertakes the performance of some task or the provision of some service for the claimant with an undertaking that reasonable care will be taken. Such an undertaking may be express, but is more commonly implied, usually by reason of the foreseeability of reliance by the claimant on the exercise of such care.108

In a situation where there is a contract, deciding whether that ‘assumption of responsibility’ test is satisfied may be easier; but it is more likely to yield a negative answer because a duty of care may be incompatible with the terms of the contract. • Had there been a contract between the Burgesses and Mrs Lejonvarn, it is just ­possible that – if relevant – a court would hold that she owed them a separate but parallel duty of care in tort. The restrictive approach to concurrent duties of care which 105 Freeborn v De Almeida Marcal [2019] EWHC 454 (TCC) [58]. An architect registered with the ARB is required, by Standard 4 of the Architects Code (current version 2017), to enter into a written agreement with the client on a list of topics before starting work: www.arb.org.uk. The architect’s liability in Freeborn flowed directly from failing to show the clients revised designs for their new cinema room or get their approval for what was built; the judge then holding that the clients’ decision to demolish and rebuild was reasonable. 106 See, eg, Judge Bowsher QC in VHE Construction plc v Alfred McAlpine Construction Ltd [1997] EWHC Tech 370 [2]–[4]; and Electrix Ltd v The Fletcher Construction Co Ltd [2020] NZHC 918. 107 [Author’s footnote] Spring v Guardian Assurance plc [1995] 2 AC 296 (HL) 318F. 108 Poole BC v GN (n 70) [88] (the other Justices concurred with Lord Reed).

Case Study 6: A New Garden in London N6   265 Jackson LJ explained and applied in Robinson v Jones accepted that activities of giving advice or providing professional services in a contractual context could distinguish such a situation from straightforward construction work.109 If Mrs Lejonvarn had fallen into the ‘concurrent duty’ category, it would be because she did owe duties in contract to start with, so she would be liable for foreseeable categories of pure economic loss caused by her failure to do what she had undertaken – a much wider potential liability than she actually incurred. • In a case like the Highfields project, many lay people would assume that if judges say that there is no contract, there can (or even should) be no liability on any other legal basis. On this view, the Burgesses were lucky that Mrs Lejonvarn was willing (for her own longer-term reasons – certainly not generosity alone) to help them out. This conferred a benefit on them, for which in other circumstances she might have claimed against them for reasonable remuneration (a restitutionary claim, in construction often called a quantum meruit – a right to payment for the value of the work she had done).110 As it turned out, her involvement made her run the risk of legal action in tort, which it is doubtful she realised at the time. However, the hurdles the Burgesses had to get over to show a breach of her duty of care were substantial, so non-contractual providers of professional services, in general, are not newly at risk following the first Court of Appeal judgment. • The common law has frequently found useful a distinction between positively negligent acts (‘misfeasance’) and careless omissions to act (sometimes called ‘nonfeasance’). In many situations, liability for an omission (meaning that the defendant had a duty to act but failed to carry this out) is exceptional – especially where the claimant complains that the defendant has failed to confer a benefit on them.111 However, both judges and commentators recognise that this can be an elusive distinction: the same conduct or set of events can easily be reframed in one category rather than the other. ‘A person digs a hole in their land and a visitor falls into it: this may be seen as affirmative conduct in digging the hole or as nonfeasance in failing to fence the hole or give a warning’.112 In the context of the relationship between the Burgesses and Mrs Lejonvarn, the appeal judges were clear that she had

109 On Robinson v Jones, see section [5.5]. 110 Reported cases about such restitutionary claims in residential situations are rare in England, but not in construction in general: see Bailey (n 19) [6.212]ff. Uncertainty in Australian law has opened up a rich seam of claims by contractors, many relating to residential projects. For the current position, following the High Court of Australia’s consideration of claims arising from a townhouse project in Melbourne, see Mann v Paterson Constructions Pty Ltd [2019] HCA 32, (2019) 267 CLR 560, discussed at section [4.12.5]. 111 For liability for failing to confer a benefit, see White v Jones: n 55. For a useful discussion about when an omission may give rise to a public body’s liability in negligence, why omissions lead to liability less often than positive acts and how to operate the distinction between a positive act and an omission, notably failure to protect the claimant against another party’s negligence, see Lord Hoffmann in Stovin v Wise [1996] AC 923 (HL), discussed in BS Markesinis et al, Tortious Liability of Statutory Bodies (Oxford, Hart Publishing, 1999). For a helpful recent summary of the law on liability for omissions, see Rushbond plc v JS Design Partnership LLP [2020] EWHC 1982 (TCC), [2020] BLR 587 (O’Farrell J). In NZ law, see Couch v Attorney General [2008] NZSC 45, [2008] 3 NZLR 725 [80]–[85] (Tipping J, also on behalf of McGrath and Blanchard JJ), then Couch v Attorney General (No 2) [2010] NZSC 27, [2010] 3 NZLR 149, further considered in Attorney General v Strathboss Kiwifruit Ltd [2020] NZCA 98. 112 Peter Cane, Atiyah’s Accidents, Compensation and the Law, 8th edn (Cambridge, CUP, 2013) 71.

266  Beyond Contract: Other Rights of Legal Action no legal duty to do any of the things she, in fact, did (let alone more), so to impose liability for extra things she ‘failed’ to do would be illogical, as well as unfair. • In its costs aspects, the case illustrates the way in which inappropriate emotions and aims can overtake a clear evaluation of litigation risk. This seems a particular pitfall in residential projects, where the subject-matter is ‘home’ (in this case, ‘garden as an extension of home’) and where relationships are not mediated via corporate or arm’slength entities or by a formalised contractual structure. Technically, Mrs Lejonvarn’s involvement made her interactions with the Burgesses business-to-consumer (B2C) in nature, but this was legally irrelevant: three individual personalities were involved, colouring the whole sequence of events and causing a working relationship to unravel. Both sides in Burgess v Lejonvarn were clearly affronted by how they thought the other had behaved: a wish to be proved right (perhaps to prove the other side wrong, or even to punish) may have unduly influenced the course of the dispute. Each side’s lawyers will undoubtedly have advised their clients on the risks at each stage; but a client whose blood is up can insist on their legal team taking the next (arguably unwise) available step, though a cool and rational calculation might suggest a more cautious approach or an attempt to settle, by direct negotiation or via ADR. • The amount Mrs Lejonvarn expended on lawyers and other court-related costs to defend herself against the Burgesses’ claims tells its own story. Not all judges would have been so critical of the Burgesses’ conduct (after all, they did not lose outright in either the first TCC or Court of Appeal proceedings) in order to award the defendant most of her costs on an indemnity basis. We do not know the total figure for those costs which the Burgesses had to absorb in addition: at a guess, several times the initial estimate for the whole project. • The final outcome on costs also illustrates an area – where a first-instance judge applies the wrong test – where an appeal court will not hesitate to interfere.113 By contrast, appeal judges show great respect for findings of fact reached at trial, where the judge has seen the parties and witnesses (including experts) and (here, as often in construction cases) may have had a site visit, then reaching conclusions based on that collection of first-hand experiences. Coulson LJ recently summarised the position: The Supreme Court has regularly explained that, unless a critical finding of fact has no basis in the evidence, or is based on a demonstrable misunderstanding of relevant evidence, or a failure to consider such evidence, an appellate court will interfere with the findings of fact made by a trial judge only if it is satisfied that his decision cannot reasonably be explained or justified.114

113 CPR r 52.11(3): the grounds for allowing an appeal. 114 Kalma v African Minerals Ltd [2020] EWCA Civ 144 [48], where Coulson LJ relied on Henderson v Foxworth Investments Ltd [2014] UKSC 41, [2014] 1 WLR 2600 [67] (Lord Reed) and Volcafe Ltd v Cia Sud Americana de Vapores SA [2018] UKSC 61, [2019] AC 358 [41] (Lord Sumption). He added: ‘This applies equally to findings of primary fact and any inferences to be drawn from them: see Staechelin v ACLBDD Holdings [2019] EWCA Civ 817, [2019] 3 All ER 429’. See also the quotation from Lord Hoffmann in section [9.6].

Tort Liability, Separate from Contract  267

5.7  Tort Liability, Separate from Contract 5.7.1 Background The Court of Appeal judgment in Robinson v Jones reaffirms, positively and uncontroversially, that builders (in a generic sense) do generally owe a duty in the law of tort to take reasonable care in their activities, but primarily in relation only to harms of Type 1: personal injury (or death); or Type 2: damage to other property (other, that is, than the building they construct or play a role in constructing). In each case, that kind of harm must be a reasonably foreseeable consequence of the defendant’s fault.115 These are straightforward applications of the ‘neighbour principle’ derived from Donoghue v Stevenson.116 Within that landmark case can be found the seeds of another key theme of this chapter, already trailed in Robinson v Jones: the reluctance of the common law (at least, many versions of the common law) to recognise a duty of care in negligence relating to harm of Type 3: pure economic loss.117 Donoghue reached the House of Lords in 1932 when the ultimate consumer of a defective product – an opaque bottle of ginger beer, allegedly containing parts of a decomposed snail, which caused illness – sued its manufacturer for damages. A friend bought a ‘float’ – ginger beer poured over ice cream – for the claimant (‘pursuer’), Mrs Donoghue, in the Wellmeadow Café in Paisley, west of Glasgow. Mrs Donoghue had no relevant contractual link with the friend, the café operator, the defendant manufacturer or anyone else, though these others were all contractually linked in a single chain.118 The manufacturer attempted to strike out the action as legally unsustainable, but a majority of the Law Lords refused to hold such a claim bad in law. Charting the path to this goal, Lord Atkin used the idea of neighbourhood to capture at a high level of abstraction the shared features of those categories of relationship which may give rise to a duty of care in negligence, directed at protecting a potential victim against a specific kind (or kinds) of harm. Contract being irrelevant, Lord Atkin was therefore speaking directly about the Scots law of delict and quasi-delict, the case coming to the House of Lords on appeal from the Court of Session (Second Division) in Edinburgh, but also about its functional equivalent south of the border, the English law of negligence: You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be – persons who are so closely and directly affected by my act that I ought reasonably

115 Jackson LJ in the Court of Appeal judgment (n 64) [68]. In Murphy v Brentwood DC (n 153), counsel for Brentwood accepted that a local authority as BCB did owe a duty in relation to personal injury and (possibly) damage to property other than the building itself. However, no judge in the House of Lords determined clearly what form of duty of care, if any, a BCB did owe a homeowner: whatever it might be, the compensation for economic loss in fact claimed was beyond its scope: [1991] 1 AC 457G–H (Lord Mackay LC), 463F–H (Lord Keith) and 479D–E (Lord Bridge). 116 Donoghue v Stevenson [1932] AC 562 (HL). 117 On Robinson v Jones, see section [5.5]. 118 The manufacturer David Stevenson was also based in Paisley, using dark glass bottles for ginger beer; each carried a deposit so were returned for re-use. He had died in 1932 before the House of Lords’ decision: www. scottisharchivesforschools.org. There seems no public record of the eventual outcome of Mrs Donoghue’s claim.

268  Beyond Contract: Other Rights of Legal Action to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.119

In this key passage, by ‘injure’ Lord Atkin meant – at least, has usually been taken to mean – (only) harm of Types 1 and 2: physical injury to the claimant or damage to their tangible personal or ‘other’ property. So the protection the law was offering would also be available if, for example, the bottle had exploded over the claimant’s clothing, which then needed cleaning or replacing. But the law would not give the victim a new and perfect bottle of ginger beer, nor the difference between the value of the bottle she was given (presumably zero) and the value of a normal one (in effect, the price of a new one). Standing back, we can say, with Baragwanath J in the New Zealand Court of Appeal: The rule that economic claims are not generally protected by the law of negligence results from the presumptive hierarchy of interests evolved by the courts over the years. The law has always accorded the highest protection to the physical integrity of the person [illness caused by drinking the ginger beer], a lower protection to property rights [damage to clothes], and still less protection to economic interests [being supplied with a drink worth less than expected].120

A necessary step in the path to liability in Donoghue v Stevenson was that the danger was latent: there was, in Lord Atkin’s words, ‘no reasonable possibility of intermediate examination’.121 The bottle was opaque, so no-one in the distribution chain between the manufacturer and ultimate consumer had any reasonable means of discovering that there was a foreign body in the ginger beer (if there was). Mrs Donoghue must have drunk some of the beer before the last of it was poured out, bringing to light the remains of the alleged snail. If a case derives from ‘injury’, in Lord Atkin’s definition, then the existence of a contract between the defendant and victim would be irrelevant, unless the contract attempts to modify or exclude such a duty, which in modern times may well be statutorily ineffective or at least capable of being challenged as unfair.122 Nor did it reduce the law’s protection for Mrs Donoghue that everyone else, from manufacturer to paying café customer, was in a contractual chain. In the light of Grenfell Tower and the possibility of dangerous construction defects, such a duty to take reasonable care against physical injury or damage to other property may therefore be owed not only to the other party or parties with whom the defendant does have (or has had) a relevant contract. It extends – 119 Donoghue v Stevenson (n 116) 580. A bronze statue of Mrs Donoghue (holding her twin granddaughters) and a plaque describing the case (quoting Lord Atkin) were installed in Wellmeadow Street, Paisley in 2018: www.paisley.org.uk. The tenant running the café was Francis Minghella, not Minchella as the law report suggests: www.scottisharchivesforschools.org. 120 North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZCA 64 [24]. 121 Where a defect is no longer latent, the courts may say either that the defendant owes no duty of care or that the chain of causation between the defendant’s negligence and the harm is broken. For the impact of the possibility of ‘intermediate inspection’ on liability for property damage caused by under-design of rainwater systems in commercial premises, see Baxall Securities Ltd v Sheard Walshaw Partnership [2002] EWCA Civ 9, [2002] BLR 100, 83 Con LR 164 and Pearson Education Ltd v The Charter Partnership Ltd [2007] EWCA Civ 130, [2007] BLR 324, with clear variations of approach between two differently constituted appeal benches. 122 An attempt to limit or exclude liability in negligence for personal injury or death (by contract or notice) is legally ineffective. At the time of Robinson v Jones, this was under UCTA 1977 (UK) s 2; the same rule is now the Consumer Rights Act 2015 (UK) s 65. On challenging contract terms as unfair in a B2C context, see section [4.10].

Tort Liability, Separate from Contract  269 for the duration of the limitation period – to all those who foreseeably own, occupy or are present in or close to the building and are thus at risk of injury or damage to their own (movable) property. This would cover the current owner B2, a short-term tenant, members of the tenant’s family or just visitors. Illustrating this in both Scots and English law is McManus v Scott Wilson Scotland Ltd, where a group of 44 tenants of homes constructed on a redeveloped brownfield site in Motherwell claimed that contaminants still in the soil had caused them injury. They argued that the consultants who investigated the site in the 1990s were at fault for failing to identify these solvents. Lord Clark in the Court of Session (Outer House) accepted the Donoghue v Stevenson principle of a duty of care: [W]here a person is involved in an activity which, if he does not exercise reasonable care, will create a foreseeable risk of personal injury to others, the person owes a duty of care to those others to act reasonably having regard to the existence of that risk … [W]here a firm of civil engineers has been engaged to carry out specified work relating to contaminated land, on a site which is intended to be developed for housing, and where the contaminants may foreseeably be such as to cause injury to those who will reside in housing on the site, the firm owes a duty of care to those who later become residents.123

However, the pursuers failed to convince the Court that the consulting engineers were in breach of this duty, so the action failed.124

5.7.2  Liability for Injury or Death Caused by Construction The collapse in May 2013 of the nine-storey Rana Plaza garment factory outside Dhaka in Bangladesh, with an estimated 1135 deaths, shows how faulty or inadequate construction can trigger a massive human tragedy (potentiated by the probable failure of the building control function, when the owner added three extra floors on top of the existing six). A six-storey building collapse in Nairobi in April 2015, leading to 12 confirmed deaths and more than 100 injuries, quickly produced a statement from Kenya’s statutory National Construction Authority that the building had no occupancy permit. This followed its own audit of buildings in the capital, suggesting that 58 per cent were not fit for occupation.125 A new (incomplete, some suggest) church building in Uyo, the capital of Akwa Ibom state in Nigeria, collapsed in December 2016, killing at least 60 worshippers; this followed the collapse of a church guesthouse in Lagos in 2014, which killed 116.126 And a fire in a building in a sports centre in Jecheon, in the centre of South Korea, caused at least 29 deaths in December 2017.127 123 McManus v Scott Wilson Scotland Ltd [2020] CSOH 47 [53]. This followed a failure, on ‘no non-delegable duty of care’ grounds, of the same action against the developers: McManus v City Link Development Co Ltd: n 15. For action by tenants from the same former brownfield site against their landlord for damages for similar alleged injuries, see Cowan v Lanarkshire Housing Association Ltd [2020] CSIH 26 (Lord Carloway). 124 The judge went on (n 123 [55]–[58]) to hold that the defender civil engineers had not ‘assumed responsibility’ to the pursuers in relation to any contaminants; they owed a duty of care only to the work they actually undertook and had not failed to comply with ‘normal and usual practice’ at the time, including reasonably relying on investigations undertaken by the Regional Chemist. 125 ‘Owners of Collapsed Nairobi Building “Had No Occupancy Permit”’ The Guardian (30 April 2016). 126 ‘Nigerian Church Collapse Kills at least 60 Worshippers’ The Guardian (11 December 2016). 127 See ‘South Korea Sports Centre Fire Causes at Least 29 Deaths’ The Guardian (22 December 2017).

270  Beyond Contract: Other Rights of Legal Action Reports of frequent multi-storey building collapses in and around Mumbai in India, with numerous fatalities, suggest that some of the buildings in recent disasters may already have been identified as dangerous by the local authority, but enforced evacuation, rectification or demolition had not taken place fast enough.128 Insurance apart, in a tragedy of this scale the assets of those responsible in law are unlikely to produce much by way of compensation; and there is the unattractive principle – true for most legal systems – that it may be cheaper to kill a victim than to maim them for life.129 Happily, liability issues from defective construction only exceptionally concern injury or death, though large-scale post-completion disasters have often been the trigger for regulatory tightening-up, best exemplified now by Grenfell Tower.130 Other high-profile examples from the UK involving multiple fatal injuries include the 1984 Abbeystead pumping station explosion (16 deaths after the roof collapsed);131 the partial collapse in 1968 of the newly completed London Borough of Newham tower block Ronan Point in East London (four dead and 17 injured), leading in 1970 to a new Part A of the Building Regulations, on Disproportionate Collapse;132 and the King’s Cross tube station fire in 1987, where 31 died.133 There is some modern resonance here with the quotations from the Code of ­Hammurabi at the head of this chapter, in that personal injury and death caused by construction failures often bring with them the possibility of criminal liability (both individual and corporate). In the Rana Plaza case, 38 people were charged with murder (facing the death penalty), 10 with offences under the Bangladesh National Building Code and three with assisting the factory owner, Sohel Rana, to avoid justice by 128 ‘Over 100 people have been killed in five building collapses in Mumbai between April and June [2013] alone. And between 2008 and 2012, there were 100 building collapses in the city in which 53 people died and 103 others were injured, authorities say’: www.bbc.co.uk/news/world-asia-india-24294375 (September 2013). The Guardian report of a collapse in September 2013 suggests that the five-storey building was in fact owned by the municipal government to house its employees: ‘Residential Building Collapse in Mumbai Leaves at Least Three Dead’ The Guardian (27 September 2013). The 2019 collapse of a 100-year old building in Mumbai was reported to have killed at least 13: The Economic Times (17 July 2019): www.economictimes. indiatimes.com. 129 Van Dam (n 1) [702]. On ‘wrongful death’ damages, see Association of Personal Injury Lawyers, Bereavement Damages: A Dis-United Kingdom (2021). The risks to workers during construction – outside the scope of this book – are exemplified by the anxieties expressed by FIFA, the International Trades Union Congress and others about migrant workers involved in constructing facilities for the World Cup 2022: Pete Pattison and others, ‘Revealed: 6,500 Migrant Workers have Died in Qatar as it Gears up for World Cup’ The Guardian (23 February 2021). 130 From Singapore, there was the 1986 Hotel New World collapse: see Report of the Inquiry into the Collapse of Hotel New World (Singapore Government, 1987); from Ireland, the 1981 Stardust nightclub fire (a fresh inquest into the 48 deaths was ordered by the Attorney General in 2019); and from the Isle of Man, the 1973 Summerland Leisure Centre fire (more than 50 deaths). Many of these disasters and the responses to them are summarised in Ministry of Housing, Communities and Local Government, Building a Safer Future – Independent Review of Building Regulations and Fire Safety: Interim Report (Cm 9551, 2017) (Hackitt Interim Report) [2.3]–[2.11]. This also considers the Lakanal House fire: see ch 1, n 49 and its main text. 131 HM Factory Inspectorate, A Report of the Investigation by the Health and Safety Executive into the Explosion on 23 May 1984 at the Valve House of the Lune/Wyre Water Transfer Scheme at Abbeystead (HMSO, 1985). See also Eckersley v Binnie (1988) 18 Con LR 1 (CA). 132 Ministry of Housing and Local Government, Report of the Inquiry into the Collapse of Flats at Ronan Point, Canning Town (HMSO, 1968). The block was partially rebuilt to strengthen its structure; its gas supply, which had made possible the explosion causing the disaster, was quickly removed from similar blocks on the estate. In 1986, all were evacuated, then demolished. 133 Department of Transport, Investigation into the King’s Cross Underground Fire (Cm 499, 1988). This led to the Fire Precautions (Sub-surface Railway Stations) Regulations 1989 (SI 1989/2401), now replaced by the Fire Precautions (Sub-surface Railway Stations) Regulations (England) 2009 (SI 2009/782).

Tort Liability, Separate from Contract  271 a­ ttempting to flee to India.134 In 2017, Rana, one of those facing a murder charge, was jailed separately for three years for ‘unaccounted income’.135 Where construction poses a danger and is identified in time, remedial work may be necessary to avoid a present or future risk of injury or death to the building’s occupants or visitors or those close by.136 The consequences of defective construction most often sound in expense (the need to rectify) or a drop in the building’s resale or rental value: this is harm of Type 3, not usually included in the Donoghue v Stevenson definition of ‘injury’. For pure economic loss like this, the law applies separate tests for the existence of a duty of care, introduced in section [5.5] (Robinson v Jones), further explained in section [5.8] and exemplified in Case Study 7 at section [5.9].

5.7.3  Liability for Damage to Property ‘Other than the Building Itself ’ As discussed in section [5.7.1], this category of case is relatively unproblematic legally, as long as a solvent defendant can be identified whose decisions or conduct in relation to construction can be shown to have been negligent and created a reasonably foreseeable risk of damage to goods (technically, personal property) within the building – which then occurred.137 In Bellefield Computer Services Ltd v E Turner & Sons Ltd, the current owners of a steel-framed building used as a creamery brought a claim against its original builders.138 Twelve years after construction was complete, a fire had started (not the builders’ fault) in one part of the building. It spread quickly over the top of a dividing wall close to the 134 ‘Rana Plaza Collapse: 38 Charged with Murder Over Garment Factory Disaster’ The Guardian (18 July 2016). Section 2.13.1 of the Bangladesh National Building Code (2015 draft edition) provides (www.bsa.com. bd): ‘Any person, firm, corporation or government department or agency who as owner of the property erects, constructs, enlarges, alters, repairs, moves, improves, removes, converts, demolishes, equips, uses, occupies or maintains any building or structure or cause or permit the same to be done in violation of this Code shall be guilty of an offence and the Authority shall take legal action against such offenders as prescribed by law’. 135 ‘Rana Plaza Owner Jailed for Three Years over Corruption’ Al Jazeera (29 August 2017). 136 Case law in Canada makes creation by an original construction party of a reasonably foreseeable ‘substantial danger to the health and safety of the occupants’ the route to imposing a duty of care covering rectification (like Grenfell Tower before the fire): Winnipeg Condominium Corporation No 36 v Bird Construction Co Ltd [1995] 1 SCR 85, 121 DLR (4th) 193; also Mayo Moran, ‘Rethinking Winnipeg Condominium: Restitution, Economic Loss and Anticipatory Repairs’ (1997) 47 University of Toronto Law Journal 115. As noted in section [5.12.3], the Canadian position was adopted by Basten JA in the NSWCA in The Owners – Strata Plan 61288 v Brookfield Multiplex (n 287) as justification for imposing a duty of care; on the second appeal (n 277), the HCA rejected this proposition as not part of Australian law. 137 The possibility of treating different parts of the same building as if separate buildings – the ‘complex structure theory’ – so that damage to one part of a building caused by a hidden defect in another part might qualify as (recoverable) physical damage to ‘other property’ was mentioned by Lords Bridge and Jauncey in Murphy v Brentwood DC (n 153). It has not seen general adoption or application: it was rejected on the facts in Bellefield (n 138), since the creamery had been constructed, and was occupied, as one unit; and again in Broster v Galliard Docklands Ltd [2011] EWHC 1722 (TCC), [2011] BLR 569, 137 Con LR 26: see Case Study 9 at section [10.6]. 138 Bellefield Computer Services Ltd v E Turner & Sons Ltd [2000] BLR 97 (CA). The claimants were a company in the same group as the construction employers, but nothing turns on this. In a sequel, the losing defendants asserted unsuccessfully that the project’s architects (in effect their own subcontractors) owed them a contribution towards the damages payable: Bellefield Computer Services Ltd v E Turner & Sons Ltd [2002] EWCA Civ 1823, [2003] TCLR 10.

272  Beyond Contract: Other Rights of Legal Action roof, damaging the wall and the claimants’ goods and business on the far side; the initial claim was around £6m. This wall should have been higher in order to comply with good practice and ‘the building code’ (the local authority as BCB required the wall to have two hours’ resistance to fire). Had the claimant been the construction employer, the claim would probably have been ‘timed out’, as the breach of contract took place during construction; but the claim in tort came into existence only when the fire caused the additional damage for which the present claimants went to court. Challenging Bell J’s first-instance judgment (based on assumed facts), the builders argued that they owed the claimants no duty of care, but accepted that the wall was not up to standard. In return, the claimants argued that the builders should pay for the destruction of goods and loss of income in that part of the building, but also for the work needed to be able to re-use it and to repair fire damage to the wall itself. Schiemann LJ, giving the leading judgment, agreed that the builders did owe a duty of care in tort to the present owners, having constructed the dairy: [A]bsent any possible exclusion clause in the liability of the builders to their contractual partners, the imposition of liability on the builders to subsequent owners only has the effect of substituting a different beneficiary for the original beneficiary of the builders’ potential liability.139

But because the present claimants had simply acquired the building already constructed, they were entitled only to a small part of the damages sought (and in fact settled with the builders): [A]lthough the builders were under a duty to the original owners [in contract, but perhaps in tort as well, subject to Robinson v Jones140] to build the wall in such a way that it contained any fire for a certain period and although they broke that duty, the original owners can not sue because they have suffered no damage and the subsequent owners can not sue because the duty owed to them only extends to chattels in the building [ie their goods and equipment] and not the building itself.141

As this shows, English law’s starting-point is that damage to ‘the building itself ’ is usually excluded from the duty of care, as a result of case law discussed more fully in section [5.8]; Schiemann LJ accepted that this approach was illogical, but had to follow the clear line of case law doctrine. It follows that damage to a different building (or to a 139 Bellefield v Turner (n 138) 101. Tuckey LJ and Wall J delivered concurring judgments. The issue ­Schiemann LJ raises – of the impact on possible tort liability to a ‘third party’ of the extent of the defendant’s original liability in contract – is rarely explored in a situation where the ‘third party’ was not ‘on the scene’ when the original contractual relationship was made. The defendant builder’s contractual liability might be limited by an exemption or limitation of liability clause or (in the main construction contract) by a bar on claims once the Defects Liability Period ends. Should their liability to a third party be greater than to their original other contract party? But why should the present claimant be affected by the details of a contract to which they were not a party (privity) and of which they had no knowledge? Where courts accept such a claim, as in Bellefield, the path to liability seems always to be ‘failure to take reasonable care’, any limitations on that duty in the original construction contract being apparently irrelevant; but in true ‘concurrent liability’ situations – between the same parties – the contract’s provisions always trump the law of tort, unless statute also intervenes: see section [5.4]. 140 Robinson v Jones: section [5.5]. 141 Bellefield v Turner (n 138) 102. The builder made no argument that the defect was not latent and could have been spotted by reasonable ‘intermediate inspection’, though the architects unsuccessfully argued this in the CA (n 138) [51]–[54]. Such arguments resurfaced in Baxall Securities v Sheard Walshaw and Pearson Education v The Charter Partnership: n 121; see also section [8.5].

Liability for Construction Defects: Pure Economic Loss  273 different unit within the same building or development) counts as damage to ‘property other than the building itself ’. This could come within the duty of care of the original builders, provided that the occurrence of damage met the test of reasonable foreseeability and did not fail the test of remoteness. However, a neighbour whose building or unit is damaged is likely to look first to the owner of the building or unit from which the risk emanated – who at the limit might attempt to shift some or all liability to a negligent ‘builder’. But legal relations between neighbouring landowners or building occupiers usually belong to a different branch of the law of tort, beyond the scope of this book: the law of private nuisance, where fault liability and foreseeability play a much less central role than they do in the law of negligence as such.142

5.8  Liability for Construction Defects: Pure Economic Loss 5.8.1 Introduction As we saw at the start of this chapter, the ideal situation for a homeowner or home buyer suffering from construction defects is to have a party against whom to make a claim based in contract – provided that the contract imposes on the other party obligations of which our claimant can show a breach, causing either the need to spend on rectification work or a drop in the home’s value, plus consequential expenses. The person who owned the home before them may have been able to claim in contract against someone – notably the developer – relating to the home’s construction; but there is no certainty, at least in the UK and Ireland, that the present owner has any right to rely on that earlier contract to which they were not a party. Alternatively, the target defendant may be an original construction party with whom no buyer or owner of the home ever had a contractual link. This ‘no contract’ category could include many parties whose activities were in fact supplied under contract, but not with the first or present homeowner: the developer’s main contractor, the consultants and subcontractors involved in construction, the private sector BCB who carried out statutory functions of inspection and certification at the time of the home’s construction – even the plumber who installed the new shower, if they did so for the present owner’s predecessor. It seems as if a public sector BCB acts in a public law context alone (though fees are payable for its services): it may have no contract with anyone.143 In a situation where a contract claim is unavailable, there are usually only two possibilities: (a) a claim based in the law of tort (usually the tort of negligence); or (b) under a statute – if there is one which empowers civil claims under it for pure economic loss caused by defective construction work.144 Judges aim to prevent tort liability from extending too widely, though defining what is ‘too widely’ is neither straightforward nor ever definitively fixed: it is what they have 142 Philip Britton, ‘Construction and “Neighbour Risk” – Common Law Variants’ (Society of Construction Law (UK) Paper D214, 2018). 143 On the legal position of BCBs in England & Wales, see sections [3.6.6]–[3.6.7]. 144 Claims in tort are the focus of sections [5.8]–[5.9]; those based on a statute are discussed in sections [5.10]–[5.11]. For a (rare) residential construction case involving tort claims in deceit, see Case Study 11 at

274  Beyond Contract: Other Rights of Legal Action called an area of ‘inherent indeterminacy’.145 They struggle to articulate rational policies for distinguishing between cases where they think liability is potentially justified and others where it is not, using duty of care as their instrument – an ‘exceptionally vague and blunt’ concept.146 Doing so in relation to building defects is made especially difficult by two aspects of the context: (i) where the original work of construction took place within a multi-party contractual framework (often the case, making it harder to persuade a court that tort duties to ‘third parties’ should derive from, and be added on top of, existing contractual ones); and (ii) where one of the potential defendants operates within a statutory framework of powers and duties, as all BCBs (public or private) do.

5.8.2  Negligence and Construction Defects In England, a high-profile group of cases in the 1970s concerned current homeowners making damages claims for defects in their houses. It is no accident that many of the cases – the trio from England below and Invercargill v Hamlin from New Zealand147 – concerned inadequate foundations. These form part of the construction of a building which is by definition covered up at a relatively early stage and will be hard to inspect later on. Such types of defect will remain latent and undiscovered until its consequences show above ground, often long after construction is complete (with resulting additional time-limit issues for litigation), and may require expensive and difficult rectification work. Foundations may be the best but are by no means the only example. In multi-unit residential blocks, defective fire-stopping between ‘the common parts’ and individual units, or between the units themselves, comes close in latency, frequency and potential expense.148 The fires at Grenfell Tower and elsewhere require us now to add to this dismal list forms of external cladding (including its fixings to the building and linked insulation, which also can be lethal when exposed to fire), whose dangerous combustibility cannot usually be confirmed except by laboratory testing. Even then, the evidence presented to Phase 2 of the Grenfell Tower Inquiry has indicated how problematic that testing can be. Foundations, fire-stopping, cladding and leaky timber-frame homes in New Zealand and British Columbia, pyrite-containing infill aggregate or concrete blockwork ­containing undue levels of mica or pyrite in Ireland, shale-bearing colliery hardcore under concrete floors: all are different examples of widespread, invisible and costly medium-term construction time bombs.149 In some of these, central government felt it had to step in, offering financial help to rectify problems caused by widespread ­identical section [11.8]. For claims in restitution, between parties already in some kind of direct relationship in relation to construction work, see section [4.12.5]. 145 McHugh J in Burnie Port Authority v General Jones Pty Ltd [1994] HCA 13, (1994) 179 CLR 520 (HCA) 593; concerns about indeterminacy continue to underpin the justification for confining the scope of any duty of care in relation to pure economic loss in Australia – see, eg, Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (the main text to n 277) in section [5.12.3]. Likewise, in NZ: see Attorney General v ­Strathboss Kiwifruit Ltd: n 111. 146 Markesinis et al (n 111) 44. 147 Invercargill v Hamlin: Case Study 1 at section [1.12]. 148 See further ch 11. 149 On New Zealand, see section [5.13.2]; on British Columbia, see ch 7, n 12; on Ireland, see section [7.1.2]; and on shale in the UK, see section [2.9.3].

Liability for Construction Defects: Pure Economic Loss  275 defects, where the limitation period for legal action (and any new home warranty cover) may already have expired, and those theoretically responsible may no longer be in business or have assets reachable in order to satisfy a court judgment. A version of the same approach has gradually emerged in relation to high-rise residential blocks in the UK which have ACM or other types of combustible cladding – public money for ‘waking watch’ patrols and for some categories of rectification work – but the scale of the problem makes a simple and comprehensive ‘rectification paid by government’ solution for all dangerous construction defects apparently out of reach. As the slow and limited reaction by government after Grenfell Tower shows, public sector compensation for building defects suffered by individual homeowners is the exception – often the hard-won outcome of campaigning by victims. In its absence, to whom do claimants with defects look? A ‘builder’ may theoretically be in the frame, but in the 1960s and after in England & Wales (as also in New Zealand), the local authority as BCB was often the real (or only) defendant. This was so in the well-known English pair of ‘inadequate foundation’ cases which resulted in damages for the cost of rectifying the defective building: Dutton v Bognor Regis UDC in the Court of Appeal, then Anns v London Borough of Merton in the House of Lords. Mrs Dutton, second owner of her home, started legal action (in tort only) against both the original builder and the Council, but accepted £625 in settlement from the builder, so her legal action from that point onwards was only against the Council. At first instance, Cusack J awarded her an additional £2,115, which stood since the Court of Appeal dismissed the Council’s appeal on the duty of care question.150 Lord Denning MR – never one to hide behind technicalities if a simple statement of principle would do – said: [T]he legislature gives the local authority a great deal of control over building work and the way it is done. They make byelaws governing every stage of the work. They require plans to be submitted to them for approval. They appoint surveyors and inspectors to visit the work and see if the byelaws are being complied with. In case of any contravention of the byelaws, they can compel the owner to remove the offending work and make it comply with the byelaws. They can also take proceedings for a fine. In my opinion, the control thus entrusted to the local authority is so extensive that it carries with it a duty. It puts on the council the responsibility of exercising that control properly and with reasonable care.151

In Anns, Lord Wilberforce suggested a simple two-stage test for imposing a duty of care – a relationship of sufficient ‘proximity or neighbourhood’ (echoing Lord Atkin in Donoghue v Stevenson, looking to the reasonable foreseeability of the particular sort of harm), moderated if necessary by considerations of policy (meaning fairness and justice).152 In both Dutton and Anns, this led to the BCB being held liable in tort to the current owner – a liability not limited to residential buildings but also deriving from an analysis of the statutory powers and duties of the BCB, which was at fault. This approach 150 Dutton v Bognor Regis UDC [1972] 1 QB 373 (CA). Anecdotal evidence in 2011 from a Court of Appeal judge suggests that Mrs Dutton did not use her damages to repair the foundations – which a winner in such a case is never required to do. However, when a Council inspector later saw the state of the house, he offered to pay for repairs, which were then done (in effect, compensating her twice for the same loss). The judgments in Dutton are the foundation of the modern law of New Zealand on BCBs’ tort liability, analysed in detail by the NZ Supreme Court in Sunset Terraces/Byron Avenue (n 325) and Spencer on Byron (n 331). 151 Dutton v Bognor Regis (n 150) 392. 152 Anns v London Borough of Merton [1978] AC 728 (HL) 751G. For Donoghue v Stevenson, see the main text to n 116. The claimants did start legal action for breach of contract against the original builders, but

276  Beyond Contract: Other Rights of Legal Action was then magisterially overturned for English law by a seven-judge House of Lords in Murphy v Brentwood DC.153 Murphy was a further iteration of a by now familiar scenario: the claimant Mr Murphy bought a new house from a developer; it had a below-ground concrete raft foundation, which proved inadequate to resist differential movement in the soil below, causing cracks in the house and its pipework. For building control purposes, the local authority, Brentwood District Council, approved the plans for the foundations, relying on a faulty review of the design by consulting engineers it had instructed. Mr Murphy wanted damages from the local authority, principally for the difference between the reduced price for which he had sold the house and what it would have fetched in good condition. Losing in the Court of Appeal, the local authority appealed to the Law Lords; ‘fearful of the genie Anns had brought out of the bottle’, the judges redefined the duty of care ‘control device’, Mr Murphy’s claim failing in law.154

5.8.3  Murphy v Brentwood DC Analysed When the Law Lords refused Mr Murphy’s claim and within English law imposed new restrictions on the scope of a duty of care in relation to construction defects, what were the steps in their thinking? Table 5.2  Murphy v Brentwood DC in the House of Lords STEP 1

[Uncontroversially] There is no general principle in the English law of tort that fault which has caused the claimant harm automatically gives rise to liability in negligence: a logically prior duty of care test (a question of law) has to be satisfied in relation to that type of harm. This requires it to be, at the minimum, reasonably foreseeable to someone in the defendant’s position that someone in the claimant’s position may suffer that form of harm if the defendant is negligent, but this is not necessarily sufficient.155

STEP 2

The English law of negligence, deriving from Donoghue v Stevenson, does not generally compensate a claimant for the defective nature of ‘the thing itself ’ which the defendant has supplied or had a hand in supplying, only for injury to the claimant’s person (Type 1 harm) or damage to ‘other property’ (Type 2 harm).156 (continued)

the ­builders seem to have taken no part in the litigation; the claimants would hardly have gone to the Lords against the BCB on the duty of care issues if they had any reasonable prospect of an adequate remedy from the builders (eg, remedial work). Tony Weir said of Anns v Merton: ‘it is hard to imagine anyone less deserving of a dip in the public trough than the insurer [the real claimant in the case] who profits from taking the risk that houses may collapse’: ‘Government Liability’ [1989] Public Law 40, 43. 153 Murphy v Brentwood DC [1991] 1 AC 398 (HL). 154 Michael J Beloff in Louis Blom-Cooper, Brice Dickson and Gavin Drewry (eds), The Judicial House of Lords 1876–2009 (Oxford, Oxford University Press, 2009). 155 As McHugh J put it in the High Court of Australia: ‘Anglo-Australian law has never accepted the proposition that a person owes a duty of care to another person merely because the first person knows that his or her careless act may cause economic loss to the latter person’: Hill v Van Erp (1997) 188 CLR 159 (HCA) 211. 156 Donoghue v Stevenson: n 116.

Liability for Construction Defects: Pure Economic Loss  277 Table 5.2  (Continued) STEP 3

The primary type of harm for which Mr Murphy [or (later) Mr Hamlin] seeks reparation is pure economic loss (Type 3 harm): something which hits his assets and/ or his pocket. This is because the claim is for one or more defects (lack of quality), not for damage, either to the building or ‘other property’: it has never been a perfect building, since its construction was flawed at the moment of completion.157

STEP 4

To prevent liability for pure economic loss becoming too extensive, a duty of care in such a case requires the facts to fit within the idea of proximity first elaborated by Hedley Byrne v Heller: negligent advice or misstatement by the defendant, reasonably relied on by the claimant within a context of ‘a special relationship’ or ‘a voluntary assumption of responsibility’.158

STEP 5

In the normal case, there is no such special relationship or voluntary assumption of responsibility between the (public sector) BCB, responsible for building control for the project, and the present building owner or occupier.

STEP 6

Nor is there usually such a special relationship or voluntary assumption of responsibility between a ‘builder’ and the present building owner or occupier – the builder’s potential liability in negligence should be on the same basis as that of a BCB.159 But a claimant in a contractual relationship with ‘the builder’ may have rights against that defendant.

STEP 7

The existence of a special statutory regime under the Defective Premises Act 1972, imposing liability for pure economic loss on ‘builders’ of dwellings, does not justify the courts imposing a wider system of liability in negligence at common law: this would trespass on Parliament’s territory.160

The law report suggests that Mr Murphy’s counsel did not advocate the already established New Zealand approach: that homeowners (at least) deserve protection by the law against construction parties as well as BCBs.161 Nor was it argued that negligent failure to attain compliance with the statutory aims of ‘the building code’ ought to be enough to establish liability for the cost of rectifying that non-compliance or the drop in capital value caused. So the outcome in Murphy, denying a general duty of care in tort for pure economic loss caused simply by the discovery of a hitherto latent construction defect, 157 D&F Estates Ltd v Church Commissioners for England [1989] 1 AC 177 (HL), where the Law Lords held that the main contractors building a block of flats, one of which later let to the claimants, owed them no duty of care in relation to the cost of repairing defective plasterwork installed by one of their subcontractors: this was not ‘damage to the flat’ (potentially recoverable) but pure economic loss (unrecoverable). 158 Hedley Byrne & Co Ltd v Heller & Partners Ltd: n 70; for further discussion of ‘a voluntary assumption of responsibility’, see section [5.5.3]. 159 The courts in New Zealand adopt the same approach, considering that the builder and BCB should be in the same position in relation to a possible duty of care, at least concerning compliance with ‘the building code’; but until Spencer on Byron, n 331 and its main text, it was thought that the law of tort protected only residential owners. 160 For the same argument in Australia, see Brennan J (dissenting) in Bryan v Maloney (n 276) 644: ‘in the absence of compelling legal principle or considerations of justice reflecting the enduring values of the community, the courts should not decide to extend remedies not hitherto available to “remote purchasers” of buildings without considering the cost to builders and the economic effect of such an extension. Those are questions which the courts are not suited to consider. The extension of remedies in that direction is properly a matter for Parliament.’ On the DPA (E&W, NI), see section [5.10.2]ff. 161 See Case Study 1 at section [1.12].

278  Beyond Contract: Other Rights of Legal Action was evidently intended to apply to all types of construction and all categories of both claimant and defendant. This is certainly how later English judges have treated it, at least in relation to claims for the cost of rectification or drop in capital value unconnected with any other form of harm.162 It has led to the proliferation within larger construction projects of collateral warranties between project parties and the ultimate acquirers and occupiers of buildings: establishing direct contractual links (backed by insurance) to replace what, pre-Murphy, were assumed to be duties of care not requiring a contractual relationship between claimant and defendant.163 Collateral warranties are in fact almost never available to benefit the buyer or later acquirer of a home, though a far-sighted ‘ownerbuilder’, like B2 in Scenario 6 (Table 1.2), might insist on their architect A and other project team members entering into such warranties for the benefit of future owners of the new house.

5.8.4 Post-Murphy Attempts to Sue BCBs No serious challenge to Murphy has been mounted at Court of Appeal or Supreme Court level; very few cases since Murphy have reached the Law Reports in England & Wales where the liability of a public sector BCB has been asserted. Before Herons Court came along in 2018–19, none had considered the non-contractual liability of a private sector BCB.164 In Tesco Stores Ltd v Wards Construction Investment Ltd from 1995, tenants of four shop units sued (among others) the public BCB, Maidstone District Council, after a fire lit by youths at night in a rubbish bin outside one unit spread so rapidly through the roof structure to the other units that the stock inside was destroyed.165 Tailoring their claim to the new limitations in Murphy, the claimants were not seeking compensation for the damage to the structure of their units, only for fixtures, fittings and contents and consequent business interruption.166 They alleged that the BCB had failed to insist on the necessary fire-stopping precautions in the eaves or roof voids: as a result, the fire

162 For example, Bellefield v Turner (n 138), where Schiemann LJ said of Murphy, 102: ‘it can thus be regarded as an ordinary negligent builders’ case’. Lord Keith said of Murphy in Department of the Environment v Thomas Bates & Son Ltd [1991] 1 AC 499 (HL) 519: ‘while the builder would be liable under the principle of D ­ onoghue v Stevenson [n 116], in the event of the defect, before it had been discovered, causing physical injury to persons or damage to property other than the building itself, there was no sound basis in principle for holding him liable for the pure economic loss suffered by a purchaser who discovered the defect’. 163 See British Overseas Bank Nominees Ltd v Stewart Milne Group [2019] CSIH 47, 2019 SLT 1253, 186 Con LR 80, [9]ff (Lord Drummond Young). On the duty to enter into such a warranty, see also Kier Construction Ltd v WM Saunders Partnership LLP [2016] CSOH 17, discussed at section [4.16.3]; and on its impact after a catastrophic fire, see Oakapple Homes (Glossop) Ltd v DTR (2009) Ltd: n 25. 164 Herons Court: see Case Study 8 at section [5.11]. An attempt by a buyer of a defective house to impose liability on a public BCB for negligent misstatement failed in King v North Cornwall DC [1995] NPC 21 (CA), as did the residential occupiers who attempted to rely on the Human Rights Act 1998 to claim against their public BCB for the cost of rectifying their new extension’s non-compliance with Building Regulations: R (Gresty) v Knowsley MBC [2012] EWHC 39 (Admin). 165 Tesco Stores Ltd v Wards Construction (Investment) Ltd (1995) 76 BLR 94 (QB). 166 Some of the claimed losses arguably involved damage to the building itself (fixtures and fittings destroyed may have technically been part of the building). These appear to fall under the Murphy principle that economic loss is normally unrecoverable, but the judgment does not discuss this point.

Case Study 7: PCCs in Peterborough  279 spread so fast that the emergency services could not prevent the damage.167 Was such an action against the local authority sustainable in principle? The judge, Bruce Mauleverer QC, concluded that the Building Act 1984 aimed to protect (only) the health, safety and welfare of persons, so could lead to no duty of care in relation to property.168 Additionally, he noted that, in Murphy, the House of Lords was evidently favouring more extensive duties of care in relation to harm of Type 1 (personal injury) than to other types of harm (a fortiori Type 3: pure economic loss). It was therefore not ‘fair, just or reasonable’169 on the alleged facts to impose a duty of care on the BCB in relation to the property damage claimed; he struck out that part of the action. The judge refused to say what the outcome would have been, had the fire caused personal injuries or death, but his reasoning does not close the door to a duty of care in that situation and confirms the conclusions in section [5.7.2]. However, to limit the duty of care on BCBs to the negligent causing of personal injury would, if correct, have offered a shortcut to the outcome in Murphy itself.170 BCBs may therefore incur liability in negligence at common law in a less dramatic version of a scenario like Grenfell Tower, where non-compliance with ‘the building code’ is detected in time but needs remedying urgently to avoid an imminent risk of injury or death; as well as in the very worst scenario, where detection does not happen in time, so the risk to life and limb eventuates.

5.9  Case Study 7: PCCs in Peterborough 5.9.1 Background Especially if there is, or will be, no third-party warranty cover from an insurer, a developer may retain independent construction professionals – not formally acting as BCBs but covering much of the same ground – to inspect and report on the progress and quality of construction at critical stages, including at practical completion. The final ‘Architect’s Certificate’ – more usually entitled ‘Professional Consultant’s Certificate’ (PCC) – is primarily intended for the first buyer B1 and their mortgage lender (who will, in most cases, share a solicitor or licensed conveyancer), in order to reassure both parties about build quality.171 A PCC may be equally important where a homeowner has construction work done, then plans to sell the house in the early years after

167 For a similar claim, but purely against the original builder, see Bellefield v Turner: n 138. 168 For a similar argument used in New Zealand, see Spencer on Byron (n 333). 169 This phrase, preceded by the need for foreseeability and a relationship of proximity, is the final part of the three-stage test for a duty of care laid down in Caparo v Dickman (n 70), approved and applied in Mitchell v Glasgow City Council [2009] UKHL 11, [2009] 1 AC 874. English courts have recently shown a tendency towards an incremental, factors-based approach closer to the Australian orthodoxy in section [5.12.3], instead of the Caparo three-stage test: see, eg, Robinson v Chief Constable of West Yorkshire Police [2018] UKSC 4, [2018] AC 736 and Steel v NRAM Ltd [2018] UKSC 13, [2018] 1 WLR 1190; also Rushbond plc v JS Design Partnership LLP: n 111. 170 See n 115. 171 Parts of this section are taken from Philip Britton, ‘Professional Consultants’ Certificates: the View from the Courts’ (2014) 30 Construction Law Journal 337.

280  Beyond Contract: Other Rights of Legal Action construction work is complete; the certificate aims to reassure both buyer and lender about build quality and provides an insured defendant if the certificate proves misleading or inaccurate. A PCC will report, among other things, on compliance with ‘the building code’. It may play an important role in marketing the home to a buyer, even if they do not need a mortgage. There is a hybrid possibility: the developer or homeowner starts out intending at best to provide a PCC, but buyers and their lenders then press for a full 10- or 12-year warranty. At least one of the specialist providers of PCCs allows for a mid-build change of direction, ‘upgrading’ from a PCC to a third-party warranty.172 However, not having a PCC can also lead to legal issues, including in a consumerto-consumer setting. In Hart v Large in the TCC, Roger ter Haar QC as a Deputy High Court Judge held that a chartered surveyor, Mr Large, had been negligent in acting for Mr & Mrs Hart, the intending buyers of an exposed clifftop house in South Devon.173 When Mr Large delivered his RICS HomeBuyer Report, he failed to warn the Harts that, if there was neither a third-party warranty nor a PCC in place, they were taking on the risk of all defects, which his report could not be expected to disclose; the buyers’ conveyancing solicitors were guilty of failing to give the same warning.174 Such an outcome is a straightforward application of the common law principle of caveat emptor.175 The sellers had recently extended and renovated the house; on completion day in 2011, the Harts discovered the sellers’ builders, as they put it, ‘trying to fix the leaking [front] door’, on instructions from the sellers’ architects. What the surveyor had seen led him (correctly) to be suspicious about the quality of the recent building work. However, as summarised by Coulson LJ in the Court of Appeal: (i) he failed to see some of the general warning signs of poor workmanship; (ii) he did not see visible damp proofing in places where he should have expected to see it; (iii) he wrongly assumed – without evidence – that damp-proofing was present because the rebuilding works had only recently been completed; and (iv) he should have advised that further investigations were required.176

The judge also held that the surveyor should have advised the buyers to ask for a PCC from the sellers’ architects, who supervised the recent construction work; had the architects declined (which the judge thought likely, as the architects obviously knew about weathertightness problems still unresolved when the house was sold), Mr Large should have warned the Harts not to go ahead. The claimants would not then have suffered a dramatic loss in value of the property: the whole house had to be demolished and rebuilt.

172 See ABC+ Warranty in Table 7.1: www.architectscertificate.co.uk. Note that a third-party warranty will usually run – with its own definition of cover – for at least 10 years from the completion of construction. By contrast, a PCC typically runs only for six. On inspections in general, see ch 8. 173 Hart v Large [2020] EWHC 985 (TCC). 174 In Hart v Large (n 173) [200]ff, the judge considered the buyers’ solicitors’ negligence not such as to break the chain of causation between the surveyor’s conduct and buyers’ loss. 175 On this principle, see section [4.4.4]. 176 Large v Hart [2021] EWCA Civ 24 [32].

Case Study 7: PCCs in Peterborough  281 Mr Large got permission to appeal on one issue alone: had the judge adopted the correct basis for assessing the damages, as the difference between (a) the value of the house with the defects as reported by the surveyor (close to its purchase price of £1.2m); and (b) its value with all the defects as in fact existed (about half the purchase price)?177 Against the surveyor, this resulted in liability of £389,000.178 In Large v Hart, Coulson LJ gave the main judgment (Andrews and Peter Jackson LJJ concurring).179 He noted that the TCC imposed liability on Mr Large not just for those defects on which, within the scope of the HomeBuyer Report, he should have reported, but did not;180 but for all latent defects (‘as if he had given a warranty as to the condition of the property’, as Mr Large’s counsel put it on appeal).181 Coulson LJ considered this, in both fact and law, the right measure of the Harts’ loss, given that the surveyor also failed to recommend further investigations to explain the protection a PCC would afford and to stress the dangers of doing without. Armed with such advice, the Harts would not have gone ahead with the transaction. ‘[I]t seems to me that the Harts can recover the losses identified by the judge because those losses would not have happened if Mr Large’s advice had been correct’.182 The Court was eager to point out that the case arose out of an unusual combination of factors: The criticality here of obtaining a PCC, given the extensive rebuilding works that had been carried out at the property without any records of compliance or satisfactory completion, together with the suspicions that were beginning to creep into Mr Large’s mind (as well as those of the Harts), and the exceptionally exposed nature of the site, combined to give rise to an unusual situation which is markedly different to the vast majority of negligent surveyor cases.183

177 Additional issues, including the trial judge granting the defendant surveyor leave to appeal on one ground only, are reported at [2020] EWHC 1302 (TCC); and a partial stay of execution of the first-instance judgment (to allow Mr Large enough funds to argue the appeal) at [2020] EWHC 2159 (TCC). 178 The claimants had accepted offers totalling £376,000 from the other defendants: their own solicitors and the sellers’ architects. This reduced pro rata the damages then owed by the surveyor (and, we assume, by the surveyor’s PI insurer). The CA judgment notes at [79] that there are (or were, at the time) ongoing contribution proceedings by Mr Large against the Harts’ firm of solicitors where – if successful – the surveyor might reduce his exposure to the Harts; in theory, he was jointly and severally liable for all their allowable losses. 179 Large v Hart: n 176. Andrews LJ added a short commentary, reinforcing Coulson LJ’s views, quoted as the main text to n 183: the outcome does not widen negligent surveyors’ potential liability generally. 180 This was ‘the conventional measure of damages’ in an ordinary negligent surveyor case, as in Watts v Morrow [1991] 1 WLR 1421 (CA). Coulson LJ discusses, as Roger ter Haar did in the TCC, the possible relevance of other case law, notably Lord Hoffmann in South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (HL) and Lord Sumption in Hughes-Holland v BPE Solicitors [2017] UKSC 21, [2018] AC 599. 181 Mr Large’s counsel’s point: Large v Hart (n 176) [61]. As Coulson LJ points out at [51] and [56], to uphold the first-instance judgment did not shift every aspect of the Harts’ loss to Mr Large: most problems were in fact related to damp-proofing, where he had failed to investigate adequately; and the Harts’ were not seeking all their transaction and finance costs back, nor any damages reflecting a general drop in property values. These last categories would not have been allowable in law, said the judge; they were risks against which it was not Mr Large’s role to protect the Harts. 182 Large v Hart (n 176) [69]. 183 Large v Hart (n 176) [37].

282  Beyond Contract: Other Rights of Legal Action However, failing to warn about the importance of a PCC (if there is no third-party warranty, and if significant construction work has been completed within the last six years) starts to look like a ‘red flag’ for liability – for both surveyor and solicitor/ licensed conveyancer. The legal context is (a) the limited duties of care that professionals employed by a seller or developer owe to a later buyer of a dwelling in English law (except under the Defective Premises Act 1972, via a collateral warranty assigned onwards or a contract term on which a ‘third party’ buyer can rely) and (b) comparable limitations on duties of care owed in tort by those operating the ‘building control’ system. So a PCC can be a plank in a shipwreck.184 Home buyers deserve to understand what scale of risks they are taking on if they choose to go ahead with a purchase when only such a certificate could protect them. A lay consumer, Akenhead J has said, will interpret an unqualified PCC as meaning: ‘inspections had been done by a qualified architect and everything was all right’.185 Such a certificate may mean that such a buyer cannot be expected to do more by way of self-protection, especially if the defects are hidden underground in the foundations or drains, or not readily accessible (eg, in the roof construction of a tower block). The standard terms for such a certificate were first laid down for England & Wales by the Council of Mortgage Lenders (in 2017 folded into UK Finance). If the purchase is to be funded by a mortgage from a lender belonging to UK Finance, the rules look for such a certificate as one of several acceptable forms of protection for the loan.

5.9.2  Jubilee Mansions: The Start of the Litigation Jubilee Mansions in Peterborough, completed in 2004, is a four-storey block containing 26 flats, built and sold by developer Optima (X). The owners (in fact, long leaseholders) of six flats started legal action about a kaleidoscopic range of construction defects, of both design and workmanship, grouped into 19 categories. Problems included leaking domestic pipework, windows and roofs (in one flat, rainwater above a ceiling made this collapse the day the buyer moved in, causing a flood); electrical sockets with no fire-resistant material behind them; internal suspended floors deflecting abnormally; inadequate soundproofing between flats and insufficient fire-stopping in riser ducts between floors; and a flawed foul drainage system under the building and out towards the public sewer (‘absolutely hopeless and insanitary’, said the TCC judge).186 The

184 Limited duties of care at common law: for Murphy v Brentwood DC, see section [5.8]; on the liability of Approved Inspectors, see Herons Court: Case Study 8 at section [5.11]. 185 Hunt v Optima (Cambridge) Ltd (n 189) [130]. In contrast, some jurisdictions apparently attempt to forestall such lay expectations: hence the Building Act 1993 (Vic) s 38(2) provides that ‘certificates of final inspection’ issued by building surveyors (BCBs) in that state are ‘not evidence the building or building work concerned complies with [that] Act or the building regulations’; ss 46(2) and 58(2) (the latter specifically for places of public entertainment) provide similarly in respect of ‘occupancy permits’. 186 The first TCC judgment (n 189) [136].

Case Study 7: PCCs in Peterborough  283 range of problems, therefore, comprised not just ones within individual flats (repeated identically in several), but some in ‘the common parts’. Attempts to negotiate solutions with the developer via its managing agents failed.187 The flat-owners issued and served proceedings in 2010, later transferred to the TCC. When Hunt v Optima (Cambridge) Ltd first reached court, all but one of the relevant flats were still owned by their first buyers (B1); of these, most had committed to buy off-plan (before either the flat they wanted or the development in general was finished). One flat only was already complete when the present claimants bought it. Once the dispute with the developer was under way, it would have been hard to sell or let any flat: the pervasive smell of raw sewage will not have helped, nor the signs of past flooding and the noise from other flats.188 However, one pair of claimants were their flat’s second owners (B2), having bought a completed flat from a first buyer (technically, taken an assignment of the rest of the long lease from their predecessor).

5.9.3  At First Instance The claimants’ real goal was an award of damages.189 Of the special damages claimed against X, the largest component was the expected cost of rectifying the defects, with the consequential costs of moving out while rectification work took place; but general damages were also claimed for the aggravation of living in a defective home and block. The total claimed came to over £2m, though not every aspect was pursued at trial and not every item accepted. In essence, there were claims against three categories of defendant, based on multiple causes of action. In the end, there were two defendants in Category 3: the architect A, whose firm Strutt & Parker the developer X commissioned to inspect and then provide PCCs; and the firm itself, vicariously liable for A’s conduct.190

187 Meanwhile, the development’s managing agents had resigned because of the lack of co-operation from the developer; some flat-owners successfully asked the Leasehold Valuation Tribunal to appoint a Receiver and Manager for three years from January 2011, but did not trigger the statutory procedures for appointing their own Right To Manage company: see section [11.6.2]. 188 By the time the case headed for court, four of the relevant flats were no longer lived in by their owners, most being sublet. 189 Hunt v Optima (Cambridge) Ltd [2013] EWHC 681 (TCC), 148 Con LR 27, with a supplementary judgment on costs, interest and damages issues [2013] EWHC 1121 (TCC). An alternative claim for an order of specific performance against the developer X was not in the end pursued because of the appointment of a Receiver and Manager (n 187), against whom none of the claimants had any right of action. The TCC judge said at [139] that all sides in the case agreed that damages at common law and damages in lieu of specific performance were here identical. 190 There were originally three Category 3 defendants: A, the individual architect within Strutt & Parker at the time, with whom X made arrangements to have the project inspected and certified; Strutt & Parker’s original partnership, to whom X had in effect given instructions; and its LLP successor. The judge concluded that Strutt & Parker’s original partnership was the real defendant, vicariously liable for A’s acts and omissions: the first TCC judgment (n 189) [116] and [135].

284  Beyond Contract: Other Rights of Legal Action Table 5.3  Hunt v Optima: Parties and Claims CAUSE OF ACTION192

SPECIAL DAMAGES CLAIMED

1 X, the company which All those B1 had developed and claimants originally sold the flats. (first buyers) who bought off-plan.

Breach of X’s build quality obligations in each sales contract.

Actual expenses and costs already incurred, plus the cost of future rectification work and consequential expenses.

2 The landlord (freehold owner) of the whole development (in fact, still the same entity as X).

Breach of X’s As above. ‘repairing covenant’ in each lease.

DEFENDANT191

3 A’s consulting firm, instructed by X to inspect the progress of construction and report on its build quality via PCCs.

SUED BY

All B1 claimants (first buyers) and all B2 claimants (successor owners).

Breach of the warranty A gave in each final certificate (or negligent misstatement), in contract and/or tort.

The diminution in the capital value of each flat at the date each claimant bought it, caused by defects A should have noticed.193

In February 2013, Akenhead J in the TCC presided over seven days of hearings in Hunt v Optima. Ten expert witnesses gave evidence (some also assisting on a judicial site visit), as did six claimants, X’s managing director and the consultant certifier A. Two months later, a meticulous judgment of 266 paragraphs over 96 pages explained what had gone wrong, dealing with the complexity of the different claims and defences, then finally determining the remedies issues. Akenhead J held both X and A liable, in different ways, to each claimant for the lion’s share of the damages claimed. At Jubilee Mansions, clause 3.1 of each off-plan contract with a first buyer followed standard terminology, using the well-worn phrase ‘good and workmanlike manner’ in relation to constructing ‘the Premises’ (an individual flat, as further defined). The same clause also required ‘the Building’ (defined as the whole building) when

191 Each defendant was sued independently, there being – perhaps surprisingly – no third party or contribution proceedings. 192 The Defective Premises Act 1972 (E&W, NI) figures nowhere in Hunt v Optima, perhaps because there were no examples of it being used successfully against a BCB (public or private), or as the central claim against someone in A’s position; and the limited case law at the time did not clearly establish that the Act could give a flat-owner a remedy for defects in ‘the common parts’. Further, not all the defects necessarily went to habitability; and some claims under the DPA may already have been ‘timed out’. On the DPA, see section [5.10.2]ff. 193 One basis of the claim against A (added during the trial) was a breach of a general duty of care, separate from the idea of breach of warranty or liability for negligent misstatement, the claimants arguing that if this was made out, it should lead to rectification damages; but the judge in the end based his finding of A’s liability on the other rights of action, calculating the damages as the diminution of capital value, as in Table 5.3 above.

Case Study 7: PCCs in Peterborough  285 completed to comply with planning permissions and Building Regulations.194 Since Regulation 7 of the Building Regulations itself requires building work to be carried out ‘with adequate and proper materials’ and ‘in a workmanlike manner’, for the contract to cross-refer to the Building Regulations meant that the ‘good and workmanlike’ standard applied equally to ‘the common parts’.195 An argument that some of the residents’ actions were started too late was met by the judge holding that, since the building as a whole was not complete when the first residents moved in, a separate cause of action in contract started running only when the building was complete – if at that point it was non-compliant with ‘the building code’. This was so, even if the defects were already there at the point the first resident moved in.196 The developer X conceded liability for some of these defects, for which therefore only remedy and quantum issues remained ‘live’. Clause 3.1 thus gave a remedy against the developer X (the Category 1 defendant) to all those claimants in the position of first buyers (B1) who had bought off-plan: damages for all those defects actively pursued in court which the judge agreed were a breach of X’s quality obligations. However, the pair of B1 buyers who bought from X after construction was complete could not rely on this cause of action, nor could the pair of claimants who were second buyers of their flat (B2). This was because their ‘pure’ purchase contracts included no undertakings – express or implied – about build quality: caveat emptor (‘let the buyer beware’) applied, placing the risk of defects on them as buyers. Luckily, they could still potentially claim against Category 2 and 3 defendants. Akenhead J said that receiving a PCC was part of what every first buyer (B1) paid for in purchasing their flat from X, so each had given consideration (in the legal sense) for it, though not directly to A or A’s firm.197 This could give negligent misrepresentations in each certificate the status of contractual warranties, whose breach would be actionable by B1 (though not necessarily by B2). A sample PCC at Jubilee Mansions followed word-for-word the model text for England & Wales in what was then the CML Handbook:

1. I have visited the site at appropriate periods from the commencement of construction to the current stage to check generally: (a) progress, and (b) conformity with drawings approved under the building regulations, and (c) conformity with drawings/instructions properly issued under the building contract 194 For the full text of clause 3.1, see the first TCC judgment (n 189) [9]; for the Building Regulations reg 7, see sections [3.6.1] and [4.8.3]. 195 The first TCC judgment (n 189) [103]. 196 The first TCC judgment (n 189) [108]. In the Court of Appeal (n 204), Christopher Clarke LJ rephrased this idea at [49]. For the claim against A, time started to run on completion of the sale (when the loss crystallised) or the date of the certificate (if later), which excluded one claimant: [133]. There were two further limitation issues in relation to specific purchasers: [198]–[202] and [231]–[233]. 197 The first TCC judgment (n 189) [130].

286  Beyond Contract: Other Rights of Legal Action 2. At the time of my last inspections [on 10 December 2003], the property has reached the state of completion. 3. So far as could be determined by each periodic visit inspection, the property has been generally constructed: (a) to a satisfactory standard, and (b) in general compliance with the drawings approved under the building regulations. 4. I was originally retained by Optima (Cambridge) Ltd who is the developer in this case. 5. I am aware of [sic] this certificate is being relied upon by the first purchaser of the property. 6. I confirm that [the firm] will remain liable for a period of 6 years from the date of this certificate. Such liability shall be to the first purchasers and their lenders and upon each sale of the property and the remaining period shall be transferred to the subsequent purchasers and their lenders.198

The acknowledgement on the certificate’s face that the first buyer B1 will rely on it made such reliance reasonable: going ahead with the purchase without further inspection. It could thus give rise to a Hedley Byrne-type duty of care (‘a voluntary assumption of responsibility’ or ‘a special relationship, akin to contract’) towards buyers in tort, liability then being triggered by showing reliance on a negligent and misleading certificate, the home being worth less than the price paid.199 At the same time, the certificate’s terms would close off any defence of contributory negligence – that the intending homeowner should have had further investigations made.200 The period of the consultant’s exposure is, as above, expressly six years from the date of the certificate or the date of the first purchase (if later), closely matching the usual English limitation period.201 The certifier is required to maintain PI cover at a minimum level for the same period. In the light of the scale and number of defects at Jubilee Mansions, the statements in paragraph 3 of the certificate were unjustified and misleading: A had failed to meet

198 The first TCC judgment (n 189) [108]. In 2017, the CML Handbook became the UK Finance Mortgage Lenders’ Handbook, but the PCC model text as above (last revised in 2003) is still valid at www.cml.org.uk/ lenders-handbook/pcc. 199 Hedley Byrne: n 70. In Hunt v Optima (n 189), Akenhead J accepted readily at [117]–[120] that the PCCs’ standard terms created a duty of care in relation to both B1 and B2. For an earlier example of a similar conclusion by Judge Humphrey LLoyd QC – about the design of foundations, later found inadequate, and the liability of a firm of engineers to those in the position of B2 for negligently designing and certifying the foundations – see Payne v John Setchell Ltd [2001] EWHC 457 (TCC), [2002] BLR 489, (2001) 3 TCLR 26. 200 We could interpret such a statement in a certificate as ‘purporting to confer a benefit’ on the current owner under the Contracts (Rights of Third Parties) Act 1999 (E&W, NI), giving B1, then B2, a right to sue for breach of contract for the same losses; on the 1999 Act, see, further, section [5.3.2]. However, no claim on a PCC on this precise basis appears yet to have been made. 201 Christopher Clarke LJ in the Court of Appeal in Hunt v Optima (n 204) was critical of this part of the standard wording and doubted whether it took effect as intended, especially in relation to tort liability: [73]–[76].

Case Study 7: PCCs in Peterborough  287 the required objective standard of taking reasonable care.202 The judge summarised how this had happened (a prequel in miniature of the failings at Grenfell Tower): Time and again, [A] said that he relied on what [X] told him as to whether defective work had been put right or on the fact that the local Council building inspectors must have vetted various items of work. He does not seem to have differentiated between what S&P [his firm] had quoted to do for [X] and what he was certifying to potential purchasers.203

The judge went on finally to consider competing schemes for the remedial work needed and its costing, assessed against the usual test of reasonableness; the figures for damages (including ‘general damages’ for up to 10 years’ loss of amenity) were apportioned between the successful claimants, as well as between the defendants.

5.9.4  On Appeal The losing Category 3 defendant – in reality, Strutt & Parker’s PI insurer – then appealed to the Court of Appeal in relation to all the flats except the one where the PCC had been issued before the buyers committed to buying.204 The judges treated the residents’ claims as being in tort alone, not sharing the first-instance judge’s analysis that the PCC put the buyers in contractual relations with A’s firm.205 The appeal was allowed because those who went ahead and purchased their flats without seeing the PCC – though knowing that it was ‘on the way’ – could not show reliance. The certificate had not ‘caused’ their losses, despite the discrepancy between its ‘generally’ positive content and the extent and seriousness of the defects. Christopher Clarke LJ observed: In the present case the negligent statements relied on were the statements contained in the signed Certificate eventually provided to the relevant claimant. But the claimants cannot have relied on such statements in committing themselves to the agreements to purchase because those statements were not then in existence. At best they could be said to have relied on an understanding either (i) that there was a Certificate already in place [incorrect, and not based on anything A or his firm had said]; or (ii) that they would receive a Certificate on or after completion … An indication of the form that a statement will take when issued is a far cry from a representation that it can be relied on before it is … [R]eliance must follow representation and cannot be retrospective. If the representation is the signed Certificate it cannot be relied on before it comes into existence. A cause cannot postdate its consequence. (emphasis added)206

Meanwhile, the developer/landlord X had gone into administration, perhaps after suffering a large fine following a prosecution about workers’ health and safety on another project.207 If, as highly likely, X had not yet paid any of the damages or costs 202 It will take very strong evidence to displace the court’s assumption that a professional’s responsibility goes no further than taking reasonable care: Hawkins v Chrysler UK Ltd (1988) 38 BLR 36 (CA). ‘Generally’ in paragraph 3 of the PCC above suggests that the certifier is not asserting that every aspect of the project meets the prescribed standards, but that any non-compliance is insignificant. 203 Hunt v Optima (n 189) [6]. 204 Hunt v Optima (Cambridge) Ltd [2014] EWCA Civ 714, [2015] 1 WLR 1346, [2014] BLR 613. 205 Hunt v Optima (n 204) [68]ff. 206 Hunt v Optima (n 204) [55], [61] and [67]. 207 Joshua Taylor, ‘Optima was Ordered to Pay Nearly £80,000 in Fines and Costs Last Week After it Admitted Seven Health and Safety Breaches During the Renovation of the Landmark Burton Brewery Building in 2009 and 2010’ Burton Mail (5 April 2013).

288  Beyond Contract: Other Rights of Legal Action awarded against it at first instance in Hunt v Optima, the claimants would now simply be added to the list of X’s unsecured creditors. So when architect A’s appeal succeeded, most claimants’ chances of getting substantial damages disappeared, since they were unwilling to take the risk of a further appeal to the Supreme Court. The repair bill – or the loss caused by their having overpaid for their flats if repairs were not done – would, therefore, fall on them individually unless another target defendant could be found. The Court of Appeal’s views about reliance suggested that first buyers’ solicitors or licensed conveyancers had been at fault for allowing completion on purchase contracts before receiving the PCC for each flat.208 We understand that claims were made on this basis against at least some of the firms involved (in reality, their insurers), though no details of the outcome(s) are known. Even if some of this pure economic loss were shifted to others, it is not clear how far the administrator at Jubilee Mansions – let alone a later acquirer of the freehold of the development – would (or could) have been bound by commitments X had accepted to facilitate repair work in ‘the common parts’, so as to implement those aspects of the first-instance judgment which in theory still stood. But there is evidence from more recent online marketing of flats that some rectification work must have taken place. The professional whose certificate led to the litigation might also have been at risk of disciplinary proceedings before the Architects Registration Board. In a 2020 hearing, the ARB’s Professional Conduct Committee found that an architect produced interim PCCs for a block of flats in Troon in Scotland when a floor’s construction and fire resistance, like the party walls between flats, did not conform with the drawings and Building Regulations. He also gave a final PCC when the doors in the flats in the block were not ‘fire doors’ as required by the Regulations: The Committee did not consider that it was appropriate for the Respondent to rely on the word of the contractor or his experience of previous construction work to the extent that he did. Further, the Committee did not consider any time constraints for site inspections gave the Respondent a reason for failing to adequately determine the construction in the approved form as stated in the inspection certificates. The Committee considered that the Respondent did not discharge his responsibility faithfully, conscientiously and with due regard to the relevant technical and professional standards in certifying that the flats had been constructed in general conformity with Building Regulations and the approved drawings. … The public would expect to rely on a certificate signed by an architect confirming a building had been constructed in accordance with the relevant standards. The public would expect any architect to be satisfied following appropriate inspection himself that such certification was correct.209

The residents, meanwhile, were in unsafe flats that they could not sell, and living with intolerable noise transmission within the building. The Committee had no power to award compensation against the architect to the residents who had suffered and were continuing to do so: they would have to take the initiative, so far as the law allowed. 208 A comparable situation emerged in Case Study 11 at section [11.8], where solicitors may have been at fault in completing on purchases of flats without seeing the Building Regulations final certificates. However, the judge said they reasonably relied on a cover note from a third-party warranty provider instead. 209 Architects Registration Board Professional Conduct Committee in the matter of James Craigie Tannahill Thomson (29 September 2020): www.arb.org.uk.

Case Study 7: PCCs in Peterborough  289 The Committee did remove the architect from the register; he would not be able to apply for re-registration for two years.210

5.9.5  Other Inspectors/Valuers As we have seen, where an intending home buyer needs a loan, the lender on a mortgage always expects a form of independent confirmation that the property will provide adequate security for the loan sought. In the case of new build (or a conversion), the lender will normally look for either a recognised third-party warranty in place (chapter 7) or a PCC, as in Hunt v Optima above. In all other situations, a valuation of the property will be necessary.211 Its physical condition is obviously relevant to this process, so if the valuer is negligent, negative aspects of build quality may be overlooked or fail to figure in the report. The buyer then overpays for the asset, either suffering a loss on attempting to sell (potentially moving into ‘negative equity’) or having to spend on repairs to avoid crystallising this loss. Under what conditions can this lead to a claim against the valuer?212 The would-be home buyer does not commission the valuation (the lender does this) but usually pays for it, seeing the resulting report. In 1989 in Smith v Eric S Bush and Harris v Wyre Forest DC, the House of Lords labelled the relationship between valuer and consumer as one ‘akin to contract’ under Hedley Byrne.213 By direct analogy with an architect issuing a PCC, the valuer knows that the valuation is for mortgage purposes and that the buyer will probably rely on it if the purchase goes ahead, without necessarily also commissioning a separate survey. This reasonable reliance on the valuation report, the courts say, creates enough proximity (in the legal sense) to impose a duty of care on the valuer not to cause the intending buyer pure economic loss by being negligent.214 It is the same duty as would apply if there were a contract directly between the two of them.215 Here is Lord Templeman’s formulation: The valuer is and, in my opinion, must be a professional person, typically a chartered surveyor in general practice, who, by training and experience and exercising reasonable skill and care, will recognise defects and be able to assess value. The valuer will value the house after taking into consideration major defects which are, or ought to be obvious to him, in the course of a visual inspection of so much of the exterior and interior of the house as may be accessible to him without undue difficulty.216 210 On other similar professional disciplinary possibilities, see section [9.4]. 211 A valuation may even be required by statute, as it was in both Smith v Eric S Bush and Harris v Wyre Forest DC (n 213), but the Law Lords held this irrelevant to the duty of care issue. 212 As in Harris v Wyre Forest DC (n 213), the valuer may be the lender’s employee, making the lender vicariously liable for the valuer’s negligence. 213 Smith v Eric S Bush and Harris v Wyre Forest DC (conjoined appeals) [1990] 1 AC 831 (HL); the existence of a duty of care was conceded in Smith v Eric S Bush. For Hedley Byrne, see n 70. 214 In Smith v Eric S Bush (n 213), the valuer noticed that two first-floor chimney breasts had been removed, not checking whether the chimneys above were adequately supported (they later collapsed into the house below). On assessing damages in negligent valuation cases, see South Australia Asset Management Corp v York Montague Ltd and Hughes-Holland v BPE Solicitors: n 180. 215 If we apply the approach Akenhead J adopted in the TCC in Hunt v Optima (n 189), there was such a contract, the valuation fee forming consideration from the would-be buyer. 216 Smith v Eric S Bush and Harris v Wyre Forest DC (n 213) 850. Lords Keith and Brandon concurred with Lord Templeman and the speeches of Lords Griffiths and Jauncey. For detailed discussion of

290  Beyond Contract: Other Rights of Legal Action However, the lender’s standard terms may include a disclaimer attempting to protect both valuer and lender against any liability for a negligent valuation. In Hedley Byrne itself (in a B2B context), a disclaimer successfully prevented a duty of care ever arising, where a bank gave a misleading reference about one of its customers, relied on by a ‘third party’. The law in all parts of the UK now includes statutory protection against attempts to limit or exclude liability for negligence (both by contract and by a notice), which may make such a disclaimer unenforceable, especially in a B2C situation between home buyer and lender or valuer.217

5.10  Liability for Defects: Statutory Intervention 5.10.1  Liability under the Building Control System Some jurisdictions provide expressly for civil liability for aspects of non-compliance with ‘the building code’. This may cover both ‘builders’ and the bodies responsible for applying the code to individual projects. English law includes one example: the B ­ uilding Act 1984 provides that ‘(a) breach of a duty imposed by building regulations, so far as it causes damage, is actionable except in so far as the regulations provide ­otherwise …’.218 This first arrived in the Health and Safety at Work etc Act 1974: it creates a distinct right of action in a civil court, independent of any claim for breach of contract or in tort (hence not requiring fault or a relationship imposing a duty of care).219 It looks to ‘damage’, partly defined as including ‘the death of, or injury to, any person (including any disease and any impairment of a person’s physical or mental condition)’.220 The harm(s) which this section of the Act has in mind may not necessarily include what the common law would classify as pure economic loss. The right of action is available against any person or body on whom the Act imposes duties – ie the owner and contractor and the BCB (public or private) involved (but note that many provisions in the Act confer powers, rather than imposing duties). However, these parts of section 38 have, without clear explanation, never been brought into force and were, at the end of 2020, under threat of repeal by the draft Building Safety Bill.221 They have, therefore, never been tested in court as the springboard towards liability.222 differences between the Law Lords, see Merrett v Babb [2001] EWCA Civ 214, [2001] QB 1174, [2001] BLR 483, (Aldous LJ dissenting); and Scullion v Bank of Scotland plc [2011] EWCA Civ 693, [2011] 1 WLR 3212, [2011] BLR 449 (a ‘buy-to-let’ negligent valuation case). 217 At the time of Smith v Eric S Bush and Harris v Wyre Forest DC (n 213), the law in England & Wales was the Unfair Contract Terms Act 1977 s 2, as in Robinson v Jones in section [5.5]. The House of Lords decided that under UCTA, it was not fair or reasonable for a valuer to rely on a disclaimer. For the modern law, see section [4.10]. 218 Building Act 1984 (E&W) s 38(1). 219 Health and Safety at Work etc Act 1974 s 71 (applied only to E&W). 220 Building Act 1984 (E&W) s 38(4). 221 In 1984 it could reasonably be assumed that liability at common law in contract or tort, as in Dutton (n 150) and Anns (n 152), would do the same – perhaps an even better – job; but on that basis, Murphy should have triggered a rethink. Section 38(3) appears to preserve all rights of action at common law. On the possibility of repeal by the Building Safety Bill, see n 4. 222 However, s 38 was discussed in Herons Court: section [5.11.5]. Almost identical provisions are in the Building (Scotland) Act 2003 s 51, in force from 1 May 2005, when the Building (Scotland)

Liability for Defects: Statutory Intervention  291 In some jurisdictions, only the liability of the public bodies running the system is addressed. Hence, in England & Wales the Building Act 1984 section 106(1) makes a local authority liable to compensate any person ‘who has sustained damage by reason of the exercise by the authority, in relation to a matter in which he himself has not been in default, of any of their powers under this Act’.223

5.10.2  Special Regime for Dwellings The Defective Premises Act 1972 derives from a 1970 report from the Law Commission, the permanent law reform body for England & Wales.224 Some of the report’s main proposals were legislated in line with the Bill attached to the report, then later adopted in identical terms for Northern Ireland.225 The agreeably concise DPA specifically protects those who have an interest (legal or equitable) in a dwelling. Section 1 imposes modest but non-excludable quality obligations in favour of such an ‘owner’ on each person ‘taking on work for or in connection with the provision of a dwelling’, whether by new build or conversion. Construction work short of providing a dwelling (renovating, improving or extending an existing dwelling) is therefore not within the Act. Liability derives from the particular work taken on by each relevant potential defendant. ‘Taking on work’, ‘in connection with’ and ‘dwelling’ are not defined, but the DPA makes clear that someone whose business is residential property development owes the statutory duties in relation to build quality, even where the work of construction is let to others.226 The statute goes on to provide that it can still be relied on against the person responsible, even after they have parted with any interest in the building.227

Regulations 2004 (SSI 2004/406) also came into force; but for good reasons s 51 appears nowhere in case law: see section [5.15.3]. 223 For apparently the first reported claim under this section, relating to emergency action taken by a local authority in relation to a dangerous building or structure (Eugenius Birch’s 1872 pier at Hastings), see ­Manolete Partners plc v Hastings BC [2013] EWHC 842 (TCC), [2013] BLR 361, upheld on appeal at [2014] EWCA Civ 562, [2014] 1 WLR 4030 and again by the Supreme Court as Hastings BC v Manolete Partners plc [2016] UKSC 50, [2016] 1 WLR 3059. The case appeared to assume that loss of income counted as ‘damage’, but s 106(1) leaves its eventual quantification to arbitration. The original pier, mostly destroyed by fire in 2010, was in the end replaced by an entirely new charity-owned structure, dRMM’s design winning the 2017 RIBA Stirling Prize for Architecture: www.architecture.com. 224 Law Commission, Civil Liability of Vendors and Lessors for Defective Premises (Law Com No 40, 1970). 225 The second main provision (s 4) imposes a duty of care on landlords with repair or maintenance duties or rights to tenants and others for defects causing personal injuries or damage to their property: see section [11.4.3]. Omitted from the Act as adopted were wider proposals to reverse aspects of caveat emptor, imposing a duty of care on all those who dispose of ‘premises’, knowing of defects which could reasonably foreseeably cause injury or property damage to someone, to take reasonable care to make such persons reasonably safe. The Act’s ss 1–2 were extended to Northern Ireland by the Defective Premises (Northern Ireland) Order 1975 (SR 1975/1039) art 3; then s 4 by the Defective Premises (Landlord’s Liability) Act (Northern Ireland) 2001. 226 DPA s 1(4)(a). For an unsuccessful attempt to use this provision to bring in as additional defendants the original construction employers (B1, sellers of the defective house to the B2 claimants), the other potential defendants (including builder and architect) presumably not being worth suing, see Zennstrom v Fagot [2013] EWHC 288 (TCC), 147 Con LR 162. 227 DPA s 3, which applies to ‘premises’ (undefined), not just dwellings.

292  Beyond Contract: Other Rights of Legal Action Positively, the definition of persons owing a duty must include many project parties – eg, consultants, main contractors and subcontractors – with whom the first buyer B1 in Scenario 2 (Table 1.1) may never have had a contractual relationship, and with none of whom the successor B2 has in Scenario 5 (Table 1.2).228 Whatever rights B1 had under the Act automatically accompany ownership of the home when transferred to B2.229 Asserting these rights is subject to the Act’s own fixed six-year limitation period, but the Act does not replace or limit any rights of action any claimant may already have, from any source, which might have a more generous limitation period.230 Negatively, however, in 2019 the first head-on attempt to use the DPA against a BCB in English law failed, at both first instance and on appeal.231 As Carnwath LJ said in Bole v Huntsbuild Ltd, ‘[DPA section 1] was designed to improve the remedies of purchasers of dwelling houses in circumstances where they did not have claims in contract or tort against a particular defendant’.232 It, therefore, comes close in intent to Australasian-style transmissible statutory warranties, though imposing a much narrower threefold set of obligations: [T]o see that the work which he takes on is done in a workmanlike or, as the case may be, professional manner, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed.233

The forms of harm for which damages can be awarded under section 1 certainly include what the English law of tort would class as pure economic loss.234 But the DPA intentionally avoids the terminology of both contract and tort.

5.10.3  The DPA in Practice Over 20 sitting days in 2014, Edwards-Stuart J heard evidence and argument in Rendlesham Estates plc v Barr Ltd, about a two-block apartment project straddling Concord Street in Leeds which ‘did not go smoothly’.235 The flats had been marketed as of a high standard suitable for young professionals, but when the owners and their tenants moved in on completion in 2006, they were confronted with multiple defects in their flats and the development’s ‘common parts’. One of the builder’s own witnesses 228 Judge Humphrey LLoyd QC took the view in Payne v John Setchell Ltd (n 199) [51] that a professional consultant certifying the suitability of foundations, this report then foreseeably and reasonably being relied on by future purchasers of the house, owed duties to them under the DPA, in parallel with a common law duty of care in tort. 229 DPA s 1(1)(b). This is not technically a transfer of existing rights from B1 to B2, but the creation of rights which attach to ownership (as defined) of the home for the time being. 230 DPA ss 1(5) and 6(2); for time limits for legal action in English law, see section [10.5]. 231 See Herons Court: Case Study 8 at section [5.11]. 232 Bole v Huntsbuild Ltd [2009] EWCA Civ 770 [2]. 233 DPA s 1(1); for discussion of statutory warranties in Australia, see section [4.13.2], and in NZ section [4.14.3]. 234 For examples, see Bole v Huntsbuild Ltd [2009] EWCA 1146 (TCC), 127 Con LR 154 and Harrison v Shepherd Homes Ltd (n 75). An after-the-event award of damages appears to be the only remedy under the DPA (in no reported case has a claimant asked for an injunction). Note that liability under s 4 (n 225) extends only to personal injuries and damage to (other) property. 235 Rendlesham Estates plc v Barr Ltd [2014] EWHC 3968 (TCC), [2015] 1 WLR 3663 [5].

Liability for Defects: Statutory Intervention  293 unfavourably compared them to 1960s council blocks.236 Many of the problems had their root cause in inadequate drainage and watertightness of the roof, resulting in one flat’s shower room walls being covered in black mould despite being resealed four times in as many years.237 Figure 5.3  Rendlesham Estates v Barr

The legal situation is illustrated in Figure 5.3. Of the 171 flat-owners in the two blocks completed by developer City Wall (X), 120 were claimants in the TCC against the D&B main contractor Barr (M) – but the real defendants may have been Barr’s insurers.238 The more obvious original target defendant would have been developer X (those claimants who were first buyers could have sued the developer in contract, but some were successors without that possibility), but X went into administration in 2008. Barr’s design responsibilities perhaps made it a more attractive goal; all the claimants were relying exclusively on the DPA, none having a contractual link with Barr. The main contractor M did not attempt to reduce its liability by relying on its use of subcontractors; they would owe duties under the DPA independently. M could have brought them in as additional defendants and claimed contribution towards its liability (or perhaps a complete indemnity). It did not do so for a number of possible reasons: their own share of responsibility may have been slight; they might not have been able to satisfy a judgment; or were no longer in business.

236 Rendlesham Estates (n 235) [6]. 237 Rendlesham Estates (n 235) [143]. 238 As often happens in such projects, the developers (City Wall) had appointed a firm of architects, then novated them to Barr, though this happened before Barr was awarded the D&B main contract. Similar sequences of events happen in Australia and the UK, as illustrated by the Lacrosse tower case in Melbourne: see section [2.6].

294  Beyond Contract: Other Rights of Legal Action The claimed defects in the structure and individual flats were grouped into 19 ­categories; many were as serious as those in Hunt v Optima.239 The claimants hoped for an award of damages which would allow the external envelope of both blocks to be substantially rebuilt, as well as internal defects rectified: a claim of around £14m, hence keenly defended. The judgment of Edwards-Stuart J runs to 321 paragraphs, with 15 appendices (185 pages in all). It adds significantly to our understanding of how the DPA can be used in such circumstances. There were the usual technical arguments about the extent of the defects, their causes (original construction or lack of maintenance?), what works were necessary to remedy them and how all this and the damages claimed for consequential losses and distress should be translated into money. Although M accepted liability for some defects, the judge had to consider whether the DPA provided any basis for liability for categories which were disputed; if so, for which? This was in the context of two separate blocks of flats, the most significant (and expensive) defects being in ‘the common parts’ and in each block’s underground car park. Edwards-Stuart J first decided that each individual flat (its physical extent defined by the standard terms of the long lease each flat-owner held) was undoubtedly a ‘dwelling’; but the two blocks considered together did not form one ‘dwelling’, nor was Block A part of the same dwelling as any individual flat, in the same block or Block B (or vice versa).240 In order to get closer to liability for defects in ‘the common parts’, the key phrase in the statute was ‘work … in connection with the provision of a dwelling’ at the start of the DPA section 1. The judge’s conclusion confirms that construction work on ‘the common parts’ can qualify under this phrase, offering an interpretation helpful to all flat-owners: If the work for the provision of the dwelling in question is part of a larger development carried out by the same contractor under the same contract to the same specification, then it is certainly arguable that all the work done in the course of the development is done in connection with the provision of the relevant dwelling.241 [T]he work to the structural and common parts of both blocks was work done in connection with the provision of each of the apartments in the two blocks, since the owner of every apartment has an interest in and a financial responsibility for the maintenance and repair of the structural and common parts of both blocks. Further, each leaseholder has a right of access to the common parts of the other block.242

Edwards-Stuart J went on to hold – again, helpfully to claimants – that a defendant is in breach of section 1 if its work is not compliant with a relevant Building Regulation ‘such that a local authority, if aware of the breach, would require it to be rectified before the building was occupied’ (so merely technical breaches with no impact on the performance of the building might be disregarded).243 The next step was to consider whether any of 239 Hunt v Optima: section [5.9]. Another difference from Hunt v Optima was that at Concord Street there was a management company, which may have been one of the claimants in the litigation. 240 For earlier discussion of ‘dwelling’ in the context of the DPA, see Catlin Estates Ltd v Carter Jonas [2005] EWHC 2315 (TCC), [2006] 2 EGLR 139. 241 Rendlesham Estates (n 235) [53]. 242 Rendlesham Estates (n 235) [54]. 243 Rendlesham Estates (n 235) [57].

Liability for Defects: Statutory Intervention  295 these breaches made any particular dwelling unfit for habitation, case law taking the line that this test needed to be satisfied in every case.244 He expressed it in an alternative – positive – way: [F]or a dwelling to be fit for habitation within the meaning of the Act, it must, on completion (without any remedial works being carried out): (a) be capable of occupation for a reasonable time without risk to the health or safety of the occupants: where a dwelling is or is part of a newly constructed building, what is a reasonable time will be a question of fact (it may or may not be as long as the design life of the building); and (b) be capable of occupation for a reasonable time without undue inconvenience or discomfort to the occupants.245 I consider that the upper limit of the reasonable time is the design life of the building, but for some components (such as a boiler) it may be substantially less. It seems to me that the test is not how long the component actually lasts, but how long it could be expected to last in the actual condition in which it was at completion.246 … Further, where the defendant has taken on the provision of the means of access to the dwelling or the common parts of the building in which the dwelling is situated, the inability of the occupier of the dwelling to use the means of access or common parts that serve the dwelling in safety and without undue inconvenience or discomfort may make the dwelling unfit for habitation.247

Edwards-Stuart J rejected M’s argument that if a succession of (short-term or periodic) tenants appeared to have been willing to live in flats with condensation and mould, the builder could have no liability for these defects under the DPA.248 As the outcome in Rendlesham Estates v Barr illustrates, main contractor M may become the guarantor of the solvency of its construction employer, developer X: M was left with liability under the DPA for breaches of some of the obligations X would also have owed independently in contract, at least to off-plan first buyers. After the hearing before Edwards-Stuart J, further work was still required to complete the figures for liability, in the light of detail to come on the rectification strategy. But no further court hearing appears to have been necessary, and an £800,000 refurbishment neared completion in 2019.249 The claimants must have been very relieved when Barr did not appeal.

244 For earlier discussion of the DPA test of habitability, summarised in Rendlesham Estates, see Bole v ­Huntsbuild Ltd [2009] EWHC 483 (TCC), 124 Con LR 1 [35]. See also Harrison v Shepherd Homes Ltd (n 75), where the above-ground consequences of the defective foundations were only cosmetic and far less serious than in Bole v Huntsbuild. Ramsey J included a powerfully expressed view that the prevailing case law interprets the DPA s 1 too narrowly and thought at [164] that ‘any significant defects in foundations are properly matters which could be said to give rise to a lack of fitness for habitation’. The claimants in Rendlesham Estates reserved the right to argue on appeal that judges had misinterpreted the statute (and the intentions of the 1970 Law Commission report (n 224)) by making proof of lack of habitability an essential step towards liability. 245 Rendlesham Estates (n 235) [68]. 246 Rendlesham Estates (n 235) [70]. 247 Rendlesham Estates (n 235) [71]. On means of access to flats, see also Case Study 10 at section [11.4]. 248 The de facto manager of the two blocks gave evidence that the turnover in tenants was very high, in part because the defects in each apartment could be disguised by redecoration but would then re-appear after six to nine months, tenants then moving out: Rendlesham Estates (n 235) [100]. 249 ‘Leeds Apartments Revamp Near Completion’, Yorkshire Evening Post (10 February 2019).

296  Beyond Contract: Other Rights of Legal Action In the light of Grenfell Tower and the large number of private sector residential blocks in England & Wales which may have cladding posing a serious fire risk (and may never have been compliant with ‘the building code’ at the time), the approach of Edwards-Stuart J to the ‘habitability test’ will be helpful to claimant owners now looking for targets on whom to pin the costs of rectification, as well as of ongoing fire protection measures meanwhile. But claimants must be aware that it is only ‘the provision of a dwelling’ which triggers the possibility of a claim under the DPA, so a renovation project adding external cladding may not qualify; they should also be cautious in relying on a single TCC judgment to support a case. An early post-Grenfell example in the TCC – there will be many more – is RG Securities (No 2) Ltd v Allianz Global Corporate and Specialty CE, reaching court on an unusual limitation point in 2020.250 However, the normal fixed six-year limitation period for claims under the DPA has already blocked cladding claims against original developers of residential estates completed more than six years before, even though the dangers could reasonably have been realised only after the Grenfell Tower fire in 2017.251

5.10.4  European-derived Product Liability Part I of the Consumer Protection Act 1987 (UK) is potentially relevant to claims for building defects; it imposes a statutory regime of strict liability, implementing the 1985 European Directive on Product Liability.252 The Directive introduces a mandatory minimum level of uniform legal protection for consumers throughout the EEC (now the EU); as the ECJ has said: [T]he purpose of the Directive in establishing a harmonised system of civil liability on the part of producers in respect of damage caused by defective products is to ensure undistorted competition between traders, to facilitate the free movement of goods and to avoid differences in levels of consumer protection.253

It does so by imposing a form of strict liability on producers (but anyone in the production or distribution chain may share responsibility) for damage caused by a defect in a product leading it to fail to provide the safety it should offer. There is a special 10-year limitation period from the date the product has been put into circulation.254

250 RG Securities (No 2) Ltd v Allianz Global Corporate and Specialty CE [2020] EWHC 1646 (TCC): see section [10.5.3]. 251 Sportcity 4 Management Ltd v Countryside Properties (UK) Ltd [2020] EWHC 1591 (TCC), 192 Con LR 131, discussed in section [10.5.1]. For other examples of claims relying in part on the DPA, see Butcher v Hill [2015] EWHC 1703 (TCC) and Tejani v Fitzroy Place Residential Ltd [2020] EWHC 1856 (TCC), 191 Con LR 165. 252 Council Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products [1985] OJ L210/29. The Directive was implemented in Ireland by the Liability for Defective Products Act 1991 (Ire). 253 Case C-183/00 María Victoria González Sánchez v Medicina Asturiana SA EU:C:2001:453, [2002] ECR-I 3901 (ECJ) [26]. 254 The Consumer Protection Act 1987 adds a new section 11A to the Limitation Act 1980: on suing the right defendant and the running of the 10-year period, see Case C-127/04 O’Byrne v Sanofi Pasteur MSD Ltd EU:C:2006:93, [2006] 2 CMLR 24, [2006] 1 WLR 1606 (ECJ).

Case Study 8: Defective New Flats in Radlett  297 All these terms in bold are defined further in the Directive and Act. Although ‘product’ is wide enough to include equipment or materials incorporated in a building, ‘damage’ covers only personal injury and damage to property (including land) for private use, not including the allegedly defective product itself. So this regime mirrors the English limitations on liability for negligence and will seldom be of use in a construction context. However, litigation for death and injury caused at Grenfell Tower might be the exception, unless the 10-year limitation period rules this out.255 Damage to a home from the exterior could come within this liability regime, though commercial or industrial buildings are excluded by the ‘private use’ limitation. But defects that merely need remedying by replacing a defective piece of equipment or component, or rebuilding part of a building, will seldom count as ‘damage’ in the sense above. Nor does the supply of services, information or advice fall within the Directive or the 1987 Act. Even if a claimant appears to get within the 1987 Act, special defences are available: the defendant can argue that the defect was not reasonably discoverable at the time the producer put the product into circulation (the ‘state of the art’ or ‘development risks’ defence).256 The apparent absence of reported UK cases on claims under Part I of the 1987 Act may mean that few have relied on it. However, there is case law at the European level, almost all about physical injuries resulting from medical procedures or food products.257 In practice, perhaps the 1987 Act adds little to the standard Donoghue v Stevenson common law liability for injury or damage caused by defective products, even though this appears more demanding, requiring the court to find a duty of care and fault, causing harm of a reasonably foreseeable type.258

5.11  Case Study 8: Defective New Flats in Radlett 5.11.1 Background As we saw in section [5.8], in Murphy v Brentwood DC the House of Lords slammed the door against claims by English and Welsh homeowners based on the tort of negligence against BCBs for non-compliance with ‘the building code’. Murphy itself concerned a public sector BCB – the only type operating in England & Wales at the time.

255 See n 254. 256 Article 7 of the Directive and the Consumer Protection Act 1987 s 4(1)(e): here, as elsewhere, the wording is not the same in both, which led to unsuccessful infringement proceedings against the UK before the ECJ: Case C-300/95 Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland EU:C:1997:255, [1997] ECR-I 2649. Claimants may be able to rely directly on the Directive where it is more favourable to them, at least against defendants which are ‘emanations of the State’. 257 See, eg, n 253, also Case C-203/99 Veedfald v Århus Amtskommune EU:C:2001:258, [2003] 1 CMLR 41 (meaning of ‘putting into circulation’), Case C-495/10 Centre hospitalier universitaire de Besançon v Dutrueux EU:C:2011:869 (meaning of ‘producer’ and ‘supplier’) and Case C-621/15 NW, LW and CW v Sanofi Pasteur MSC SNC EU:C:2017:484, [2017] 4 WLR 171 (acceptable methods of proof for liability under the Directive). All are references to the ECJ from national courts or tribunals for a preliminary ruling under art 234 EC or art 267 TFEU. 258 Donoghue v Stevenson: see section [5.7.1].

298  Beyond Contract: Other Rights of Legal Action In justifying their conclusion, the Lords laid some stress on the existence of the statutory regime of liability under the Defective Premises Act 1972 in relation to dwellings, taking the view that for the common law to impose a wider scheme of fault liability to construction defects generally would be to extend – without legislative authorisation – the scope of what Parliament had already adopted.259 It was likely that, at some point, a claimant would attempt to argue that the DPA itself made a BCB liable in damages for culpable failure in relation to its statutory inspection and certification functions in a residential construction project – if this led to defects within the DPA, and if the statute’s other conditions for liability were met. The arrival of private sector BCBs (AIs) under the Building Act 1984 added an extra twist to this possibility. Figure 5.4  Herons Court

5.11.2  The Litigation This challenge first came to pass in Lessees and Management Co of Herons Court v ­Heronslea Ltd, illustrated by Figure 5.4. In 2018, all the current long lessees (including some first purchasers) and the residents’ management company (RMC) of a 12-unit block of flats completed in 2012 started litigation against four defendants:

259 Conversely, the Privy Council in Hamlin – Case Study 1 at section [1.12] – felt encouraged to endorse New Zealand’s wider scope of the duty of care in tort by the absence of any special statutory regime of liability for defects in dwellings equivalent to the DPA.

Case Study 8: Defective New Flats in Radlett  299 Table 5.4  Herons Court: Parties and Claims DEFENDANTS

CLAIM BY LONG LESSEES

CLAIM BY RMC260

1 Parent company of developer (X – Special Purpose Vehicle no longer in existence), named as the builder by W on the Buildmark NHBC warranty.

Liable under the warranty for defined defects in Years 1–2: these notified in time.

Not a policyholder under the warranty.

2 Main contractor (M).

DPA s 1: failed to do work in a workmanlike manner: dwelling not fit for habitation when completed.

No claim under DPA –not an owner.

3 W (the third-party warranty provider NHBC).

Failed to accept liability for builder’s defects unremedied in Years 1–2.

Not a policyholder under the warranty.

4 BCS Ltd (NHBC subsidiary, acting as private sector BCB to the project as AI).

DPA s 1: failed to do work in a professional manner: dwelling not fit for habitation when completed.

No claim under DPA –not an owner.

The alleged defects list was long and serious, suggesting inadequate protection against fire and rain (showing non-compliance with ‘the building code’) and faults in the flats’ underfloor electric heating systems. Taken together, the claimants asserted, the problems compromised the habitability of the dwellings. The damages initially claimed for rectification were £2.3m plus VAT, not including the additional cost of ‘decanting’ all the residents elsewhere for six months of remedial work. Defendant 4, BCS Ltd, raised a legal point not determined before: could a BCB (in this case, a private sector AI) ever be liable to a homeowner (or equivalent) under the DPA?

5.11.3  At First Instance In the TCC before Waksman J, newly appointed as a puisne judge in the QBD, BCS asked the Court to strike out the action against it entirely. It alleged that the claimants could not succeed in law, even if they could prove all the assertions they were making about the defects, their impact on habitability and the AI’s failure to exercise an appropriate level of care in exercising its functions. This was the only (preliminary) issue the TCC was asked to determine at this stage.261 In response, the claimants relied on section 1(1) of the DPA, arguing that the AI had taken on ‘work for or in connection with the provision of a dwelling’, which imposed 260 The freeholder of the whole block took no part in the litigation. On an RMC’s limited scope for maintaining legal action in relation to construction defects in ‘the common parts’ of a multi-unit development using long leasehold structures, see ch 11. In the Herons Court case, there was no challenge to the RMC’s standing as claimant, though there might have been, had the dispute got closer to a trial on the merits of all the claims. 261 Lessees and Management Co of Herons Court v Heronslea Ltd [2018] EWHC 3309 (TCC), [2019] BLR 401.

300  Beyond Contract: Other Rights of Legal Action on it the duty to see that work it took on was ‘done in a workmanlike or, as the case may be, professional manner’. The evidence would show, the claimants argued, that BCS had failed to meet this standard of care, the homes not reaching the ‘habitability’ goal, with civil liability in damages (the cost of rectification) as the sanction. What could be proved – and by what means – if the case ever reached trial was irrelevant to the threshold question of law Waksman J had to determine. The claimants argued that the ‘natural and ordinary meaning’ of ‘taking on work’ covered all those – especially professionals – who in any way contributed to the project. Looking back at the Law Commission’s 1970 report, clause 1 of its annexed draft Bill had been enacted without change as section 1 of the DPA; from the words used and the report itself, the judge concluded that the statutory regime was intended to apply only to those who took an active part in construction (‘provision’) of a dwelling. This a BCB did not, having a role limited to inspecting and certifying. It was true that the 1970 report did not clearly either exclude or include local authorities as such; but the only context in which the Law Commission discussed them, in relation to the proposed new legal regime, was as builders or developers (eg, for new council housing), not as (at the time) the main BCBs. And no duty on BCBs under the DPA was asserted in Murphy, as it could have been: at least three of the Law Lords regarded local authorities in their BCB role as outside the scheme of the DPA (thus liable, if at all, on a common law basis alone).262 As a fall-back, the claimants argued that the position of a private sector AI – which, unlike its public sector (local authority) equivalent, freely accepts instructions (for a negotiated fee) – could and should be treated differently from a public sector BCB.263 The Building (Approved Inspectors etc) Regulations 2010 impose specific duties on an AI: to take such steps ‘as are reasonable to enable the approved inspector to be satisfied within the limits of professional skill and care that the relevant building regulations have been complied with’.264 But Waksman J concluded that the position of an AI was so close in functions and regulatory terms to a public sector BCB that such a distinction, and the consequences of making it, would be nonsensical: [A]n approved inspector performing or purporting to perform its usual duties under the Regulations in the way described in this case is not a person who has taken on work for or in connection with the provision of a building.265

So the judge struck out the claim against the AI.266

5.11.4  On Appeal The claimants appealed to the Court of Appeal, Hamblen LJ (with whom Floyd and Lewison LJJ concurred), delivering judgment in August 2019.267 By the appeal ­hearing, 262 Murphy v Brentwood DC (n 153): section [5.8]. 263 On the freely negotiated fee, see the Building Act 1984 (E&W) s 49(7), also section [3.6.7]. 264 Building (Approved Inspectors etc) Regulations 2010 (SI 2010/2215) (E&W) reg 8; see also section [11.8.4]. 265 Herons Court (n 261) [59]. 266 BCS also asserted that the pleadings gave insufficient particulars of the link between the alleged defects and its role as AI; in the light of the outcome on the law, Waksman J did not have to consider this in detail. 267 Lessees and Management Co of Herons Court v Heronslea Ltd [2019] EWCA Civ 1423, [2019] 1 WLR 5849.

Case Study 8: Defective New Flats in Radlett  301 the damages claimed totalled close to £3m. The Court agreed with Waksman J that ‘work’ in section 1(1) of the DPA must relate positively to ‘the bringing of that dwelling into existence or its creation’.268 This is not wide enough to cover BCBs (whether private or public), whose job is essentially negative: ‘seeing that no work is done which contravenes building regulations’.269 This conclusion is strengthened in relation to AIs by their lack of enforcement powers: they cannot order plans to be redrawn or the work itself redone if it fails to comply with ‘the building code’; they must hand that job over to a public sector BCB. The judgment on appeal adopts Waksman J’s analysis of Murphy, leading to the same conclusion: the Lords’ speeches contain ‘highly persuasive authority’ that a local authority’s responsibilities as BCB do not bring it within the DPA.270 As also in the TCC, the Court of Appeal did not accept that the differences in the regulatory regime between public BCB and AI justify the AI being caught by the DPA when local authorities are not: the differences between the two situations are too slight, and the similarities too strong.

5.11.5  Case Study 8: Significance • Where a potential claimant is looking for damages for a work of residential construction that fails to comply with ‘the building code’, the entity or individual whose activities of inspection and certification contributed to that state of affairs may be ‘the last person standing’. To be told that under no ordinary circumstances does this potential defendant incur any civil liability – at common law or under statute – must seem deeply unjust. Then to learn that AIs must by law have generous public liability and PI cover – making them in general more attractive defendants than most developers or main contractors, who are not required to have equivalent cover (or assets set aside for such claims) – must be a second blow.271 The cover AIs must hold can, in theory, be triggered only by their legal liability, which appears to mean only to their (contractual) client, but the standard terms of engagement for this may reduce the scope of this liability to nothing worth having.272 • It is noteworthy – but unsurprising – that the claimants accepted that Murphy stood squarely in the way of such a claim against Defendant 4 at common law. Even in a more generous version of the law of tort, the scope of the duty of care owed by an AI to a home’s ultimate consumer might be no wider than their contractual duty to the party who pays their fees.273 The judgments in Herons Court continue in the direction unhelpful to homeowners adopted in Murphy, so the outcome is, in that sense, no surprise. The judges alluded to the Building Act 1984 section 38, which, if brought into force, would impose a statutory liability regime on all BCBs.274 268 Herons Court (n 267) [39]. Hamblen LJ reinforces this conclusion by pointing out that developers – who may merely commission construction work from others – are expressly included in the DPA via s 1(4). 269 Herons Court (n 267) [40]. 270 Herons Court (n 267) [54]. For Murphy v Brentwood DC, see section [5.8]. 271 See MHCLG, Circular Letter: Schemes of insurance for Approved Inspectors (July 2017): www.gov.uk. 272 For the terms of engagement of AIs, see section [3.6.7]. 273 See n 139 and its main text. 274 On s 38, see section [5.10.1].

302  Beyond Contract: Other Rights of Legal Action However, its status meant that no real conclusions in the litigation could be drawn from its shadowy presence within the legislative scheme. • After the setback of these preliminary proceedings, it is understandable that the claimants in Herons Court also lost their appetite for continuing in court against Defendants 1–3. The claimants’ legal team generously undertook the appeal on the basis that it would be responsible for its own side’s costs if the appeal were lost; we are also the beneficiaries, having the point of law decided at Court of Appeal level, at least for now. The claimants settled with Defendants 1–3, each taking responsibility financially for a share of a rectification scheme costing much less than originally claimed – but still aiming to ensure compliance with ‘the building code’. • This outcome left the claimants with their own heavy costs bill from the litigation under way, but now discontinued: close to £250,000, we understand, including the fees and expenses of two experts. The claimants were also bound to pay a substantial proportion of Defendant 4’s costs, following its success in both strike-out proceedings; in play was the arguably unjust rule that in-house lawyers may claim in costs the equivalent that a solicitors’ firm or barrister would charge for the same services in the same case.275 • Grenfell Tower might have been expected to focus pressure on the government in two directions: to activate the unused parts of the Building Act 1984 section 38 (which would benefit all building owners or occupiers, especially as ‘damage’ in section 38(4) includes personal injury or death); or to reverse Herons Court by extending the scope of the DPA, expressly including all BCBs within the ‘taking on work’ category (this part of the statute looking only to dwellings). But the whole Building Act regime – and more – is being rethought as part of the post-Grenfell review process, with the draft Building Safety Bill (2020) now under consideration and, as noted above, contemplating repeal of section 38 entirely. Regardless, following the Hackitt Review, clearer responsibility, and linked liability, on those undertaking BCB functions ought to be part of those changes.

5.12  Contrasts: Australia 5.12.1 Overview The evolution of extra-contractual rights of action across the Australian states and territories illustrates how the various regulatory elements inevitably sit in a symbiotic relationship – in particular, how common law and statutory rights of action tend to wax and wane in concert. As the consumer-oriented statutory warranties discussed in section [4.13.2] – an extension of rights in contract – became prevalent in residential construction from the mid-1990s onwards. Australia’s apex court progressively narrowed the situations in which a duty of care in negligence might lead to a remedy for pure economic loss in the same residential construction context. Thus, the High

275 Re

Eastwood [1975] Ch 112 (CA).

Contrasts: Australia  303 Court’s more liberal judgments in Sutherland Shire Council v Heyman (1985) and Bryan v Maloney (1995) form one ‘bookend’;276 the other comes from the more constrained rulings in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) and the focus of the discussion below about the law of negligence: Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288.277 Half a decade later, the NSW legislature took up the challenge laid down by the case law’s restrictive shift, including imposing an expansive statutory duty of care in Part 4 of the Design and Building Practitioners Act 2020 (NSW).278 Similarly, the relatively straightforward misleading and deceptive conduct prohibition under section 18 of the Australian Consumer Law means that, while Hedley Byrne-style liability for negligent misstatement remains part of the common law of Australia, that cause of action rarely features prominently in residential construction claims or the Australian case law.279 The starting-point for understanding the distinctive features of Australian jurisdictions is that each state and territory has its own special statutory regime in our field.280 One of these statutory interventions, applicable to most B2C residential construction engagements, requires a binding contract evidenced in writing. The problems caused when those statutory requirements either do not apply, or have not been complied with, emphasise the desirability of having a written contract, as illustrated in English law by Case Study 6 at section [5.6]. Similarly, the lack of a documented agreement for the construction of a substantial house in Adelaide was largely responsible for a dispute which took nearly a decade to run its course, with legal ‘journey’s end’ in the High Court for Lumbers v W Cook Pty Ltd.281

5.12.2  Extending Rights in Contract The common law in Australia broadly shares English approaches to the possibility of assigning the benefit of a contract and the effect of a valid assignment. The Northern Territory, Western Australia and Queensland have legislated to allow a third party to enforce a benefit deriving from a contract between others.282 In the light of the special legislative regimes for domestic building contracts, the absence of any nationwide or wholesale reform of privity of contract is barely significant, at least in our field. 276 Sutherland Shire Council v Heyman [1985] HCA 41, (1985) 157 CLR 424; Bryan v Maloney [1995] HCA 17, (1995) 182 CLR 609. 277 Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16, (2004) 216 CLR 515; Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36, (2014) 254 CLR 185. 278 See section [5.12.4]. 279 The continued currency of Hedley Byrne in Australia was considered by the HCA in Brookfield Multiplex (n 277) [122]. On the Australian Consumer Law s 18, see section [6.3.2]. For a general discussion of the role of negligent misstatement claims, following enactment of the Trade Practices Act 1974 (Cth) s 52, the predecessor to ACL s 18, see Mylton Burns, ‘Has s 52 of the TPA Rendered Negligent Misstatement Irrelevant to Australian Professional Indemnity Insurance for “Advice” Professionals?’ (2001) 12 Insurance Law Journal 1. 280 For a summary, see section [4.11]. 281 Lumbers v W Cook Pty Ltd [2008] HCA 27, (2008) 232 CLR 635. 282 Law of Property Act 2000 (NT) s 56; Property Law Act 1969 (WA) s 11; Property Law Act 1974 (Qld) s 55 (the last two discussed in the Law Commission (E&W) report (n 42) pt IV) and by Mason CJ and Wilson J in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 (HCA).

304  Beyond Contract: Other Rights of Legal Action

5.12.3  Rights in Tort In Australia, as in England & Wales, it is widely accepted that the person responsible for a building defect where it was reasonably foreseeable that the defect might cause personal injury (Type 1 harm) or property damage (Type 2 harm) owes a duty of care in negligence to those reasonably foreseeably (then actually) harmed by the defect.283 For example, in Toomey v Scolaro’s Concrete Constructions (No 2), Eames J said there was ‘no doubt’ that such a duty was owed by the builder of a block of flats in the Melbourne suburbs to the 25-year-old plaintiff, an intoxicated visitor who fell two floors and was rendered an incomplete paraplegic, the balustrade on the stairs and landing having been built at the incorrect height.284 As also in the English context, however, the threshold issue of whether a duty is owed is unlikely to be satisfied in relation to defects that sound solely in pure economic loss (Type 3 harm).285 This is because the High Court of Australia in 2014, in effect, endorsed the restrictive approach laid down by the House of Lords in Murphy v Brentwood DC.286 In Brookfield Multiplex, the HCA found that no duty of care was owed in negligence to the Owners Corporation (representing owners of apartments in a development in Chatswood, north of Sydney) in respect of defects within the building, many of which went to habitability. In so doing, the Court overturned the decision of the NSW Court of Appeal; this had accepted a duty of care in respect of pure economic loss in respect of dangerous defects requiring rectification ‘as the corollary to the potential liability of a builder for physical damage to persons or property’.287 The Court of Appeal’s view was based on that of La Forest J in the Supreme Court of Canada: such a duty ‘serves to protect the bodily integrity and property interests of the inhabitants of the building’.288 But the High Court re-affirmed the primacy of contract in relation to risks of economic loss, regarding the continuing narrow scope of tort in this area as consistent with this approach. Crennan, Bell and Keane JJ observed: ‘The common law has not developed with a view to altering the allocation of economic risks between parties to a contract by supplementing … the terms of the contract by duties imposed by the law of tort’.289 This is broadly consistent with the view of Lord Bridge in Murphy that, in order for a ‘special relationship of proximity’ to exist such as to raise a duty of care in negligence to protect against pure economic loss, that relationship needed to be ‘sufficiently akin to contract to introduce the element of reliance’.290 We say ‘broadly’ here because, more than a decade earlier, the High Court of Australia had abandoned proximity as a determining factor in deciding whether a duty 283 For the three types of harm, see section [5.7.1]. 284 Toomey v Scolaro’s Concrete Constructions (No 2) [2001] VSC 279 [320]. The judge assessed the plaintiff ’s contributory negligence at 30%, awarding him more than A$2m. 285 See, generally, Robyn Martin, ‘Tortious Liability for Defective Premises in English Law After Murphy v Brentwood: Learning from the Commonwealth’ (1997) 2 Newcastle Law Review 82. 286 Murphy v Brentwood DC is discussed in detail in section [5.8]. 287 The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd [2013] NSWCA 317, (2013) 85 NSWLR 479 [127] (Basten JA, with whom Macfarlan and Leeming JJA agreed). 288 Winnipeg Condominium Corporation No 36 v Bird Construction Co Ltd (n 136) [36], cited in The Owners – Strata Plan No 61288 (n 287) [108]. 289 Brookfield Multiplex (n 277) [132]. 290 Murphy (n 153) 481.

Contrasts: Australia  305 of care applies beyond established categories of relationship.291 Instead, the focus now is on ‘salient features’ of the relationship. In Caltex Refineries (Qld) Pty Ltd v Stavar, Allsop P (with whom Simpson J agreed) identified 17 such factors, including foreseeability, vulnerability, indeterminacy of liability, and proximity, by way of a ‘nonexhaustive universe of considerations’.292 In Brookfield Multiplex, Gageler J accepted the continuing relevance of the Court’s 1995 decision in Bryan v Maloney.293 Under this, a builder might owe duty of care to a subsequent purchaser of a dwelling, but Gageler J expressly limited its scope: [To] a category of case in which the building is a dwelling house and in which the subsequent owner can be shown by evidence to fall within a class of persons incapable of protecting themselves from the consequences of the builder’s want of reasonable care.294

Following Brookfield Multiplex, Australian courts have shown the limitations of the ‘vulnerability’ idea as the springboard to a duty of care. For example, in Chan v Acres, McDougall J observed: ‘[V]ulnerable’ does not mean only that the plaintiff is susceptible to harm as a result of the defendant’s acts or omissions. There is the added requirement that the plaintiff must be unable (perhaps, ‘reasonably’ unable) to take steps to protect itself from that risk of harm.295

Mousa v Vukobratich Enterprises Pty Ltd illustrates the high bar which this approach imposes on claimants.296 The plaintiff homeowners satisfied the Queensland Supreme Court that defects for which the builder (as a company) were responsible, including failure to make the house watertight, reflected such a ‘pervasive and high level of ineptitude’ that the builder was not merely in breach of the contract but had repudiated it.297 However, they faced significant difficulties recovering their damages, as the builder’s company was in liquidation. When they sought to sue the builder (as an individual) in negligence, Henry J found that they were not vulnerable in the requisite sense, considering that they had the protection afforded to them by the contract and at the outset had the opportunity to engage a more competent (and less at risk of insolvency) builder.298 Thus the working assumption in Australia, as in England, is that duties of care in negligence will not protect those who have not availed themselves of contractual protections against the economic consequences of defective construction work – even where the availability of such protections is illusory. 291 Sullivan v Moody [2001] HCA 59, (2001) 207 CLR 562. 292 Caltex Refineries (Qld) Pty Ltd v Stavar [2009] NSWCA 258, (2009) 75 NSWLR 649 [103]–[104]. English courts have recently shown an inclination towards such an incremental, factors-based approach: see n 169. 293 Bryan: n 276. 294 Brookfield Multiplex (n 277) [185]. For a critique, based primarily on doubting whether the Court’s assumptions about the availability of contractual protections are realistic, see Matthew Bell and Wayne Jocic, ‘Negligence Claims by Subsequent Building Owners: Did the Life of Bryan End Too Soon?’ (2017) 41(1) Melbourne University Law Review 1, also section [5.17]. 295 Chan v Acres [2015] NSWSC 1885 [150]. On appeal, the NSW Court of Appeal did not take issue with McDougall J’s summary of the relevant principles but overturned the judge’s finding on the plaintiffs’ vulnerability in the relevant sense: Ku-ring-gai Council v Chan [2017] NSWCA 226, (2017) 224 LGERA 330 [97] (Meagher JA, with whom McColl JA agreed; Sackville AJA agreed generally but added further comment). 296 Mousa v Vukobratich Enterprises Pty Ltd [2019] QSC 49. 297 Mousa (n 296) [330]. 298 Mousa (n 296) [353].

306  Beyond Contract: Other Rights of Legal Action Finally, note that – even if a duty of care could otherwise be found – immunity from liability protects a range of persons exercising functions under statute. In some cases, the private sector professional providers of statutory construction inspection and certification services also benefit.299 Moreover, other provisions direct judges in how they should exercise their powers in relation to damages claims against public bodies, like ‘municipal’ BCBs.300 In practice, these preserve intact most of the courts’ freedom to resolve liability questions via their own evolving case law.

5.12.4  Rights under Statute As immutable as Newton’s Third Law of Motion is the inevitability that, for every action affecting an area of legal liability, there will be a reaction from other parts of the overall regulatory scheme. It is not as inevitable, however, that this reaction will be equal and opposite. This dynamic has played itself out in Australia in the wake of the HCA’s 2014 decision in Brookfield Multiplex, leading to the imposition of a statutory duty of care by NSW’s Parliament in 2020. In his judgment, Gageler J noted the Court’s 2004 observation in Woolcock that the rationale for the imposition of a common law duty of care in Bryan had been ‘overtaken, at least to a significant extent, by various statutory forms of protection for those who buy dwelling homes which turn out to be defective’.301 This led him to observe: ‘[i]f legal protection is now to be extended, it is best done by legislative extension of those statutory forms of protection’; Crennan, Bell and Keane JJ commented similarly.302 The lower courts in NSW (and beyond) took their cue from these statements. For example, in 2015 Stevenson J found explicitly that the availability of the statutory warranties ‘point[ed] strongly to the conclusion that the [plaintiff] is not vulnerable in the relevant sense’, resulting in there being no duty of care.303 By 2019, as we have seen in relation to the Mousa case, the highly restrictive approach was entrenched throughout Australia.304 At the same time, a series of high-profile residential apartment structural failures – notably, cracking at the newly-built Opal Building near Sydney’s 2000 Olympics venues, resulting in its evacuation on Christmas Eve 2018 – put the NSW government under significant pressure to reform its regulatory system. A key plank in those reforms came into force on 10 June 2020 via Part 4 of the Design and Building Practitioners Act 2020 (NSW): (1) A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects— (a) in or related to a building for which the work is done, and (b) arising from the construction work. 299 For example, under the Building Act 1993 (Vic) pt 9 div 1, there is immunity for Commissioners and staff of the VBA, other members and staff of public authorities carrying out functions under the Act, and for building surveyors relying on certificates given by certain classes of registered building practitioners, in each case so long as the relevant act is done in good faith. 300 See, eg, Wrongs Act 1958 (Vic) pt XII. 301 Woolcock Street (n 277) [35], cited in Brookfield Multiplex (n 277) [186]. Bryan: n 276. See section [4.13.2] for discussion of the statutory warranties. 302 Brookfield Multiplex (n 277) [186] and [134]. 303 Owners – Strata Plan No 74602 v Brookfield Australia Investments Ltd [2015] NSWSC 1916 [131]–[132]. 304 Mousa: n 296.

Contrasts: New Zealand  307 (2) The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land. (3) A person to whom the duty of care is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law. (4) The duty of care is owed to an owner whether or not the construction work was carried out— (a) under a contract or other arrangement entered into with the owner or another person, or (b) otherwise than under a contract or arrangement.305

Its apparently wide-ranging scope is confirmed by the relevant defined terms and supporting provisions: • ‘Owners’ includes freehold owners and owners of lots within strata schemes, so owners corporations may also recover damages where they suffer economic loss.306 • The ‘construction work’ to which the duty applies includes the manufacture and supply of building products.307 • The duty applies retrospectively, also extending to subsequent owners.308 • It cannot be delegated or contracted out of.309 However, for the purpose of the DBP Act, ‘building work’ (upon which the definition of ‘construction work’ rests) is limited to residential apartment buildings and mixed-used buildings incorporating apartments.310 Its operation is also subject to applicable limitation periods and NSW’s statutory rules on contributory negligence and proportionate liability: these could significantly curb its scope.311 The impact of the DBP Act in NSW (and any other Australian states and territories, which adopt it, or something similar) could be at least as significant as the duty on ‘a builder’ (meant generically) under the Defective Premises Act 1972 in the UK (but not Scotland).312 The existence of the NSW statutory duty may also block, even more firmly, any pathway to a duty of care for pure economic loss in negligence.

5.13  Contrasts: New Zealand 5.13.1  Extending Rights in Contract Returning to Case Study 1 at section [1.12], anyone in Mr Hamlin’s position who made a construction contract with a ‘builder’ for a new house after the coming into force of Part 305 Design and Building Practitioners Act 2020 (NSW) s 37. Terms defined by s 36 are indicated in bold in the main text. 306 DBP Act ss 36(3)(a), 38. 307 DBP Act s 36. 308 DBP Act sch 1 cl 5. 309 DBP Act ss 39, 40. 310 That is, where ‘the building, or part of the building, is a class 2 building’ under the Building Code of Australia (ie those ‘containing two or more sole-occupancy units, each being a separate dwelling’): Design and Building Practitioners Regulation 2021 (NSW) pt 2 div 3 (which also sets out further exclusions from the definition). 311 Primarily, the 10-year period under the Environmental Planning and Assessment Act 1979 (NSW) section 6.20; and the Civil Liability Act 2002 (NSW): see, further, ch 10. 312 On the DPA, see section [5.10.2]ff

308  Beyond Contract: Other Rights of Legal Action 4A of the Building Act 2004 (NZ) would be able to rely on extensive statutory warranties in a claim against this builder or against the ‘on-seller’ of a new home. New Zealand has in effect copied its neighbouring Australian jurisdictions, adopting a special statutory regime imposing a minimum ‘floor of rights’ in favour of the ‘client’ (employer) in a ‘residential building contract’ (as defined) – but the insolvency or disappearance of this potential defendant would deprive such a right of any value.313 As in Australia, but via a different legal technique, the statute makes these ‘implied warranties’ enforceable by subsequent owners of the home (Mr Hamlin’s successor as the current owner of the house in Edinburgh Crescent, if the problems with the foundations had only then come to light) for the duration of the applicable limitation period. Like the original homeowner, a successor can rely on these statutory warranties in several ways: most usually now via adjudication, but in theory also in court or via arbitration or the special procedures – and financial assistance package from central and local government – towards resolving claims for the cost of repairing leaky buildings.314 The existence of these Building Act provisions means that few would-be claimants in modern times need rely on what started as the Contracts (Privity) Act 1982 (NZ), nor will standard form B2C construction contracts which have to be compliant with the 2004 Act usually engage with ‘third party rights’ possibilities. The 1982 Act implemented proposals from the New Zealand Contract and Commercial Law Reform Committee, allowing rights under contract to be enforceable by ‘third parties’. This reform influenced the Law Commission in London as it developed what became the Contracts (Rights of Third Parties) Act 1999.315 Where there is no traditional contract claim, no statutorily transmissible warranty and no possibility of claiming on insurance in New Zealand, a tort claim at common law for damages is often the only way forward if the plaintiff, complaining of defective construction (whether B1 or B2), wants to look to the builder, developer, other original project party or – if the others may no longer be trading or have no assets or insurance adequate to satisfy a judgment – the BCB.

5.13.2  Rights in Tort Well before Invercargill City Council v Hamlin, the New Zealand common law accepted that a current homeowner who had no right of action in contract against a builder for defective construction might be able to make an equivalent claim in tort.316 313 The current text of pt 4A arrived via the Building Amendment Act 2015 (NZ). For detailed analysis, see section [4.14.2]. 314 On adjudication in NZ under the Construction Contracts Act 2002 (NZ) as amended, see section [9.10.2]. Special assistance for leaky buildings is under the Weathertight Homes Resolution Services Act 2006 (NZ) as amended: see Tómas Kennedy-Grant, Kennedy-Grant on Construction Law, 2nd edn (Auckland, Lexis-Nexis, 2012) [7.53] and ch 29. 315 The 1982 NZ Act, as amended, is now integrated into the Contract and Commercial Law Act 2017 (NZ) ss 10–20. On the 1982 Act, see the Law Commission (E&W) report (n 42) pt IV, also Rodney H Newman, ‘The Doctrine of Privity of Contract: The Common Law and the Contracts (Privity) Act 1982’ (1983) 4(4) Auckland University Law Review 339. On the 1999 Act generally, see section [5.3.3]. 316 In Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (NZCA), the builder was liable in tort to the two current flat owners (not the original buyers) for the cost of rectifying inadequate foundations; the court relied heavily on Dutton v Bognor Regis UDC (n 150), framing the liability as for hidden defects creating a danger to third parties. Tipping J in Sunset Terraces/Byron Avenue (n 325) [32]–[45] did an extended analysis

Contrasts: New Zealand  309 In further contrast to English law, it continues to hold that a contractual link between ‘builder’ and present plaintiff (the construction employer) does not normally displace (or prevent the creation of) a duty of care in tort to comply with ‘the building code’.317 As in the outcome of Hamlin before the Privy Council, case law continues to hold that negligence by a BCB in its operation of what in New Zealand is called the building consent system leads to its liability for the cost of rectifying the building to make it comply with ‘the building code’ (if such repair is reasonable) or for the loss in capital value of the property.318 In practice, a BCB is these days always a public sector Territorial Authority: private sector BCBs (‘independent certifiers’) were phased out after the ‘leaky buildings crisis’ made their activities uninsurable.319 In 2009 in the Mount Albert Schools case, Justice Asher in the New Zealand High Court explained how defective work by the builder could lead to the BCB’s liability: [I]t can be foreseen that negligent Council consent or certification could fail to stop the construction of defective work, which will cause loss. However, that is not harm which the Council actually causes. Rather, it is harm which the Council fails to stop.320

In the 1990s, it became standard in New Zealand to build the structural framework of a building from untreated kiln-dried pine, individual cladding panels (sometimes called ‘face-seal monocladding’) then being fixed to the frame. The exterior panels had the job of keeping the weather out, but many allowed rainwater in at the butt-joints between them. This was often inevitable because the panels were rigid and the structure to which they were fixed was flexible, but sometimes the butt-joints did not – perhaps could not – comply with the cladding manufacturers’ demanding installation requirements. Water penetrating inside the outer skin caused the structural timber within to decay, weakening the structure and exposing occupants to fungal spores (there was no ‘second line of defence’ to direct moisture away, once inside the building). Outside, cantilevered balconies and decks became at risk of collapse.321 So the ‘leaky building’ syndrome, properly analysed, was the result of a design which, both on paper and on the ground, regularly failed to meet the requirements for resistance to moisture penetration in standard E2 of the then New Zealand ‘building code’. Although cladding systems were the main culprit, inadequate flashing and failed sealing systems around windows and doors were also to blame, as was the inadequate supervision of construction on site, especially of labour-only subcontractors. Once the problem’s scale became apparent, a more demanding set of ‘Acceptable Solutions’ was published.322

of the judges’ views in Dutton. For a sustained attack on Bowen, see Peter Watts, ‘Managerial and Worker Liability for Shortcomings in the Building of Leaky Homes – An Antediluvian Perspective’ in The Leaky Buildings Crisis: Understanding the Issues (Wellington, Brookers/Thomson Reuters, 2011) (LBC). 317 Bowen was re-affirmed by Downs J in Minister of Education v H Construction North Island Ltd [2018] NZHC 871 [26]–[40]. On English law, see section [5.5]. 318 On Hamlin, see Case Study 1 at section [1.12]. 319 On the end of private sector BCBs in NZ, see section [3.8.1]. 320 Mount Albert Grammar School Board of Trustees v Auckland City Council (and three other linked cases) [2009] NZHC 1852 [48]. For the same point in Canada, see City of Kamloops v Nielsen: the main text to ch 1 n 81. 321 Don Hunn, Ian Bond and David Kernohan, Report of the Overview Group on the Weathertightness of Buildings to the Building Industry Authority (Wellington, Building Industry Authority, 2002); see also The Leaky Buildings Crisis (n 316), especially ch 1 (Geoff McLay). 322 On Acceptable Solutions, see section [3.4.2].

310  Beyond Contract: Other Rights of Legal Action Exposure to rainwater penetration in New Zealand was, therefore, a type of latent defect: non-compliant but usually undiscovered until long after construction, when its financial impact would crystallise. In this situation, more than just rectification costs may be at stake: former ‘leaky buildings’ may suffer a ‘stigma-derived’ long-term drop in resale value.323 This can affect even dwellings upgraded to meet current standards, though better constructed now than they would have been, had they been codecompliant at the start. The scale of the problem triggered litigation in all directions, in part because, like the UK and Ireland, New Zealand imposed (then, as now) no insurance requirement for the structural elements of newly constructed residential buildings; insurance products were available commercially but not widely taken up. The leaky buildings crisis quickly drove many of the obvious defendants (developers and main contractors) out of business, so the focus turned, just as in Hamlin a decade before, to BCBs and the scope of their duty of care under the statutory ‘building code’ regime. Under what circumstances – if any – were BCBs liable to those owners who suffered loss by having to rectify buildings which, it was asserted, the BCB’s negligence had allowed to be constructed in a way which quickly proved far from weathertight and – more importantly – non-compliant? In response, BCB defendants argued that the scope of the Hamlin principle should be narrowed, certainly not widened or extended. The first case to reach the Supreme Court in Wellington was Sunset Terraces/Byron Avenue, a jointly heard pair of appeals about the potential liability of the North Shore City Council, based in Takapuna, a short walk from 45 Byron Avenue, one of the two residential apartment complexes whose faulty construction it was claimed the BCB ought to have noticed and prevented. Rainwater had damaged both units and ‘the common property’: the plaintiffs were a mixture of first and later owners of units, plus the body corporate for defects in ‘the common property’ of one of the blocks.324 In one of the cases, they had already gained judgment against the developers, which had no assets. The relevant statutory regime was the Building Act 1991 (NZ) (like the Mount Albert Schools case above, but unlike Hamlin) and Elias CJ footnotes that the Building Act 2004 (NZ) is comparable, though operating in different ways. The short step from statute to duty of care is obvious from the opening sentence of her judgment: ‘Territorial authorities control building in New Zealand under statutory duties conferred for the protection of building users’.325 We get statutory reaffirmation of the Chief Justice’s approach in 323 Dr Michael Rehm, ‘Leaky Building Stigma and House Prices’ in LBC: n 321. On the drop in value as the measure of damages in tort, see Body Corporate 90247 v Wellington City Council [2014] NZHC 295 [350]ff (Ronald Young J). For ‘stigma’ as a head of claim for damages, see also Naylor v Roamquest Ltd [2021] EWHC 567 (TCC). 324 In Sunset Terraces/Byron Avenue (n 325) [63]–[70], the judgment of Tipping J (also on behalf of Blanchard, McGrath and Anderson J) made clear that a body corporate does have the right to sue for defects in ‘the common property’, even where it does not own that property: see section [11.10]; and that a second unit owner (B2) also has the right to sue, even where their predecessor (B1) already had an ‘accrued’ right to do so, when time started running for the limitation period, B1 not having assigned B2 that right. 325 North Shore City Council v Body Corporate 188529 (Sunset Terraces) and Body Corporate 189855 (Byron Avenue) [2010] NZSC 158, [2011] 2 NZLR 289 [1]; see the discussion by Stephen Todd in his annual review of torts: ‘Torts’ [2010] New Zealand Law Review 811, 822–28. On getting from a statutory regime to a common law duty of care in tort, see the differing judicial views in the two Couch v Attorney General cases: n 111.

Contrasts: New Zealand  311 the 2004 Act, which arrived with the Building Amendment Act 2012. Its section 3(b) defines one of the purposes of the whole regime as: [T]o promote the accountability of owners, designers, builders and building consent authorities who have responsibilities for ensuring that building work complies with the building code.326 (emphasis added)

Judges in New Zealand at the time of Hamlin seemed to have added ‘modest owneroccupied residential’ before ‘building users’ in Elias CJ’s formulation above. If this once qualified the scope of liability, it no longer does. In the Supreme Court, the Chief Justice expressly included all buildings intended for residential use: I do not consider it would be principled to introduce restrictions on the liability of territorial authorities according to the form of ownership, the type of residence, or the value of the building. … A limitation of liability to owner-occupiers moreover is contrary to the policy of the legislation, which is concerned with protecting all users of buildings.327

Echoing the ‘vulnerability’ discussions in the Australian courts, but heading in the opposite direction and noting the legal position of other project parties, she said: It was suggested in argument in this appeal that in larger developments it may be expected that architects, engineers, and other consultants are likely to be engaged and that purchasers are more likely to rely on such experts than on the inspection and controls under the Building Act. That there may be overlapping duties of care owed by different potential defendants, including architects and engineers, is however no answer to the Council’s liability for its own negligence. Apportionment of responsibility may be sought where available. And in some cases questions of reliance may bear on whether any breach was causative of loss in fact.328

The other Supreme Court judges took the same approach: There is no principled basis for making the Hamlin duty dependent on whether the dwelling in question is stand-alone or part of a block of dwellings, or on how many dwelling units there are in the block. Any such limitation would, in any event, be inconsistent with the rationale for the duty. That rationale is based on the control which councils have over building projects and on the general reliance which people acquiring premises to be used as a home place on the council to have exercised its independent powers of control and inspection with reasonable skill and care and, in particular, to have exercised with reasonable skill and care its powers of inspection of features that will be covered up.329

If ‘building users’ are the targeted group for protection in the Building Act, why then should non-residential buildings – and their users – not share the same generous legal treatment? The next landmark Supreme Court case, Spencer on Byron, had to face this 326 Building Act 2004 (NZ) s 3(b). Confirmation that TAs’ potential liability in tort continues unchanged under the 2004 Act comes from Body Corporate 160361 v BC 2004 Ltd [2015] NZHC 1803 [142] (Whata J). 327 Elias CJ in Sunset Terraces/Byron Avenue (n 325) [7]. 328 Elias CJ in Sunset Terraces/Byron Avenue (n 325) [8]; on Australia, see section [5.14.2]. ‘Apportionment of responsibility’ is what in English law would be called a claim for contribution – not the same as ‘proportionate liability’, on which see section [9.5.3]. Further on, the Chief Justice mentioned the possibility of damages being reduced by plaintiffs’ contributory negligence – on which see n 337 – and reminded readers of the recently introduced 10-year limitation period for ‘building claims’. 329 Tipping J in Sunset Terraces/Byron Avenue (n 325) [48] (also giving judgment for Blanchard, McGrath and Anderson JJ). ‘Control’ once again echoes Lord Denning MR in Dutton (n 150 and the main text to n 151).

312  Beyond Contract: Other Rights of Legal Action issue head-on, in past cases decided against plaintiffs.330 It concerned a leaky 23-storey octagonal building, constructed by Multiplex in 2001 further down Byron Avenue from one of those in the previous case. Its top floors housed six penthouse apartments, but most of the building was part of a four-star hotel – on no test anyone’s ‘home’.331 The body corporate and most of the room and penthouse owners started a claim for damages for rectification and lost income (more than NZ$19m) against the North Shore Council, based on the BCB’s alleged negligence in operating building control and making negligent misstatements in its ‘code compliance certificates’. Should these actions be struck out?332 The Court of Appeal took the Council’s side, entering summary judgment against the hotel room owners and – in large part – the body corporate.333 This reflected the judges’ view – without yet knowing what the Supreme Court would say in Sunset Terraces/ Byron Avenue334 – that only in relation to that part of the building which qualified as wholly residential did the Council owe a duty of care in tort under Hamlin. When the case reached the Supreme Court, the point expressly left unresolved in Sunset Terraces/Byron Avenue went decisively but not unanimously in favour of those looking for damages against negligent BCBs. Elias CJ gave a simple summary of the reasoning: The statute [the Building Act 1991] sets up the relationship of sufficient proximity between the Council and building owners to give rise to a duty of care. … The nature of the relationship between the Council and owners of buildings does not differ according to the use to which the building is put.335 To the extent that the [1991] Act is concerned that buildings are safe and sanitary under s 6, those policies apply equally to commercial premises as to residential purposes. To the extent that the Act requires by s 7 code compliance as a minimum standard that all buildings must attain, a division between residential and non-residential buildings makes no sense. Where the Council certifies for code compliance or has default responsibilities under the legislation, liability in negligence in respect of all building work so passed is wholly consistent with the legislation.336

As a result, litigation could continue against the North Shore City Council (by then, already swallowed up into the enlarged Auckland Council).337 No part of the dispute 330 See Te Mata Properties Ltd v Hastings District Council [2008] NZCA 446, [2009] 1 NZLR 460 and Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374, [2009] 3 NZLR 786. In Spencer on Byron, Elias CJ considered that the authorities relied on in those cases did not justify excluding commercial buildings from protection (n 333) [6]; McGrath and Chambers JJ did similarly [83]–[107]. 331 Body Corporate 207624 v North Shore City Council (Spencer on Byron) [2012] NZSC 83, [2013] 2 NZLR 297. In effect, each hotel room was ‘sold’ to a buy-to-let investor, subject to a 10-year lease to a hotel management company. 332 There were linked claims against many of the original project parties; their role and potential liability were not in issue in the litigation against the North Shore City Council, nor were the alleged defects detailed in the Supreme Court, but in the CA (n 333) [18] these were summarised as ‘the roof, roof edge, decks and balustrades, cladding and joinery’. 333 North Shore City Council v Body Corporate 207624 (Spencer on Byron) [2011] NZCA 164, [2011] 2 NZLR 744. Harrison J dissented in part and would have let the penthouse owners’ litigation continue. On mixed use developments generally, see section [11.13]. 334 Sunset Terraces/Byron Avenue: n 325. 335 Spencer on Byron (n 333) [10]. 336 Spencer on Byron (n 333) [17] (footnote omitted). Tipping J gave a separate judgment, as did McGrath and Chambers JJ, agreeing with this approach and outcome; William Young J dissented, considering it wrong to extend a Hamlin-type duty to commercial buildings. 337 The cause of action in negligent misstatement was also re-instated, but McGrath and Chambers JJ make clear that it could add nothing to the main claim in negligence (n 331) [220]–[223]. This approach became

Contrasts: New Zealand  313 came to trial on the merits, the case settling in 2013 with about NZ$20m received from the Council and other construction parties (including presumably some of their insurers) towards rectification. According to reports, this work was due to start in 2018. But this was complicated by the height of the building, more demanding requirements in the present building code, especially on fire protection, than in force at the time of its construction and even litigation between the ‘winners’.338 In 2016, in Carter Holt Harvey Ltd v Minister of Education, the Supreme Court revisited the duty of care debate, this time in the context of a claim by a public sector building owner (and construction employer) against a manufacturer for the supply of non-compliant building materials – a late piece of ‘leaky buildings’ litigation with a large sum at stake and based in part on a claimed duty of care at common law. The judges refused to strike out the Minister’s action. Even though suppliers of building materials are not under direct duties to comply with ‘the building code’ under the Building Act 2004, they knowingly supply those who are: this did not differentiate the situation from Spencer on Byron.339 Nor did New Zealand law take account of an individual plaintiff ’s ‘vulnerability’ (or lack of it) in deciding whether to impose a duty of care, but could consider the position of likely plaintiffs as a class – and to assert that the Minister could and should have protected their interest via contract was unproven and unlikely. The case also raised an important limitation point.340 As Tipping J pointed out in Sunset Terraces/Byron Avenue, the New Zealand Parliament has regularly legislated against a backdrop of the common law, never yet seeking to limit or modify its impact on liabilities deriving from the building consent system.341 Put more positively, by Elias CJ in Spencer on Byron: The legislature [in 1991] not only failed to take an opportunity to change the law developed in the courts, its enactment adopted tortious responsibility as an element of the system of assurance of code compliance which replaced the earlier and more open-ended responsibilities of councils to regulate the construction of buildings.342

crucial in Southland Indoor Leisure Centre Trust v Invercargill City Council [2017] NZSC 190, [2018] 1 NZLR 278, where only the issue of the final code compliance certificate was within the limitation period for liability for the 2010 collapse under snow of the Stadium Southland roof (no injuries or loss of life). The Supreme Court affirmed the BCB’s duty of care at common law as the operator of the building consent system, including for negligently issuing this certificate; a ‘project agreement’ between the Trust as construction employer and the Council, under which the Trust undertook to comply with all mandatory rules, did not affect the Council’s duty of care. But the judges confirmed (by a majority) a reduction in the Trust’s damages of 50% for contributory negligence: not following up reports about the vulnerability of the stadium roof. See also Department of Building and Housing, Technical Investigation into the Collapse of the Stadium Southland Roof (2012): www.mbie.govt.nz. This confirmed three areas of non-compliance with drawings and the Building Code and Standards. 338 Anne Gibson, ‘Spencer On Byron Repairs Start: Leaked Documents Reveal Plan’ NZ Herald (15 April 2018). Uncertainties about distribution of the settlement funds delayed the start of repair work and led to Grimshaw & Co v Body Corporate 207624 [2016] NZHC 715 and Body Corporate 207624 v Grimshaw & Co [2020] NZHC 34. 339 For further litigation about defective building materials, see James Hardie Industries plc v White [2019] NZSC 39. 340 Carter Holt Harvey Ltd v Minister of Education [2016] NZSC 95 [38]–[40], [53]–[55] (O’Regan J giving the judgment of the Court); see also section [10.8]. 341 Tipping J in Sunset Terraces/Byron Avenue (n 325) [25]. 342 Spencer on Byron (n 333) [8].

314  Beyond Contract: Other Rights of Legal Action This ‘hands-off-the-common-law’ tradition continues in the 2012 Act; it seems highly significant that the new statements of the parties’ respective responsibilities, which the 2012 Act adds to the 2004 Act – section 14A and following – expressly provide that law from other sources, including contracts, may affect the position of each. But building consent authorities are protected against liability for relying in good faith on documents generated by others.343

5.13.3 Reform? Does the breadth of the duty of care in tort put BCBs in an unjustly exposed position, carrying the risk of the insolvency of ‘builders’ who would otherwise be defendants in court in claims brought by homeowners (or others)? The New Zealand Law Commission, reviewing in 2014 how well the common law’s default ‘joint and several liability’ system works in relation to multiple defendants, accepted that local authorities had been landed with a large share of the ‘leaky buildings’ cost, though insurance and central government help towards homeowners’ rectification costs had significantly lessened their immediate exposure.344 Adopting an Australian-style proportionate liability regime in this specific sector (as some industry representatives argued) was not the answer; such a change would only be justified if mandatory insurance against the cost of remedying some categories of construction defects was introduced at the same time.345 However, the Law Commission did recommend a financial cap on the liability in any one case of local authorities as BCBs of NZ$300,000 for a self-contained dwelling; in a multi-unit development, half that sum for a unit and an overall cap of NZ$3m for the development as a whole. It also suggested clarifying, by amending the Building Act 2004, BCBs’ liability in relation to defects in non-residential buildings.346 None of these changes has yet been implemented, but the OECD in its 2019 Economic Survey of New Zealand added its voice to the proposal to cap BCBs’ liability, suggesting that fear of litigation had made BCBs risk-averse (hence slow) in exercising their building control functions.347 It also argued for proportionate liability in the sector and mandatory insurance against the costs of rectification.348 At almost the same time, the Ministry of Business, Innovation and Employment (MBIE) put out to consultation a proposal to leave the liability position of BCBs unchanged (both proportionate liability and the damages cap seem now to have been dropped) but to require buyers of new homes and owners of homes where significant alterations are taking place to be offered a third-party warranty product; its detailed specifications and coverage were part of the consultation.349 Speedy legislation on these changes is unlikely, as the summary of consultation responses (October 2019) noted that ‘the building insurance market is not currently in a position to meet the 343 Building Act 2004 (NZ) s 392. 344 On remedies for ‘leaky buildings’, see n 314 and its linked text. 345 Law Commission (NZ), Liability of Multiple Defendants (Report 132, 2014) ch 7. 346 Law Commission (NZ) (n 345) [7.37]ff. 347 Bonnie Flaws, ‘Councils Costing People Thousands in Building Consent Delays’ Stuff (10 September 2019): www.stuff.co.nz. 348 OECD, Economic Surveys: New Zealand 2019 (Paris, OECD, June 2019) 183: www.oecd.org. 349 MBIE, Building System Legislative Reform: Discussion Paper (2019) pt 4; see also section [7.5.1].

Contrasts: Ireland  315 large increase in demand that would arise from a compulsory guarantee or insurance product’.350 Putting extra pressure on the government to fund (or at least underwrite) whatever scheme is finally adopted, several private sector providers in the area stopped issuing new policies.351

5.14  Contrasts: Ireland 5.14.1  Extending Rights in Contract McDermott and McDermott comment that the principle of privity of contract is ‘well established in Irish law’, citing Murphy v Bower.352 Here the Court of Common Pleas in Dublin rejected a claim from a railway contractor against the defendant engineer in respect of a refusal to certify the value of works, where the employer had engaged the engineer under the contract.353 However, the authors point to an ‘uneasiness’ on the part of the Irish courts with regard to the rule, citing Glow Heating Ltd v Eastern Health Board, where a subcontractor successfully relied on a payment clause in the main construction contract when the main contractor became insolvent.354 The Irish Law Reform Commission has proposed legislation along lines familiar from the English Contracts (Rights of Third Parties) Act 1999 to make it generally possible for terms in a contract to be enforceable by a ‘third party’: no reform has yet been implemented.355 As in Scenario 2 (Table 1.1), the two original parties to a residential construction contract (if part of buying a new home off-plan) will usually be the developer X and the first buyer B1: in Ireland, as everywhere else, the builder/developer will usually dictate the terms of the contract. If Ireland legislated along the lines proposed by the Law Reform Commission, it is unlikely that B1 could insist on protecting the rights of their successor in title (B2), or that B1 would care much about this issue, since excluding third-party rights would not affect their position, especially if they were not expecting to sell the home on within the limitation period. The Law Reform Commission refers to construction contracts as an example of the problems posed by the privity rule, giving the example of a person contracting with a builder for an extension to her mother’s home: Mary contracts with a builder for the construction of an extension to Mary’s mother’s home. The contract is clearly intended to benefit Mary’s mother. However, if the builder refuses to complete the building, or provides a defective service, Mary’s mother is not entitled to sue the builder for breach of contract.356 350 See www.building.govt.nz/getting-started/building-law-reforms. 351 Gareth Lewis, ‘Warning Signs Emerge Regarding Viability of Building Guarantee Schemes’ BuildLaw Issue 39 (April 2020) 17. 352 Paul A McDermott and James McDermott, Contract Law, 2nd edn (Dublin, Bloomsbury Professional, 2018) [19.07]. For trusts and agency as exceptions to the rule, see [19.21]–[19.55]. 353 Murphy v Bower (1868) IR 2 CL 506. 354 Glow Heating Ltd. v Eastern Health Board [1988] IR 110: see McDermott and McDermott (n 352) [19.11]. 355 Law Reform Commission (Ire), Privity of Contract: Third Party Rights (LRC 88–2008). 356 Law Reform Commission (n 355) 6.

316  Beyond Contract: Other Rights of Legal Action A similar example was used in the earlier report from the English Law Commission.357 This does not get to the heart of the problem, because here the beneficiary’s identity is known: the simplest alternative – unproblematic under the present law – is for the contract to be entered into by the ‘third party’ (Mary’s mother). By contrast, in the case of residential construction contracts for new homes, B1 will not necessarily know whether they will sell the property during the limitation period; and cannot know the identity of the future potential beneficiaries of the contract (their successors in title). Even if B1 did have this information (eg, in the case of a parent purchasing a home for a child), it seems unrealistic that they would seek to ensure that a later homeowner would acquire the right to enforce the contract, unless alerted to the issue by solicitors, via a change in conveyancing practice providing for the rights of successors in this way. The Commission refers to the particular difficulty of privity with regard to building defects by presenting an example of a developer who will not ultimately own the building.358 The developer may assign the benefit of its rights under the construction contract to the building owner, who may enforce the contract, though the owner cannot recover more than the original assignor could have recovered against the builder.359 This example, however, represents the commercial but not the residential development paradigm: a commercial owner, investor or tenant may be in a position to insist on assignment to it of the rights under the original construction contract (and under collateral warranties made originally to the developer or to funders); an individual apartment or homeowner usually will not. The Owners’ Management Company (OMC) of an apartment development will be under the developer’s control until after completion of the construction works. Thus, it will not receive any assurances of quality or performance or assignment of any building contract that may have been in place for construction of the development.360 Another difficulty, acknowledged by the Commission, is that assigning the benefit of a contract to a third party – an already available legal technique – is subject to possible provisions in the parent contract limiting or excluding assignment, just as in English law.361 Both the English Law Commission and later Irish Law Reform Commission reports show awareness of the difficulties faced by commercial parties in relation to construction, but fail to acknowledge the particular position of residential homeowners, who may have no contractual remedy (and not necessarily any other remedy) when defects become apparent. The Irish report concludes that making special provision for consumers was beyond the Commission’s remit and more appropriately considered in the context of consumer protection policy.362 Accordingly, the draft legislation would allow 357 ‘Say for example, a client contracts with a builder for work to be done on the home of an elderly relative. If the work is done defectively, it is only the client who has the contractual right to sue the builder for its failure to deliver the promised performance.’ Law Commission (E&W), Privity of Contract: Contracts for the Benefit of Third Parties (n 42) [3.11]. 358 Law Reform Commission (n 355) 10. 359 Law Reform Commission (n 355) 10; see also section [5.3.2]. 360 On OMCs, see section [11.11]. 361 Law Reform Commission (n 355) 11. For assignment under English law, see section [5.3.2]. 362 The Law Reform Commission commented (n 355) 87: ‘any further reform which offers extra protections to third party consumers, regardless of the intention of the contracting parties, must take place within a general

Contrasts: Ireland  317 a third party to enforce provisions in a contract between ‘strangers’ only where the contract itself did not prohibit this, as in the 1999 Act in England & Wales.363

5.14.2  Rights in Tort The Irish courts have only partially followed the line of authorities from English law already discussed in this chapter on the recovery of pure economic loss: they remain on all fours with English law until Junior Books v Veitchi, then diverge.364 Irish law supports recovery of damages for pure economic loss against a builder without needing to show a ‘special relationship’ akin to that required by Jackson LJ in Robinson v Jones.365 In Ward v McMaster, the plaintiff had purchased a house from an amateur builder with the assistance of a loan from a local authority.366 The Irish High Court held that the builder of a house on their own land owes a duty of care to a subsequent purchaser of that house, based on Donoghue v Stevenson, to avoid dangerous hidden defects and consequential financial loss and inconvenience.367 The local authority also owed a duty because of its statutory obligation to ensure that the house was adequate security for the loan. The Court notably followed the majority of the House of Lords in Junior Books v Veitchi.368 Costello J in Ward v McMaster distinguished a line of cases in which it had been held that a builder who owned land on which he constructed a dwelling, subsequently selling or letting that dwelling, was immune from liability in tort. Instead, he held that the builder owed a duty of care to a purchaser of the house in relation to defects not discoverable by the kind of examination which the builder could reasonably expect the purchaser to make. The duty ‘extended to a duty to avoid causing the purchaser consequential financial loss arising from hidden defects in the bungalow itself (that is a duty to avoid defects in the quality of the work)’.369 In the Irish Supreme Court decision in Glencar Exploration v Mayo County Council (No 2) in 2002, Keane CJ expressly reserved the question of whether economic loss was recoverable, but did not overrule Ward: I would expressly reserve for another occasion the question as to whether economic loss is recoverable in actions for negligence other than actions for negligent misstatement and those review of consumer law, and not as part of a review of the rule of privity’. This echoed the Law Commission’s earlier report, expressing concern about how its proposals might conflict with other policy developments in the field of consumer protection, including rights in relation to defective residential construction work: Law Reform Commission (n 375) [7.55]. 363 Law Reform Commission (n 355) 92–93. On the 1999 Act, see section [5.3.3]. 364 In Junior Books v Veitchi (n 70), the construction employer on a project in Scotland could claim damages in tort (quasi-delict) against the specialist subcontractors (nominated by the employer’s architects) who had negligently laid flooring needing rectification: ‘in almost as close a commercial relationship with the respondents [the employer] as it is possible to envisage short of privity of contract’ (Lord Roskill at 542C). Lord Brandon powerfully dissented, in effect vindicated by Murphy v Brentwood DC (n 153) in section [5.8]. The authority of Junior Books seems at best limited to its own facts or treated as an extreme example of an ‘assumption of responsibility’ or a ‘special relationship’ within the Hedley Byrne sequence of cases. 365 Robinson v Jones: see Case Study 5 at section [5.5]. 366 Ward v McMaster [1985] IR 29, [1986] ILRM 43. 367 Donoghue v Stevenson: see section [5.7.1]. 368 Junior Books: n 70. 369 Ward v McMaster (n 366) 44.

318  Beyond Contract: Other Rights of Legal Action falling within the categories identified in Siney and Ward v McMaster and whether the decision of the House of Lords in Junior Books Ltd v Veitchi Co Ltd should be followed in this jurisdiction.370

The authors of the leading Irish monograph on the law of torts, Binchy and McMahon, suggest that the Court in Glencar was leaning against the prospect of recovery of economic loss: [I]t would only be prudent to reiterate that Glencar has cast a very dark shadow over recovery of damages for negligently inflicted economic loss and that qualitative defects savour strongly of contract.371

The authors do, however, take the view that Irish law diverges sharply from the courts of England & Wales in allowing recovery of economic loss in respect of dangerous defects, which are apparently spared the ‘dark shadow’ of Glencar; this contrasts with the English authorities of the late 1980s, which present a wider justification for allowing recovery.372 To hold otherwise, in their view, would be to discourage building owners from ‘taking the necessary steps, with expedition, to make the premises safe’.373 There has been no Irish decision adopting the reasoning in Murphy and minimal case law since Ward in relation to the liability of a builder in tort in respect of non-dangerous defects, nor on the broader question of under what conditions economic loss is recoverable in tort. In essence, Ward may be regarded as a sub-rule that departs from the exclusionary common law rule, where Robinson v Jones is the paradigm that excludes the builder’s liability for defects under English law.374 Ward is the sub-rule that preserves that liability under Irish law. The fact that the ratio in Ward has been preserved via a succession of decisions, despite its endorsement of Junior Books, demonstrates its continued resilience in the face of the jurisprudential crosswinds from England & Wales.

5.14.3  Rights under Statute In 1982, the Irish Law Reform Commission published a Report on Defective Premises, whose proposed draft Bill would have imposed two new statutory duties: first, to build properly and second, to ensure the safety from personal injuries and damage to property of persons who might reasonably be expected to be affected by defects in the state of 370 Glencar Exploration plc v Mayo County Council (No 2) [2001] IESC 64, [2002] 1 IR 84, [2002] 1 ILRM 481 [112]. In Siney v Dublin Corporation [1980] IR 400, the Supreme Court held the defendant local authority liable in negligence in respect of a flat provided under the Housing Act 1966, which contained defects rendering it unfit for human habitation. The damages claimed related to damage to the plaintiff ’s possessions in the flat, however, not for rectifying defects in the property. In Simaan General Contracting v Pilkington Glass [1988] QB 758, Bingham LJ commented at with regard to Junior Books (n 70): ‘Plainly this decision contained within it the seeds of a major development of the law of negligence … It remained to be seen whether those seeds would be encouraged or permitted to germinate. The clear trend of authority since Junior Books indicated that … they will not’. 371 William Binchy and Bryan McMahon, Law of Torts, 4th edn (Dublin, Bloomsbury Professional, 2013) ch 13. 372 See also n 136 (position in Canada). For the ‘wider justification’ in pre-Murphy English law, see Dutton and Anns in section [5.7]. 373 Binchy and McMahon: n 371. 374 Robinson v Jones: Case Study 5 at section [5.5].

Contrasts: Scotland  319 the premises.375 Thus Ireland might have had its equivalent of the English DPA 1972.376 In the final version of these proposals, the new law would have had reasonable discoverability as the trigger for time starting to run and a generous 10-year limitation period. In the end, none of the Commission’s cogent proposals was implemented, so the common law and the existing limitation rules looking to ‘accrual of the cause of action’, together continue to hold centre stage for residential defects claims in the Irish courts.377 Non-statutory third-party warranties modestly supplement this position; after the Global Financial Crisis, the Construction Industry Federation’s own Guarantee Scheme morphed into HomeBond as Ireland’s main insurance product.378 In Ireland, there is just one small piece of statutory intervention already in force, in a direction unhelpful for claims in relation to construction defects. The Building Control Act 1990 (Ire) section 21 provides: A person shall not be entitled to bring any civil proceedings pursuant to this Act by reason only of the contravention of any provision of this Act, or of any order or regulation made thereunder.

Unchanged by the more recent Building Control Act 2007 (Ire), this does the opposite of the Building Act 1984 (E&W) section 38, ruling out actions for breach of statutory duty; but does not necessarily prevent a claim which satisfies the usual tests for a right of action in contract and/or tort at common law.379 This book’s Irish contributor is part of a drafting team for new legislation, which it is hoped will be introduced as a Private Member’s Bill in Dáil Éireann (the lower of the Irish houses of parliament), provisionally entitled the Homeowner Protection Bill 2021. The Bill seeks to establish an independent statutory duty on builders and developers to build dwellings in a good and workmanlike manner, using materials that are sound and fit for purpose. The Bill also clarifies and extends the limitation periods applicable to actions arising from residential construction defects and provides a limited remedy for failure by a person disposing of a dwelling to disclose the existence of defects. Though confined to private law remedies, it is hoped that the Bill will form part of a package of reforms, including regulatory responses, addressing the deficiencies in Irish law described at various points in this book.

5.15  Contrasts: Scotland 5.15.1  Extending Rights in Contract Chapter 4 includes an analysis of a residential construction case brought in Scotland by a first home buyer (B1) against the developer (X) as Case Study 4: Hughes v Barratt



375 Law

Reform Commission (Ire), Report on Defective Premises (LRC 3–1982). the DPA, see section [5.10.2]ff. 377 On time limits for legal action in Irish law, see section [10.9]. 378 On HomeBond, see section [7.6]. 379 On the Building Act 1984 (E&W) s 38, see section [5.10.1]. 376 On

320  Beyond Contract: Other Rights of Legal Action Urban C ­ onstruction (Scotland) Ltd.380 This illustrates the close similarity of doctrines and outcomes (but differences in procedural vocabulary) between Scots law and English law in that context. In framing his action, the pursuer Mr Hughes included a claim that the developers owed him a duty of care in tort/delict, having – as he claimed – assumed responsibility for the quality of the home they built. At a preliminary stage, the judge struck this out as unjustified and adding nothing to the primary claim for breach of contract – the case, as it actually progressed, is therefore discussed uniquely in a contract context. If Mr Hughes had been able to sell his flat, what would the position have been of his successor as owner (B2) in attempting to claim in contract against the developer? Scots law starts from the same ‘free market’ position as English law about the possibility of assignation (its term for assignment of the benefit of a contract): in principle, the benefit of any contract can be assigned unless the contract itself imposes limitations or a bar on doing so, or if the contract is personal in nature (eg, a contract to paint a picture).381 But the practical side is different in Scotland: there are no statutory provisions requiring registration and no notion of a formally imperfect assignation taking effect in equity (unknown as a separate system of law north of the border). Assignation requires an agreement between the assignor and assignee, then ‘intimation’ to the other original contracting party (the debtor). ‘Intimation’ takes place where the debtor acknowledges that their debt is now owed to the assignee – this can be done by serving notice of the assignation on the debtor and getting their written confirmation that they have received it, or by other forms of acknowledgment by the debtor (eg, expressly undertaking to pay the assignee). The effect of a valid assignation appears identical to that in England & Wales: the assignee is in the same position in relation to the debtor as the assignor would have been (no better and no worse). None of the law reports for Hughes v Barratt quotes the full text of the constructand-transfer agreement Mr Hughes entered into, so we do not know whether its benefit could freely have been assigned. Nor do we know if it could have given rise in Scots law to a device unknown in English common law: a non-statutory jus quaesitum tertio, empowering a third party to sue on a contract entered into by others, in favour of another party (notably B2, Mr Hughes’ theoretical successor as flat-owner). This seems highly unlikely; in any event, the old Scots common law on third-party rights under a contract has now been replaced by the Contract (Third Party Rights) ­(Scotland) Act 2017, implementing proposals from the Scottish Law Commission.382 One of the aims behind this reform was to make Scots law as attractive a choice of governing law for construction and other projects north of the border as English law,

380 Hughes v Barratt Urban Construction (Scotland) Ltd [2003] ScotCS 345, 2004 SCLR 338 (Extra Division, Inner House): see section [4.16.2]. 381 On assignment in English law, see section [5.3.2]. 382 Scottish Law Commission, Review of Contract Law: Report on Third Party Rights (Scot Law Com No 245, 2016). The 2017 Act continues to permit contracting parties to prevent rights being conferred on third parties, as in Condition 13(c) of the Building Contract for a Homeowner/Occupier who has Appointed a Consultant to Oversee the Work (HO/C/Scot 2015 – SBC583).

Contrasts: Scotland  321 ahead of the game with its Contracts (Rights of Third Parties) Act 1999. The Scottish legislation appears to authorise contract parties expressly to negative any intention to allow a third party to enforce or otherwise invoke the contract.383 The Law Society of Scotland’s non-mandatory Scottish Standard Clauses for sales of homes include such a provision; but the SBCC Building Contract for a Homeowner/Occupier (HO/C/Scot 2015) does not.384

5.15.2  Rights in Tort (Quasi-Delict) The approach of the Scottish courts to the liability issue in Hughes v Barratt reminds us that Donoghue v Stevenson was a case from Scotland, therefore as much about Scots law as English.385 But when Scottish judges consider a claim for damages by a homeowner against a developer in quasi-delict (the non-intentional causing of a form of harm recognised by the law), it is easy to recognise what in English law would be a tort claim in negligence. As the arguments, the concepts, the authorities relied on, and the outcome together show, the key building-blocks of the law on the potential noncontractual liability of ‘builders’ to those who already have a contract with them, are closely shared between English and Scots law.386 Hughes v Barratt is, in effect, a preview of Robinson v Jones.387 In court, there was in the case no suggestion that the City Council, which had exercised control under the Building Regulations at the time, might have been at fault and thus incurred liability at common law.388 Such a claim would have been swiftly blocked by Murphy v Brentwood DC, in Scotland as in the rest of the UK.389

5.15.3  Rights under Statute There is no equivalent north of the border of the Defective Premises Act 1972, which applies in the rest of the UK.390 Passed in order to implement a fundamental reform of the building control system in Scotland, the Building (Scotland) Act 2003 – not yet

383 Contract (Third Party Rights) (Scotland) Act 2017 s 1(1). 384 Scottish Standard Clauses (4th edn) cl 33; neither the Clauses nor the SBCC Building Contract contain any provisions about assignation. 385 On Donoghue v Stevenson, see section [5.7.1]. 386 For other illustrations of the direct relevance in Scotland of Murphy v Brentwood DC and related ‘apex court’ authorities from London, see Macdonald v Fédération International de Football Association [1998] ScotCS 85, 1999 SLT 1129, Davidson v Bank of Scotland [2002] ScotCS 50, Midlothian Council v Keith [2017] CSOH 87 and British Overseas Bank Nominees Ltd v Stewart Milne Group: n 163. 387 Robinson v Jones: Case Study 5 at section [5.5]. 388 The then current Regulations would have been made under the Building (Scotland) Act 1959. 389 Murphy v Brentwood DC: the main text to n 153. 390 On the DPA, see section [5.10.2]ff.

322  Beyond Contract: Other Rights of Legal Action the law when Mr Hughes bought his home – includes a section apparently imposing civil liability on anyone who fails to carry out statutory duties contained in (or under) the 2003 Act, ‘damage’ being partially defined.391 It is a close copy of the comparable provision of the Building Act 1984 (E&W).392 Unlike that English rule, the Scottish equivalent did come into force in Scotland on 1 May 2015, together with the main rules of the 2003 Act. The apparent absence of any case law relying on this section seems to be simply explained: the statutory scheme places the fall-back duty of compliance with ‘the building code’ on the homeowner – the would-be pursuer.

5.16  Chapter Summary Table 5.5  Civil Claims for Construction Defects

CONTRACT

BASIS

POSSIBILITY

COMMENTS

If the claimant is not ‘in contract with’ the target defendant, the other original contract party may assign them the right to sue.

The possibility of assignment may be restricted or excluded by contract, or the would-be assignor may be entitled to refuse.

Statute may permit the original contract parties to empower the current claimant to rely on its terms as a third party.

UK, NZ and some parts of Aus only.

Statute may impose a minimum set of warranties in residential building contracts (as defined), making these enforceable by the current homeowner against ‘the builder’.393

Australasian approach (not UK, Ire); but mounting a tort claim may still be necessary against any other original construction party or where the statutory regime does not apply.

The claimant may have a choice of remedy if they can show a breach of contract (actual or anticipated), including failure to perform; to gain damages at common law, the claimant must also show costs or losses resulting from the breach.

In contract, damages for the cost of rectification of defects or the drop in the home’s value are available if a breach can be shown.394 B2B or B2C construction contracts often include their own machinery for claims, remedies and dispute resolution; some aspects may be imposed by statute in some construction situations. (continued)



391 Building

(Scotland) Act 2003 s 51. Act 1984 (E&W) s 38: see section [5.10.1]. 393 On these possibilities, see section [4.13.2] and Table 4.2 (Aus) and section [4.14.3] (NZ). 394 See section [4.12.3]. 392 Building

Evaluation  323 Table 5.5  (Continued)

UNDER STATUTE

TORT (NEGLIGENCE OR QUASI-DELICT)

BASIS

POSSIBILITY

COMMENTS

The claimant must show that the target defendant owed them a duty of care in relation to the type of harm that has occurred.

If the central claim is for the cost of rectification of defects or drop in home’s value (pure economic loss), the UK and Australian law are reluctant to impose a duty of care on ‘builder’ (including Must also show fault: a failure to meet BCB) beyond the defendant’s existing the standard of care of a person in the defendant’s position or role (an objective obligations in contract: the claimant test), this fault having caused the claimed must show ‘a special relationship’ or ‘a voluntary assumption of responsibility’ harm. (UK) or relevant ‘salient feature/s’ (such Must also show a quantifiable form of as vulnerability) (Aus). harm for which damages are recoverable NZ is clearly more generous (Hamlin (the only available remedy). etc); Irish common law also seems so. If the defects have caused personal injury or damage to ‘other’ property, it is easier to show that the ‘builder’ owed a duty of care. The right to claim and available remedies Relevant statutes are rare: no equivalent depend completely on the terms of the in Ireland, Scotland or Australasia of the statute. Defective Premises Act 1972 (E&W, NI) (except NSW via its Design and Building Practitioners Act 2020) – but transmissible statutory warranties fill part of the gap in Australasia (see ch 4). Limitations of the DPA: –– Defects must go to ‘habitability’ of a dwelling –– After-the-event damages only –– Short fixed limitation period –– A DPA claim is unavailable against a BCB or other inspector/certifier. Special EU regime for defective products causing injury or damage: in force by statute in UK, Ire.

5.17 Evaluation 5.17.1  Rights in Contract Homeowners often have no contractual link with those in fact responsible for significant defects in their homes. This is a consequence of the common law’s doctrines of privity of contract and consideration, combined with the long-life nature of housing as an asset and

324  Beyond Contract: Other Rights of Legal Action its relatively easy marketability. These often result in ‘no ability to sue in contract’ against a (or the) target defendant. These disadvantages are mitigated in law by the possibility of assignment and by statutory intervention. Australasia extends to successor owners the employer’s ‘floor of rights’ under a ‘residential building contract’ (as defined) and provides a modest level of guaranteed insurance protection (but not everywhere);395 the UK allows a ‘third party’ to be empowered to sue on a contract entered into by others, though this seems seldom used in our field. The same disadvantages are also mitigated in practice in the UK and Ireland by the possibility of claiming on insurance, notably under a thirdparty ‘new home’ warranty. However, the scope of this protection falls far short of what a legally enforceable right of action might deliver, though the policyholder does not usually have to incur any ‘litigation risk’ to make a claim.396 The limited scope of all these mitigating devices means that a claimant may have to establish – or at least assert – liability in tort at common law to get remedies for the cost of rectification of construction defects or compensation for loss of capital value. It seems unrealistic to tell such a claimant, as the current judicial orthodoxy in both England and Australia requires, that contractual arrangements (including insurance) are the desirable technique to protect against such risks; and that they should look to statutory intervention – not the common law – in order to protect ‘vulnerable’ classes of homeowner claimant. To take rights of action away from those who have no contractual link with a party responsible, as the House of Lords did in Murphy v Brentwood DC, is to overlook the nature of the asset, as Elias CJ pointed out in Sunset Terraces/Byron Avenue in the New Zealand Supreme Court: [R]ecognition of [tort] liability to successive owners (whether for negligent inspection or for the negligent construction itself by the builder) is consistent with the questioning of a requirement of privity in cases where successive ownership of apparently durable constructions or products is usual.397

5.17.2  Rights in Tort (or Equivalent) From English cases in the 1970s and 1980s, like Dutton and Anns, where the courts found public sector BCBs liable in tort, it seemed as if reasonably foreseeable negative financial consequences for homeowners of negligently created building defects could be enough to establish liability – at least in relation to BCBs, based on their statutory inspection and certification functions.398 The same approach might extend to ‘builders’ too, though the leading authority suggesting that possibility from Australia, Bryan v Maloney, has been largely parked in a jurisprudential dead end.399 This could have been seen as a straightforward application, or perhaps an extension, of Donoghue v Stevenson to construction defects.400 395 On insurance protection for residential construction in Australasia, see section [7.5]. 396 On insurance protection for residential construction in the UK, see sections [7.2]–[7.6]. On ‘litigation risk’, see ch 9. 397 Sunset Terraces/Byron Avenue (n 325) [3]. 398 Dutton v Bognor Regis UDC: n 150; Anns v Merton: n 150. 399 Bryan v Maloney: n 276 and its main text. 400 Donoghue v Stevenson: see the main text to n 116.

Evaluation  325 The simple Anns test for a duty of care, supporting these outcomes, lasted in English law for just over a decade.401 However, in Murphy v Brentwood DC the House of Lords reclassified the damages claims in such cases as for pure economic loss; this then led to a pair of alternative tests for a duty of care in such circumstances, rarely satisfied.402 At the height of Thatcherite conservatism, English (and Scots) law took a newly restrictive attitude to most tort claims against any participant in the construction process; two decades later, the High Court of Australia confirmed a similar trend in Brookfield Multiplex.403 It may be a misplaced form of consistency to treat defect cases in buildings as posing the same dangers of indeterminate liability (uncontrollable in scope) as other pure economic loss situations, as Bell and Jocic suggest: [T]here are sound reasons in general for courts to remain hesitant to impose duties of care regarding pure economic loss. In defective building work cases, however, the physical origins of the harm and the minimal concerns about indeterminacy mean that the reasons for hesitancy are less pressing.404

A building is not like a falsely optimistic published audit report on a company, in reliance on which many people might buy shares, the company then going under.405 Nor is it like permitting the import of an agent which could wipe out most of an industry – as happened with kiwi fruit in New Zealand in the early 2000s.406 In our field, latent defects are most often the result of physical work – not just publishing a report or posting online – relating to an actual situation in or around a building. Hence the scope of liability cannot spread exponentially; it is naturally self-limiting. Part of the harm caused by a building defect may actually be recoverable, not falling within the definition of pure economic loss, as where lack of watertightness in one unit in a development causes damage to another unit or to personal property (‘chattels’) within the building (Type 2 harm). In such cases, the common law in England has traditionally been generous in recognising a duty of care, as long as reasonable foreseeability is satisfied, just as it has in relation to the risk of, or occurrence of, physical injury or death (Type 1 harm).407 However, to allow recovery for some negative effects of a defect, but not others: even judges find that hard to justify.408 There is also an issue of economic efficiency about the liability of BCBs and similar inspectors and verifiers. It is expressed here by Tipping J specifically about commercial premises (that being the issue before the Court) in the New Zealand Supreme Court in Spencer on Byron, but applies to any building: If the owner of commercial premises cannot obtain redress when the council fails to do its job properly, then such owner, in order to obtain the necessary protection, will have to engage a suitable professional to do exactly what the council is charged with doing under the Act. The owner will then be paying two sets of fees, one to the council, with no prospect of redress if the 401 Anns v Merton: n 152. 402 The HCA in Sutherland Shire Council v Heyman (n 276) provided the alternative test. 403 Brookfield Multiplex: n 277 and its main text. 404 Bell and Jocic (n 294) 21. 405 A version of this audit situation led to Caparo v Dickman (n 70), where the Law Lords used duty of care language to limit the statutory auditor’s potential liability for negligence causing loss. 406 Attorney General v Strathboss Kiwifruit Ltd: n 111. 407 See section [5.7.3]. 408 See the main text to n 141.

326  Beyond Contract: Other Rights of Legal Action council is negligent, and the other to the professional who will be liable for negligence, absent any limitation or exemption. The position could well be worse for a subsequent purchaser because by that time the relevant defects may have been covered up and therefore be more difficult and more expensive to detect. To create this situation by denying the asserted duty of care would be economically inefficient and would undermine the generally valid proposition that if you pay a fee for work you should, at least prima facie, be entitled to redress if the person performing the work fails to take reasonable care when doing so. While the work done by councils in respect of the construction of buildings looks to interests wider than those of the owner, it is not unreasonable for owners of any kind of building to be able to rely on the council not to be negligent. They should not have to pay twice to get appropriate protection.409

It also seems wrong, or at least inappropriate, to treat the activities of BCBs as raising the same policy issues about liability as construction parties, which act primarily within a self-interested profit-oriented contractual framework. As the New Zealand Law Commission said about BCBs’ role, after local authorities had already picked up much of the liability for ‘leaky buildings’: Local authorities have different characteristics to other potential building sector defendants. They are not participants in a market, which they have entered voluntarily and with a view to profit. Rather, they are second level regulators and supervisors under [statute] and any regulations made under it … They can be regarded as gatekeepers, in that so long as they perform their supervisory role satisfactorily they will reduce the risk of unsatisfactory building work and therefore of litigation and other costs to other market participants, including consumers. They are not volunteers, unlike for example auditors and professional adviser gatekeepers, who choose to provide audit, supervisory or other professional services in the expectation of making a profit. Building consent authorities can and do charge fees for work done. However, any fee must be reasonable and based on the activities undertaken. While an auditor can include in his or her audit fee the cost of maintaining professional indemnity cover, the building consent authority cannot add a loading to its consent fees to allow for the risk of later being held liable in tort.410

To get from a statutory framework to a common law duty of care (rather, to deny the existence of one) for BCBs, as the House of Lords did in Murphy, then to apply the same negative result to ‘builders’, is to prize an unjustified and unexamined goal of ­consistency. In other words, the tort liability of public authorities should perhaps obey different principles and pursue different goals than this liability does in relation to private economic actors.411 Furthermore, despite the points in the quotation above on the position of BCBs, the New Zealand Law Commission report still came down in favour of their continued liability, though proposing to cap it financially.412 New Zealand law, backed by the Privy Council, showed in Hamlin what looked initially like a special tenderness to homeowners, derived from their reasonable reliance on the specialist competence of BCBs.413 The common law in New Zealand now

409 Spencer on Byron (n 333) [32]–[33]. 410 Law Commission (NZ), Liability of Multiple Defendants (n 345) 7.34 (footnotes omitted). 411 See n 111, also Tom Cornford, ‘The Negligence Liability of Public Authorities for Omissions’ (2019) 78 Cambridge Law Journal 545. On getting from a statutory scheme to a duty of care in NZ law, see n 325. 412 Law Commission (NZ), Liability of Multiple Defendants: n 345 and its main text. 413 On Hamlin, see Case Study 1 at section [1.12].

Evaluation  327 a­ nalyses construction defects – in any building – which demonstrate non-compliance with the relevant statutory scheme as imposing liability on both ‘builder’ and BCB if they have been negligent, for the cost of the work (expenditure) to make the building compliant or for the resulting loss in capital value. The Court of Appeal’s judgments in favour of Mrs Dutton in West Sussex, as well as Lord Wilberforce’s two-stage test of proximity plus reasonableness from Anns, together retain significant traction in the Land of the Long White Cloud, but only there.414

5.17.3  Rights under Statute Homeowners in the UK and Ireland have modest and far from universal rights of action in contract for construction defects, compared to the statutorily enhanced situation in Australasia. In Australia, this counterbalances the narrow scope of duties of care in tort in relation to construction defects, but New South Wales now has the 2020 Act, adding a powerful new threat of liability. UK homeowners also have minimal and uncertain rights in tort, compared with New Zealand (the Irish situation is not as clear, but has positive aspects), even for defects which make the home (or the development of which it forms part) non-compliant with ‘the building code’ and which were latent (not reasonably detectable) at the time the present claimant acquired the home. This ‘remedies gap’ is only partly filled (for dwellings alone, and not in Scotland or Ireland) by the Defective Premises Act 1972.415 We have the Law Commission (E&W) to thank for this modest reform, also for enabling the straightforward giving of contract rights to third parties. If this second possibility were used more widely – or was mandatory in cases of off-plan sales of new homes (benefitting a later acquirer of the home – B2 on purchasing from B1) – the limited scope of the duty of care in tort at common law would lead to far fewer unhappy homeowners.416 This would guarantee that the contractual liability of a developer could be activated for the whole limitation period, even where the home changed hands within that period (as under the statutory regimes in Australasia). The clearly second-best alternative (in the UK and Ireland at present) for a successor homeowner is that B2 (following the home’s first buyer B1) may be able to look to an insurer under a third-party warranty – as chapter 7 explains.

414 See, eg, Cooke P in South Pacific Manufacturing Co Ltd v New Zealand Security Consultants and Investigations Ltd [1992] 2 NZLR 282 (NZCA), repetitively relied on in later ‘duty of care’ NZ cases. For Dutton, see the main text to n 150; for Anns, the main text to n 152. 415 See also section [5.13.4]: the statutory duty of care imposed in NSW by its Design and Building Practitioners Act 2020. 416 For the Contracts (Rights of Third Parties) Act 1999 (E&W, NI), see section [5.3.3].

6 Consumer Protection: Other Forms 6.1 Introduction We looked in chapter 4 at the detail of those statutory regimes which regulate residential construction contracts in Australasia. Where no such special regime applies, we also considered the general principles of the law of contract (including pre-contractual misrepresentations and controls on the fairness of terms within B2C contracts). This included explaining the remedies available – by way of individual rights enforceable by a party to such a contract, in court or at a tribunal – where a ‘builder’ is in breach of contract, and situations where a homeowner might owe damages to a builder. Chapter 5 extended that survey to consider construction defects in two further situations: 1 2

Where a claimant is not one of the original parties to a construction contract, yet may still have an ability to sue in case of breach; and Where the would-be claimant has no-one against whom they can take legal action in contract (or where the possible defendants are not worth suing), but where they may be able to sue others in the tort of negligence or by relying on a statute, and what remedies are then available.

This chapter rounds off that discussion by looking at situations where consumers of residential construction are protected against ‘traders’ in a variety of additional ways. In positive law, this means mostly by statute or its equivalent: European measures, transposed into domestic law in the UK and Ireland, at section [6.2];1 then the fair trading and consumer protection regimes in Australia and New Zealand at sections [6.3]–[6.4]. These concern consumers engaging in all kinds of B2C transactions, including those individuals buying newly or recently built homes or having construction work done on their own account. This means most of the scenarios in Tables 1.1–1.3. The chapter goes on to consider two construction-specific forms of consumer protection. Section [6.5] introduces the UK’s Consumer Codes, a private sector initiative, which seeks to ‘raise the bar’ in relations between new home buyers (and homeowners) and developers.2 Similar in status are ‘trusted trader’ schemes, discussed in section [6.6]. These mostly web-based services aim to counterbalance consumers’ lack of access to accurate and reliable information about ‘builders’, offering some level of 1 For protection of consumers against unfair terms in B2C contracts, see section [4.10] and the later sections of ch 4 for each of our subject jurisdictions. 2 There is one sense in which the law recognises, and gives effect to, industry codes of practice: failure to abide by a code acknowledged by the trader as binding may be a ‘misleading action’ under the 2011 Directive: see the main text to n 18.

EU Consumer Protection  329 pre-selection based on competence and reliability – in theory protecting the consumer, but also benefitting the trader by offering access to new clients. The chapter ends with the usual table-form summary and evaluation.

6.2  EU Consumer Protection 6.2.1  The 2011 Consumer Rights Directive This European measure is in force in both UK and Irish law via national implementing regulations.3 For our purposes, its main impact is to require a trader to give prescribed information in writing to the consumer before entering into a contract; the contract itself also must be in writing and the consumer given a copy.4 The need for compliance with these requirements is itself a term of the contract, giving the consumer the usual remedies for breach, plus in some circumstances a ‘cooling-off ’ period (normally 14 days), which brings, in most circumstances, a right to cancel.5 The Directive has different sub-regimes for various categories of contract. In our field, it is likely to be relevant primarily for services contracts made ‘off-premises’, defined as including those ‘concluded in the simultaneous physical presence of the trader and the consumer, in a place which is not the business premises of the trader’.6 However, the protections for such a contract do not apply where, among other exceptions, it is for ‘the construction of new buildings, or the construction of substantially new buildings by the conversion of existing buildings’.7 So only contracts for modest works of improvement or renovation, if concluded ‘off-premises’, will regularly fit within the Directive, as may contracts under which a consumer is given professional advice, design and project management services.8 3 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council [2011] OJ L304/64 (2011 Directive). It was implemented in the UK by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134) (UK 2013 Regulations); and in Ireland by the European Union (Consumer Information, Cancellation and Other Rights) Regulations 2013 (SI 484/2013) (Ire), as amended by the European Union (Consumer Information, Cancellation and Other Rights) (Amendment) Regulations 2014 (SI 250/2014) (Ire). 4 For the information requirements and the ‘cooling-off ’ period, see the UK 2013 Regulations regs 10–12 and sch 2. For the drastic effect (under the preceding 2008 Regulations (n 12)) of failing to provide a consumer with written information about the right to cancel an ‘off-premises’ contract, see Allproperty Claims Ltd v Tang [2015] EWHC 2198 (QB). 5 UK 2013 Regulations (n 3) reg 18 (contractual status of Regulations) and pt 3 (right to cancel). 6 2011 Directive (n 3) art 2(8); UK 2013 Regulations (n 3) reg 5 (definitions); and Irish Regulations (n 3) reg 2 (definitions). 7 The UK 2013 Regulations (n 3) apply to contracts entered into on or after the date fixed by the 2011 Directive, 13 June 2014; they largely ‘copy out’ the Directive’s text, so also do not apply to a contract to the extent that it is for the creation of immovable property, rights in immovable property or rental of accommodation for residential purposes: reg 6(1). For the equivalent in the Irish Regulations (n 3), see reg 3(2). In KBC Bank of Ireland v Brennan [2020] IEHC 247, the Irish High Court found that the Directive’s exclusion of contracts for the transfer of immovable property prevented the defendant from raising a successful defence against foreclosure proceedings over his home, where the mortgage agreement had been signed at a mortgage broker’s office, following a meeting at a coffee shop, rather than at the lender’s offices. 8 Low value off-premises repair and maintenance contracts have only limited information requirements: UK 2013 Regulations (n 3) reg 11(1). Only those contracts for services under which ‘the trader supplies or

330  Consumer Protection: Other Forms A good example of a contract within the Directive could be Scenario 3 (Table 1.2), where recent home buyer B1 asks plumber P to replace a shower unit. If P comes around to see what B1 has in mind and they agree what is to be done and a price, over a mug of tea at the kitchen table, this is an ‘off-premises’ contract, so subject to the Directive’s formalities, both pre-contractual and contractual. It is a criminal offence not to tell the consumer about the ‘cooling-off ’ period and other rights (including ADR for dispute resolution, if available).9 To follow the ‘maximum disclosure’ model from New Zealand in such circumstances would more than meet the Directive’s requirements, save for the specifics of the ‘cooling-off ’ period.10 If the requirements of the Directive are properly observed, the result should avoid some of the factual disputes about contract terms that feature so often in B2C construction cases; but it remains unclear how many consumers know about these rights, or providers of services about their duties. After all, if neither party is aware of the rules, there is little chance the trader will comply with them or suffer any negative effects from failing to do so. There is almost no reported case law in England & Wales about any aspects of the Directive or its implementing Regulations, but some at a European level.11

6.2.2  The 2005 Unfair Commercial Practices Directive This Directive aims to strengthen consumer protection by introducing a general prohibition on traders treating consumers unfairly; it harmonises unfair trading laws protecting consumers in all EU Member States.12 The 2005 Directive is a ‘maximum undertakes to supply a service to the consumer and the consumer pays or undertakes to pay the price thereof ’ are within the original text of the 2011 Directive (art 2(6)), thus excluding ‘online marketplaces’ where all the consumer contributes is their personal data: but now see section [6.6.4]. 9 UK 2013 Regulations (n 3) reg 19. On ADR, see also section [9.2.3]. 10 For the pre-contract NZ shopping list, see section [4.14.5]; for the items in the contract itself, see section [4.5.2]. 11 An apparently isolated English example – in fact about construction adjudication – is Christopher Linnett Ltd v Harding [2017] EWHC 1781 (TCC), [2018] Bus LR 179; see also Allproperty v Tang: n 4. Cases before the ECJ – all requests for preliminary rulings from national courts or tribunals under art 267 of the Consolidated Version of the Treaty on the Functioning of the European Union [2016] OJ C202/164 (TFEU) – have considered the distinction between a contract formed on ‘business premises’ and an ‘off-premises’ contract: Case C-485/17 Verbraucherzentrale Berlin eV v Unimatic Vertriebs GmbH EU:C:2018:642, [2018] WLR(D) 525, [2018] Bus LR 1777; who is a ‘trader’, for the purposes of both this and the 2005 Directive: Case C-105/17 Komisia za zashtita na potrebitelite v Kamenova EU:C:2018:808, [2018] Bus LR 2325; the use of a premium telephone line for the consumer to contact the trader: Case C-568/15 Zentrale zur Bekämpfung unlauteren Wettbewerbs Frankfurt am Main eV v Comtech GmbH EU:C:2017:154, [2017] Bus LR 1232; and the obligation to tell a distance or ‘off-premises’ consumer about the possibility of ADR: Case C-380/19 Bundesverband der Verbraucherzentralen und Verbraucherverbände – Verbraucherzentrale Bundesverband eV v Deutsche Apotheker und Ärztebank eG EU:C:2020:498, [2020] WLR(D) 370. 12 Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/ EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council [2005] OJ L149/22(2005 ­Directive). This was implemented in the UK – late – by the Consumer Protection from Unfair Trading R ­ egulations 2008 (SI 2008/1277) (UK 2008 Regulations), as amended by the Consumer Protection (Amendment) Regulations 2014 (SI 2014/870); in Ireland by the Consumer Protection Act 2007 (Ire), as amended (Irish 2007 Act). See now Directive (EU) 2019/2161 of the European Parliament and of the Council of 27 November 2019 amending Council Directive 93/13/EEC and Directives 98/6/EC, 2005/29/EC and 2011/83/EU of the European Parliament and of the Council as regards the better enforcement and modernisation of Union consumer

EU Consumer Protection  331 harmonisation’ measure, so (with some exceptions) does not permit Member States to maintain in force more demanding national provisions falling within its scope: substantive provisions directed against unfair commercial practices harming consumers’ economic interests.13 As a result, in the UK a number of earlier statutory provisions were repealed on its arrival. It was modified and extended in 2019 as part of the EU’s New Deal for Consumers.14 The Directive’s rules apply principally to pre-sales marketing, advertising and selling but also certain after-sales behaviours, like failing to comply with a pre-sale commitment (eg, to provide after-sales support) or putting onerous or disproportionate non-contractual barriers in the way of consumers wishing to exercise their rights under the contract. The Directive does not apply to the quality of the goods sold, or standard of service supplied: these continue to be regulated by existing legislation on the sale and supply of goods and services.15 The top-level definition of the Directive’s target of unfairness looks to B2C behaviour by a trader which is ‘contrary to the requirements of professional diligence’ (expressly bringing in a ‘good faith’ idea) and which is likely to distort (or actually distorts) the economic behaviour of ‘the average consumer’ affected.16 Its Annex 1 contains a long list of practices that are, in law, always unfair.17 The Annex also contains specific applications of this idea of unfairness: Table 6.1  Unfairness under the 2005 Directive KEY IDEA MISLEADING ACTIONS

MEANING These include the trader giving the consumer false information in relation to key features of a ‘product’ (as defined), likely to deceive an average consumer and to cause them to take a transactional decision they would not otherwise have made. More broadly, any marketing practice for a product likely to cause the consumer to take a similar transactional decision is misleading if it creates confusion with a competitor or is in breach of a code of conduct acknowledged by the trader as binding.18 (continued)

protection rules [2019]OJ L328/7 (2019 Directive). It requires national transposition by 28 November 2021 and enters into force on 28 May 2022. 13 From the EU perspective, the main justification for harmonisation is to encourage cross-frontier economic activity by consumers, taken to know that common standards are enforced throughout the EU. Art 3 of the 2019 ‘New Deal for Consumers’ Directive (n 12) makes clear that the Member States may take measures to prevent inappropriate marketing by traders in unsolicited visits to homes. 14 On the Review of EU Consumer Law: New Deal for Consumers, see www.ec.europa.eu. The 2019 Directive (n 12) also looks to Member States to provide systems of ‘collective redress’ against violations of consumer rights. It will, in due course, become law in Ireland. 15 On these obligations in our field, see section [4.9] and the later sections on our other subject jurisdictions. 16 2005 Directive (n 12) art 5; UK 2008 Regulations (n 12) reg 3; Irish 2007 Act (n 12) s 41. See section [4.7] for implied terms of good faith at common law. 17 2005 Directive (n 12) Annex 1; UK 2008 Regulations (n 12) sch 1; Irish 2007 Act (n 12) s 55. 18 ‘Misleading actions’: 2005 Directive (n 12) art 6; UK 2008 Regulations (n 12) reg 5; Irish 2007 Act (n 12) ss 42–44. ‘Product’ is widely defined by art 2(c) of the 2005 Directive to include a service, including immovable property, rights and obligations. ‘Average consumer’ is also defined in art 5; and ‘transactional decision’ is widely defined in art 2(k) as including the terms on which a contract is entered into and whether or not to

332  Consumer Protection: Other Forms Table 6.1  (Continued) KEY IDEA

MEANING

MISLEADING OMISSIONS

Material information the average consumer needs to make an informed decision on a transaction is missing (or misleading or incomplete), once again leading to a transactional decision the consumer would not otherwise have made.19

AGGRESSIVE COMMERCIAL PRACTICES

Harassment, coercion, physical force or undue influence which impairs or is likely to impair the average consumer’s freedom of choice or conduct, so that (yet again) they may take a transactional decision they would not otherwise have taken.20

How might any of these ideas come into play in a residential construction situation? In the new-build context – Scenario 2 (Table 1.1) – pressure from developer X or their sales agents on potential buyer B1 to reserve or commit to buying could involve practices in the ‘always unfair’ list in the Directive’s Annex 1: • Suggesting (wrongly) that the market was just about to surge, and prices were bound to rise.21 • Suggesting that the home will be available on particular terms for a limited time only.22 • Presenting legal rights in fact available to any buyer as a feature of the offer.23 All these would probably also be a breach of any applicable UK Consumer Code, which (as a binding code of conduct) can itself lead to a finding that the trader’s actions were misleading.24 If a more modest project of residential construction is planned – like Scenario 3 (Table 1.2), where P is to replace a shower unit for B1 – the tradesperson could fall foul of the Directive in several ways. P may act so forcefully as to make a vulnerable client in their own home feel under pressure to agree immediately, rather than get alternative quotes or think further before committing (potentially an aggressive commercial practice); or P could play the sympathy card and suggest that their livelihood may be at stake if B1 does not give them the job.25 Unfair commercial practices under the Directive are subject to prosecution and enforcement by independent public bodies (with a ‘due diligence’ defence): in the UK exercise a contractual right. In the UK 2008 Regulations (n 12), all definitions are in reg 2; in the Irish 2007 Act (n 12) in s 2. 19 ‘Misleading omissions’: 2005 Directive (n 12) art 7; UK 2008 Regulations (n 12) reg 6; Irish 2007 Act (n 12) ss 45–46. 20 ‘Aggressive commercial practices’: 2005 Directive (n 12) arts 8–9; UK 2008 Regs (n 12) reg 7; Irish 2007 Act (n 12) ss 52–54. 21 2005 Directive (n 12) Annex 1, item 18: ‘Passing on materially inaccurate information on market conditions’. 22 2005 Directive (n 12) Annex 1, item 7: ‘Falsely stating that a product will only be available for a very limited time, or that it will only be available on particular terms for a very limited time, in order to elicit an immediate decision and deprive consumers of sufficient opportunity or time to make an informed choice’. 23 2005 Directive (n 12) Annex 1, item 10: ‘Presenting rights given to consumers in law as a distinctive feature of the trader’s offer’. 24 On codes of practice, see n 2; on UK Consumer Codes, see section [6.5]. 25 2005 Directive (n 12) Annex 1, item 30: ‘Explicitly informing a consumer that if he does not buy the product or service, the trader’s job or livelihood will be in jeopardy’ (always unfair).

EU Consumer Protection  333 at national level (since 2014), the Competition and Markets Authority (CMA); and local Trading Standards officials – whose numbers have been significantly reduced in recent years.26 Ireland (also since 2014) has the Competition and Consumer Protection Commission, in co-operation with the Central Bank of Ireland.27 The Directive expects the available sanctions to be ‘effective, proportionate and dissuasive’.28 These can involve an injunction taken out against a trader, or an enforcement order agreed with a trader or made against a trader following court proceedings aiming to prohibit a practice unfair under the Directive.29 Whether such an order has been complied with, and its meaning, can itself be an issue in court.30 Such investigative and enforcement powers, supplementing those already available under the 1993 Directive on unfair contract terms, were mobilised in 2020 in England & Wales by the CMA. It announced an investigation against four major housebuilders about how they had sold new homes on a long leasehold basis: the fairness of the selling methods used and of the ground rent terms in each long lease. Special attention was on ‘escalator clauses’ – the rent in some cases was to double every ten or fifteen years.31 In March 2021, the CMA concluded that such clauses may be unfair under the Consumer Rights Act 2015 (UK) and required two developers (Countryside and Taylor Wimpey) to cease using them.32 Investigations continue into other developers’ use of similar terms on first sales of units, as well as ‘ground rent’ companies doing so after buying the freehold of a completed development. The 2005 Directive itself gave consumers no directly enforceable rights of redress but was expressly ‘without prejudice to individual actions brought by those who have been harmed by an unfair commercial practice’.33 Noting that the Consumer Protection Act 2007 (Ire) had conferred a right to damages, the Law Commission (E&W) made two reports on the issue; as a result, the UK Regulations had a new Part 4A inserted in 2014, giving consumers a right to redress, which they can exercise by starting a civil legal action 26 Enforcement takes place under Part 4 of the UK 2008 Regulations (n 12), as amended by the Public Bodies (The Office of Fair Trading Transfer of Consumer Advice Scheme Function and Modification of Enforcement Functions) Order 2013 (SI 2013/783) and the Consumer Rights Act 2015 (Commencement No 3, Transitional Provisions, Savings and Consequential Amendments) Order 2015 (SI 2015/1630); detailed powers are in Part 8 of the Enterprise Act 2002 (UK), as amended, which implements the Injunctions Directive (n 29). Brexit has necessitated the Consumer Protection (Enforcement) (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/203) and 2020 (SI 2020/1347). 27 Competition and Consumer Protection Commission (Ire): www.ccpc.ie. 28 2005 Directive (n 12) Recital (22); see now also the 2019 Directive (n 12) art 3(5), replacing art 13 of the 2005 Directive on penalties. 29 The power of enforcement bodies to request an injunction is a matter of EU law, under Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests [1998] OJ L166/51, as amended. 30 See Viagogo AG v Competition and Markets Authority [2019] EWHC 1706 (Ch), [2020] ECC 5, about the price transparency of tickets sold via Viagogo’s website and the terms of its own guarantee. On similar proceedings against Viagogo in NZ under the Fair Trading Act 1986 (NZ), see ‘Viagogo Confirms Website Changes and Accepts Jurisdiction of NZ Courts’ (NZ Commerce Commission, 5 March 2020): www.comcom. govt.nz. 31 See www.gov.uk/cma-cases/leasehold. For the government’s policies on the future use of leasehold for new homes – detached houses in particular – see the main text to ch 11, n 94. 32 For the CRA and its predecessor, the 1993 EC Directive, see section [4.10]. Both developers confirmed to the CMA that they were no longer including such clauses in leasehold sales and had allowed some earlier buyers to substitute a clause tying ground rent to the Retail Prices Index instead. 33 2005 Directive (n 12) Recital (9).

334  Consumer Protection: Other Forms or including a claim based on the Regulations in an existing action.34 These additional provisions apply principally to B2C contracts where the consumer pays the trader for a ‘product’, and where the trader or someone for whom the trader is responsible undertakes either a misleading action or an aggressive commercial practice, in the senses already mentioned (so omissions are not included).35 ‘Product’ in this specific context excludes almost all dealings involving immovable property – notably, all sales or long leases of homes, mortgages or charges secured on land.36 In such situations, only public enforcement is possible. The 2019 Directive newly requires consumers to have ‘access to proportionate and effective remedies, including compensation for damage suffered and, where relevant, a price reduction or termination of the contract’ under the 2005 Directive.37 In the UK, where the consumer can now seek a remedy on their own initiative under Part 4A, this is expressly in addition to any other legal rights. The consumer may have a right to ‘unwind’ the contract within a defined time limit, to a discount on the price paid or payable and to damages for reasonably foreseeable financial loss (but also expressly for alarm, distress or physical inconvenience or discomfort).38 There appear to be no reported cases where these remedies – or the choice between them – have been discussed judicially, nor even the substantive Regulations; the parent Directive, as well as issues arising in other contexts about ‘the average consumer’, has of course been considered at a European judicial level.39 In the background to the protection of individual consumers is the broader law against anti-competitive activity. This is beyond the scope of this book, but in 2017 the CMA, wearing this other hat, reviewed the position of the NHBC, the dominant provider of third-party warranties in the UK new homes market. Applying Chapter I of the Competition Act 1998 (UK) – ‘agreements etc preventing, restricting or distorting competition’ – it revised the text of undertakings the NHBC had made in 1995 about rules and practices which might put unjustified obstacles in the way of those seeking to enter this market.40 In March 2021 it accepted disqualification undertakings from company directors involved in two illegal cartels in construction; these had fixed prices and shared out the market between different manufacturers supplying rolled lead and pre-cast concrete drainage products. One of the lead suppliers was also suspended for a year from its trade association, for violating its own rules on competition. It is no longer necessary for the UK to maintain any EU Directives in force in domestic law, even in Northern Ireland, after the end of the post-Brexit 34 See Law Commission, A Private Right of Redress for Unfair Commercial Practices? Preliminary Advice to the Department for Business, Enterprise and Regulatory Reform on the Issues Raised (2008); and Consumer Redress for Misleading and Aggressive Practices (Law Com No 332/Scot Law Com No 226, 2012). The Irish provision is the Irish 2007 Act (n 12) s 74. 35 UK 2008 Regulations (n 12) reg 27A–B. 36 UK 2008 Regulations (n 12) reg 27C–D. 37 2019 Directive (n 12) art 3(5), inserting a new art 11a into the 2005 Directive. 38 UK 2008 Regulations (n 12) reg 27E–F, H–J (reg 27G concerns the relatively rare C2B contract). 39 Cases before the ECJ – all requests for preliminary rulings from national courts or tribunals under art 267 TFEU – have considered whether the awarding of a Masters degree comes under the Directive: Case C-393/17 Kirschstein EU:C:2019:563; and the procedures for making distance selling contracts: Case C-628/17 Prezes Urzędu Ochrony Konkurencji i Konsumentów v Orange Polska SA EU:C:2019:480, [2019] Bus LR 1882, [2019] WLR(D) 325. On the characteristics of ‘an average consumer’, see Case C-614/17 Fundación Consejo Regulador de la Denominación de Origen Protegida Queso Manchego v Industrial Quesera Cuquerella SL EU:C:2019:344, [2019] Bus LR 1718, [2019] WLR(D) 255 [44]ff. On the post-Brexit status of this case law, see section [1.11]. 40 See section [7.2].

Australia: General Consumer Law   335 ‘implementation period’ on 31 December 2020; nor did (or does) the UK have to implement the 2019 Directive.41

6.3  Australia: General Consumer Law 6.3.1  The Australian Consumer Law: Introduction Here we outline the application to residential construction projects of the provisions of the Australian Consumer Law (ACL) dealing with misleading and deceptive conduct,42 unconscionable conduct43 and unfair practices.44 Note also that the ACL’s ‘consumer guarantees’ provisions, discussed in chapter 4, may potentially restrict behaviours that would also fit within the UK and Irish schemes discussed in section [6.2] – for example, failing to have reasonably sufficient repair and spare parts available for supplied goods.45 The ACL incorporates an extensive regime of remedies – potentially extending significantly beyond those available at common law – for persons who suffer loss as a result of contraventions of its various provisions. These civil measures sit alongside the powers of the Australian Competition and Consumer Commission (ACCC), as a regulator, to investigate prohibited behaviours and impose sanctions. The following remedial measures are available concerning the misleading and deceptive conduct, unconscionable conduct and unfair practices provisions discussed in this section: • • • • •

Injunctions.46 Actions for damages to recover loss.47 Orders declaring contracts (or terms) void.48 Orders varying contracts.49 Orders refunding money.50

• Orders to repair goods51 or supply services.52 • Non-punitive orders, including requirements to establish training or compliance programmes53 or publish advertisements.54 41 For the impact of Brexit on EU law in the UK, see section [1.11]. 42 ACL pt 2-1 and ss 29, 33–34. See section [6.3.2]. 43 ACL pt 2-2. See section [6.3.3]. 44 ACL pt 3-1. See section [6.3.4]. 45 ACL s 59: see, generally, section [4.13.2]. 46 ACL s 232 (s 234 deals with interim injunctions). 47 ACL s 236(1): such actions must be commenced within six years after the relevant cause of action accrues: s 236(2). 48 ACL s 243(a). 49 ACL s 243(b)(i). 50 ACL s 243(d). 51 ACL s 243(f). 52 ACL s 243(g). 53 ACL s 246(2)(b). 54 ACL s 243(2)(d).

336  Consumer Protection: Other Forms In addition, on the application of the ACCC, courts may make an ‘Adverse Publicity Order’ against a person who has contravened the unconscionable conduct prohibitions: this may include a requirement to publish an advertisement as specified.55 The extensive coverage of these provisions, backed by a well-resourced, proactive, consumer-focused national regulator in the ACCC, may explain why the types of industry-initiated Consumer Codes and ‘trusted trader’ schemes, discussed in the UK and Irish context later in this chapter, are little known in Australia.56 The substantially greater registration and competence requirements in place across the country, compared to those in the UK, also reduce the size of the ‘gap’ in protection which such schemes might seek to fill.57

6.3.2  Misleading and Deceptive Conduct ACL section 18(1) provides that ‘a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.’(emphasis added) This is the successor to the Trade Practices Act 1974 (Cth) section 52.58 Each element in bold above is vital: the key issue is whether the conduct is ‘misleading or deceptive or likely to mislead or deceive’.59 The guiding principles for application of that element include that it is ‘a question of fact to be determined objectively and upon the basis of the impugned conduct being viewed as a whole and in its full context’ and that ‘a degree of “robustness” is required in assessing whether advertising is misleading or deceptive: the legislation does not operate for the benefit of those who fail to take care of their own interests’.60 ACL section 4 creates a presumption that, if a person makes a representation with respect to any future matter and does not have reasonable grounds for making it, that representation will be taken to be misleading for the purposes of the ACL (including its unconscionable conduct provisions), unless the person brings evidence to the contrary.61 55 ACL s 247. 56 There are some commercially sourced information sharing websites in Australia based on builders’ reputations, eg, www.hipages.com.au. On Consumer Codes, see section [6.5]; on ‘trusted trader’ schemes, see section [6.6]. 57 For construction practitioner registration, see section [3.7.4] (Australia). 58 The pervasive nature of the prohibition within Australian commercial norms is reflected in its being said to have ‘very wide reach’: Andrew Robertson and Jeannie Paterson, Principles of Contract Law, 6th edn (Sydney, Thomson Reuters, 2020) 697. A sense of the extensive range of activities on which s 18 potentially impacts – from ‘bait advertising’ to door-to-door sales – can be gleaned from examples in the ACCC’s ‘Buying and Selling Guide’: www.accc.gov.au. 59 Individual jurisdictions also use the ‘misleading or deceptive’ phrase in making failure to disclose ‘material facts’ a criminal offence in a specific context, as does the Sale of Land Act 1962 (as extended in 2019) s 12(d) in Victoria, with new guidance on ‘material facts’ from Consumer Affairs Victoria under s 12A: www. consumer.vic.gov.au/saleofland: see also sections [4.3]–[4.4]. 60 Specsavers Pty Ltd v Luxottica Retail Australia Pty Ltd [2013] FCA 648 [49] (Griffith J). In Janbar Pty Ltd v Arborcrest Pty Ltd [2020] FCA 1519, for example, the claimant homeowners were unable to establish that there had been a representation, for the purposes of ACL s 18, that doors (later turning out to let significant amounts of rainwater into the house) would be ‘perfect’. At [487] White J gave an indication (without needing to make a finding on the matter) that the outcome might have been different, had the claimants put forward a ‘less absolute representation’, such as that the ‘doors would be mostly waterproof ’ (emphasis in original). 61 ACL s 22A.

Australia: General Consumer Law   337 Kavanagh v Blissett from NSW shows how potent these provisions can be in the residential construction context, by contrast with common law ideas such as misrepresentation.62 The NSW Court of Appeal found the builder to have made misleading and deceptive pre-contractual representations and that those representations had induced the owners to enter a contract which resulted in defective work costing nearly A$190,000 to rectify.63 The relevant representations included a document the builder handed to the owner, which said: We will always individually assess the relevant site conditions including solar access, land usage and market demands whether or not we are building a home for you and your family or designing, building and managing your residential investment property.64

Meagher JA found the effect of these words to be that the builder was representing that it was ‘a first-rate reliable building company, and if you contract with it you will be very content with its services’.65 However, as Ipp AJA noted, ‘there was evidence that [the builder] did not have an established and qualified management and work force, as represented’.66 The owners were awarded as damages the rectification costs claimed, plus A$10,640 for additional rent incurred due to delay to the work.67 The 2020 case of Tincknell v Duthy Homes emphasises the point above that the elements of ACL section 18 need to be applied in the circumstances of the particular case.68 The owners’ misleading and deceptive conduct claim was founded on a representation (in a recital to the building contract) that the builder had ‘the necessary skill and expertise to carry out the works on the site’. Parker J (with whom Peek and Doyle JJ agreed) found, based on Kavanagh, that the trial judge had erred in finding that a misleading and deceptive conduct claim, in the context of defective work and delay for residential building work, was not recognised in law.69 The judge also found that, although the test for whether a representation is misleading and deceptive is generally objective, Mr Tincknell’s ‘opinion that the Builder had competently performed other work [was] relevant to the assessment of the accuracy of the representation’ because of Mr Tincknell’s special knowledge, as a builder himself.70 However, Parker J was not prepared to accept that the problems with the builder’s work were such as to show incompetence at a level to support a finding that the representation as to skill and expertise was misleading and deceptive at the time it was made.71 62 Kavanagh v Blissett [2001] NSWCA 79. On misrepresentation, see also section [4.3]. 63 Kavanagh (n 62) [10] (Meagher JA), [25] (Brownie AJA), [38] (Ipp AJA); the latter two judges found that the representations were as to future matters, raising the shift in onus of proof (main text to n 61). 64 Kavanagh (n 62) [8] (Meagher JA). 65 Kavanagh (n 62) [10] (Meagher JA). 66 Kavanagh (n 62) [36] (Meagher JA). 67 Kavanagh (n 62) [26] (Brownie AJA), [41] (Ipp AJA). Compensation for loss and damage ‘because of ’ a contravention of s 18 is awarded under ACL s 236. A case illustrating the potency of this provision, acting in concert with s 18, is The Owners – Strata Plan No 87265 v Saaib; The Owners – Strata Plan No 87265 v Alexandrova [2021] NSWSC 150. Henry J found that an insurance broker, engaging in misleading and deceptive conduct by falsely representing that she had her client builder’s authority in relation to the project, was liable to pay some A$3.4m for defective work costs which the owners’ corporation was unable (because of her conduct) to recover from the builder or via insurance. 68 Tincknell v Duthy Homes Pty Ltd [2020] SASCFC 24: see also section [4.13.5]. 69 Tincknell (n 68) [403]. 70 Tincknell (n 68) [406]. 71 Tincknell (n 68) [407].

338  Consumer Protection: Other Forms

6.3.3  Unconscionable Conduct ACL section 21(1) prohibits engagement in ‘conduct that is, in all the circumstances, unconscionable’ in connection with the supply and acquisition of goods and services in trade or commerce. The provision is complex, including exceptions to its operation (unlikely to be relevant in our field) which leave open the possibility of recourse to section 20’s ‘safety net’ prohibition of unconscionable conduct in trade or commerce ‘within the meaning of the unwritten law from time to time’.72 It also includes 12 factors which courts may take into account in relation to whether the relevant conduct is unconscionable, including the parties’ relative bargaining strengths;73 whether undue pressure was exerted or unfair tactics used;74 the parties’ contractual dealings, including conduct after the contract was entered into;75 and the extent to which the parties acted in good faith.76 Despite this complexity, some high-level observations may be made. First, the section is intended not to be limited by the unwritten law relating to unconscionable conduct.77 Second, ‘unconscionable’ is not equivalent to ‘unfair’ or ‘unjust’;78 rather, the concept requires behaviour displaying ‘a high level or moral obloquy’ or involving ‘highly unethical’ circumstances.79 Finally, if the court regards the listed factors as relevant, that must be by way of fulfilling the need to consider ‘all the circumstances’ holistically, rather than ‘picking and choosing’ matters.80 There are few cases in Australia where the ACL unconscionable dealing provisions have applied to residential construction. They match the approach in cases in other spheres, emphasising that the threshold is high for such behaviour to amount to actionable unconscionability.81 Nonetheless, the provisions are ‘on the books’, both as a potential means to recovery by owners who have suffered loss due to particularly objectionable behaviours by building professionals and – perhaps more importantly, given the strong public policy foundations of the ACL – to dissuade parties to construction projects from engaging in those behaviours in the first place. As Marks M observed in VCAT: ‘The context here is consumer protection directed at the requirements of honest

72 ACL s 20 is called a ‘safety net’ here because it does not apply to conduct caught by s 21 (s 20(2)). 73 ACL s 22(1)(a) (supply), s 22(2)(a) (acquisition). 74 ACL s 22(1)(d) (supply), s 22(2)(d) (acquisition). 75 ACL s 22(1)(j) (supply), s 22(2)(j) (acquisition). 76 ACL s 22(1)(l) (supply), s 22(2)(l) (acquisition). 77 ACL s 21(4)(a). 78 Australian Competition and Consumer Commission v Woolworths Ltd [2016] FCA 1472 [130] (Yates J). 79 Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261, (2005) 63 NSWLR 557 [141] (Spigelman CJ). 80 ACCC v Woolworths (n 78) [151]. 81 For example, in Broomfield v Ideal Transport & Training Pty Ltd [2017] VCAT 358, the Tribunal rejected a claim from a homeowner, essentially that a pool seller acted unconscionably under the ACL by representing that he would install the pool as well as deliver it; Marks M noted at [171] and [173] that the homeowner did not ‘allege that the Seller was dishonest or abused its position’ and that there was ‘no evidence that [the homeowner] was forced to enter into the contract … or that any pressure was placed on her to enter into the contract … It was a matter of choice for [her].’ For other spheres see, eg, Unique International College Pty Ltd v Australian Competition and Consumer Commission [2018] FCAFC 155, (2018) 266 FCR 631 (online vocational education); Australian Securities and Investments Commission v Kobelt [2019] HCA 18, (2019) 267 CLR 1 (consumer credit); and Adcon Vic Pty Ltd v Icon Co (Vic) Pty Ltd (No 2) [2020] VSC 227 [34] (calling on bank guarantees for an apartment development in Melbourne).

New Zealand: ‘Unfair Trading’  339 and fair conduct free of deception. Notions of justice and fairness are central, as are vulnerability, advantage and honesty’.82

6.3.4  Unfair Practices Part 3-1 of the ACL sets out a raft of restrictions of behaviours ‘in trade and commerce’ along similar lines to those in the 2005 Unfair Commercial Practices EU Directive discussed in section [6.2.2]. Many of these pre-date that Directive, having been included in the ACL’s predecessor legislative scheme: the Trade Practices Act 1974 (Cth) and its state-based corresponding Acts. The broadest of these provisions for our purposes is section 29, prohibiting certain types of false or misleading representations about the supply, or possible supply, of goods or services, or promotion of such supply. The section lists 14 specific instances of prohibited representations, each of which applies to ‘persons’ (so, both to individuals and bodies corporate). These include false or misleading representations in relation to the standard of goods or services, testimonials about the goods or services, approvals or accreditation of the goods or services, or as to the goods’ place of origin.83 A similar, though shorter, list of prohibitions applies in relation to the sale or grant of interests in land under section 30(1), including in relation to the existence or availability of facilities on the land.84 There are also specific prohibitions against: • Engaging in conduct liable to mislead the public about the nature, characteristics, suitability for purpose and quantity of goods and services, and the manufacturing process for goods.85 • Accepting payment where the person intends not to supply the goods or services.86 • Asserting rights to payment for unsolicited goods or services (unless the person has reasonable cause to believe that they have a right to such payment).87 • Using physical force, or undue harassment or coercion, in connection with the supply, possible supply or payment for goods and services (similarly in relation to interests in land).88

6.4  New Zealand: ‘Unfair Trading’ The main (original) provisions of the Fair Trading Act 1986 (NZ) (FTA) were directly inspired by Australia’s 1974 Trade Practices Act (Cth) (now succeeded by the ACL).89 The key rules in the FTA about ‘unfair conduct’ (its Part 1) officially cross-refer to the 82 Broomfield (n 81) [163]. 83 Under ACL s 29(2), a person making representations as to testimonials bears the onus of proof to establish that they are not misleading. 84 For a case study of how similar provisions impact in NZ, see section [6.4]. 85 ACL s 33 (goods) and s 34 (services). 86 ACL s 36. 87 ACL s 40. 88 ACL s 50. 89 On the ACL, see section [6.3].

340  Consumer Protection: Other Forms earlier Australian legislation and adopt its terminology: ‘misleading and deceptive conduct’ in general by a trader (not just in a B2C transaction), or conduct liable to mislead the public in relation to (in our field) goods and services.90 The FTA, extended and modified in 2013, continues with prohibitions on both ‘unsubstantiated representations’ by way of trade in relation to goods, services or land and ‘false or misleading representations’ about goods, services or land.91 ‘Unsubstantiated’ means ‘with no reasonable grounds’ for it (but no contravention takes place if a reasonable person would not expect the statement to be substantiated). As would be expected, FTA’s protections – which include specific rules about what in Europe would be called examples of ‘off-premises’ B2C contracts – cannot be contracted out of in relation to arrangements with consumers.92 Returning briefly to our Case Study 3 on Auckland’s North Shore in section [4.4], was Mr Ridgway acting as a trader? Assuming he was, his conduct was misleading, but did he genuinely believe that the leaks in the unit had been fixed and none were ongoing? Did he have reasonable grounds for his representations – which related to the sale of the unit (land)? Here the FTA lists factors relevant to answering that question, including ‘any research or other steps taken by or on behalf of the person before the person made the representation’ and ‘the nature and source of any information that the person relied on …’.93 The FTA specifically includes as unlawful the making of ‘a false or misleading representation concerning … the characteristics of the land …’.94 If someone engages in any of these prohibited categories of conduct, what legal consequences follow? Each is primarily a criminal offence (and the ‘unsubstantiated representations’ category may be prosecuted only by the NZ Commerce Commission), but some lesser categories are labelled as ‘infringement offences’ for which a fixed fine is payable if an infringement notice is issued. However, just as under the ACL, the court has the power to grant injunctions and can make other orders, including declaring contracts (or terms) void or requiring money to be paid or refunded.95 Like the ACCC, the NZ Commerce Commission may also accept enforceable undertakings from traders (changing their behaviour as a condition of not being prosecuted, perhaps); publicity for such undertakings is an additional sanction.96 It is an offence under the FTA to make ‘a false or misleading representation concerning the existence, exclusion, or effect of any condition, warranty, guarantee, right, or remedy’.97 In our field, this covers a builder promising a home buyer a post-completion third-party defects insurance policy and then not delivering it. In 2016, a Christchurch developer 90 FTA ss 9–11. 91 FTA ss 12A–14. 92 FTA s 5C. Under s 5D, parties may include provisions in their written contracts allowing conduct or representations which otherwise would contravene ss 9, 12A, 13 or 14(1), so long as a list of requirements is satisfied; these include that the parties are ‘in trade’ and that the goods, services or interest in land are also supplied or acquired ‘in trade’. This is a significant point of departure from the Australian Consumer Law, under which it has been a fundamental assumption in the operation of its misleading and deceptive conduct provisions that they may not be avoided by contract (this does not mean that attempts to do so are wholly ineffective – for commentary, see, eg, Robertson and Paterson (n 58) 755–60). On ‘uninvited direct sale agreements’, see the FTA ss 36K–36S. 93 FTA s 12B. 94 FTA s 14(1)(b). 95 FTA ss 41–46; see also section [6.3.1] for the sanctions available under the ACL. 96 FTA s 46A. 97 FTA s 13(i).

Consumer Codes: New Homes in the UK  341 was fined NZ$12,800 and had to pay NZ$16,700 compensation to two complainants who missed out on the promised CBANZ Homefirst 10-year defects warranty – not the first case of its kind. Commissioner Anna Rawlings commented: Representations about building contracts need to be scrupulously accurate, not least because of the importance of the purchase. Whether they are making promises orally or in writing, the building services provider needs to do what they’ve committed to do. We also encourage consumers to follow up where possible to make sure they are getting the service they think they are getting.98

6.5  Consumer Codes: New Homes in the UK 6.5.1 Background These Codes are the housebuilding and insurance industry’s joint response to a threat in the Office of Fair Trading’s 2008 report Homebuilding in the UK: A Market Study. This investigation found practices in the sale of new homes which were not consumerfriendly; nor was the after-sales service as reliably good as it should be: Homebuyers are not able to accurately assess the quality of a new home in advance of purchase and the – perhaps overwhelming – importance of price and location means that homebuilders may not compete as fiercely as they might on some aspects of quality and customer service.99

If those in the field failed themselves to adopt adequate measures by March 2010, the government would be asked to legislate to guarantee better consumer protection in the sector. Each Code is the initiative of one or more third-party warranty providers, who are able in turn to impose ‘their’ Code on any developer or builder wishing to take out a warranty with them. Each is officially approved, though not under statutory authority, under the Consumer Codes Approval Scheme (CCAS); this is run by the Chartered Trading Standards Institute (CTSI), which took on these functions on the demise of the Office of Fair Trading. Approval gives the right to display an ‘Approved Code’ logo, which according to the CCAS means that a consumer ‘can be confident that any approved business they choose has a proven commitment to honest business and higher customer standards’.100 Like the scope of the OFT report, these UK Codes apply only to sales of complete new homes (including by conversion), but both off-plan and already completed. So they do not affect those new home developers who take out third-party warranties with a provider which does not require adherence to a Code; nor those developers (now the exception) who offer no warranty at all. Equally, they do not apply to any other situation in which ‘residential construction’ takes place. 98 ‘Canterbury Builder Fined for Failing to Supply Building Guarantees’ (NZ Commerce Commission, 20 June 2016): www.comcom.govt.nz/news-and-media. CBANZ members decided in 2016 to include their own InBuild 10-year warranty on all residential projects, in advance of any government decision to require at least offering the client a warranty in such projects: but the renamed NZCB now offers the Halo 10-year warranty as an optional extra, bought directly by the consumer. 99 Office of Fair Trading, Homebuilding in the UK: A Market Study (OFT 1020, 2008) 1.11: www.webarchive. nationalarchives.gov.uk. 100 See www.tradingstandards.uk.

342  Consumer Protection: Other Forms

6.5.2  The Two Main Codes The Consumer Code for Home Builders (CCHB) was promoted by the NHBC, for its own ‘registered builders/developers’ offering Buildmark and those warranty providers operating similar systems; it only just missed the OFT deadline, coming into force on 1 April 2010 and gaining formal approval in 2018, three years after Checkmate had already done so with its own Code (Checkmate then joined the CCHB).101 But providers who operate no registration system encourage developers who take out their warranty products to sign up to the (alternative) Consumer Code for New Homes (CCNH) from 2016, which the insurer BLP joined in 2017.102 Belfast-based ICW had already adopted its own Code in 2015: the Consumer Code for Homebuilders (the ICW Code); BuildZone has done the same.103 All aim to encourage ‘best practice’ in marketing and selling to home buyers, as well as after-sales care to homeowners for (only) Years 1–2 after practical completion. So each Code impacts primarily on relations between builder/ developer and home buyer. Table 6.2  UK Consumer Codes: Main Provisions CCHB104

CCNH

Developer must have systems in place to ensure it can meet Code commitments.

yes

yes

Developer must be able to show regular staff training, ensuring that staff are aware of Code.

yes

yes

Developer must take special care with vulnerable customers at every stage.

yes

yes

Intending buyers must have details of person(s) to contact during sale, purchase and completion processes.

yes

yes

Developer must ensure visitors’ health and safety on a site visit.

Visitors’ responsibility also

yes

yes

yes

PRE-SALES STAGE Intending buyers must be given enough information to enable them to make suitably informed purchasing decisions.

(continued)

101 Consumer Code for Home Builders 4th edn (June 2019): www.consumercode.co.uk. On the NHBC and Buildmark, see section [7.2]. 102 Consumer Code for New Homes: www.consumercodefornewhomes.com. 103 The ICW Code: www.i-c-w.co.uk; the Build-Zone code: www.build-zone.com/consumer-code. For warranty providers’ membership of each code, see Table 7.1 in ch 7. 104 Text in italics in this column means that this item derives from the explicitly non-mandatory Good Practice Guidance in the CCHB.

Consumer Codes: New Homes in the UK   343 Table 6.2  (Continued) CCHB

CCNH

Developer’s sales and marketing literature to be in plain simple English and to obey all legal rules; must make membership of the Code clear and not be misleading; must give intending buyer information about warranty cover.

yes

yes

Membership of the Code must be clear on site and in sales offices etc.

yes

yes

Developer must not use high-pressure yes selling techniques (eg, ‘price about to rise’).

yes

Code to be available to all potential and existing buyers.

not explicit

yes

Code to be included in a Reservation Agreement, which must also comply with a list of items in the Code and allow cancellation without cost within seven days.

yes, but no rule on time for ‘free’ cancellation

yes

No reserving or selling same home while reservation agreement in force.

yes

yes

Reservation fee (if paid in cash or bank transfer) to be held in trust by developer: no access until completion.

no – but must explain how reservation fee and deposit protected

Separate client account (reservation fee) or trust account (deposit) if not protected by third-party warranty

Pre-purchase information: list of what yes developer must provide, including an estimate of completion date (regularly updated to a buyer), details of the third-party warranty offered and contact information for the developer pre- and post-sales. Developer should not recommend a solicitor or conveyancer but should advise on ways the buyer can find one.

Can offer incentives and refer home buyer to own panel of solicitors

yes

if asked to recommend, should suggest more than one; and disclose commission, if payable

Contract of sale must be in plain English yes and comply with the CRA 2015, explaining what happens if home not ready at announced completion date.

yes

Buyer must be informed of termination rights.

yes

yes

The contract must record any oral statements relied on by the buyer.

yes

yes (continued)

344  Consumer Protection: Other Forms Table 6.2  (Continued) CCHB



CCNH

Developer to give buyer reliable and yes realistic information about completion and handover dates.105

yes

Buyer who has committed to buy must consent in writing to any changes to design, construction or materials which alter the value of the home; and should be informed of minor changes.

yes

yes

List of documents developer must give to buyer, including the developer’s responsibility for snagging, the scope of the third-party warranty and how to activate the Code.

yes

yes

Developer to give buyer an after-sales service pack, to include contact details for problems (including emergencies), scope and duration of service offered and systems for dealing with complaints (to be acknowledged within 14 days and responded to within 30).

yes, but no maximum yes delays for action

Home visits by the developer after handover: rules on timing, access and behaviour.

no

yes

Can Code be relied on by a second or later buyer of the home, within its scope and duration?

yes

yes

Homeowner must contact developer first yes, but no explicit with a problem, can then contact the Code 30-day rule Sponsor if the developer fails to respond in 30 days; developer must ensure that buyer has details of the Code’s dispute resolution scheme.

yes, but minimum 56 days between homeowner contacting developer and then contacting the Code Sponsor

Dispute resolution, where a homeowner alleges a breach of the Code.

Adjudication (no cost to homeowner); can award up to £15,000

Mediation, or adjudication by CEDR (£100 fee for homeowner): can award up to 25% of purchase price, capped at £50,000

Developer commits to honour adjudicator’s award; Sponsor may sue developer if does not do so.

yes

yes

Sanctions on developer who commits breaches of the Code.

Can exclude from using warranties of all CCHB members

Can exclude from using warranties of all CCNH members

105 For

the contractual position on a completion date, see section [4.7.3].

Consumer Codes: New Homes in the UK   345

6.5.3 Analysis The level of detail and comprehensiveness of these two Codes is impressive, which must in part reflect the accumulated experience of those running the national CCAS: the result could be called ‘facilitated self-regulation’. The work of drafting each and negotiating its approval, and now the administrative effort (and cost) of having a Code Sponsor manage each Code, as well as attempting to ensure its on-the-ground observance, must be substantial. Provided each Code is applied as intended, this should avoid problems with either of the applicable consumer protection Directives, described at section [6.2]; and each Code contains its own machinery for complaints of its breaches, which do not require the consumer to undertake legal action but leave untouched the consumer’s existing rights or remedies, at common law, under statute and their third-party warranty. All Codes certainly meet concerns coming out of the OFT 2008 report, but from the consumer side there is still a substantial groundswell of unhappiness, especially with the process of identifying and remedying defects after purchase. This gained official recognition in the 2016 All Party Parliamentary Group report, which painted a picture of initial build quality lower than it should be; developers’ follow-up not as responsive as it should be; and warranty providers relying (quite properly) on their policy details to refuse claims, especially within Years 1–2 after completion of construction (for those warranties which copy the NHBC Buildmark ‘2+8’ structure).106 In relation to new homes sold on a leasehold basis (these days, almost exclusively flats), some evidence has emerged that developers and their sales staff exaggerate the possibility of the new buyer being able in future to acquire the freehold via leasehold enfranchisement – a false impression which the Codes ought to discourage.107 As Table 6.2 above shows, each Code is about process, so has nothing to say about substance (build quality), except in relation to the developer’s response to defects reported by the buyer. The legal form of each Code is initially a contractual relationship between the developer and Code Sponsor, mediated by the developer’s warranty provider, with the home buyer or homeowner as the ultimate beneficiary. As a result, the Code authorities have no direct contact with the key target person – the homeowner. To establish their experience of the buying process (and the role played in it by the relevant Code) takes an extra step. What do we know of the effectiveness of these Codes in influencing behaviours on construction sites and in sales offices, including where estate agents run the sales process? It is an essential element in the approval process for a consumer code – in any field – that there is a range of monitoring systems in place, including annual reports by each Code Sponsor and regular audits by the CCAS – paid for by the Code Sponsor’s annual subscription.

106 All Party Parliamentary Group (APPG) for Excellence in the Built Environment, More Homes, Fewer Complaints (2016): www.cic.org.uk. On Buildmark, see section [7.2]. 107 Housing, Communities and Local Government Committee, Leasehold Reform (HC 2017–19, 1468) 3–4; see also the main text to n 31. In its 2020 report, Leasehold Home Ownership: Buying Your Freehold or Extending Your Lease (Law Com No 392, 2020), the Law Commission noted at [2.54]: ‘consultees and stakeholders more generally frequently reported that developers assured leaseholders at the point of sale that they would be able to purchase the freeholds to their houses, following which the freeholds were sold to different landlords’. On leasehold enfranchisement in multi-unit developments, see section [11.6.2].

346  Consumer Protection: Other Forms For example, in 2018, the CCHB’s adjudicator dealt with 106 cases, of which 72 were resolved wholly or partly in favour of the homeowner, leading to payments totalling £64,984.63; and in 2019, two developers were ‘named and shamed’, losing their right to take out warranties from any of the CCHB’s participating members for a year. The CCNH similarly reports excluding one developer from its Code in 2019, when the developer failed to implement the award in the buyer’s favour from the CEDR adjudicator and would not engage with attempts to improve its compliance systems for the future. The CCNH administration also informed the other Code bodies and the CTSI of the decision. In 2020, a complainant under the CCNH was awarded the return of the deposit paid, the developer having failed to warn of delays to completion and changes to the specification of the house (heating system and window design).108 It is unhelpful that there are so many Codes dealing with almost identical topics in the UK new homes market. Their names are easy to confuse, and each is organised and presented in a different way. There is so far no external compulsion on a warranty provider to belong to one of the Codes, let alone on every developer offering new-build homes for sale – but developers wanting to take part in the ‘Help to Buy’ schemes from the four UK governments normally have to offer a third-party warranty, which usually brings in one of the Codes. Discussions were under way in 2020, led by the Home Builders Federation, to explore the possibility of a single Code and agree on a minimum level of protection in each third-party warranty. Though each Code was drafted by one or more warranty providers, none deals with relations between the homeowner and warranty provider: confusingly, these are regulated separately by each provider (though cross-referring to ‘their’ Code, where appropriate), who in turn are externally supervised as insurers.109 Tidying up this patchwork picture is part of the impetus behind proposals for a New Homes Ombudsman: here, the threat behind the OFT 2008 report finally materialised as firm government policy in 2020.110 All developers would be required to belong to this ombudsman scheme, eventually by law; it would have powers to investigate complaints from consumers and order rectification and compensation – in effect acting as a no-cost form of interventionist small claims court in the new-build and new-conversion market. The wider consumer protection landscape may also be subject to change if ideas in the Green Paper ‘Modernising Consumer Markets’ from the Department for Business, Energy and Industrial Strategy in 2018 mature into concrete proposals for statutory reform.111

6.5.4  A Consumer Code in Ireland In 2008, the then National Consumer Agency of Ireland published a Code of ­Practice for Developers, developed in association with the Irish Home Builders Association

108 Information kindly supplied by the CCNH. 109 On third-party warranties, see ch 7. 110 ‘Housing Secretary Clamps Down on Shoddy Housebuilders’ (Press Release, 24 February 2020): www. gov.uk/government/news. On the New Homes Ombudsman, see section [9.8]. 111 Department for Business, Energy and Industrial Strategy, Modernising Consumer Markets: Consumer Green Paper (Cm 9595), 2018.

‘Trusted Trader’ Schemes  347 (IHBA – a constituent organisation of the Construction Industry Federation).112 The Code, applicable only to IHBA members, is primarily concerned with ‘best practice’ on management issues at the start of and during the running of multi-unit developments in Ireland, notably on the relationship between the developer and creation of a Management Company and on Managing Agents.113 However, section 5 of the Code provides: Developers will not attempt to deem ‘Complete’ any Development until the following have been certified by a professional: eg an architect/engineer. • The terms of the relevant planning permission have been satisfied. • All relevant building regulations and other relevant statutory requirements eg fire, health and safety as set out by the Department of Environment, Heritage and Local Government, have been complied with, and: • All issues on the snag list pertaining to the common areas/services have been addressed by the developer.

However, the Code does not deal more generally with issues between individual buyers and the developer (including post-handover snagging in an individual unit); but section 8 does provide for key pieces of information to be made available – on request – to would-be purchasers of units. This list includes actual and predicted service charge levels for the first three years, and there is a complaints procedure for alleged breaches of the Code (to the IHBA itself, with no remedy or sanction other than expulsion from the IHBA).114 Unhelpfully, the Code expressly ‘does not form part of any contract between the Member and the Purchaser and no agreement shall be deemed to exist between the parties’. The whole document falls far short of UK Consumer Codes in scope and enforceability and has low visibility, even in Ireland.

6.6  ‘Trusted Trader’ Schemes 6.6.1 Background One way the information asymmetry between consumer and trader can be bridged, or at least alleviated, is by intermediaries whose quasi-regulatory systems aim to take some of the uncertainty out of choosing a builder or other construction tradesperson.115 For short, we call all these ‘trusted trader’ schemes; they fill part of the gap that may be left (as in the UK and Ireland) by the absence of independent mandatory sectoral registration or licensing systems for most providers of such services. However, no scheme specifically offers help making the biggest decision of all: from which developer to buy a new home. Here, location, design and price are usually more important than the identity and reputation of the developer, but most would-be first buyers would welcome 112 Construction Industry Federation and Irish Home Builders Association, Code of Practice for Management Companies in Respect of Multi-Unit Developments (COP 1/08, 2008). In 2014, the NCA was folded into the Competition and Consumer Protection Commission. 113 Some of the Code’s provisions on the creation of Management Companies have now been overtaken by the Multi-Unit Developments Act 2011 (Ire): see further section [11.11]. 114 The similarity here with CIRI cannot be an accident: see section [3.9.1]. 115 See section [1.5].

348  Consumer Protection: Other Forms reliable data on a developer’s performance. No single website supplies that in any of our subject jurisdictions, and the published ‘star rating’ systems that exist for developers all have limitations in what they measure, the size of the sample and hence the reliability of the results.116 However, all-purpose services like Trustpilot (‘the world’s most powerful review platform, free and open to all’) do include reviews of developers and construction professionals, as well as of the legal profession.117 The situation is much better resourced in relation to those who provide construction services – short of selling ready-made new homes. Here schemes are funded mostly by traders themselves via registration, membership or transaction fees paid to the scheme operator – which may be a trade association, professional body or ordinary commercial organisation; none of the schemes described here requires a consumer to pay to use the service. So the business model relies on traders choosing to belong to such a scheme as a badge of their competence and reliability, bringing them work they might not otherwise access. All these schemes are now heavily, if not exclusively web-based, some allowing quotations for projects to be made and individual projects to be managed via the scheme operator’s portal. Creating such a ‘digital marketplace’ brings in – or should bring in – protection for data relating to individuals (‘natural persons’) – in EU Member States, notably via the General Data Protection Regulation (GDPR), in force since 25 May 2018.118 The contract between consumer and scheme operator – assuming it is a contract – is also a ‘distance contract’ within the 2011 Directive, which brings in the same information rules and ‘cooling-off ’ right (but different formal requirements) as apply to ‘off-premises’ contracts.119 The contract between consumer and trader will also be a ‘distance contract’ if entered into ‘without the simultaneous physical presence of the trader and the consumer’.120 However, as in Scenario 3 (Table 1.2), the initial online connection between trader and consumer may well not mature into a contract until the trader meets the consumer on site and sees what the job involves, when the contract will be ‘off-premises’ instead.

6.6.2  TrustMark in the UK Following a 1998 Department of the Environment, Transport and the Regions report on ‘cowboy’ builders, England & Wales introduced a scheme for builders and ­tradespeople 116 In the UK, the HomeOwners Alliance has a helpful webpage ‘How Do I Choose the Best Home Builder?’: www.hoa.org.uk/advice. On published surveys of new home buyers, see section [2.3]. For a developer’s attempt in Australia to stop home buyers from posting their own reviews online, see section [2.6.2]. 117 For developers, see their individual names or the categories ‘Home builder’ and ‘Housing development’ on the Trustpilot UK site. For defamatory criticism of an English law firm on Trustpilot, see Summerfield Browne Ltd v Waymouth [2021] EWHC 85 (QB). 118 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC [2016] OJ L119/1, corrected by [2018] OJ L127/2. In the UK, see also the Data Protection Act 2018, the Privacy and Electronic Communications (EC Directive) Regulations 2003, as amended (SI 2003/2426) and www.ico.org.uk; in Ireland, see www.dataprotection.ie, in Australia www.oaic. gov.au/privacy/the-privacy-act; and in NZ www.privacy.org.nz. 119 The 2011 Directive (n 3) art 8. For ‘off-premises’ contracts, see section [6.2.1]. 120 The 2011 Directive (n 3) art 2(7).

‘Trusted Trader’ Schemes  349 dealing with individual consumers, promoted by government, local authorities, mortgage lenders and Aon Home Assistance.121 This was Quality Mark: it comprised an independent initial test of competence (with later regular checks) and imposed a code of practice on all members. Quality Mark required compliance with the law, recognised standards and codes of practice and use of a ‘recognised contract’ for the job, giving the client precise written information on cost, timing and payment procedures and taking reasonable care to ensure that all others who worked on the job observed the same principles. Under the scheme, a client’s deposit was protected against insolvency, there was a clear procedure for the independent processing of complaints and a six-year warranty on the quality of all work, backed by insurance. But too few firms joined the scheme, which closed at the end of 2004. A plan was then developed – short of requiring membership in order to trade – for The New Quality Schemes for Domestic Repair, Maintenance and Improvement, a revived partnership between government, industry, Trading Standards and the National Consumer Federation. This was formally launched in June 2005 as TrustMark, a company limited by guarantee and licensed by the Department of Trade and Industry (now BEIS) to use the TrustMark logo. This link also allows it and its Registered Businesses to use the catchphrase ‘Government Endorsed Quality’; only these traders may qualify as installers under the government’s Green Homes Grant scheme for England, which had only a modest impact ‘on the ground’.122 TrustMark is a not-for-profit organisation focusing on the Repair, Maintenance and Improvement (RMI) sectors; Retrofit and Energy Efficiency were added in 2017.123 Individual businesses can join only by being already members of an accredited or ISO9001-compliant certification body, competent person scheme, trade association or inspection body.124 One of these top-level bodies then signs up to TrustMark as a Scheme Provider, agreeing to abide by TrustMark’s Framework Operating Requirements.125 So there is a two-stage process by which an individual trader can become a Registered Business with TrustMark, requiring their Scheme Provider to do a pre-entry check and assessment of a recent job, then annual inspection and supervision. At that point, the trader must commit to Trustmark’s Customer Charter and Code of Conduct, making sure that any subcontractors know about and observe the same standards.126 The Charter echoes the provisions of general consumer protection law, as summarised in section [6.2] (no unfair marketing, no ‘cold calling’, pre-contract information to the consumer, including cancellation rights): the Code summarises for the trader the 121 Department of the Environment, Transport and the Regions, Combating Cowboy Builders: A Consultation Paper (London, HMSO, 1998). One of the many ideas floated – but not pursued – was to extend the scope of building control to cover small works of repair and improvement and look to the quality of the work, not just its compliance with ‘the building code’. 122 See House of Commons Environmental Audit Committee, Energy Efficiency of Existing Homes (2021). The Green Homes Grant scheme was ended prematurely in 2021. 123 The expansion of TrustMark’s remit came as a result of Each Home Counts: Review of Consumer Advice, Protection, Standards and Enforcement for Energy Efficiency and Renewable Energy (BEIS and DCLG, 2016): www.gov.uk. 124 On Competent Person schemes as part of the building control regime (E&W), see section [3.6.1]. 125 TrustMark, Framework Operating Requirements V2.1: www.trustmark.org.uk. 126 TrustMark, Customer Charter (2018) and Code of Conduct (2018): www.trustmark.org.uk.

350  Consumer Protection: Other Forms Consumer Rights Act 2015 (including the basics of ‘unfair contract terms’) and the two EU Directives already described. The Charter lays out in admirable detail how the consumer (‘you’ below) can expect the trader to behave. At the contractual level, the trader should: Protect you with clear contracts • Provide you with a clear and detailed, itemised written quotation, and terms and conditions that you understand.127 • Signpost you to independent advice before you sign a contract. • Explain your cancellation rights – where appropriate. • Provide fair pricing and contracts with no hidden costs or penalties.128

As for performance of the contract, the trader must observe the requirements of the Code of Conduct, as well as any applicable code of practice ‘and any technical and professional standards and guidance that apply to your type of work and every trade and service you offer’: this specifically looks to conformity of all products and systems with the relevant requirements of ‘the building code’, as well as with the claims each product makes for itself.129 In its ‘plain English’ clarity and level of detail, TrustMark’s Code evokes the UK Consumer Codes and heads in the direction of the Australasian statutory regimes.130 It also includes sensible, practical tips and checklists for both trader and consumer to make for a smooth job and an appropriate handover and feedback at its end. For any job over £500, the trader must (without passing this cost on to the consumer) put in place insurance protection against their insolvency and a six-year guarantee against defects in materials and workmanship, transferable to a new owner of the home.131 TrustMark offers an optional escrow system via Transpact to protect payments from the consumer, released to the trader only in line with the contract’s terms (but also guaranteed to the trader, as long as the contract has been fulfilled).132 Each Registered Business must have a system for dealing with customer complaints and explain this to the consumer, including that using it does not affect their statutory rights; as under general consumer law, there must be an identifiable and accessible person to receive complaints, which must all, with the responses, be recorded and retained for at least six years.133 Primary responsibility for ensuring proper resolution of disputes (free of charge to the consumer) rests with Scheme Providers under the Framework Operating Requirements, not including the award of compensation. TrustMark is a member of the Dispute Resolution Ombudsman scheme and can offer access to that if earlier processes reach no agreed solution. 127 The Code of Conduct (n 126) itemises what a quotation, contract and invoice should each contain; Trust-Mark provides a contract template that can be customised. The Code also lays down minimum requirements for information on the trader’s website. 128 TrustMark, Customer Charter (n 126) 3. 129 Framework Operating Requirements (n 125) [15]. 130 UK Consumer Codes: section [6.5]; statutory residential building contract regimes: sections [4.13] (Australia) and [4.14] (NZ). 131 Framework Operating Requirements (n 125) [10]: for certain categories of work, the guarantee must last 25 years. 132 See www.transpact.com. 133 See Case C-568/15 Zentrale zur Bekämpfung unlauteren Wettbewerbs Frankfurt am Main eV: n 11.

‘Trusted Trader’ Schemes  351 TrustMark gets reassuringly close, in its aims, principles and operating systems, to what would be ideal in a statutory system of regulation of its field – but missing the element of compulsion, consequently also the penalties (or even prosecution) which a statutory operator could wield to deter and then sanction non-compliance.134 Without those features, its success depends on its impact on the market: how many consumers understand the depth of its commitment to protect them and how many potential Scheme Providers and Registered Businesses see the benefits (both financial and reputational) of membership. Few of the other ‘trusted trader’ schemes have TrustMark’s advantages of independence, bringing freedom to develop elaborate and meticulous systems for guaranteeing competence and quality. At the local level, many UK local authorities’ Trading Standards departments run their own schemes to assess and recommend local traders, including for construction. Like TrustMark, these involve truly independent assessment of competence and financial stability, with membership of the scheme a valuable marketing tool for the trader. However, as with public sector BCBs, Trading Standards departments have suffered staffing reductions in recent years, the burden then falling on Citizens Advice Bureaux (equally hard pressed, and non-statutory).

6.6.3  Other Schemes: UK and Ireland Construction has very large numbers of trade associations, whose primary role is to protect and enhance the interests of their members. As part of this mission, their logos, websites and promotional material often suggest that membership is a byword for financial stability and competence: that the association is in some sense a regulator. Consumers could easily believe – are implicitly encouraged to believe – that the logo on the side of the builder’s van, or at the top of a printed estimate, provides some form of guarantee if anything goes wrong. Some achieve valuable aims, especially via competence testing, training and warranty (insurance) schemes – though the last are usually optional extras, ultimately paid for by the client; some may assert such aims but not deliver, but many do not even aspire that high. Their eagerness to promote their members may run ahead of the reality of what they offer, which often includes a website linking consumers with members for individual home construction projects. In the UK, the Federation of Master Builders (FMB) is the independent and not-forprofit trade association for small and medium construction operators; it claims to be the largest Scheme Provider in TrustMark, also publishing a Domestic Building Contract, referred to elsewhere in this book, and offering a third-party warranty, BuildAssure.135 However, it also offers its own online service linking consumers with builders: ‘The FMB’s strict membership criteria and dispute resolution service gives consumers

134 The Framework Operating Requirements (n 125) give TrustMark power to remove a Scheme Provider which has excessive disputes and fails to comply with corrective measures imposed; Scheme Providers are required to consider suspending or removing a Registered Business from the register if legal action or ADR is initiated against that trader. 135 On the FMB warranty, see Table 7.1.

352  Consumer Protection: Other Forms confidence when looking to use a builder’.136 Its published membership criteria are much less prescriptive than TrustMark’s, but the FMB uses an UKAS-accredited independent organisation to vet applicants for membership and has a Code of Conduct for Members.137 This covers similar ground to TrustMark’s Code, but in much less detail; unsurprisingly, it does not focus uniquely on individual consumers. It expects all members to give a written quotation and use a written contract for every job and notes that the FMB itself is a certified ADR provider, which members and their clients can use in case of a dispute. There are, of course, internal procedures for investigating breaches of the FMB Code, with sanctions including termination of membership, but no regular audits of performance. Comparable to the FMB are the online ‘find-a-professional’ services operated by some of the UK’s chartered membership institutions, like the RIBA for architects and the RICS for surveyors.138 Some of their competitors style themselves like chartered professional membership institutions, with heraldic devices, like The Guild of Master Craftsmen (‘the UK’s most established trade association’ – in fact a entirely web-based limited company). An assessor visits a would-be GMC member to check the quality of their work and their business and will want to see four references from previous customers; a set of Aims and Objectives binds members (containing no detail about B2C contractual arrangements or payment); and the GMC offers a conciliation service between members and consumers.139 A more visible example at the more commercial end of the UK market – not a trade association – is Checkatrade, whose claimed footfall and numbers of registered tradespeople on its website puts it in the lead in our field; it also publishes and distributes free local directories of service providers.140 Like the FMB, it claims ‘strict background checks’ on would-be members, covering a wider range of trades and scale of projects than the FMB’s members. Its checking system includes verifying identity, insurance and the qualifications necessary for the area of work (but not competence as such), contacting previous customers and running a company check. A feature of Checkatrade is that its website publishes customer reviews about its traders and their completed jobs – more like Trustpilot. There is no regular inspection or audit by Checkatrade itself of its members’ work. All members are expected to abide by The Checkatrade Standard; this a very lightweight version of the FMB Code and far less prescriptive than TrustMark’s equivalent. It says nothing about obeying consumer law (eg, supplying written pre-contract information), what the contract should (or should not) contain, or a duty to comply with all external standards for the work; nor does it offer the consumer any protection against the trader’s insolvency or later-appearing defects. Serious customer complaints (perhaps triggered by a negative customer review) are processed by Checkatrade’s own customer services staff, who may recommend that the trader put the job right; if the trader fails to respond, that negative review may then be posted online anyway. The organisation can suspend the membership of a trader who 136 See www.fmb.org.uk. For its close equivalent in New Zealand and a familiar ‘peace of mind’ promise via an online ‘find-a-builder’ service, see www.masterbuilder.org.nz and www.nzcb.nz. Both FMB and the Master Builders Association (NZ) offer a 10-year insurance-backed warranty for their members’ work: see ch 7. 137 Federation of Master Builders, Code of Conduct for Members (January 2019): www.fmb.org.uk. 138 www.architecture.com (RIBA) and www.ricsfirms.com (RICS). 139 www.findacraftsman.com. 140 www.checkatrade.com. The pressure group, the HomeOwners Alliance, recommends Checkatrade via a linked page on its website: www.hoa.org.uk.

‘Trusted Trader’ Schemes  353 falls short of The Checkatrade Standard – but no published figures record how often that happens. Several steps below Checkatrade in the UK is MyBuilder, which appears to have an online presence only; it does not charge a tradesperson for inclusion on its website until the consumer shortlists (though may not necessarily use) that tradesperson – and up to four more – for a specific job.141 MyBuilder is owned by the world’s largest home improvement digital marketplace, ANGI Homeservices Inc (formerly HomeAdvisor), based in the USA and with brands in Canada and several other European countries. The website does not disclose its criteria for accepting a tradesperson into its system. It appears to offer no code of conduct, no monitoring or disciplinary procedures (but like Checkatrade, it publishes customer reviews on its website) and no dispute resolution service – beyond advice to the consumer about the options and best way forward. On the plus side, however, the website offers an add-on insurance policy (at 10% of the quoted job value) which offers access to claims support and advice; but MyBuilder does not check what its traders tell it about their own insurance (public liability and PI cover).142 Ireland is a much smaller market than the UK for projects of home construction, improvement and repair, but several of the all-purpose digital marketplace companies operate there, including fast-growing London-based Bark, which in 2015 bought Dublin’s SkillPages; Bark launched in Australia and New Zealand in 2020.143 Ireland also has the National Guild of Master Cratftsmen, whose published Aims and Objectives are almost identical to those of GMC in the UK, discussed above; the website gives limited detail about the vetting procedure for membership or ongoing obligations on members, but the Guild has a link with BuildServe, offering third-party warranties in Ireland for construction work.144 In the specific construction field, Ireland has since 2014 had the Construction Industry Register Ireland (CIRI), whose ambition is ‘to be recognized as the primary online resource used by consumers in the public and private procurement of construction services’.145 Like the FMB’s online register in the UK, CIRI is an offshoot of a trade association, the Construction Industry Federation (CIF), the principal lobbying body for all branches of the Irish construction industry. However, CIF membership is not necessary for inclusion on the register. To apply costs €600 (there is also an annual renewal fee) and is open to all construction service providers (sole traders or corporate entities), with a demanding list of documents and evidence required; a senior person in the applicant organisation must also take part in a half-day induction programme. Being on the register requires committing to CIRI’s Code of Ethics146 – its breadth and detail this is comparable with TrustMark’s Code of Conduct.147 In addition, there are Registered Members’ Obligations, including complying with health and safety legislation and ‘the building code’ and all linked codes of practice etc, in Ireland, ensuring the competence of employees and subcontractors, maintaining appropriate insurance and undertaking regular CPD.

141 www.mybuilder.com. 142 For

a comparable commercial player in NZ, see www.builderscrack.co.nz.

143 www.bark.com.

144 www.nationalguild.ie 145 www.ciri.ie.

and www.buildserve.ie.

146 www.ciri.ie/join-ciri/code-of-ethics. 147 See

n 126.

354  Consumer Protection: Other Forms A board runs CIRI, its chair and four members appointed or approved by government ministers; the remaining six members appointed by its ‘parent’, the CIF, including (in 2020) two construction professionals and three builders or developers. One board member, appointed by the Housing Agency, represents the consumer. CIRI will consider complaints from a consumer only in the context of a member failing to abide by the conditions of membership and offers the consumer no redress or any other means of resolving a dispute between trader and consumer. Nor is there any obligation on CIRI – or on any of the schemes discussed in this section – to act as a whistle-blower, reporting breaches of Building Regulations to building control authorities or professional codes to the relevant membership or registration body.148

6.6.4 Analysis Using modern technology to link consumers with providers of construction services, taking some of the risk out of entrusting residential work to a stranger whose competence, reliability and financial stability are hard to judge: this is so obviously a good idea that there are now many competing online marketplaces in our field. The discussion above singles out only a selection. How then to assess the different versions of such initiatives? Are they more than a sticking-plaster over the wound of failing to adopt proper statutory systems of occupational licensing and regulation, Australian-style?149 In line with the modern fondness for obtaining and enabling popular feedback on almost every service or product, some providers of ‘trusted trader’ services make consumers’ reviews a feature of their offering. The importance of positive comments online could easily lead a trader to offer a consumer a cash discount in return for an unqualified report on a project whose reality to the consumer was more nuanced; those later reading the review will never know – or even suspect – the back-story. Even more so, where cash has changed hands (or a discount offered) for the consumer to post nothing on the website; or where the trader has paid the scheme extra in order to be ranked high in responses to consumer searches. Though popular feedback online is superficially attractive and ‘democratic’, its genuineness and representativeness are hard to judge. The substance of a posted criticism may never be verified unless it is so negative that it triggers a formal dispute, but the scheme operator may moderate those which are extreme or defamatory.150 For purely commercial operators, customer reviews are the low-cost alternative to regular auditing and inspection of the trader’s work.

148 TrustMark may, in effect, report breaches of professional codes to the Scheme Provider of one of its Registered Businesses. Proposals for legislation to transform CIRI into the statutory regulator for suppliers of construction services in Ireland, first discussed in 2017, may yet move forward: see section [3.9.1]. 149 Where such regulation is in place, as in Victoria, the risk is that construction service providers who are unregistered, unlicensed or who have had disciplinary proceedings against them in the past will hope to hide this by using a ‘trusted trader’ service to link to consumers: VBA Press Release, ‘Regulator Takes Outsourcing Websites to Task’ (27 February 2021). 150 A review posted on the website may be defamatory, in which case the scheme operator may remove it, as Checkatrade did in Diamond Services South East Ltd v Ogedengbe [2018] EWHC 773 (QB); or the defendant consumer may be ordered by a judge to remove their own defamatory review from the site: Summerfield Browne Ltd v Waymouth: n 117.

‘Trusted Trader’ Schemes  355 So too with the height and seriousness of the hurdles a trader must overcome to be listed on one of these services: there is a striking variety between the most and least demanding, which ought to translate into the greatest value being added (hence more protection for the consumer) by those operators with the most rigorous criteria. But will a consumer, wishing to find a plumber, do comparative research on all the ‘trusted trader’ services active in their area, in order to decide which one to use? The same goes for checking the small print of each website’s terms and conditions, for which a law degree would be helpful. There is a conundrum at the heart of all these offerings: they claim that their membership schemes (plus customer reviews, where that is a feature) mean that the would-be consumer can put their trust in the traders listed. As Lord Clarke MR said in Patchett v Swimming Pool and Allied Trades Association Ltd: It must have been, and indeed was, reasonably foreseeable to [the scheme operator] that such people [consumers] would rely upon the representations [on the website] in order to decide what action to take. … [T]he representations were directed to a limited class of people, namely those considering having a swimming pool installed.151

This reliance is encouraged by the ‘value added’ element each scheme offers. Yet each also says that the consumer must independently check aspects of the information that the website already contains – notably occupational licensing (where relevant), membership status in any trade association and current insurance policies. In 2020, James Hobby in Windsor (UK) used Ratedpeople.com to connect with a local builder (a sole trader with his own company) for a loft extension to his family home, to cost £38,000. The work was done so badly that, part-way through, the upper floors of the house collapsed, injuring his family. The liability insurer for the builder refused to pay out, as the builder had failed to disclose three unpaid County Court judgments against him personally.152 Mr Hobby’s own buildings insurer also refused to pay, relying on an exclusion in the policy: ‘Loss or damage caused by poor workmanship, use of faulty materials (including latent defects) or poor design (a latent defect is a fault which exists but which only causes a problem at a later stage under certain conditions)’. Ratedpeople. com removed the builder from its website, which claims ‘We check credentials before a tradesperson signs up to the service’; but still denied all liability.153 Like all such providers, Ratedpeople.com is careful to limit its exposure to claims from unhappy consumers in every way possible. Its website says: ‘we cannot guarantee the quality of their work [the work of registered traders]’. The formal ‘Homeowner User Agreement’ includes wide exclusions of liability (part only quoted here): It is your responsibility to select a suitable Trade Business and to negotiate the terms of any Project to be performed by the Trade Business selected. We do not guarantee any specific 151 Patchett v Swimming Pool and Allied Trades Association Ltd [2009] EWCA Civ 717, [2010] 2 All ER (Comm) 138 [25]. 152 To his credit, the builder himself was challenging this refusal of cover before the Financial Ombudsman Service, but the cost of rectifying the work, estimated by Mr Hobby at £80,000 in January 2021, could in the end exceed the maximum payout from the FOS: see section [9.4.1]. The Health and Safety Executive is also investigating the collapse. For other potential problems when a sole trader also has their own company, see section [4.5.2]. 153 Anna Tims, ‘Family’s £250,000 Bill After Insurer Rejects Home Wreck Claim’ The Guardian (13 March 2021).

356  Consumer Protection: Other Forms Trade Business’s information, accreditation, or registration. We make no warranty regarding any goods or services purchased or obtained through listing a Project on the Service or any transactions entered into through the Service, and you should in all cases make your own enquiries. In particular, it is your responsibility to carry out appropriate checks (including, where relevant, DBS checks) on any Trade Business that you are considering engaging and to request evidence of relevant trade or industry accreditations, and to satisfy yourself that the Trade Business is solvent and has appropriately qualified and certified personnel to complete the Project prior to contracting. … The sole warranty that we make is that we promise to provide any features of the Service that you pay for with reasonable skill and care. If you are dissatisfied with the Service, or the terms of this Agreement, your sole remedy under this Agreement shall be to discontinue use of the Service.

TrustMark’s version includes: Whilst we take all reasonable steps to ensure the accuracy of the information accessed via this website we cannot guarantee or give any warranty as to the accuracy, timeliness or completeness of any information or material appearing on it.

The FMB takes this several steps further: [W]e cannot provide any guarantee concerning, and are not responsible for, the communications, behaviour, suitability of, quality of work or other acts or omissions by or on behalf of any Member. These are matters outside our reasonable control. It is entirely the Customer’s responsibility to carefully evaluate and select a suitable Member (including as to insurance cover, guarantees, qualifications and references) and to negotiate terms for any work to be undertaken. We do not act as the Customer’s general contractor, agent, lawyer or adviser. Customers use our Find A Builder service at their own risk. … It is not practical for us to vet or monitor Content.

Eager to distance itself from the enhanced service it assumes a membership organisation like the FMB could or would offer, Checkatrade’s website says: [The website’s content] is not intended to amount to advice on which you should rely … It is not possible for us to guarantee the quality of our members’ work or approve them as a trading association would.154

MyBuilder’s website terms and conditions include a general disclaimer for losses caused by errors in the website content, as well as stating (like many other operators) that MyBuilder is not itself a contractor or agent for its traders and is not responsible for any work done by such a trader, for which the contract is between the consumer and trader alone. In Ireland, CIRI’s online terms and conditions include provisions mostly already familiar from other providers (but expressed at greater length): • No guarantee of the accuracy, integrity or quality of the content of information about traders on the website; member information on each profile not being independently verified. 154 From NZ’s Builderscrack (n 142): ‘We do not: (a) guarantee or make representations regarding the skills or representations of any Tradesperson using our Website or the quality of the job that he or she may perform for you if you elect to retain their services; or (b) endorse or recommend the services of any particular Tradesperson.’

‘Trusted Trader’ Schemes  357 • Users of the website are not to rely on it or the CIRI service in order to make any decision or take any action (or refrain from doing either). • CIRI bears no liability for any such reliance or for failure to keep the website content up to date or complete (‘To the extent permitted by law, we expressly exclude all conditions, warranties and other terms which might otherwise be implied by statute, common law or the law of equity; and any liability for any direct, indirect or consequential loss or damage incurred by any user … even if foreseeable’).155 • ‘Entire agreement’ clauses, applicable to both members and users. All these provisions, in their remarkable variety, have a single aim: to discourage consumers from suing a scheme, in contract or tort, for the negative financial or other consequences of employing one of its members. Do they achieve this effect? If so, it can only be because they bind the consumer, taking away what would otherwise be their rights or preventing some of those rights from arising. Their mere presence on a separate page of the site may not be enough to bring them to the consumer’s attention, though those sites which require a tick-box acceptance of the terms – whether actually read or not – before accessing trader data or posting a project may be in a better position.156 Beyond narrow legal questions, the presentation of each website’s terms and conditions suggests little awareness of the evidence-based approaches which can maximise consumers’ understanding of such complex information.157 An isolated attempt to sue a trade association for its ‘trusted trader’ scheme – for the extra cost of completing a project, after the trader had done sub-standard work and then gone under – failed in the English Court of Appeal in 2009.158 But the claimants, the Patchetts, did so in tort alone, so had to establish that the scheme operator owed them a duty of care in negligence in relation to pure economic loss.159 Instead, the Court could have analysed the relationship between consumer and scheme as a B2C contract – as most of the websites’ current terms and conditions implicitly accept. Even though the consumer does not pay, they upload their personal data (which could be ‘consideration’ in the common law legal sense); and the provider gets income from traders in return for matching them with consumers. If so, the website texts quoted above, attempting to prevent or exclude liability even if the site’s content is in some significant way inaccurate or misleading, could be open to challenge in both the UK and Ireland as (a) in conflict with the non-excludable quality obligations imposed on the supplier in a B2C service contract;160 or (b) unfair contract terms under the domestic equivalent of the 1993 Directive.161 155 CIRI terms and conditions cl 13 (extract): www.ciri.ie. 156 On incorporating an exclusion clause into a contract, see Lord Denning MR in Spurling Ltd v Bradshaw [1956] 1 WLR 461 (CA) – quoted in ch 4, n 184. 157 See The Behavioural Insights Team, Best Practice Guide: Improving Consumer Understanding of Contractual Terms and Privacy Policies (2019): www.bi.team/publications. 158 Patchett v Swimming Pool and Allied Trades Association Ltd (n 151) (Lord Clarke MR and Scott Baker LJ; Smith LJ dissented); see Philip Britton, ‘A Lesser Splash: Trade Associations, Builder Insolvency and Tort Liability’ (2011) 27 Construction Law Journal 535. 159 For the legal background, see sections [5.7]–[5.8]. 160 Services contracts under UK law: Consumer Rights Act 2015 (UK) s 49. In Ireland, see the Sale of Goods and Supply of Services Act 1980 (Ire) s 39 (subject to s 40). Although ‘trusted trader’ schemes operate by offering digital content to consumers, doing so free (no payment by the consumer) prevents the contract from including what would otherwise be the supplier’s statutory obligations in the UK under the CRA 2015 ss 33–34. 161 On unfair contract terms in both UK and Irish law, see sections [4.10] and [4.5.3] (Ireland).

358  Consumer Protection: Other Forms Some of the existing practices and rules may also be incompatible with the EU’s more recent consumer protection measures. The 2019 Directive imposes transparency requirements on the operators of ‘online marketplaces’: Specific information requirements for online marketplaces should … be provided in Directives 2005/29/EC and 2011/83/EU to inform consumers using online marketplaces about the main parameters determining the ranking of offers, and whether they enter into a contract with a trader or a non-trader, such as another consumer. … [C]onsumers should be informed of how obligations related to the contract are shared between third parties offering the goods, services or digital content and providers of online marketplaces. The information should be provided in a clear and comprehensible manner and not merely in the standard terms and conditions or similar contractual documents. [W]hen traders provide access to consumer reviews of products [meaning both goods and services], they should inform consumers whether processes or procedures are in place to ensure that the published reviews originate from consumers who have actually used or purchased the products. If such processes or procedures are in place, traders should provide information on how the checks are made and provide clear information to consumers on how reviews are processed, for example, if all reviews, either positive or negative, are posted or whether those reviews have been sponsored or influenced by a contractual relationship with a trader.162

In this direction, the 2019 Directive now applies the 2011 Directive to services like ‘trusted trader’ schemes, where the consumer does not pay a price but instead provides personal data. This may make it unnecessary to analyse such transactions in traditional contract terms.163 It also adds three extra ‘Always unfair’ trading practices to Annex 1 of the 2005 Directive: 11a Providing search results in response to a consumer’s online search query without clearly disclosing any paid advertisement or payment specifically for achieving higher ranking of products within the search results. … 23b Stating that reviews of a product are submitted by consumers who have actually used or purchased the product without taking reasonable and proportionate steps to check that they originate from such consumers. 23c Submitting or commissioning another legal or natural person to submit false consumer reviews or endorsements, or misrepresenting consumer reviews or social endorsements, in order to promote products.164

Illustrating the value of such additional safeguards, and reinforcing what reputable service providers would already be doing, in late 2020 Trustpilot sent a ‘cease and desist’ letter to developers Ballymore, having discovered that Ballymore’s own staff had submitted five-star reviews to Trustpilot about the company’s City Island development in London E14.165 And the UK’s Competition and Markets Authority is attempting 162 2019 Directive (n 12) Recitals 26, 27 and 47: the details are in arts 3(4), 4(2)(b) and 4(5). Similar transparency requirements are imposed between such intermediaries and traders by Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services [2019] OJ L186/57. 163 2019 Directive (n 12) art 4(2)(b). 164 2019 Directive (n 12) art 3(7). For the 2005 Directive, see section [6.2.2]. 165 Jack Simpson, ‘Developer Sent “Cease and Desist” Letter by Trustpilot over Five-Star Reviews’ Inside Housing (18 December 2020).

Chapter Summary  359 via contact with Facebook to combat trading in fake and misleading reviews on both Facebook and Instagram, 16,000 groups dealing in such reviews having already been removed (April 2021). To summarise: ‘trusted trader’ schemes are useful tools for consumers who wish to track down tradespeople but have no personal connections or recommendations to rely on. But the value actually added, hence the oft-promised ‘peace of mind’, is less than each scheme operator would have consumers believe. The level of safeguarding built in, and the scope of the service offered, also differs markedly between the most and least rigorous of these schemes; none yet provides the level of information to the public which the 2019 Directive – enshrining ‘best practice’ for the future – will require in EU Member States. A final assessment of each is hampered by the unavailability – for understandable commercial reasons – of hard data on their operations, notably on the number of traders ‘on the books’, how many transactions each scheme successfully brokers, how many disputes are generated in projects enabled by ‘trusted trader’ schemes and how these are resolved. Their non-official status also means that they are only occasionally and accidentally part of the regulatory framework attempting to guarantee compliance with minimum construction standards.

6.7  Chapter Summary Table 6.3  Consumer Protection TOPIC GENERAL CONSUMER PROTECTION MEASURES

AUSTRALASIA ‘Misleading and deceptive conduct’ and ‘unfair practices’ by traders are subject to a statutory regime – ACL (Aus) and FTA (NZ). Aus, but not NZ: ‘Unconscionable conduct’ is also subject to sanctions.

EUROPE EU 2011 Directive imposes special information requirements in relation to some B2C contracts. EC 2005 Directive combats ‘unfair commercial practices’ liable to distort consumer behaviour – including misleading information from traders.

SHARED Enforcement of general consumer protection law is by public bodies (criminal law), but some remedies are also given to individuals. Special statutory provisions (or equivalent) allow challenges to unfair terms in B2C contracts – see ch 4.

EU 2019 Directive (not the UK) imposes new disclosure rules on ‘digital marketplaces’, as well as additional protections under the 2005 and 2011 Directives. (continued)

360  Consumer Protection: Other Forms Table 6.3  (Continued) TOPIC SPECIAL RULES FOR RESIDENTIAL CONSTRUCTION?

AUSTRALASIA

EUROPE

Statutory information requirements on ‘the builder’ and controls on contract terms are part of a specific statutory regime in each jurisdiction: see chapter 4.

UK only: Consumer Codes regulate sales and post-sales process in detail for most new homes, with their own enforcement machinery.

Statutory regimes (occupational licensing), plus general consumer law, fill the same gap which ‘trusted trader’ schemes fill in the UK, Ire.

SHARED –

UK, Ire: ‘Trusted trader’ schemes: semi-official (TrustMark or CIRI) or entirely private sector (unregulated, except by the general law) aim to vet residential construction traders, link them with clients and ensure fair dealing. Widely variable level of assurance provided, degree of regulation of traders and extent of dispute resolution possibilities. All attempt to limit their own liability.

6.8 Evaluation Most interventions described in this chapter are intended to prevent or discourage commercial behaviour which is unfair or exploitative and contrary to the interests of ‘the community’; they also aim to stop those who do not ‘play by the rules’ from acquiring a competitive advantage. All operate with a wider range of sanctions than just those normally available to a contracting party who finds that the other party has broken a term of the contract or induced the making of the contract via misrepresentation. So almost all versions of the regimes discussed here are backed by specific criminal offences, leading to prosecutions and fines, as well as requirements to compensate those negatively affected and other sanctions. The UK Consumer Codes are exceptional, their unofficial status ruling out criminal sanctions. Also different, in aims and methods, are ‘trusted trader’ schemes: their goal is to link consumers and traders – with some protections for both – in order to facilitate the making of contracts for projects and the successful implementation of residential construction work.

Chapter Summary  361 There is an apparent divergence of approach and language between Australasia and Europe in their general consumer protection regimes. Australasia focuses on the types of behaviour in traders for which the law intends to impose sanctions (empowering not just individual consumers); by contrast, Europe looks at the B2C relationship and the impact of a trader’s negative behaviours (including failure to give adequate information ahead of making a contract) on the decision-making of an individual (but also ‘average’) consumer. Further, the Europe of the EU, dominated by civil law thinking, reaches instinctively for ‘good faith’ as a convenient shorthand to describe types of behaviour which are to be encouraged (and their opposite discouraged).166 But at the level of outcomes in positive law, all our subject jurisdictions are concerned with misleading conduct (in different forms) and share a special concern with the adequacy, accuracy and completeness of the information flow from trader to the potential consumer about the goods or services on offer, the terms on which they are offered and about the trader. They aim to offset, at least to some extent, aspects of asymmetry between ‘career repeat player’ and ‘lay first-timer’: we identified this earlier as a distinctive feature in our field.167 So, in a different way, do ‘trusted trader’ schemes, which have now attracted the EU’s attention as a possible source of unreliable or misleading information for consumers. Are we able to assess the impact of these interventions ‘on the ground’? It is selfevident that many commercial behaviours, especially if widespread in a sector or industry and profitable as such, will not change without powerful advocates for the public interest, adequately resourced to investigate and take enforcement action. The level of fines or other penalties also must be high enough to act as a dissuasion, combined with the possibility of negative publicity. In some cases, the threat of new legislation may do the trick – it generated Consumer Codes in the UK, soon to be replaced by a quasi-statutory New Homes Quality Code and Ombudsman. At the micro level, where compliance depends on individuals able and willing to assert their rights, awareness of the detail of the regimes described in this chapter must be rare – even rarer, a willingness to go to court to assert consumer rights, if that is needed. Realism would welcome the existence of all these additional protections for consumers, also recognising that ensuring that such a regime is effective (even a private sector Consumer Code or ‘trusted trader’ scheme) is more demanding than drafting and setting it up in the first place.



166 See 167 See

eg, the 2005 Directive (n 12) art 2(h) (definition of professional diligence). section [1.5].

7 Insurance and Third-Party Warranties New homes offer unrivalled peace of mind with a number of important added reassurances to help avoid any nasty surprises and keep anxiety levels down. Not only is the price fixed, everything is new and guaranteed with the Consumer Code for Home Builders providing even greater protection. HOMES FOR SCOTLAND1

7.1 Background 7.1.1  Gaps in Protection In jurisdictions which have no special statutory regime for residential construction – the whole of the UK, plus Ireland, at present – the rights of home buyers and homeowners in relation to construction operations on their future or actual home derive primarily from the common law, meaning contract and tort (or its equivalent).2 On their side they also have forms of legal protection extended to consumers in general (discussed in chapters 4 and 6); in England, Wales and Northern Ireland they may have rights to damages for serious defects under the Defective Premises Act 1972 – legislation specifically targetting ‘dwellings’ and protecting the current homeowner.3 None of these jurisdictions yet has a compulsory state-run licensing or registration system for developers, builders or other suppliers of construction services to individual consumers (or to anyone else).4 Such a regime might add extra impetus towards a level of reliable (and enforceable) quality; guarantee enough cash-flow to complete a job; or encourage survival and solvency (perhaps insurance-backed) in order to respond to a late-appearing defect.5 1 www.homesforscotland.com. There are in fact several other Consumer Codes in the UK: see section [6.5]. 2 For rights in contract and tort, see chs 4 and 5. 3 On protection via general consumer law, see ch 6; on the DPA, see section [5.10.2]ff. 4 In Ireland, Recommendation 19 in the Report of the Pyrite Panel (2012) was to introduce a compulsory builder registration scheme (including mandatory PI cover): www.housing.gov.ie/pyrite. On one proposed version of such a scheme, linked to the introduction of a New Homes Ombudsman in the UK, see section [9.8]. 5 The highest profile recent collapse of a main contractor in the UK was Carillion in 2018, leaving incomplete two PFI projects to build new NHS hospitals: see National Audit Office, Investigation into the Rescue of Carillion’s PFI Hospital Contracts (HC 2019–20, 23). Some ‘project parties’ in England & Wales are almost certain to have PI cover: (by law) registered architects and private sector BCBs (Approved Inspectors); (by professional regulation) ACE, RIBA and CIOB members, chartered surveyors and those belonging to one

Background  363 In the absence of such a statutory regime, a B2B construction project will employ private law devices to address such concerns: for example, parent company guarantees, collateral warranties, third-party rights, monetary retentions, on-demand bonds and performance bonds.6 Any or all of these could be in place for a major residential project, like Scenario 1 (Table 1.1): developer X enters into a contract with main contractor M to build several homes, or perhaps a tower block of flats. However, in the B2C relationship between developer X and would-be (or actual) buyer of a new home off-plan B1, as in Scenario 2 (Table 1.1), such devices are rarities (but certainly not prohibited). Their absence will put B1 at major financial and practical risk if X fails to complete the home. If this risk does not materialise, so that B1 does get the new home and in due course sells on to B2, the combined effect of the doctrine of privity and the terms of the contract between B1 and B2 will mean that this successor has no certainty of any legal protection against anyone if defects attributable to the process of construction later appear, as occurs in Scenario 5. The private law protections common in larger B2B projects are even less likely to be found in a smaller B2C residential construction job, like replacing the shower in Scenario 3 (Table 1.2). Even if the law went so far as to shield vulnerable construction consumers as a class against most normal market risks, individuals would still need to be willing and able to take legal action to assert their rights. So other, more accessible, forms of protection have been invented to fill part of what are in effect three potential gaps: a ‘completion gap’, ‘solvency gap’ and ‘claims gap’. The Australian approach, applicable in all but one jurisdiction, requires insurance to be taken out for specified classes of residential building projects; like all such policies, they respond only to defined triggers. They differ from similar UK and Irish insurance products, which are offered as a sales inducement for most new-build developments. ‘Third-party warranties’ (using the term usual in the UK and Ireland) sit at the interface between developer self-interest, lender prudence and consumer protection, having at present no statutory compulsion behind them.7 Most of the UK products operate as contractual devices, enforceable for Years 1–2 against the developer as ‘firstresort’ target and for the rest of what is usually a 10-year total period directly against the insurer. This chapter analyses and evaluates what these products offer and how, starting with the UK market leader, Buildmark from the National House-Building Council (NHBC), at section [7.2]; and competing UK products at sections [7.3]–[7.4]. Next comes a summary of the situation in Australasia, including those Australian states and territories where insurance cover is mandatory for new-build homes and many types of renovations, at section [7.5]; then a summary of the situation in Ireland at section [7.6]. We refer back frequently to the numbered Scenarios in Tables 1.1–1.3 in order to consider in what circumstances a homeowner may be able to claim under a third-party warranty and for what. After a look at other relevant insurance products at section [7.7] and a table-form summary, the final section of the chapter asks: What functions do (or could) of the professional membership bodies under the Engineering Council (UK) (ICE etc). But this will always have an upper limit: between £3m and £10m for an architects’ practice, depending on size. 6 On the private law devices that may be used in a B2B project, see section [1.4.2]. 7 For the period in which a third-party warranty was required by law in England & Wales, if an Approved Inspector was to undertake building control for a project, see ch 3, n 77. For the possibility that such a warranty might become mandatory again under a statutory New Homes Ombudsman regime, see section [9.8].

364  Insurance and Third-Party Warranties insurance-based policies perform for home buyers and homeowners? Do they provide the ‘added reassurances’ which lead to ‘peace of mind’, as the quotation at the head of the chapter would have it? The special position of multi-unit residential developments, and how insurance responds (or not) to defects in ‘the common parts’, structure and individual units is discussed in chapter 11.

7.1.2  ‘Third-Party Warranty’: Definition and Key Principles The word ‘warranty’ can have different meanings. In the common law version of the law of contract, any obligation or representation included in a contract may be called a warranty, if it can lead to liability. In the retail world, ‘warranty’ means some form of extended and legally binding protection offered to the product’s buyer by its manufacturer, like a car maker – the party responsible, in fact and perhaps in law as well, for any problems with the product’s design or build quality. The warranty creates a legal relationship between manufacturer and buyer and may impose responsibilities for a period longer than the law would otherwise require. Some home builders offer examples of these, like Metricon in Australia, which offers a ‘Lifetime Structural Guarantee’ to an original individual employer in a house building contract with them.8 In the new homes and residential construction context in the British Isles, ‘a third-party warranty’ means a form of legally enforceable protection against specific construction issues in a new (or newly converted) home, provided for the benefit of the home’s intended or actual buyer or owner.9 In some cases, cover also includes builder insolvency and failure to complete the home. The protection comes from a single premium, calculated and paid at the start, and operates for a defined period (in the UK, typically between six and 12 years, from either the start of construction or handover to the first buyer; in Australia, the scope and duration of cover are much more varied: see Table 7.2). In all cases, this protection is organised and provided by a ‘third party’ – an external organisation, not itself one of the project parties. The financial stability of the provider comes in part from its status as an insurer, regulated as such.10 A ‘third-party warranty’ is in essence a form of insurance: the only real ‘warranty’ element may apply in the first years of the policy, where the insurer may be only a second line of defence for the policyholder, if the developer fails adequately to respond to a claim. No Australian product has this two-part structure, so each is more completely a traditional insurance policy; but most nonetheless require proof that ‘the builder’ has in some way failed to respond before they will accept a claim.

8 For the small print of the 2019 version, see www.metricon.co.au/terms-conditions. The guarantee looks only to structural failure of defined elements and is not transferable to a later owner or buyer of the home. 9 As in this book in general, unless the context specifies otherwise, ‘buyer’ and ‘owner’ refer to outright purchasers of a home on a freehold basis (or equivalent), including of a unit in a multi-unit development, but also on a long lease; and to a mortgagee in possession (or equivalent). 10 The heavy regulation of insurers (much of EU origin, so potentially subject to change after the end of the UK’s Brexit transitional period) is beyond the scope of this book, except for machinery under which consumers can take action against insurers without the need to go to court: see section [9.4]. The specialist text is John Birds, Ben Lynch and Simon Paul, MacGillivray on Insurance Law 14th edn (London, Sweet & Maxwell, 2019).

Background  365 It is ‘long tail’ insurance: claims related to builder insolvency (usually the most expensive, as they may involve paying to complete the project) mostly occur in the early years, but defect claims can occur at the very end of the period and be settled later still. The provider of such a form of insurance faces two particular types of challenge, each capable of negatively affecting profitability: 1 2

An unexpected fall in the number of new home completions, causing a drop in income from the sale of new policies (caused, for example, by an unforeseen general economic downturn or pandemic); and An unexpected rise in the cost of satisfying claims from past projects (eg the financial collapse of a major developer or builder, or the discovery of new and widespread instances of non-compliance with ‘the building code’, like combustible cladding, assuming that this risk falls within the policy’s scope).11

When 1 occurs, even a state-backed monopoly insurer will be negatively affected; but where there are several players, the market will become more competitive and the stakes higher for each player. As for 2, those whose risks do not include developer or builder insolvency or who do not insure multi-unit developments will be less affected by the collapse of a project party or by the cladding scenario; and the shorter the period of insurance, the smaller the impact of a newly revealed ‘hazard’. There are many ways in which a Type 2 challenge can manifest itself. Had new home warranties been required, or even the norm, in New Zealand in the 1990s when the ‘leaky buildings’ crisis arrived, insurers with significant exposure in this sector might not have survived.12 In Ireland, a similar widespread problem started to come to light in 2007, at the end of a building boom and affecting at least 12,000 newly built homes. Sub-floor aggregate material from a small number of quarries contained pyrite (iron sulphide) which on oxidation and in contact with moisture chemically reacts and expands, causing ground heave and cracking to the building above.13 However, as in New Zealand, the Irish government in the end stepped in with a statutory scheme, providing public funding for technical investigation and remediation – much as a responsive warranty provider would have done, had widely defined insurance cover been in place universally.14 The state had to do a similar (but potentially larger) intervention when

11 For an example of the NHBC accepting a claim under Buildmark in relation to replacement of ACM and timber cladding, Kingspan K15 insulation and cavity barriers in a high-rise development in Greenwich, as well as temporary ‘waking watch’ costs, see Naylor v Roamquest Ltd [2021] EWHC 567 (TCC); the long leaseholder claimants were suing the developer and design and build main contractor for losses not covered by the third-party warranty. 12 On leaky buildings in NZ, see section [5.13.2]; on mandatory warranties there, see n 99. Its closely comparable precursor, the ‘leaky condo’ crisis in coastal British Columbia (Canada), at its height in the late 1990s, caused the collapse of the then only (private sector) warranty provider, the New Home Warranty of British Columbia & Yukon. British Columbia then passed the Homeowner Protection Act, SBC 1998 c 31 (since amended), bringing in a licensing scheme for residential builders, implied terms on build quality and a mandatory warranty regime, via approved insurers: www.bchousing.org. 13 On warranty providers and pyrite claims, see the main text to n 201. A similar pyrite problem exists in Quebec (Canada), where the costs of remediation are covered by the statutory Guarantee Plan for new homes, provided that evidence of a problem caused by pyrite is discovered within five years from the completion of construction (not always the case): see www.rbq.gouv.qc.ca. 14 The Pyrite Resolution Act 2013 (Ire); see www.housing.gov.ie/pyrite, also the main text to n 201.

366  Insurance and Third-Party Warranties many recently built houses in Counties Donegal and Mayo (60 per cent of all social housing built between 2000 and 2008 in one district of Donegal alone) proved to have been built with concrete blockwork containing unacceptable levels of muscovite mica or – again – pyrite. Both of these are unstable, absorbing rainwater and then degrading: external rendering cracks or falls off, the walls within are no longer structurally sound and the house may become unmarketable and unmortgageable.15 Grenfell Tower and the wider cladding issues which the disaster has revealed form a new chapter in this story of major defects, and ultra-expensive to fix (it not yet being clear at whose cost). In the UK and Ireland, all warranty providers are commercial entities, many in effect underwritten by well-known all-purpose insurance names (in turn backed by re-insurance).16 But some undertake an additional self-appointed role as ongoing standard-setter, in particular the NHBC, whose power to approve (or to withdraw approval of) building materials or techniques makes it a powerful force in the field, potentially subject to legal challenge.17 This also explains its role as inspector of ­construction on site, verifying build quality as a condition of issuing a policy in relation to an individual new home. It also explains why the NHBC and other warranty providers with their own bodies of technical standards have played a role in Phase 2 of the Grenfell Tower Inquiry, as part of the back-story of how the ACM cladding and insulating foam were used on the exterior of the building. In Australia, some providers are public bodies whose obligations are guaranteed by their state or territory government, private sector insurers in recent decades having abandoned much of this niche market; there appears to be no tradition or practice of insurers regularly acting as on-site inspectors in Australia. Every insurance policy gives rights to the policyholder, imposing linked obligations on the insurer. These are defined by the precise policy terms but also by the general law of insurance; as a result, demanding disclosure obligations used to rest on each intended or actual policyholder.18 Even the 2019 version of Buildmark in the UK contains this: If we establish that information provided to us [eg by the developer in registering the project for a warranty] was deliberately or recklessly false or misleading, we will treat this policy as if it never existed and decline all claims. If we establish that information provided to us was carelessly false or misleading, it could adversely affect your policy and any claim.19

15 See Report of the Expert Panel on Concrete Blocks (2017), which judged the blocks ‘not fit for purpose’ and non-compliant with Regulation C4 on resistance to moisture, but did not attempt to assign liability: www. housing.gov.ie. Details of the compensation scheme were finalised only in 2020: see the Dwellings Damaged by the Use of Defective Concrete Blocks in Construction (Remediation) (Financial Assistance) Regulations 2020 (SI 25/2020) (Ire). 16 Like Allianz, for both BLP in the UK (to the end of November 2020) and HomeBond in Ireland. 17 See, eg, Resistant Building Products Ltd v National House-Builders’ Council [2020] NICh 6. On insurers’ technical standards as defining ‘a reasonable level of workmanship’, see section [2.2.3]. 18 See also n 44. In Aviva Insurance Ltd v Brown [2011] EWHC 362 (QB), [2012] Lloyd’s Rep IR 211, Eder J held that a policyholder had to pay his insurers back the full cost of remedial work for subsidence to his home, only because he had obscured the fact that a house he was proposing to ‘rent’ while the work was done was actually his own. Under the old law, the terms of the policy could go further, providing that any fraudulent behaviour, however small, invalidated the whole claim: see Tonkin v UK Insurance Ltd [2006] EWHC 1120 (TCC), [2006] 2 All ER (Comm) 550, 107 Con LR 107 [174]–[179] and Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2016] UKSC 45, [2017] AC 1. 19 Buildmark pt A(ii).

Background  367 But in all our subject jurisdictions, significant statutory changes in favour of consumers in relation to insurance have been made, or are planned, including limiting the duty of disclosure.20 Insurance remains a special kind of contract, though capable of being interpreted and enforced by a civil court;21 but the policyholder may alternatively be able – at no cost – to challenge a decision by the insurer before an independent public sector ombudsman or equivalent.22 The insurer’s legally enforceable promise is to ‘indemnify the insured’ (the intended or current homeowner) against the occurrence of ‘an insured risk’ (sometimes called a ‘peril’). The arrival of such an event is technically already a breach of contract on the insurer’s part, for which liability is strict, not requiring proof that the insurer has been at fault. The policyholder must of course take action to trigger the insurer’s liability by making a valid claim, and must do so in time.23 The warranty may protect against the builder failing to complete, in which case ‘indemnify’ may include providing resources to have the work finished by another builder, or at the minimum returning the deposit the would-be buyer has paid. Where an original construction defect has been identified, causing actual damage to the building, ‘indemnify’ means ‘put [the home] into the condition it was (or should have been), had the risk not occurred’. This is often called ‘reinstatement’, but the remedy available under the policy may look primarily at dealing with the damage, rather than (also) eliminating the underlying defect; exceptionally, the policy may work the other way round, looking primarily at remedying the defect.24 The general principles which apply – unless the policy terms specify otherwise – were outlined by Leggatt LJ recently in the English Court of Appeal, giving judgment in Endurance Corporate Capital v Sartex Quilts & Textiles: Where the property is a building insured against damage or destruction which the owner (or other person with an insured interest in the building) was intending to use, or continue 20 The legal regime for insurance contracts was reformed in the UK by the Consumer Insurance (Disclosure and Representations) Act 2012, then (at the initiative of the two Law Commissions) by the Insurance Act 2015 (UK), as now amended. These modify the old ‘utmost good faith’ rule about disclosure to the insurer: see Young v Royal and Sun Alliance Insurance plc [2019] CSOH 32 and [2020] CSIH 25. The regime in Ireland has also been radically reformed by the Consumer Insurance Contracts Act 2019 (Ire), which implements the Law Reform Commission (Ire) report, Consumer Insurance Contracts (LRC 113–2015): see section [10.2.3]. On NZ, see ‘Insurance Contracts to Become Easier to Understand and Fairer for Consumers’ (Press Release, 4 December 2019): www.beehive.govt.nz/release; on Australia, see the main text to n 94. 21 It is notable how little reported case law directly concerns third-party warranties for residential construction; for a significant exception, see Case Study 11 at section [11.8]. Perhaps insurers are understandably reluctant to take the risk of losing in court in a situation where a point of law may be clarified against their long-term interests, affecting all policies in the same terms. Wishing to avoid such a public defeat – increasing their own costs of reinsuring their liabilities – might even lead a mutual insurer like the NHBC to prefer to absorb itself the costs of responding to claims which strictly go beyond the terms of their own policies. 22 On complaining to an ombudsman, see section [9.4]. 23 On time limits for claims, see ch 10. A policyholder’s rights in general under an insurance policy are not assignable (the ‘personal indemnity principle’); but an accrued right to payment under an insurance policy is in principle assignable, like any other contractual right: see section [5.3.2]. Litigation in NZ relating to claims following the 2010 and 2011 Canterbury earthquakes shows that even some accrued rights against the insurer (eg to reinstatement costs, under conditions defined in the policy text) may be personal and therefore not assignable: Xu v IAG New Zealand Ltd [2019] NZSC 68, [2019] 1 NZLR 600 (Glazebrook and Arnold JJ dissenting), applying Bryant v Primary Industries Insurance Co Ltd [1990] 2 NZLR 142 (NZCA). 24 In a non-domestic context see Pilkington UK Ltd v CGU Insurance Plc [2004] EWCA Civ 23, [2005] 1 All ER (Comm) 283, where the Court held that installation in the canopy roof of the Eurostar terminal at

368  Insurance and Third-Party Warranties to use, as premises in which to live or from which to carry on a business, the sum of money required to put the insured in a materially equivalent position to its position immediately before the insured peril occurred will generally be the cost of repair, if the building is damaged, or the cost of replacement, if the building is destroyed. Replacement may take the form of constructing a new building on the site of the old one or acquiring substitute premises … Where, on the other hand, at the time when the damage occurred the insured was intending to sell the building (and the land on which it was built), the loss to the insured is appropriately measured as the amount by which the market value of the property has been reduced as a result of the damage.25

By its very nature, an insurance policy has limits: it protects the insured party (or parties) against the consequences of specified events (ie a closed list, even if expansively defined), and only to specified (limited) extents, in liability, cost and time terms. This leads, or can lead, to very precise and detailed definitions in the policy wording and thus to the possibility of ambiguity, with differing views on how the words used could or should be interpreted – a specific context for a problem familiar in contracts in general.26 Recent Supreme Court authority summarises these principles: The core principle is that an insurance policy, like any other contract, must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean. Evidence about what the parties subjectively intended or understood the contract to mean is not relevant to the court’s task.27

Such uncertainty could also lead, especially in a B2C context, to an argument by the policyholder that a particular term in the policy is unfair in law, though no such challenge to the substance of the cover under a third-party warranty for a new home appears yet to have made it into court.28 The potential cost of replacing combustible cladding and its potential impact on homeowners and insurers may change all that. Every insurance product discussed in the main part of this chapter focuses primarily on the ‘bricks and mortar’ of the home, rather than on compensating the homeowner in money for all the negative consequences to which occurrence of ‘the insured risk’ has led. So, as Tables 7.1 and 7.2 illustrate, cover is almost always narrower in scope – often, significantly narrower – than the damages (and costs) which a court would Waterloo of faulty glass panels made by Pilkingtons (of which some had failed by cracking) was not ‘physical damage to physical property’; thus Pilkington’s potential liability for the cost of remedial measures, designed to protect the public below if a panel should shatter, was not within its PI cover, there also being an exclusion for any reduction in value caused by such a defect. Potter LJ, with whom Jonathan Parker LJ and Charles J concurred, said [53] that the key phrase defining the scope of cover was ‘designed to protect the insured against liability for physical damage to physical property and not to afford an indemnity by way of guarantee for the quality and fitness of the commodity supplied’. 25 Endurance Corporate Capital Ltd v Sartex Quilts & Textiles Ltd [2020] EWCA Civ 308, [2020] Bus LR 1729 [37]–[38], McCombe and Dingemans LJJ concurring. These principles directly echo the approach the courts take to claims in contract against a party responsible for defective construction work causing loss: see section [4.12.3]. 26 On contracts in general, see Table 4.1; on specific judicial approaches to questions about the scope of cover under a third-party warranty from an insurer, see sections [11.7]–[11.8]. 27 The Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1, [2021] 2 WLR 123 [47] (Lords Hamblen and Leggatt, with whom Lord Reed agreed). 28 For a challenge to the former dispute resolution provisions in Buildmark, see Zealander & Zealander v Laing Homes Ltd (2000) 2 TCLR 725 (TCC); on challenges to unfair contract terms in general, see section [4.10].

Buildmark (the NHBC Warranty)  369 award, if a civil action for unliquidated damages for the same problem could successfully be brought against a solvent defendant. A policyholder may thus have to sue ‘the builder’, if they are able to do so, if they want compensation for losses not covered by the policy.29 Notably, many policies offer no cover (beyond perhaps the cost of alternative accommodation, under conditions) for consequential (or ‘indirect’) losses which the policyholder suffers when the insured risk materialises – loss of income from tenants in a flat which now needs rectification work, for example. There is no necessary relationship between the length of cover under a third-party warranty and the limitation period which would apply, if the homeowner were looking to sue a project party for original construction defects; the policy always sets its own time limits for cover and for claims, though in Australia these may be laid down by law. Making a claim under an insurance policy, when available, may be as simple as completing an online form – nothing so demanding as mobilising towards court or tribunal proceedings. There is no risk, when a claim is successful, that the claimant ends up with liability for part of the insurer’s legal costs (which could significantly exceed the amount paid out under the policy) – as could happen with a claim taken to court.30 A homeowner’s ability to use existing legal rights (in contract, tort or under statute) against a ‘project party’ are usually unaffected by also having an insurance ‘safety net’.31 However, the ‘last-resort’ nature of insurance across most of Australia means that the policyholder’s ability to claim may depend on showing that there is no real chance of a remedy in court against ‘the builder’.

7.1.3  The Arrival of Consumer Codes As the quotation at the head of this chapter suggests, a Consumer Code may provide ‘even greater protection’. Since 2018, most UK third-party warranty providers have adopted one of several Consumer Codes.32 Each requires all developers who take out warranties with them to similarly commit to that Code. It deals with the marketing and selling process for new homes, as well as with ‘customer care’ issues for immediate postcompletion problems. As they impact primarily on relations between builder/developer and home buyer, linked to the sales process, they are discussed in that context at section [6.5]. Time limits for redress under each Code are considered at section [10.1.3].

7.2  Buildmark (the NHBC Warranty) 7.2.1 Introduction Despite its name, the National House-Building Council (NHBC) has no official status, but its foundation in 1936 as the National House-Builders Registration Council



29 For

an example, see Naylor v Roamquest Ltd: n 11. the process of claiming, see section [9.3]. 31 For this principle, and the rule against ‘double recovery’, see section [7.2.10]. 32 Warranty providers’ allegiance to the different Codes is summarised in Table 7.1. 30 On

370  Insurance and Third-Party Warranties (NHBRC) was supported by Stanley Baldwin’s National Government in order to facilitate the slum clearance programme of the time, building large numbers of new homes (many for local authorities) in major cities. It is now just a non-profit private sector company, limited by guarantee, and mutual insurer for its registered developers and builders, as well as a regulator with its own technical standards, which copy and amplify ‘the building code’.33 However, competitors report that ‘lenders, developers and in some circumstances even government perceive[d] NHBC to be a quasi-governmental body and the only viable provider of structural warranties’.34 NHBC’s 10-year new home warranty, Buildmark, is the most widely used and best known in the UK (and the Isle of Man), having the widest geographical reach: from the start, it had at least a dominant position in the market, if not in effect a monopoly.35 Westminster’s All Party Parliamentary Group for Excellence in the Built Environment noted in its 2016 report that the NHBC still had 80 per cent of the new warranty market, though over time had slightly lost ground to competitors.36 However, there are far more players now than in the last century: some have found the market unprofitable and exited (like Zurich in 2009), but new entrants have taken their place. In addition, the NHBC subsidiary, Building Control Services Ltd, has become the leading Approved Inspector (private sector BCB) in relation to housing in England & Wales: offering ‘added value’ and potential cost saving to developers.37 Several of the NHBC’s current competitors offer a similar ‘one-stop shop’, offering both AI and warranty – in the past, Zurich did so via its subsidiary Zurich Building Control Services.38 Some warranty providers permit only AIs on their own list to be used. Some work backwards from BCB to warranty: to use a local authority as BCB opens up the possibility of an LABC Warranty.

33 For other third-party warranty providers which have their own technical standards, see Table 7.1. Zurich – which left the new homes market in 2009 – was in this category, also having its own Approved Inspector subsidiary for building control work: see Case Study 11 at section [11.8]. 34 CMA 2017 report (n 35) (quoting another warranty provider) [4.23]. The NHBC also provides the secretariat for the International Housing and Home Warranty Association (also including the European Housing and Warranty Organisation (AEHWO)), grouping warranty providers and new home insurers from more than 10 countries (but no representation from Australasia) and holding conferences regularly: www. ihhwa.com. 35 The NHBC gave formal undertakings to the Secretary of State in 1995 following an investigation by the Monopolies and Mergers Commission (varied by the Competition and Mergers Authority in 2017 for the next 15 years). These require the NHBC not to adopt rules which would make it more difficult for other warranty providers to enter the market: see CMA, NHBC Structural Warranties Undertakings Review: Final Decision (2017): www.gov.uk/cma-cases. One of the results is r 8 of the NHBC’s Rules for Builders and Developers Registered with NHBC (effective 1 March 2020), making clear that its registered developers and builders are free to use other home warranty providers and products. For the most recent events, see section [6.2.2]. 36 All Party Parliamentary Group (APPG) for Excellence in the Built Environment, More Homes, Fewer Complaints (2016): www.cic.org.uk. The 80% figure was confirmed for 2019 by the NHBC in its announcement on 6 February 2020 of UK new home statistics: www.nhbc.co.uk. 37 On AIs, see, chiefly, section [3.6.7] and – where the inspection regime did not work well – Case Studies 8 at section [5.11] and 11 at section [11.8]. Use of Building Control Services Ltd as AI used to lead to additional cover under Buildmark: see section [7.2.7]. 38 For epic litigation about a Zurich warranty and its own AI’s services in relation to a severely defective multi-unit development in Manchester, see Case Study 11 at section [11.8]. For the NHBC’s competitors in 2020, see sections [7.3]–[7.4].

Buildmark (the NHBC Warranty)  371 In 1965 the NHBC’s predecessor introduced what seems to have been the UK’s first widely available 10-year third-party warranty. When in the late 1960s the Law Commission considered rights and remedies for quality issues in new-build housing, proposing legislation, it recognised the value of the then NHBRC scheme: Whereas a right of action against a builder is of value only to the extent that the builder remains solvent, the purchaser’s rights under the NHBRC scheme are backed by the resources of that Council and by insurance which the Council arranges.39

Implementing these proposals, section 2 of the Defective Premises Act 1972 provides that owners of dwellings having the benefit of an ‘approved scheme’ are unable to rely on the statutory liabilities introduced by section 1 of the Act.40 What eventually became Buildmark acquired a unique status as the only ‘approved scheme’, the exemption protecting all the project’s parties against a claim under the DPA (but not on any other legal basis).41 But by the late 1970s the UK new homes market had attracted competition from many other warranty providers; with no official explanation, this long-standing specific exemption under the DPA was not renewed.42

7.2.2 How Buildmark Works Buildmark contains a range of options and possibilities; for a while it included a separate Solo policy for self-build (not discussed here).43 Here we focus on new-build homes; there are special rules for conversions. If a commercially built and sold new home has Buildmark cover, the owner (whether B1, B2 or beyond) should have a certificate and policy schedule making the existence and scope of cover clear, as well as the applicable time limits and financial conditions. The builder (usually meaning the developer, if this is a different entity from the actual builder) will have been registered with the NHBC and organised cover early on during construction. So a new home warranty is like insurance taken out by an employer on behalf of employees for injury at work, or by a motorist on behalf of those who may be injured in an accident: actually initiated by someone who is not ‘the insured’ (the developer),

39 Law Commission, Civil Liability of Vendors and Lessors for Defective Premises (Law Com No 40, 1970) [24]. 40 On the DPA, see section [5.10.2]ff. 41 The same exemption was included in the Defective Premises (Northern Ireland) Order 1975 (SR 1975/1039) art 4. As the DPA does not apply in Scotland, it was never necessary to introduce an exemption for homes in Scotland with an NHBC warranty. Had the exemption still been in force in England & Wales, the claimants in Harrison v Shepherd Homes Ltd [2011] EWHC 1811 (TCC), (2011) 27 Const LJ 709 and [2014] EWHC 2786 (TCC) would not have been able to sue their developer under the DPA, already having Buildmark cover. 42 The last of a sequence of time-limited Orders under the DPA were the House-Building Standards (Approved Scheme etc) Order 1979 (SI 1979/381) (E&W) – which appears never to have come into effect – and the House-Building Standards Order (Northern Ireland) 1979 (NISR 1979/120). Among many other sources, the Office of Fair Trading report, Homebuilding in the UK: A Market Study (OFT1020, 2008) wrongly asserted in Annexe G that this exemption still applied, and to all warranty schemes, including in Northern Ireland. 43 Unless otherwise explained, this section describes and quotes from the 2019 AU version of the main Buildmark policy booklet, applicable to homes registered from 1 October 2019: www.nhbc.co.uk.

372  Insurance and Third-Party Warranties for the benefit of someone else who is (the future homeowner). As the introduction to NHBC’s 2019 policy document says: This policy is an agreement between you [B1, the home’s first buyer], the builder [the entity from which B1 is buying the home] and us [the NHBC], entered into on your behalf.44

The other side of the same coin applies to the developer: If you [developer] submit a Site Notification and Application for NHBC Cover you will be liable to the Owner of the Home for the Builder’s obligations under the resulting NHBC Cover.45

B1 therefore becomes a party to the making of this separate tripartite contract – whose key terms are fixed at the very start of the project – with both ‘the builder’ and the NHBC; but is almost certainly unaware of it at the time. B1 in effect pays for Buildmark via the purchase price of the home, though without ever seeing a separate invoice.46 Our buyer is unlikely to have any choice about whether to have a warranty, or about which warranty: this will be one of the many non-negotiable terms of the ‘constructand-transfer’ contract offered by the developer. Further, the cover available under the warranty selected by the developer is itself non-negotiable: it is a perfect example of a standard form contract, offered on a ‘take-it-or-leave-it’ basis. Even if it were possible, it would be a complex exercise for a home buyer to ‘shop around’: the number of warranty providers in the UK is now large, but the differences between them are at the level of detail, except perhaps for BLP: see sections [7.3]–[7.4]. The idea, floated in 2019, that every new third-party warranty in the UK should offer a minimum level of cover, must be a good one, subject only to its possibly anti-competitive effect: it may be taken forward with the introduction of a New Homes Ombudsman.47 Anyone from Australasia would view such a move as a step towards imposing insurance cover, and defining its scope, by law. The purchase of a newly built or converted home is often externally funded, at least in part: in Scenario 2 (Table 1.1), would-be buyer B1 needs mortgage finance from lender L for an off-plan new home from developer X. In that situation, most UK lenders (banks and building societies) look for a 10-year warranty linked to the home, offered by one of their own approved list of providers – which precise one does not matter.48 For them, this is a simple and routine way of being adequately reassured about the strength of the security for their loan. Likewise if, as in Scenarios 5 (Table 1.2) or 7 (Table 1.3), the first buyer B1 sells the home within the first 10 years and the intending buyer B2 needs 44 As a result, the NHBC says that it relies on the information provided by the developer on the buyer’s behalf and that the policy may be cancelled or amended, or a payout reduced, if any of this was ‘carelessly false or misleading’: such steps must be compatible with the Insurance Act 2015: n 18. 45 NHBC Rules (n 35) r 23(a). 46 Other jurisdictions impose greater transparency: the NSW rules require the builder to disclose the cost of HBC cover to the other contracting party in a ‘home building contract’ that attracts the obligation to insure; and the State Insurance Regulatory Authority has power to control the premium which can be charged. 47 On the New Homes Ombudsman, see section [9.8]. 48 ‘The list’ used to be in the Council of Mortgage Lenders Handbook: www.cml.org.uk/lenders-handbook. But the CMA 2017 report (n 35) notes that an intending new provider of third-party warranties must get approval from lenders individually – a significant barrier to entry into the market and a time-consuming procedure – as the CML does not endorse individual warranties.

Buildmark (the NHBC Warranty)  373 a mortgage: B2 may need to satisfy their own intended lender that there is an ongoing warranty in place (or equivalent). The existence of the warranty will also reassure B2 that if the house, flat or block has serious problems, there may be a claim against an insurer.49 For commercial reasons, the NHBC, like all UK warranty providers, does not disclose the premium (the charge paid) for any individual warranty, nor the range of charges for comparable cover or for annual registration.50 In evidence to the APPG in 2016, Rob Clay, director of MDIS, which manages the Premier Guarantee and LABC Warranty brands, said that the average 10-year warranty in the UK costs £300 – far less than one year’s average car insurance.51 We do know that the NHBC links its premium to the price payable for the new home, also to the number of properties for which that developer has requested a warranty in the past (so volume discounts apply); and that an individual developer’s claims record also affects what a warranty costs. So a newly registered small developer will pay more for a warranty for the same house than would a long registered national player with a good claims record. The NHBC also distributes profits back to its registered builders, via a ‘premium refund’ scheme, to those who have paid at least a defined level of premiums for warranties over the last 20 years and have one of the highest ratings (derived from claim levels).52 There is no legal requirement yet in any part of the UK (or Ireland) for a new home buyer to be offered a third-party warranty, nor is there any ‘Kitemark’ (the familiar British Standards trademark, fixed to products from crash helmets to windows) or enforceable minimum specification before a product can be marketed as a ‘new home warranty’, save for the law on misleading advertising and the regulation of insurers as such.53 It is therefore developers’ and lenders’ belief in the value of warranties – to them and to buyers – which drives their availability, scope and take-up. Experience of past claims must feed into what cover is offered, together (presumably) with the re-insurance market’s appetite for building-related risks. Home buyers, it seems, like having a new home warranty: it offsets some of their own perceived ‘information asymmetry’ as against the developer.54 The front cover of the 2014 policy brochure for Buildmark suggested that it provided ‘[p]rotection for new homes’. In reality, the main part of every warranty does rather less, as the 2019 edition of the same brochure recognises, more accurately headlining the document ‘Warranty and Insurance’. It simply provides forms of insurance against defined categories of construction problem and some of their consequences. As in every insurance situation, it is the detail of what is (or is not) covered which matters, taking up almost 30 pages. Subject only to the legal regime of consumer protection (including consumer insurance contracts), an insurer can properly rely on the small print to avoid or limit liability. 49 For lenders’ alternatives, in new-build or recent-build situations where there is no warranty, see section [5.9]. 50 The CMA 2017 report (n 35) noted at [4.65]: ‘The annual cost of remaining on the NHBC register is low in relative terms for a large building firm’. 51 APPG 2016 report (n 36) 27. ‘Average’ is not defined: here it could mean mid-way between the cheapest and the most expensive; or the most frequent level of premium. On Premier Guarantee and LABC Warranty products, see section [7.3]. For figures in Australia, see the main text to n 106. 52 The CMA 2017 report (n 35) [4.66]ff. 53 See n 10. 54 On ‘information asymmetry’, see sections [1.5.2] and [4.2]. For research figures on the importance to buyers of the existence of a warranty, see n 225.

374  Insurance and Third-Party Warranties Compared with most other kinds of insurance policy (including some of its UK and Irish competitors, and all the products currently on offer in Australia), Buildmark has two unusual features: 1

2

It has in most situations a ‘2+8’ structure, so that in Years 1–2 (of 10), the developer is primarily responsible, the NHBC operating only as a ‘second-resort’ insurer (hence the word ‘Warranty’ on the policy cover), becoming a ‘first-resort’ insurer for the last eight years – so the cover is a hybrid combination of a performance bond (looking to the builder’s contractual obligations) and defects insurance; and Where a home or development has Buildmark cover, the NHBC may choose to organise rectification work itself via one of its registered builders, rather than leaving it to the homeowner(s) to do so, using the proceeds of a claim. However, the policyholder has no access to the equivalent of an order for specific performance, forcing the NHBC to do the work; or to an injunction, stopping the insurer doing so, if it exercises that option. No available figures indicate how often the NHBC chooses to organise rectification itself, and against what criteria.55

In addition to the analysis of the Buildmark policy below, Table 7.3 summarises its key provisions, comparing it against the policy in force in the Australian state of Victoria.

7.2.3  Scope of Cover: The Basics The terms and conditions (also the financial limits) contained in the Buildmark policy change regularly, as does the way the information is organised in the documentation. We here discuss the 2019 version, unless otherwise explained; it applies to homes registered (by the developer, in the policy always called ‘the builder’) with the NHBC from 1 October 2019. An individual Buildmark certificate will give the date on which cover starts, which in turn defines the end dates for different aspects of cover, as well as the time limits for making a claim. The start date may be earlier than the date title to the home was transferred to its first buyer B1: in a multi-unit development, the first unit to be completed starts time running for cover in relation to ‘the common parts’ (in ­Buildmark called ‘shared parts’). There are, however, precise conditions and limitations on this extra category of cover.56 The main cover under Buildmark relates to the home itself, for a maximum of 10 years from this start date. The duration of cover is not extended or shortened by a change of ownership along the way;57 the home’s current owner (B2) can claim under the policy, even where this person was not the home’s first buyer (B1).58 However, any

55 This contractual power neatly cancels out the English common law rule that a successful claimant in a breach of contract action has no obligation to spend any damages awarded on rectifying the breach; and that the claimant’s willingness (or ability) to do so is irrelevant to success or failure in court. 56 On insurance cover for multi-unit developments, see section [11.7] and Case Study 11 at section [11.8]. 57 But see Hodgson v NHBC [2018] EWHC 2226 (TCC). 58 The ability of the current homeowner (B2) to claim on a new home warranty originally taken out for the benefit of B1 seems never to be challenged by the warranty provider, but the legal route to that destination was never clear before the arrival of the Contracts (Rights of Third Parties) Act 1999 (UK, NI) and its equivalent in

Buildmark (the NHBC Warranty)  375 claims the NHBC has already met in relation to a home under an earlier owner count against the overall financial limit under that policy.59 ‘Buyer’ or ‘owner’ here includes a long leaseholder with a remaining term of at least 20 years (21 years in Scotland).

7.2.4  Cover before Completion (Section 1) This is cover against the builder’s insolvency (as defined) before the home’s completion date. When it occurs, the NHBC has a range of options (at its discretion), on condition that the policyholder shows that they had reasonable grounds to believe, in entering into a contract with the builder, that the builder could complete the contract. It is hard to imagine any policyholder failing to fulfil that condition. The insurer may pay out: 1 2 3

The equivalent of any unrecoverable deposit already paid to the builder; or The reasonable cost of completing the home to the original specification; or The reasonable cost of work necessary to complete the home to NHBC requirements, even if more than the original contract price.

Reasonable protective works to safeguard a partly completed home will also be paid for. A claim under Section 1 cover is limited financially: under pre-2019 policies, this was the lower of 10 per cent of the purchase price (if paid as a deposit) or £100,000. The applicable figures are now noted individually in a schedule to each policy; a Section 1 claim counts against the overall financial limit applicable to the policy.60

7.2.5  Cover during the Builder Warranty Period (Section 2.1: Years 1–2) If a homeowner has issues about build quality during Years 1 and 2 (Years 1–3, for defects in ‘common parts’ shared with others), Buildmark expects them to contact the builder (developer) first: hence, the policy calls this ‘the Builder Warranty Period’. The policy puts an obligation on the builder to remedy all defects and resulting physical damage (both as defined below) within a reasonable time; this, as we have seen, will usually be a contractual obligation owed by the builder to the first buyer (but not usually to a successor).61

Scotland: sections [5.3.3] and [5.15.1]. We could now treat the policy condition in Buildmark which empowers B2 to claim as opting into the relevant Act in each jurisdiction. All UK and Irish policies will respond to a claim from the current homeowner, within the policy’s scope of cover, financial limits and duration; but in NZ to transfer a Master Build Guarantee (n 101) to a new homeowner needs approval from NZ Master Builders, for which the intending new owner applies (with a fee of NZ$350), having had a full inspection of the home, which will be taken to have disclosed all defects then reasonably discoverable. 59 On the overall financial limit, see section [7.2.9]. 60 See n 59. 61 See section [4.7.2].

376  Insurance and Third-Party Warranties The NHBC will respond, but only as a safety net, provided all three conditions below are met: 1 2 3

The policyholder has a valid claim against the builder, arising from a defect (failure to meet NHBC requirements); and The defect has caused physical damage to the home; and The builder does not put right the damage.62

Under 1, a defect means a failure to comply with one or more of the NHBC’s mandatory requirements R1–R5 (plus R6 for conversions), which are detailed in the separate NHBC Standards manual: • R1 requires compliance with all relevant Building Regulations and other statutory requirements (not including planning permission) applicable at the time of construction. • R2 requires the design and specification to provide satisfactory performance. • R3 requires all materials etc to be suitable for their intended purpose. • R4 requires all work to be carried out in a proper, neat and workmanlike manner. • R5 requires structural design to be carried out by suitably qualified persons, in accordance with British Standards and Codes of Practice.63 These requirements are broad enough to cover most problems a homeowner might have, though their vagueness leaves plenty of scope for disagreement about the standard of construction: how neat is ‘neat’? In addition, a claim against the NHBC will fail unless the policyholder can show not just failure to comply but also (under 2 above) a specific kind of physical damage: ‘Damage that is clearly visible and impairs performance, as well as being more than purely cosmetic’; and the ‘minimum claim value’ might also trip them up if they have only small ‘snagging’ items.64 The NHBC will not get involved with payment or other contractual issues between owner and builder, or problems with boundaries or planning. If a claim qualifies under conditions 1 and 2 but the builder disagrees, the NHBC will attempt to broker a solution. If that fails, it will refer the claim to an investigator in its Resolution Service (Section 2.2 of the policy). Thereafter, the NHBC is liable to pay (or do the work) only if: 1 2 3

Its claims investigator issues a report in favour of the policyholder; and The policyholder accepts the findings of the report (which they are not obliged to do); and The builder fails to carry out those works which the report requires.

But there is no need for a Resolution Service report if the builder has failed to act because formally insolvent; the policyholder can instead (or if they disagree with the 62 For a claim against the NHBC for the builder’s failure to remedy defects in Years 1–2, see Herons Court, Case Study 8 at section [5.11]. 63 NHBC Standards: www.nhbc.co.uk. 64 ‘Physical damage’: NHBC Buildmark pt B definitions. On the ‘minimum claim value’ see the main text to n 73.

Buildmark (the NHBC Warranty)  377 Resolution Service report) attempt to resolve the dispute with the builder by ADR or court proceedings. The NHBC will then pay for whatever the ADR outcome or court judgment says the builder should have done to meet its responsibilities, or do the work itself.65 If a claim against the NHBC is successfully made in Years 1–2, the owner’s legal right is to have the defect and the physical damage caused by it remedied, or to be given the reasonable cost of doing so.

7.2.6  Cover after the Builder Warranty Period (Section 3.1: Years 3–10) Once the Builder Warranty Period finishes at the end of Year 2, any claims already notified to the builder or to the NHBC remain ‘live’. But if the homeowner becomes aware of a possible claim only in Year 3 or later, they can make this directly against the NHBC, as long as the problem fits within the scope of cover in Years 3–10: they do not have to attempt to get a solution from the builder first. This seems to be the situation in Scenario 4 (Table 1.2), where during Year 3 B1 notices cracks which may be caused by ‘heave’ of the home’s concrete slab foundations. If the developer X has by then really ceased trading, Buildmark may then be the only route for redress available. But should B1 have been aware of the problem earlier and claimed against X before the end of Year 2? The NHBC is not liable if the policyholder (or even a predecessor as owner) could have claimed against the builder for the same defect(s) earlier, but did not do so. Assuming B1 gets over this possible hurdle, the NHBC’s liability in this main period, up to the end of Year 10, is very narrowly defined. B1 can make a claim only if: 1 2 3

It concerns a defect, meaning a failure to comply with one or more of the NHBC requirements R1–R6, described in section [7.2.5]; and The defect is in a specific part or parts of the home, listed in this section of the warranty (most of its structural or weatherproofing elements or components are included, like the roof, as well as double or triple glazing to outside windows or doors); and The defect has caused physical damage to the home, also as in section [7.2.5].66

Assuming that B1 can justify the view that the problem lies in the concrete slab, they may be able to satisfy these three conditions: inadequate or badly laid foundations easily qualify as a defect which may fail to comply with several of the NHBC’s requirements; they form a structural component; and the faults do seem to have caused physical damage to the home. As in Years 1–2, the NHBC is liable for the cost of putting right the defect and the physical damage. B1 can expect a repair of the slab, but cannot count on gaining the cost of completely remaking the slab and alternative accommodation meanwhile, nor on reimbursement of the fees of the ‘building consultant’ whom they engaged to 65 The NHBC appears to argue that its Resolution Service is not subject to review by the Financial Ombudsman Service, as it relates to the liability of ‘the builder’ in the early years of the policy, rather than to the liability of the NHBC itself, as insurer. 66 NHBC Buildmark s 3.1.1.

378  Insurance and Third-Party Warranties investigate and report before contacting the NHBC.67 And the NHBC might argue that B1 has made the problem worse by not reporting it earlier, so reducing the amount offered.68 As already mentioned, the NHBC can instead (at its own option) organise whatever work it considers falls within the policy. If we now consider Scenario 5 (Table 1.2), where in Year 10 B2 spots a possible misalignment of one of the home’s brick walls in relation to the concrete slab below, B2 must make a claim before the end of this year; and (as in the claim B1 already made in relation to the slab itself) must fulfil each of the three conditions above. It is just possible that the overhang is a defect, in the policy’s terms (for such ‘acceptable tolerances’ questions, see also chapter 2), and is in a structural component. But can B2 show, to the NHBC’s satisfaction, that the defect has caused physical damage? That is less clear; and B2 would have to bear in mind the overall financial limit on the policy, already reduced by any claim already successfully made.69 Where proof of the right sort of damage is essential, it must have been suffered before the end of Year 10, which can lead to harsh outcomes: if the slab is defective but cracks in the walls do not appear until Year 11, this section of the policy will not respond to the claim (although the extra cover in section [7.2.7] might, if the policy includes it).

7.2.7  Additional Cover for Building Regulations (pre-2019 Policies) This extra cover (then called Section 4) was available until the coming into force of the 2019 edition of the Buildmark policy: it applies during Years 3–10 inclusive, but only if the NHBC’s own subsidiary Building Control Services Ltd was responsible for building control as an AI. This means that BCS Ltd (not the local authority or any other AI) carried out periodic inspections during construction, reviewed compliance and issued the Building Regulations final certificate for the home: the Buildmark certificate will mention this, if it applies.70 Because local authorities still have a monopoly as BCBs in both Scotland and Northern Ireland, this extra cover was never available for homes built in either of these parts of the UK. Under this head of cover, the NHBC is liable, in addition to any liability it already owes, for the cost of remedying those aspects of the main structure of the home (or of the common parts) which fail to comply with selected lettered Parts of the Building Regulations. Unlike the cover already summarised, there is no need also for physical damage – but the defect must give rise to present or imminent danger to the physical health and safety of the home’s occupiers. Cracks in the walls might well count. In this situation, the NHBC will pay what is necessary to put right the failure to comply; but it can instead (once again, at its own option) have the work done itself. Arguably this is a very modest extension of protection, but it can be a life-saver in the context of a multi-unit development, as in Case Study 11 at section [11.8]. Conversely, not to have this additional cover

67 On

alternative accommodation, see Buildmark s 3.3; on professional fees, see the main text to n 79. ss E3 and E13(e). 69 On the overall financial limit, see section [7.2.9]. 70 For the legal position of an AI, see sections [3.6.7] and [5.11]. 68 Buildmark

Buildmark (the NHBC Warranty)  379 may make a claim significantly less likely to succeed, as with replacing combustible cladding and external insulation in private sector blocks of flats.71

7.2.8  Exclusions: Scope As with any insurance policy, there are exclusions and limitations. The main ones are that the NHBC is not liable for a defect or damage, or for non-compliance with Building Regulations, which results from: • Amendments to the developer’s original plans and specifications made at the home buyer’s request. • Alterations made to the property after purchase. • Poor maintenance. • Natural condensation or shrinkage. • Storms and severe weather. • Failure of ‘white goods’ (equipment) for which the homeowner has (or should have) separate manufacturers’ guarantees. The NHBC also does not pay for damage caused by water penetration into underground car parks; and may not be liable for defective or unreliable district heating systems. Its definition of ‘home’ excludes some types of electrical, electronic and mechanical equipment, as well as fences, lifts and swimming pools.72

7.2.9  Financial Limits The NHBC’s liability is limited by reference to both a minimum claim value and an overall financial limit per policy. The figures are different for newly built homes and conversions or renovations (the new-build figures for individual homes with no ‘common parts’ are the main ones given below). • Minimum claim value: the NHBC is not liable under Section 3 of the policy if the cost of meeting the claim is less than £1,750 (for policies starting on or after 1 April 2019; the limit goes up by £50 each 1 April). This is different from an excess, in which the first £n is deducted from the value of any claim: it means that there is no claim at all if its value is under £1,750, but the whole claim will be met if it is £1,750 or over.73 • Overall financial limit: the most which the NHBC will pay under any of the applicable sections of a single Buildmark policy is usually the original purchase price of the home (not its construction or reconstruction cost). This used to be capped at £1,000,000 (£500,000 for a conversion), adjusted annually for inflation, but there is no longer a 71 Although the law report does not clarify the point, the claims already successfully made in Naylor v Roamquest Ltd (n 11) seem likely to be at least in part under section 4 cover. 72 Buildmark s E13. 73 Buildmark s 3.1.3. For the rules which apply to claims in relation to ‘common parts’ (stairways, riser ducts containing services etc – or shared services and car parks), see section [11.7].

380  Insurance and Third-Party Warranties publicly declared limit: instead, each policy contains an initial maximum figure in the policy schedule (going up by 5 per cent of that original figure on the anniversary of the home’s original completion date each year).74 This works on an aggregate basis – so if, under the old fixed cap, a homeowner made three valid claims, each for £400,000, this would exceed the maximum payout by £200,000; and if any previous owner had successfully made a claim, the amount already paid out would eat into the maximum for any future claims. Again, special rules apply to multi-unit developments.75 • Distress and inconvenience: the NHBC is never liable to pay under Buildmark for loss of enjoyment, distress and inconvenience, however clearly the defects and damage fit within the Buildmark rules and however much they disrupt the policyholder’s life (and could be claimed in court).76 Similarly, the NHBC is not liable under Buildmark for loss of profit, eg for a home bought as a buy-to-let investment which because of the defects cannot be let, or where the rent has to be reduced because of the defects or the upheaval of remedial work; or for a drop in value of the home as a result of the defect or damage.77 However, the NHBC will pay for removal and storage of possessions, and for alternative accommodation, if necessary while rectification work is done under Buildmark, though only up to a financial ceiling of 10 per cent of the maximum payment possible under the relevant section of the warranty.78 • Professional fees: these are recoverable from NHBC only if reasonably incurred and with the NHBC’s prior consent or at the NHBC’s request (ideally in writing, so there is no later risk of uncertainty about what has been agreed).79 If the NHBC initially rejects a claim and the homeowner engages a surveyor, the insurer then accepting the claim after seeing the surveyor’s report, the NHBC may later agree to pay the surveyor’s fees.

7.2.10 Subrogation Subrogation is a technical term meaning ‘someone being entitled to stand in for someone else in law’. It comes into play where a person insured against a loss (in our case, a home buyer or homeowner) may have a claim for that loss against a party other than the insurer, usually in contract or tort or under statute. It means that the insurer can make the claim the insured could have made against the third party, in order to reimburse itself for paying out under the policy.80 The idea comes from the general law of insurance, but can also derive from specific contractual provisions, as in the current Buildmark wording: If any payment is to be made under this policy in respect of a claim, we [NHBC] will be subrogated to all your rights of recovery regardless of whether or not payment has been made. 74 Buildmark pt C. 75 See section [11.7]. 76 Buildmark s E13(v)(iv). On making such a claim at common law, see section [4.12.3]. 77 Buildmark s E13(v)(iii) and (u); but on alternative accommodation see also Buildmark s 3.3. 78 Buildmark s 3.3. 79 Buildmark s E13(w). 80 The key text is Charles Mitchell and Stephen Watterson, Subrogation: Law and Practice (Oxford, Oxford University Press, 2007). Two examples of a third-party warranty provider exercising this right in Ireland are in section [9.11.4].

Buildmark (the NHBC Warranty)  381 We shall be entitled to pursue and enforce such rights in your name, and you will be required to provide us with reasonable assistance and co-operation to enable us to do so. Any amount recovered in excess of our total payment shall be paid to you, less the cost to us of such recovery.81

So the NHBC has the right of an insurer to make a claim (borrowing the policyholder’s name) against any potential defendant the policyholder could have sued. The homeowner has a duty not to undercut that right by, for example, reaching a settlement with one of the ‘project parties’ (eg a firm of architects) without involving the NHBC in that process. To do so would then prevent the NHBC later claiming against the same defendant and potentially expose the homeowner to a claim in damages from the NHBC for diminishing its chances of reimbursement from the other party. Notifying the insurer of an intention – if and when it exists – to start a claim against a ‘project party’ is therefore essential to protect against that risk (whether such a claim may be worth pursuing, on what legal basis and against whom, is discussed in chapters 4, 5 and 11). However, subrogation is always only a right: it gives the NHBC an option, which it may choose not to exercise at all or formally waive (anecdotally, it may be rare for the NHBC, or any other insurer, to exercise this right, which involves substantial ‘litigation risk’). The right only arises once a claim has been accepted and, as the clause quoted above makes clear, is limited to items included within the cover of the policy and to the amount paid out. So the NHBC cannot profit from hanging on to (or claiming) damages gained from another defendant – beyond the scope of its own liability to the policyholder. Similar rules apply to the policyholder: Your rights under this policy are in addition to and do not replace or prevent you from using other legal rights (for example, rights you have under a contract or by law) that you may have against the builder or anyone else in connection with your home.82

So the homeowner cannot accept an offer from the NHBC for certain items of claim and also hold on to money recovered for any of the same items from anyone else (‘double recovery’). In that situation, the homeowner will have to account to the NHBC for damages gained from another party. By extension, as in Scenario 5 (Table 1.2), if B2 pays B1 a reduced price for the home to take account of defects known at the time of purchase, B2 cannot then claim for the same defects under Buildmark.83 The NHBC has another method of reducing or offsetting its liability under a policy: to claim against its own registered builder/developer directly. Its published Rules, governing its relationship with its developers and builders, empower it to impose ‘a requirement to indemnify NHBC, or to provide NHBC with reasonable security against any liability which it has incurred or may incur by reason of your acts or omissions or those of any Associate’.84 If the NHBC activates this power as a condition of membership, the developer’s own funds and assets may be at risk if a large claim, or sequence of claims, are triggered by work the developer has done. 81 Buildmark s E5. 82 Buildmark pt F: General information F1. This text is in essence unchanged from many earlier versions, and was relevant in Case Study 5 at section [5.5]. 83 Buildmark s E13(k). 84 NHBC Rules (n 35) r 5(c)(iv).

382  Insurance and Third-Party Warranties

7.3  Other UK Warranties I Many of the new home warranties offered by the NHBC’s competitors structure their cover in closely similar ways to Buildmark, usually also for a 10-year period. However, there are many differences of detail and of wording, especially on the financial side of a claim: most non-NHBC warranty providers impose an ‘excess’ (or ‘deductible’), deducting a fixed amount from the payment of any claim – eg £1,000 for Premier Guarantee for the main period of cover. All also impose claim limits for each category of cover. Policies also vary in their response to the developer’s insolvency, or other reasons for failure to complete the home. Table 7.1 below summarises basic information about what each provider was offering in 2020 for a new-build detached home (some offering other options, not all noted here), organised into three parts according to the Consumer Code a provider belongs to (if any). The table does not include the financial limits for each category of claim, nor the excess deducted from each claim, which may differentiate very similar offerings. ‘Cover pre-completion’ for off-plan sales may mean only protection against loss of deposit, or may mean paying to complete the home if the builder becomes insolvent (or equivalent). There may be special cover (as formerly in Buildmark) for contaminated land and for dangers to health caused by failure to comply with ‘the building code’. The new home warranty market is dynamic, highlighted recently by the waxing and waning of new home completions and sales in the wake of the Covid-19 pandemic.85 Entries in the table should therefore be checked carefully for changes after this book’s publication: providers may modify what they offer, newly arrive in the market or leave it at any time, though of course must honour ‘live’ policies in ‘run-off ’ mode, either directly or by transferring the potential liabilities to another insurer.86 Table 7.1  Third-Party Warranties in the UK

A: Linked to the Consumer Code for Home Builders87 PROVIDER + POLICY NAME (START DATE)

OWN TECHNICAL STANDARDS?

COVER PRE-COMPLETION?

MAIN COVER POST-COMPLETION

Checkmate Castle 10 (2010)

no

yes

2 yrs (developer primarily responsible) + 8 yrs (structural defect + damage), renewable annually after Year 10. (continued)

85 For example, applications to the Land Registry (E&W) in relation to title registration in April 2020 were just over half those in March 2020: www.gov.uk/government/news/april-2020-transaction-data. The developer Bellway warned that reservations of off-plan new homes dropped by 69% between a March–May six-week period in 2019 and the same period in 2020: Scottish Construction Now (10 June 2020). 86 For an example of long-ago Zurich policies (Zurich having left the new home warranty market as unprofitable in 2009) leading now to litigation against the ‘run-off ’ insurer to whom existing policies had been transferred, see Case Study 11 on the Zagora litigation: section [11.8]. 87 Consumer Code for Home Builders: see Table 6.2.

Other UK Warranties I  383 Table 7.1  (Continued) PROVIDER + POLICY NAME (START DATE)

OWN TECHNICAL STANDARDS?

COVER PRE-COMPLETION?

MAIN COVER POST-COMPLETION

LABC Warranty (2007)

yes

option

2 yrs (developer primarily responsible) + 8 yrs or 10 yrs (structural defect + damage).

NHBC Buildmark – see section [7.2]

yes

yes

2 yrs (developer primarily responsible) + 8 yrs (structural defect + damage).

Premier Guarantee (1997) (formerly also in Ireland)

yes

option

2 yrs (developer primarily responsible) + 8 yrs (structural defect + damage).

B: Linked to the Consumer Code for New Homes88 PROVIDER + POLICY NAME (START DATE)

OWN TECHNICAL STANDARDS?

COVER PRE-COMPLETION?

MAIN COVER POST-COMPLETION

BLP Secure/SecurePlus (1999) – see section [7.4]

no

no

10 or 12 yrs (structural defect).

FMB BuildAssure 10 (2012)

no

yes

2 yrs (faulty workmanship – developer primarily responsible) + 8 yrs (structural damage).

Global Home Warranties (also Ireland) (2011)

no

no

10 yrs structural defects, causing destruction or physical damage.

One Guarantee

no

option

2 yrs (developer primarily responsible) + 8 or 10 yrs (structural defect + damage).

Protek (2015)

no

yes

2 yrs (developer primarily responsible) + 8 yrs (structural defect + damage). (continued)



88 Consumer

Code for New Homes: see Table 6.2.

384  Insurance and Third-Party Warranties Table 7.1  (Continued) PROVIDER + POLICY NAME (START DATE)

OWN TECHNICAL STANDARDS?

COVER PRE-COMPLETION?

MAIN COVER POST-COMPLETION

Q Assure Build The Q Policy (2011)

no

option

2 yrs (developer primarily responsible) + 8 or 10 yrs (structural defect + damage).

C: Other Providers PROVIDER + POLICY NAME (START DATE)

OWN TECHNICAL STANDARDS?

COVER PRECOMPLETION?

MAIN COVER POST-COMPLETION

ICW

yes

option

Defects in structural elements (period depends on choice of cover).

own Code89

ABC+ Warranty90 no Advantage 10 Year Warranty (2013)

no

Defects in structural elements (10 yrs).

no

Build-Zone91 New Home Warranty (2003)

yes

yes

2 yrs (developer primarily responsible) + 8 yrs or longer (structural defect + damage).

own Code

Aedis HomeProof New Build 10 (2009)

no

no

2 yrs (developer primarily responsible) + 8 yrs or longer (structural defect + damage).

no

CODE?

As the tables suggest, many offerings copy the approach and ‘2+8’ structure of NHBC Buildmark; this may be because they share the same underwriting insurer. Where they do compete, it may be on price. However, we have no hard data on the cost of cover for different categories of new home, the take-up of any of these offerings, nor on the pattern of successful (or unsuccessful) claims and the different categories and amounts paid to policyholders. None of this commercially sensitive information is available publicly.



89 ICW

Consumer Code for New Homes: www.i-c-w.co.uk. also offer PCCs: see section [5.9].

90 ABC+

91 www.build-zone.com.

Contrasts: Australasia  385

7.4  Other UK Warranties II: BLP BLP offers two standard policies dealing with construction defects in newly built homes: BLP Secure and BLP Secureplus; until the end of November 2020, both were underwritten by Allianz. They offer cover directly comparable with Sections 2–4 of Buildmark, but organised quite differently. This is true insurance for the home, so cover starts from the date the home is first sold. As a result, there is no cover against the insolvency of the builder before construction is complete, nor against ‘snagging’ in Years 1 and 2 as such. But, except for water ingress in Year 1 (even here, BLP offers to assist the homeowner in getting a remedy from the developer), the policyholder never has to look first to the developer before claiming under the policy. Cover continues for 10 or 12 years from the policy’s start date. BLP Secure relates centrally to defects in ‘the structural works’: all those parts of the home which are essential to its structural stability or weatherproofing, plus drains, floor decking and screeds, ceilings, staircases, chimney and flues. The homeowner can claim the cost of putting right a defect in any such part of the home which could damage or destroy the home before the end of the insurance period; it may have already caused damage. But, in complete contrast to other third-party warranties, the insurance will not pay for the damage that flows from a defect. For example, if a defective water-pipe leaked in the property, BLP Secureplus, if available, would pay to put right the defect in the pipe, but would not pay for water damage; that would form a claim under a buildings and contents policy.92 There is cover too for additional costs such as design and other fees, for removal, storage and re-installation costs of the home’s contents, for alternative accommodation and for the extra costs of upgrading this part of the home to match current construction standards. Each loss resulting in a claim has an excess increasing annually (starting at £1,000 in 2019) and the sum insured is the estimated cost of rebuilding the home, indexed annually; the additional costs for which the policy provides are capped at £250,000. BLP Secureplus extends cover to the failure of non-structural component parts in the home within the policy period, with the predicted life of individual parts (eg a central heating boiler, pipe work for heating, kitchen units) listed in a schedule to the policy, the amount claimable for each reducing over its predicted life.

7.5  Contrasts: Australasia 7.5.1 Introduction Australia inherited the common law approach to contracts of insurance, but has codified and modified those rules nationwide in the Insurance Contracts Act 1984 (Cth).93 92 On other forms of insurance, see section [7.7]. 93 The nationwide application derives from insurance being one of the heads of Federal power under the Australian Constitution s 51. Australian law retains the ‘utmost good faith’ principle from the English law of

386  Insurance and Third-Party Warranties Moreover, Australia’s national statutory unfair contract terms regime extends to insurance contracts covered by the Insurance Contracts Act (with some exceptions) entered into after 5 April 2021.94 In our field, each Australian state and territory imposes a mandatory insurance regime to protect against builder insolvency and the cost of remedying defects (principally, breaches of the ‘statutory transmissible warranties’ in each ­residential building contract, as defined).95 The only exception is Tasmania, whose insurance requirement came to an end in 2008.96 In the Australian context, eligibility for insurance cover is essential if a builder is to remain licensed or registered, which in turn is the gateway to lawfully undertaking residential building work within the relevant statutory scheme.97 Cover has to be in place, and proof given to the construction employer, generally (but the requirements vary) before work starts on site or any money taken from the buyer or owner.98 New Zealand introduced a short-lived statutory ‘indemnity’ scheme for residential buildings in the late 1970s, run by a state corporation, but when it legislated a new residential building contract regime in 2013 it chose not to re-introduce any form of mandatory insurance.99 In 2014 the Law Commission (NZ) argued strongly in favour of a mandatory third-party warranty system, but the consumer would be free to decline insurance, but under the Insurance Contracts Act 1984 (Cth) insurers may refuse to accept a claim (or part of a claim) only to the extent that their interests are prejudiced: s 54; the court may order an insurer to pay part or all of a claim affected by fraud: s 56; and a policy avoided by the insurer on grounds of non-disclosure may be reinstated by the court so as to allow a claim: s 31. 94 For the Australian unfair contract terms regime, see section [4.13.3]. 95 For these ‘statutory transmissible warranties’, see section [4.13.2]. 96 Following the Consumer Affairs and Fair Trading (Tas) Consultation Paper, A New Consumer Building Framework (2008), and with support from the Greens in Tasmania, the Housing Indemnity Amendment Act 2008 (Tas) s 7 repealed pt 3 of the Housing Indemnity Act 1992 (Tas) with effect from 1 July 2008. 97 See, generally (the licensing regimes are complex and vary significantly across the Australian jurisdictions): Construction Occupations (Licensing) Act 2004 (ACT) s 52; Construction Occupations (Licensing) Regulation 2004 (ACT); Home Building Act 1989 (NSW) s 20; Building Regulations 1993 (NT) reg 40; Queensland Building and Construction Commission (Minimum Financial Requirements) Regulation 2018 (Qld) reg 17J; Building Work Contractors Act 1995 (SA) s 34(a); Occupational Licensing (Building Services Work) Determination 2019 (Tas) Part 9; Building Act 1993 (Vic) Part 9 Div 3; Home Building Contracts Act 1991 (WA) s 25C and Building Services (Registration) Act 2011 (WA) s 18. 98 See, eg, Construction Occupations (Licensing) Act 2004 (ACT) s 47; Home Building Act 1989 (NSW) s 92; Building Act 1993 (NT) s 54AC; Building Work Contractors Act 1995 (SA) s 34(b); Domestic Building Contracts Act 1995 (Vic) 31(1)(l). Under the Qld home warranty insurance scheme, the Queensland Building and Construction Commission (administering the scheme) provides the insurance material directly to the homeowner: www.qbcc.qld.gov.au/home-warranty-insurance. As noted above, there is no equivalent residential building insurance scheme in Tasmania. In WA, there is no statutory requirement to provide proof of insurance, but there is a general description of the insurance requirements in the explanatory note to be provided under Home Building Contracts Act 1991 (WA) s 4(2): Home Building Contracts Regulations 1992 (WA) sch 1. 99 NZ’s statutory insurance system, funded by a levy on builders, was introduced by the Building Performance Guarantee Corporation Act 1977 (NZ), establishing the BPGC. Its main function was to issue indemnities for up to six years ‘protecting and indemnifying owners of residential buildings [including successors of the first owner] against loss or damage arising from defects in, or deterioration of, the residential buildings’ and to ‘make good such damage, defects and deterioration’ (s 17). It was abolished as part of ‘Rogernomics’ by the fourth Labour Government, under Prime Minister David Lange, in the Finance Act 1987 (NZ) s 2; a 1990 recommendation to reinstate it, in the Building Industry Commission report Reform of Building Controls, which led to the Building Act 1991 (NZ), was not implemented: see Brian Easton in LBC [3.6].

Contrasts: Australasia  387 an offer of cover from ‘the builder’.100 These ideas were developed further as part of a wide-ranging review of construction regulation, resulting in a proposal in 2019 from the Ministry of Business, Innovation and Employment (MBIE) to require buyers of new homes and owners of homes where significant alterations are taking place to be offered a 10-year third-party warranty product. Although some trade associations, like the NZ Master Builders, continue to offer a 10-year warranty, some providers appear to have exited the market, so this plan is not certain to be workable.101 Table 7.2 summarises the key facts about each Australian jurisdiction. The terminology used varies widely, but the main focus of all statutory schemes is virtually identical: to protect the consumer against the risk of economic loss caused by: • Work left incomplete. • Defective work which fails to meet one of the statutory build quality obligations (‘warranties’ in the narrower contractual sense). Cover is for a relatively short maximum period (in most jurisdictions only available for structural or ‘major’ defects); this may be less than the widespread 10-year limitation period for ‘building actions’.102 There are also ceilings on the proportion of the maximum cover which can be claimed for non-completion (20 per cent of the original amount, in NSW and Victoria) and permitted excesses.

7.5.2  Forms of Cover In all Australian states and territories where such a form of insurance is mandatory, except Queensland, only ‘last-resort’ cover is on offer; nor do insurers offer additional cover as an optional extra. A claim can be made only if the policyholder convinces the insurer that the builder is dead, has disappeared or is insolvent (‘DDI’, as it is known). Some, like NSW and Victoria, accept a failure by the builder to comply with a court judgment or tribunal order, or suspension of the builder’s licence or registration, as an alternative trigger. Queensland is the ‘odd one out’: here cover is on a ‘first-resort’ basis (not DDIdependent, though insolvency is in fact often the trigger there too), also with a lower financial threshold than anywhere else. Its Home Warranty Insurance (HWI) scheme is underwritten by the state and run by the Queensland Building and Construction Commission (successor to the Building Services Authority), the state entity ­responsible for builder licensing and enforcement, including ordering rectification of defective work. It has responsibility for recouping what it can from the defaulting builder of payouts



100 Law

Commission (NZ), Liability of Multiple Defendants (Report 132, 2014) [7.46]ff. Building System Legislative Reform: Discussion Paper (April 2019) pt 4; see also section [5.13.3]. 102 On the limitation periods for civil legal action in Australia against ‘builders’, see section [10.8]. 101 MBIE,

388  Insurance and Third-Party Warranties under the HWI scheme (little chance of that, of course, if the builder is i­nsolvent, though the QBCC also has a measure of responsibility for avoiding such insolvency by also regulating the state’s ‘security of payment’ scheme).103 After the collapse in March 2001 of the private sector insurer HIH, the dominant player in construction insurance in Victoria and NSW, both states moved to a ‘last-resort’ scheme, having already abandoned the government monopoly ‘firstresort’ model (the former Victorian Housing Guarantee Fund and NSW Building Services Corporation).104 By 2010 most commercial insurers had exited the domestic ­construction market in both states, after some large developers had become insolvent, creating abnormally large volumes of claims. South Australia followed, so all three state governments reinvented a state insurer model, though the SA government continues to use the former private sector insurer QBE as its agent. In Victoria, the statutory Victorian Managed Insurance Authority (VMIA) was put into the market on a not-for-profit and revenue-neutral basis.105 VMIA issues the lion’s share of third-party warranties for residential building work (known locally as domestic building insurance, or DBI), but in 2019 two private sector competitors also offered this cover. Private sector brokers act as VMIA’s distributors (agents), as well as assessing builders’ eligibility for DBI (evaluating the builder’s history in order to determine the maximum value of projects they can undertake at any one time, relevant to registration with the Victorian Building Authority). In all other jurisdictions except Queensland and NSW, those providing the minimum cover required by law are one or more approved private sector insurers or an industry-level not-for-profit trust (a ‘discretionary mutual fund’). In 2008 the cost of each warranty was on average under 1 per cent of the project value, but for comparable homes varied significantly between jurisdictions.106

103 This scheme also is given legislative effect via the Queensland Building and Construction Commission Act 1991 (Qld). Figures from the QBCC show non-completion claims totalling more than A$20m in 2018–19, defects claims of about A$15m and A$1.7m recovered from ‘builders’: QBCC, Annual Report 2018–2019 40: www.qbcc.qld.gov.au. 104 The HGF was established in 1984 as the successor to two private schemes already established by the Housing Industry Association and Master Builders Association respectively and mandatory for each group’s members; it acquired statutory status under the House Contracts Guarantee Act 1987 (Vic), but the Building Act 1993 (Vic) heralded an end to the HGF’s ability to take on new business. 105 Under the Victorian Managed Insurance Authority Act 1996 (Vic). 106 Australian Senate, Standing Committee on Economics, Australia’s Mandatory Last Resort Home Warranty Insurance Scheme (2008) [1.15] and [5.5]ff: www.aph.gov.au. For comparative tables from the early 2000s, see Daniel Smith, ‘Builder’s Warranty: First Resort or Last Resort or Does it Really Matter?’ (Institute of Actuaries of Australia XVth General Insurance Seminar, 16–19 October 2005) figure 3.2ff: www.actuaries.asn.au.

Contrasts: Australasia  389 Table 7.2  Residential Building Work in Australasia: Mandatory Insurance107 MINIMUM SCHEME PROJECT COVER NAME VALUE108 DURATION ACT RBI110 A$12,000111 5 yrs from completion.112

NSW HBC115

NT

RBI121

A$20,000116 6 yrs from completion (major defects), 2 yrs (non-major).117 122 A$12,000 6 yrs from completion (structural elements), 1 yr non-structural.123

MINIMUM WHO COVERAGE109 OFFERS? A$85,000114 Approved insurer or Master Builders Fidelity Fund (not-for-profit trust). DDI, or A$340,000119 NSW Self builder’s licence Insurance suspended.118 Corporation (state).120 125 DDI, or builder’s A$200,000 Master registration Builders ceased.124 Fidelity Fund. TRIGGER DDI113

(continued) 107 This table describes the minimum requirements set under each jurisdiction’s statutory schemes; actual policies may (and, in practice, do) modify these, including in relation to policy inclusions and exclusions. Only key aspects are noted here for comparison purposes: each jurisdiction provides for detailed intervention into other aspects of the policies and their coverage, including excesses. 108 Note also the general restrictions on the types of projects to which the legislation applies – see section [4.13.2]. 109 Though expressed in the legislation to be minimum coverage limits for relevant policies, in practice those policies tend to make these minimums the insurer’s maximum aggregate liability under the policy: see eg the VMIA ‘Domestic Building Insurance Policy (for Certificates of Insurance Issued on or after 1 July 2017)’ cl 37. 110 Residential Building Insurance, under pt 6 div 6.3 of the Building Act 2004 (ACT): www.planning.act.gov. au/build-buy-renovate. 111 Building Act 2004 (ACT) s 84 (‘insurable residential building’) and Building (General) Regulation 2008 (ACT) reg 37. 112 Building Act 2004 (ACT) s 90(1)(c) and (d) and Building (General) Regulation 2008 (ACT) reg 40. This is shorter than the six-year warranty period provided for in respect of ‘structural elements’ under s 88(4) of the Act and s 38(1)(a) of the Regulation. 113 Building Act 2004 (ACT) s 90(1)(f). 114 Building Act 2004 (ACT) s 90(1)(b) and Building (General) Regulation 2008 (ACT) reg 39. 115 Home Building Compensation, under pt 6 of the Home Building Act 1989 (NSW): www.icare.nsw.gov.au/ builders-and-homeowners. 116 Home Building Act 1989 (NSW) ss 92(3), Home Building Regulation 2014 (NSW) reg 53. 117 Home Building Act 1989 (NSW) s 103B(2); there is also a ‘long stop’ 10-year limit on claims under s 103BC. 118 Home Building Act 1989 (NSW) s 99, Home Building Regulation 2014 (NSW) regs 40, 40A, 40B. 119 Home Building Regulation 2014 (NSW) reg 62S (whilst the base limit is A$340,000, there are complicated provisions (including under reg 62T) depending on the type of dwelling). 120 The NSW legislation provides for the possibility of other insurers being approved, but none yet has been. 121 Residential Building Insurance, under the Building Act 1993 (NT): see www.nt.gov.au/property/building and development. 122 Building Act 1993 (NT) s 48B(3)(a), Building Regulations 1993 (NT) reg 41J. 123 Building (Resolution of Residential Building Work Disputes) Regulations 2012 (NT) reg 7; it is not entirely clear that this is the applicable period because the provision does not expressly refer to the corresponding provision in the Building Act 1993 (NT) (s 54CB(1)(a)(ii)). 124 Building Act 1993 (NT) s 54C. 125 Building Act 1993 (NT) s 54CC(2).

390  Insurance and Third-Party Warranties Table 7.2  (Continued)

NZ Qld

SA Tas Vic

WA

MINIMUM SCHEME PROJECT COVER MINIMUM WHO NAME VALUE DURATION TRIGGER COVERAGE OFFERS? Cover not at present required by law, but available, notably from trade associations (eg NZCB); proposals under consideration (2020) to re-introduce a requirement to offer insurance.126 HWS127 A$3,300128 6½ yrs from Non-completion, Ordinary cover QBCC (state). payment of premium plus (post-completion): (structural), 6 months post-completion A$200,000. from completion defects or Enhanced cover: (non-structural).129 subsidence.130 A$300,000.131 132 133 135 BII A$12,000 5 yrs from DDI A$150,000136 QBE, completion.134 re-insured by SAFA (state). Cover no longer required by law.137 DBI138 A$16,000139 6 yrs from completion DDI, or has A$300,000142 VMIA (state) (structural failed to comply and two elements), 2 yrs with court or private sector non-structural140 tribunal order141 insurers HII143 A$20,000144 6 yrs from DDI, or builder’s The lesser of Two approved completion145 registration A$100,000 or insurers cancelled146 the cost of the building work147

126 See section [7.5.1]. 127 Queensland Home Warranty Scheme (Queensland Building and Construction Commission Act 1991 (Qld) s 67X; Queensland Building and Construction Commission Regulation 2018 (Qld) reg 25: see www.qbcc.qld.gov.au/home-warranty-insurance. 128 Queensland Building and Construction Commission Regulation 2018 (Qld) sch 1 s 2. 129 Queensland Building and Construction Commission Regulation 2018 (Qld) sch 6 ss 16(1), (2). 130 Queensland Building and Construction Commission Regulation 2018 (Qld) sch 6 Parts 2, 3. 131 Queensland Building and Construction Commission Regulation 2018 (Qld) sch 6 ss 24–26. 132 Building Indemnity Insurance, under the Building Work Contractors Act 1995 (SA) and Building Work Contractors Regulations 2011 (SA): see www.safa.sa.gov.au/SAicorp/building-indemnity-insurance. 133 Building Work Contractors Act 1995 (SA) s 33(2)(b), Building Work Contractors Regulations 2011 (SA) reg 4(4). 134 This is the limitation period for proceedings on a breach of the statutory warranties under the Building Work Contractors Act 1995 (SA) s 32(5). 135 Building Work Contractors Act 1995 (SA) s 35(1)(b). 136 Under the Building Work Contractors Regulations 2011 (SA) reg 18(1)(b), the minimum is A$80,000 but the SA Government Financing Authority increased the minimum to A$150,000 with effect from 1 July 2017. 137 See n 96. 138 Domestic Building Insurance, under the Domestic Building Insurance Ministerial Order (Victoria Government Gazette S98, 23 May 2003 (Vic MO 2003)), as modified by the Domestic Building Insurance Ministerial Order (Victoria Government Gazette G22, 29 May 2014 (Vic MO 2014)). 139 Vic MO 2003 cl 6, as amended by Vic MO 2014. 140 Vic MO 2003 cl 12. 141 Vic MO 2003 cl 8(3), Vic MO 2014 cl 6. 142 Vic MO 2003 cl 35, as amended by Vic MO 2014 cl 12. 143 Home Indemnity Insurance, under the Home Building Contracts Act 1991 and Home Building Contracts (Home Indemnity Insurance Exemptions) Regulations 2002 (WA): see www.commerce.wa.gov.au/ building-and-energy/home-indemnity-insurance-0. 144 Home Building Contracts Act 1991 (WA) s 25A (‘minimum amount’); Home Building Contracts Regulations 1992 (WA) reg 7. 145 Home Building Contracts Act 1991 (WA) s 25D(1)(d). 146 Home Building Contracts Act 1991 (WA) s 25D(1A). 147 Home Building Contracts Act 1991 (WA) s 25D(1)(e).

Contrasts: Australasia  391

7.5.3  Application to Numbered Scenarios In Scenarios 4 (Table 1.2) and 7 (Table 1.3), our new home buyer B1 might not be covered at all, at least in Victoria and Western Australia (potentially elsewhere too, depending on the height of the development), as their home was part of a multi-unit development of houses.148 Leaving that threshold issue aside, the purchase price of the house will cause no difficulty in getting within any of the Australian mandatory systems; but in all states other than Queensland, B1 will have to show that developer X has indeed ceased trading (or, in some jurisdictions as noted above, lost their licence) before being able to claim rectification costs for the inadequate slab and resulting cracks in the home’s walls. It is likely that, with appropriate technical evidence, an insurer will quickly accept that ‘heave’ in a slab is a breach of one of the fundamental statutory warranties implied into X’s contract with B1; and that this is structural, so not caught by any of the short timescales for cover for lesser categories of defects. If almost total rebuilding is necessary, B1 may be up against the maximum payout limit, depending on which state or territory the house is in and its size. If, as in Scenario 5 (Table 1.2), B2 buys the house from B1 with its problems still unresolved, B2 becomes ‘the insured’ as successor to B1. But B2 will face all the same issues as B1 above in order to be able to claim against an insurer – with the additional and probably fatal one that the maximum duration of many schemes’ policies will now have been exceeded, if B2 attempts to get compensation from an insurer close to 10 years after the original sale to B1. At this point, assignment by B1 of the benefit of the purchase contract with X could allow B2 to start legal action against X, if the house is in a jurisdiction which has a 10-year limitation period for litigation about building.149 But if – as we are told at the end of Scenario 4 – X may no longer be trading, this theoretical possibility would bring no practical benefit.

7.5.4  Comparison between UK (Buildmark) and Victorian Policies Given the significantly different origins of the UK and Australian schemes, though both are subject to the exigencies of global insurance markets, it is instructive to compare key aspects of the coverage offered. Table 7.3 does so for the 2019 Buildmark policy, as analysed in section [7.2], and the VMIA DBI Policy, so far as each applies to new-build low-rise detached houses.150

148 The Vic and WA multi-unit exclusions are in, respectively, Building Act 1993 (Vic) s 136(2) and Home Building Contracts (Home Indemnity Insurance Exemptions) Regulations 2002 (WA) Part 2. In addition, most Australian jurisdictions exclude from their residential insurance regimes developments of four storeys or more. 149 On time limits for legal action in Australia, see section [10.8]. 150 Victorian Managed Insurance Authority, Domestic Building Insurance Policy (For Certificates of Insurance Issued On or After 1 July 2017) (2017).

392  Insurance and Third-Party Warranties Table 7.3  UK (Buildmark) and Aus (Victoria) Compared BUILDMARK

VICTORIA

INCLUSIONS INDEMNIFIED EVENTS

Pre-completion: loss of amounts to paid to builder/paying more because builder insolvent/commits fraud.151

Loss or damage resulting from defective building work.

Builder Warranty Period (BWP – normally Years 1–2): non-compliance with ‘NHBC Requirements’ (including R1–R5 on compliance with applicable laws, fitness for purpose, workmanlike manner etc).152

Breaches of DBCA s 8 warranties.154 Failure to maintain a standard or quality specified in the contract.155

After BWP: listed items (mainly structural or otherwise vital to habitability: foundations, walls, windows, outside doors, drainage etc).153 COVER FOR SUBSEQUENT OWNERS?

Each subsequent owner ‘automatically For breaches of DBCA s 8 has the benefit of the protection warranties.157 provided by Buildmark’.156

EXTENDED COVER Where NHBC’s subsidiary BCS Ltd (NOT INCLUDED IN provided building control services, 2019 VERSION) and there is an ‘imminent danger to physical health or safety’ because of the builder’s failure to meet Building Regulations pts A, B, C, J, K or N, NHBC (at its option) will fix/pay158 PERIOD OF INSURANCE

BWP: 2 years after completion.159 After BWP: 8 years (in policy schedule.) Building Regulations cover (if applicable): 8 years after BWP (in policy schedule).

–

Non-structural defects: 2 years after completion (or termination). Structural defects: 6 years.160 (continued)

151 Buildmark s 1. 152 Buildmark s 2.1. 153 Buildmark s 3.1 154 For these warranties, see section [4.13.2]. 155 VMIA Policy (VMIAP) cl 24 (definition of ‘defective’). There are various mandatory extensions to that indemnity, including for loss of deposits, progress payments and alternative accommodation for up to 60 days (cl 9) and for acts and omissions of persons contracted by the Builder (cl 10) – see cl 33. 156 Buildmark pt B (definition of ‘you’), also pt F. 157 VMIAP cl 24 (definition of ‘You’ includes successors in title). 158 See section [7.2.7] on the disappearance of this cover. Cover may also be extended for contaminated land under Buildmark s 3.4. 159 Buildmark pt A (iii)–(iv), also section 2.1. On ‘continuous structures’, see section [11.7]. 160 VMIAP cls 34–35.

Contrasts: Australasia  393 Table 7.3  (Continued) BUILDMARK

VICTORIA

LIMITATIONS/ EXCLUSIONS ( indicates exclusions; selection only noted here) GENERAL

During BWP: must notify Builder and give opportunity to ‘put right’. If so, Builder does, at its cost; if not, and NHBC Resolution Service has not resolved dispute, NHBC (at its option) will fix/pay).161

Indemnity only applies if ‘the builder’ DDI.

After BWP: NHBC will fix/pay. CLAIMS BY 162 OWNERS WHO ARE DEVELOPERS

163

LIMITS ON CLAIMS FOR NON-COMPLETION

Lower of £100,000/10 per cent of purchase price.164

20 per cent of contract price.165

INSURER’S AGGREGATE LIABILITY UNDER THE POLICY

Financial limits: usually £1m for new build (detailed on policy schedule).166

A$300,000.167

REMOVING 10 per cent of applicable aggregate AND STORING limit above.168 POSSESSIONS/ ALTERNATIVE ACCOMMODATION

Greater than 60 days; accommodation not ‘reasonably and necessarily incurred’.169

FENCES ETC

 (fences, temporary structures, swimming pools and lifts).170

 (landscaping, paving, retaining structures, driveways and fencing).171

LOSS OF DEPOSIT

See above: covered in pre-completion stage.

172

WHERE CLAIM AVAILABLE UNDER ANOTHER POLICY

173

174

(continued) 161 Buildmark ss 2.1–2.3. 162 Buildmark pt B (definition of ‘related party’). 163 VMIAP cl 24 (definition of ‘You’). 164 Buildmark s 1. 165 VMIAP cl 39. 166 Buildmark pt C. 167 VMIAP cl 37. 168 Buildmark s 3.3. 169 VMIAP cls 33, 33A. 170 Buildmark pt B (definition of ‘home’). Walls are only covered if providing support for the main structure: see Thomas v Taylor Wimpey Developments Ltd [2019] EWHC 1134 (TCC), 184 Con LR 1. 171 VMIAP cl 48(d). 172 VMIAP cl 33(b). 173 Buildmark pt E. 174 VMIAP cl 33(b).

394  Insurance and Third-Party Warranties Table 7.3  (Continued) BUILDMARK



VICTORIA

ANYTHING KNOWN ABOUT BEFORE HOME PURCHASED

 (for which reduction in price accepted)175

 (visible defects).176

DETERIORATION, WEAR AND TEAR/ FAILURE TO MAINTAIN

177

178

THERMAL MOVEMENT

179

–

DEATH OR INJURY (INCLUDING MENTAL)

180

–

LOSS OF ENJOYMENT, 181 AMENITY

–

SHARED HEATING SYSTEM

182

–

CONSEQUENTIAL LOSS



183

ACTS OF GOD, TERRORISM ETC

184

185

VERMIN, MOTHS, TERMITES AND OTHER INSECTS

–

186

EXCLUSION OF CLAIMS NOT NOTIFIED

May reduce payout if claim delayed.

Insure may refuse to accept a claim not made within 180 days of when the claimant first became aware or ‘might reasonably be expected to have become aware’ that the builder was DDI.

EXCESSES/ DEDUCTIBLES

Minimum claim value usually £1,750 (uprated annually): detailed on policy schedule187

Up to A$1,100, depending on when the claim is made.

175 VMIAP

cl 33(b). Buildmark pt E. cl 48(e). 177 VMIAP cl 33(b). Buildmark pt E. 178 VMIAP cl 48(e). 179 VMIAP cl 33(b). Buildmark pt E. 180 VMIAP cl 33(b). Buildmark pt E. 181 VMIAP cl 33(b). Buildmark pt E. 182 VMIAP cl 33(b). Buildmark pt E. 183 VMIAP cl 48(h). 184 Buildmark pt E. 185 VMIAP cl 48(j)(i). 186 VMIAP cl 48(j)(viii). 187 Buildmark s 3.1.3. 176 VMIAP

Contrasts: Ireland  395 The ‘first-resort’ coverage of Buildmark (for that matter, all comparable third-party warranties in the UK and Ireland), compared with the Victorian (Australian, save Queensland) ‘last-resort’ stance is a key reason why Choice magazine described all the Australian regimes as ‘pretty weak’, compared to the ‘adequate protection’ provided by UK third-party warranties.188 But note that in the Buildmark policy’s early years, the owner has to try to get the builder to rectify a matter before NHBC will intervene. This emphasises that the most important aspect for consumer protection is not whether the schemes are first- or last-resort but whether their base is sustainable and whether there is an integrated approach to insurance coverage, licensing and dispute resolution.189 There has been some improvement in the sustainability of the Victorian scheme since the Victorian Auditor-General’s highly critical observations of its performance in 2015;190 the VMIA reports that it took in A$68.9m in premiums in 2017–18, an approximately 6 per cent increase on the previous year.191 But in 2018 the VMIA estimated that it had on its books around A$402.8m in ultimate net claims, emphasising the long-tailed nature of liability under defects schemes and the difficulty of ensuring that the premium (and reinsurance) pool has enough capacity to ride out shocks – such as those experienced in the late 2010s in relation to combustible cladding and structural defects.

7.6  Contrasts: Ireland 7.6.1 Background In 1982, the Irish Law Reform Commission published its Report on Defective Premises; the proposed draft Bill would have created for Ireland an equivalent of the English Defective Premises Act 1972 by imposing new quality obligations on those involved in constructing ‘premises’.192 The Commission considered submissions from the Construction Industry Federation, drawing attention to the CIF’s own National House Building Guarantee Scheme (operating since 1977). The CIF suggested that building work covered by this scheme should be excluded from the scope of any proposed legislation, just as dwellings protected by the forerunner of the NHBC Buildmark were originally excluded from the DPA 1972.193 The Commission was unimpressed: [It] was unable to accept that this scheme, however desirable in itself, would be an adequate substitute for legislation of the kind proposed in the Working Paper. It was pointed out that the scheme did not have the force of law and could not be enforced in any court; it did not apply in respect of building work carried out by persons who were not members of the

188 Daniel Graham, ‘Domestic Building Insurance: The Story of the Worst Insurance Product in Australia’ Choice (24 February 2016). See also Andrew Heaton, ‘How Can Victoria’s Domestic Building Insurance be Improved?’ Sourceable (23 May 2016). 189 Daniel Smith, ‘Builder’s Warranty: First Resort or Last Resort or Does it Really Matter?’ (Institute of Actuaries of Australia XVth General Insurance Seminar 16–19 October 2005) 34. 190 Victorian Auditor-General, Victoria’s Consumer Protection Framework for Building Construction (PP No 36, Session 2014–2015, 2015) 62. 191 Victorian Managed Insurance Authority, Annual Report 2017–18 (Melbourne, 2018) 31. 192 On these Irish proposals, see section [5.14.3]; on the DPA 1972, see section [5.10.2]ff. 193 See the main text to n 39.

396  Insurance and Third-Party Warranties Federation; and it did not cover all defects in building work but only those which ranked as ‘grave structural defects’.194

In the end, none of the Commission’s cogent proposals were implemented. So the common law position remains centre-stage, modestly supplemented by non-statutory third-party warranties. During the global financial crisis of the late 2000s, construction starts for new dwellings in Ireland dropped from 75,609 (2006) to 8,604 (2009) and 400 builders registered with the CIF’s Guarantee Scheme became insolvent, purchasers’ deposits not being protected before 1995 and the fee for reserving a new home still unprotected now.195 Several other insurers, active in the Irish new homes market at the time, ceased taking on new business. The CIF scheme, including its own set of technical standards – just like the NHBC in the UK – had already morphed into HomeBond, now the leading provider in Ireland.196 The main lines of what it offers were fixed in October 2008, when Allianz took over underwriting the scheme.

7.6.2  HomeBond: The Basics HomeBond is in essence a first-resort private sector insurance product (regulated in Ireland as such).197 The policy document calls the overall offering Latent Defects Insurance, but in fact it does significantly more. It can be used in Scenario 2 (Table 1.1), where developer X contracts with intending first buyer B1 for sale of a site (or creation of a long leasehold interest, in the case of an apartment), coupled with a building contract for the construction works; but also in Scenario 6, where current plot owner B2 lets a contract to main contractor M2 to build a house on the site B2 already owns, then selling the plot to B3 with a partly-built house on it. Table 7.4 sets out the three separate categories of cover. Table 7.4  HomeBond Cover in Ireland CATEGORY 1.1  Loss of deposit, if the developer or builder becomes insolvent (or equivalent).

DURATION EXTENT To the end of Year 2 from 10 per cent of the contract registration of the dwelling. price, capped at €30,000 per claim and €1m for multiple claims involving the same developer, and reduced by the value of any work already completed. (continued)

194 Law Reform Commission (Ire), Report on Defective Premises (LRC 3–1982) [6]. 195 Figures on new home starts from Conor Taaffe, MD of HomeBond, at the 12th International Housing and Home Warranty Conference (IHHWC), Cape Town (2011). In Roche v Peilow [1986] ILRM 189, a firm of solicitors was held liable to the intending purchaser of a house for the loss of stage payments, when the developer became insolvent. 196 See John A McCarthy, Eugene Farrell and Anthony McFeely, NHBGS National House Building Scheme House Building Manual (Dublin, National House Building Guarantee Company, 1994). Global, included in Table 7.1 for the UK, also offers warranties in Ireland, as did – but no longer – Premier Guarantee. Dublinbased Buildserve also offers third-party warranties in both Ireland and the UK (not included in Table 7.1 above, as the scale of its operation is unclear). 197 This section describes and quotes from the 2017 version of the HomeBond policy document (full text not available from the website, but the key features of cover are summarised at www.homebond.ie), as it applies to detached dwellings; for multi-unit developments, see section [11.7].

Contrasts: Ireland  397 Table 7.4  (Continued) CATEGORY

DURATION

EXTENT

1.2  Defects within a defined list causing damage or physical danger to the occupants.

To the end of Year 5 from completion.

The cost of rectification, capped at €50,000 (indexed), but also including work necessary to comply with Building Regulations or equivalent.

1.3  Structural Insurance: repair of ‘Major Damage’ as defined: destruction of any part of the dwelling or a risk of collapse caused by building defects in the original construction.

To the end of Year 10 from completion.

Repair, capped at €200,000 (indexed), but also including work necessary to comply with Building Regulations or equivalent.

Each claim, if successful, may have an excess (‘deductible’) applied, as defined in an individual policy certificate (€650 appears standard); and the policy promises up to 26 weeks’ alternative accommodation and storage if the home is uninhabitable while repairs under 1.2 or 1.3 are undertaken, plus any professional fees the policyholder needs to pay in order to organise repair work under the policy (but, as with Buildmark, only if agreed in advance). Beyond those costs, no consequential losses are payable, nor does the insurer undertake any liability for personal injury. This product therefore has its own mixture of features familiar from other warranties: a 10-year overall period of protection for the current homeowner, whether B1, B2 or B3; and in theory available whoever X or M2 are (unlike Buildmark and some other UK products, HomeBond no longer has its own set of technical standards, nor does it operate a registration system for builders or developers). It offers very limited protection against payments upfront, especially if B2 already owns the site and a standard form construction contract is used, requiring regular stage payments to M2: the insurer does not promise to pay to have the project completed if M2 becomes insolvent, so B2 may be left with responsibility for a half-completed project. If a major developer goes under with a range of homes left incomplete, the payout to each would-be buyer for a deposit already paid may be reduced even below the standard levels in 1.1 above. HomeBond also offers very tightly defined protection in its sections 1.2–1.3 against categories of latent defects, some of which look specifically to non-compliance with ‘the building code’. As with Buildmark, there are detailed exclusions, with some aspects of a home not covered (lifts, swimming pools, conservatories, fences, driveways etc). HomeBond offers a quite separate policy offering five years’ cover up to €50,000 for damage arising from mechanical and engineering-related inherent defects (eg heating, ventilation, lifts, water and waste processing).198 In traditional insurance fashion, for any valid claim HomeBond provides a cash payout for the policyholder, subject to the relatively low ceiling for each category. Unlike Buildmark, there is no overall financial limit (maximum total payout) or



198 For

details, see www.homebond.ie.

398  Insurance and Third-Party Warranties minimum claim value, but the excess will discourage low value claims. The policy document includes a subrogation clause, so a policyholder able to claim separately in contract or tort against a project party will need to keep HomeBond informed.199 As is common with private sector insurance products, no figures are publicly available indicating the take-up of HomeBond in the Irish new-build homes market, the range of premiums charged or the frequency and size of claims (or reasons for rejecting claims).

7.6.3  Application to Numbered Scenarios In Scenario 4 (Table 1.2), if our new home buyer B1 is covered by HomeBond, then the likelihood of being able to claim successfully may depend on showing that the slab or its installation is not compliant with ‘the building code’ in Ireland, and that this has caused ‘damage’ (the cracks in the walls) under 1.2 of the policy. To do so may require the input of more than a ‘building consultant’ and, as under Buildmark, if the homeowner finds the response from HomeBond unhelpful, B1 may have to risk committing to professional fees up front (which the policy will not pay for) in order to substantiate a claim. Looking to the ‘latent’ quality of the problems, a section of the policy document entitled ‘Quality of the Housing Unit’ expects B1 to have ‘a thorough independent inspection’ of the home before handover, also saying that the buyer is not to rely on inspections carried out on behalf of the insurer.200 Defects which the buyer’s own inspection would (perhaps should) have identified may therefore be difficult to claim for later. Should B1 have been aware of the problem on buying the home? This seems very unlikely, as ‘heave’ problems with inadequate slabs do usually only reveal themselves over time and through changes of season, as appears to have happened here. If significant rebuilding is necessary, B1 may be reaching the limit for a payout under this part of the policy. Further, HomeBond no longer accepts claims in respect of damage (including slab heave) attributable to reactive pyrite, following the 2011 decision of the Irish High Court in James Elliott Construction v Irish Asphalt.201 Here a main contractor was able to shift the remediation costs it had incurred on to the quarry owner which had supplied aggregate containing reactive pyrite: Charleton J held that the aggregate was not of merchantable quality or fit for purpose and that the quarry ought to have tested it.202 From this, HomeBond argued that the problem fell within one of the policy’s exclusions, 199 See section [7.2.10]. 200 In Wilkinson v Ardbrook Homes Ltd [2016] IEHC 434, Baker J concluded that HomeBond owed no duty of care in tort to a policyholder for the quality of its own inspections beyond whatever duty it owed in contract, which excluded liability for such negligence. This approach echoes that of the English Court of Appeal in Robinson v Jones: section [5.5]. 201 James Elliott Construction Ltd v Irish Asphalt Ltd [2011] IEHC 269. On pyrite, see the main text to n 13. 202 Charleton J applied the Sale of Goods and Supply of Services Act 1980 (Ire) s 10 on merchantability and fitness for purpose; a later reference by the Irish Supreme Court to the European Court of Justice on the compatibility of the Irish Act with harmonised EU rules on aggregates led to confirmation of the High Court judgment. Charleton J also held that Irish Asphalt’s claimed limitation of liability clause had not been incorporated into the contract, nor would it have met the test of ‘fair and reasonable’ under the current Irish text of the Sale of Goods Act 1893 s 55. A similar outcome on limitation of liability was reached in Noreside Construction Ltd v Irish Asphalt Ltd [2014] IESC 68.

Contrasts: Ireland  399 as the result of ‘negligence on the part of someone other than the Member [contractor] or his sub-contractor’, so the building owner could not claim on the warranty.203 Unlike under Buildmark, the developer X is not a party to the insurance policy so undertakes no obligations under it, so B1 must resolve directly with X any problem identified early on. Going against X will become unrealistic if this party is insolvent, but that will not affect the position under HomeBond. No remedy against X will be available if the limitation period has already expired (ideally, B1 would have insisted on executing the contract with X under seal, to give a double-length limitation period); or if the contract between X and B1 includes provisions limiting the buyer’s rights to those under HomeBond, unless such a clause could be attacked as an unfair contract term.204 If, as in Scenario 5 (Table 1.2), B2 buys the house from B1 with its problems still unresolved, B2 can in theory claim under HomeBond, just as B1 could. But B2 can rely only on cover under 1.3, as more than five years have already elapsed since construction was complete, and the building as described will have to be at risk of (at least partial) collapse to trigger even this category of cover. However, B2 will be unable to claim for items otherwise within the scope of the policy which ‘reasonable examination by a competent architect, engineer or surveyor would have disclosed’ (before buying the home). As we know, at common law B2 is likely to have no complaint against B1, knowing about the cracks and the possible link with the slab on buying the home – which any professional inspection would also have noticed – and has in a sense already been compensated for that via a reduction in the price (a further ground for disqualification within the HomeBond policy document).205 It can only be the mismatch between wall and slab which could now be relied on: it is unlikely that this is serious enough to guarantee the success of a claim, and itself has caused, so far as we know, no damage. If, when B1 sells the home on to B2, B1 assigns the benefit of the HomeBond policy to B2, but not the benefit of the original purchase or construction contract with X (which may need X’s consent), B2 cannot look in contract to X. At the limit, B2 could look in tort to any original project party (in theory including X), if a duty of care can be shown, a causal link between their activities and the defects and convincing evidence of negligence; and if the limitation period for such a claim is still running.206 Jumping all these hurdles will seldom be straightforward and the risks involved may make a claim worth attempting only if the damages would be substantial – far higher than HomeBond would have offered, if a claim against the insurer could have been made.

203 Sample HomeBond letter to claimants dated 31 August 2011: Appendix 14 in Department of Housing, Planning and Local Government (Ire), Report of the Pyrite Panel (2012): n 4. HomeBond also argued that its liability was limited by the plaintiffs’ statutory right to compensation under the Liability for Defective Products Act 1991 (Ire). At the height of the pyrite problem in Ireland, Premier Guarantee was also actively issuing policies for new homes and responding to claims, but had stopped writing new business in Ireland by 2017 when the Expert Panel reported on Concrete Blocks (n 14). 204 Compare the provision in the Robinsons’ contract with their developer: Case Study 5 at section [5.5]. On unfair contract terms in Irish law under the 1993 Directive, see section [4.15.3]. 205 On caveat emptor, see section [4.4.4]. 206 On duties of care in Irish law, see section [5.14.2].

400  Insurance and Third-Party Warranties

7.7  Other Forms of Insurance Careful homeowners will have ‘home and contents’ insurance, with cover which may be wide enough to allow a claim for remedying original construction defects, or at least damage caused by such defects. Recent research for the Department for Environment, Food and Rural Affairs (DEFRA) in one South Yorkshire town (heavily flooded in 2019) gives a snapshot of the extent of such insurance: General insurance coverage in Doncaster is very high among owner-occupiers but significantly lower among tenants: • 97 per cent of owner-occupiers had at least one of buildings or contents insurance with 95 per cent having both. This compares with 94 per cent for At Risk households in DEFRA’s 2018 survey207 • Only 36 per cent of tenants confirmed that buildings insurance was in place, but a further 37 per cent did not know (as might be expected for tenants, given that landlords rather than tenants are responsible for buildings insurance) • 45 per cent of tenants confirmed they did not have contents insurance (compared with 41 per cent of At Risk households in DEFRA’s 2018 survey). This is of much greater concern.208

Where a homeowner also has ongoing cover from a third-party warranty, there is the possibility of ‘double insurance’, but this never permits recovery twice for the same loss. Exactly how the loss will be paid for, and by which insurer in what proportions, is not always straightforward, though the principles of law involved are fairly clear: If a loss by a peril insured against occurs, the general rule is that, subject to any particular modifying terms and to the limits of indemnity provided under each insurance contract, the insured may recover for the whole of the loss from either insurer. Upon such indemnity being paid to the insured by either one of the two insurers, that insurer is, in general, entitled to recover a contribution from the other.209

Most insurance policies – including third-party warranties – therefore include a clause dealing with a possible ‘double insurance’ situation. As in NHBC’s Buildmark, this may be unqualified and one of a long list of exclusions: Anything you can claim for, or have claimed for, under a different insurance, warranty or guarantee scheme, or a formal compensation scheme (for example, for subsidence caused by coal mining or pumping brine), or any contractual rights and responsibilities.210

In such a situation, the policyholder would have to disclose to the NHBC the existence of a second insurance policy – if it covered part or all of the same events now claimed for – and, to the extent that the detailed coverage under the other policy is comparable, may expect the NHBC to decline the claim. If both policies contain similar ‘no-go’ clauses,

207 DEFRA, Availability and Affordability of Insurance (2018). ‘At risk’ in this research meant in an area of high risk of flooding. 208 Amanda Blanc, Independent Review of Flood Insurance in Doncaster (2020). 209 Gavin Kealey QC as a Deputy High Court Judge in National Farmers Union Mutual Insurance Society Ltd v HSBC Insurance (UK) Ltd [2010] EWHC 773 (Comm), [2010] 1 CLC 557 [15]. 210 Buildmark s E13(j).

Other Forms of Insurance  401 then the two may in effect cancel each other out, but the policyholder cannot reasonably be left with no cover at all. A less uncompromising provision from the BLP Secure policy looks to the other policy’s excess, whatever that is: The Insurers will not be liable for any claim under this Policy which is insured by any other policy in the name of the Insured or on behalf of the Insured except in respect of any excess beyond the amount that would have been payable under such policy or policies had this insurance not been effected.211

In return, here is the equivalent contribution clause from a UK home and contents policy: If you claim under this policy for something which is also covered by another insurance policy, you must provide us with full details of the other insurance policy. We will pay only our share of any claim.212

As this suggests, where part of the costs of a problem with the home are covered by one policy and part by the other, then a shared solution may be possible. Where, as in the case of third-party warranties from BLP, repairing a defect but not the resulting damage is what the warranty offers, the allocation of responsibility between two insurers may be straightforward.213 However, to have to negotiate with two insurers (or to wait while they negotiate with each other) will complicate and delay resolution of the problem, especially as each may define its coverage in different ways and impose different ‘excesses’ or minimum claim amounts. On the other hand, a home and contents policy may not cover some of the big risks at all – subsidence or ‘heave’, for example – if the resulting damage comes from ‘structures bedding down or settlement of newly made-up ground’ or from ‘poor or faulty design, workmanship or materials’.214 Like a third-party warranty, a home and contents policy will include a subrogation clause, giving the insurer the right to make or take over a claim the policyholder could make against a third party for any events covered by the policy.215 One of the side-benefits of a good home and contents insurance policy is that it may provide legal expenses cover for a claim against a ‘builder’ (‘an event which causes loss of or damage to your home’), as well as in a range of other situations. To benefit depends on the policyholder convincing the insurer, or its specialist legal expenses service, that they have a reasonable chance of winning the case – or at least of achieving a reasonable outcome – providing that they have contacted the insurer in good time (not more than six months after the event happened, in this example).216

211 BLP, Housing Warranty Insurance Policy (2019) s 6(3). 212 John Lewis Premier Cover, on behalf of Royal & Sun Alliance, Policy Wording for a UK home (2019): www.johnlewisfinance.com. 213 On BLP, see section [7.4]. 214 John Lewis Premier Cover: n 212. For a real-life example of ‘settlement of newly made-up ground’, see Case Study 4 at section [4.16.2], and for a refusal of cover in a situation where suing the builder may be pointless unless the builder’s insurer will satisfy a judgment, see section [6.6.4]. 215 On subrogation, see section [7.2.10]. 216 John Lewis Premier Cover: n 212.

402  Insurance and Third-Party Warranties

7.8  Chapter Summary Table 7.5  Insurance and Third-Party Warranties WHERE ALL JURISDICTIONS

KEY FACTS Warranty = an insurance product, taken out by a developer or builder in relation to residential construction, for the benefit of the client/buyer. The provider is regulated as an insurer (solvency requirements) and the insured has duties of disclosure.

COMMENTS As with NHBC Buildmark, the warranty may put primary responsibility on ‘the builder’ for responding to claims in Years 1–2. The policyholder has the burden of showing the occurrence of an ‘insured risk’; must contact the insurer within the time limits for a claim.

The same cover is available, within its scope, duration and financial limits, to a successor homeowner (B2) as to the first buyer or owner (B1).

The scope of a payout is as defined in the policy wording or regulatory scheme.

10-year warranties are widely added to purchases of new homes (12-year, from BLP and some other providers).

The scope of cover is closely similar from all providers (less generous in Ireland): non-completion of construction, and failure to comply with external mandatory standards, causing damage.

A warranty or insurance policy is additional to any rights the home buyer or homeowner may have against a project party. UK AND IRELAND

All providers are from the private sector, in competition with each other, but the NHBC Buildmark dominates the UK market. Many warranty providers are also standard-setters, offering AI services as private sector BCBs during construction.

There are financial limits on cover and payouts. The recoverable items are usually far narrower in scope than a court would award for the same defects.

A complaint by a policyholder against the decision of an insurer can be taken to an ombudsman: could lead to an enforceable award. AUSTRALIA (EXCEPT Insurance is required by law for TAS) (some but not all) residential building work: mixture of private provision and state agencies.

There is a wide variety of schemes and rules, looking to non-completion and failure to comply with statutory warranties of build quality. (continued)

Evaluation  403 Table 7.5  (Continued) WHERE

KEY FACTS

COMMENTS All (except Qld) are on a ‘last-resort’ basis; the policyholder must normally show that the builder is dead, deceased or insolvent (DDI) before they can claim. There are financial limits on cover and payouts. The recoverable items under the policy are likely to be narrower in scope (and subject to excesses and limits) compared with what a court or tribunal would award for the same defects.

NZ, TAS

Insurance is no longer required by law.

Insurance is available commercially for non-completion, loss of deposit and for materials and workmanship (10 yrs): only a few NZ providers (trade associations) and limited take-up.217

7.9 Evaluation 7.9.1  Issues on the Table Third-party warranty systems raise some hard-to-resolve policy questions, as well as some knotty methodological ones: in our field, are they part of ‘cure’, or (also) part of ‘prevention’? How should their impact be assessed? Their very existence and widespread availability presupposes that the other preventive systems in place in a jurisdiction – whatever they are – are capable of failing. So claim levels on third-party warranties could indicate a number of things – operating separately or together. Table 7.6  Warranty Claim Levels: Significance? (a) The licensing or registration systems for builders have not successfully weeded out the incompetent or inadequately resourced.

This could be the case, not just where publicly run regulation is applicable across the full range of construction activities and projects (as in most of Australia); but also where it is in effect set up by ‘the industry’ (warranty providers themselves) for those builders and developers doing residential work and wanting to offer warranties (as in the UK and Ireland). (continued)

217 The estimate for take-up in NZ suggests only about 40% at present: MBIE, Building System Legislative Reform: Discussion Paper (2019) pt 4.

404  Insurance and Third-Party Warranties Table 7.6  (Continued) (b) BCBs, whose job is to implement ‘the building code’ via inspection and certification, do not do as good a job as they might.

BCBs do not claim a 100 per cent success rate, nor are they resourced adequately to do more than ‘sampling’, either in the public sector (in England, recruitment difficulties and an ageing workforce) or the private (fee competition between private sector BCBs).218

(c) The inspection systems which warranty providers themselves operate are not always adequately systematic, focused or rigorous.219

Income from warranties at the present level could not easily support a more intensive inspection regime; but providers already vary greatly in what they offer.220

But how many claims are there, and how would we judge if there were too many? In 2016 the All Party Parliamentary Group (APPG) for Excellence in the Built Environment summarised figures from the NHBC: Annually, NHBC investigates about 18,000 Buildmark warranty claims of which around half are found to be valid, or 0.7 per cent of the around 1.5 million homes under cover. This has remained relatively flat over the last five years, increasing slightly in 2013/14 as a result of a significant storm event, says the NHBC.221

The latest annual review of the performance of Domestic Building Insurance in Victoria by the Essential Services Commission (for 2018–19) reported not very different claim levels: Domestic building insurance (DBI) claims are relatively infrequent compared to the number of project certificates issued each year (around 1 in 100). Insurers have received 12,750 claims from 887,138 certificates issued since the scheme was introduced in 2002. Builder insolvency remains by far the most common reason that claims on DBI are made (93 per cent) and around half the claims received to date relate to a structural defect (49 per cent).222

Where insolvency triggers a claim, in the UK the fault may be with the warranty provider: this is the body which grants or refuses cover to builders, based on an assessment of their financial strength (sometimes demanding a bank guarantee, or security over the home of the builder’s CEO, as a condition of granting cover). Builders in Australia told the 2008 Senate inquiry that some insurers required personal guarantees and indemnities too often, and for longer than necessary – we do not know what the NHBC’s practices are in relation to security, though the powers are certainly there. Australian builders

218 APPG 2016 report (n 36) 28 (Box 8). 219 For ample evidence of (b) and (c), see Case Study 11 at section [11.8]. 220 On income, see n 51; on the BLP audit approach, see www.building.co.uk/focus/robo-cop-blps-digitalproject-police; and on an enhanced inspection regime from the NHBC (Construction Quality Audits), see the APPG 2016 report (n 36) 23 (Box 5). 221 APPG 2016 report (n 36) [3.2] The report noted that it had no evidence before it on claim levels from other warranty providers. 222 Essential Services Commission, Victoria’s Domestic Building Insurance Scheme: Performance Review 2018–2019 (Melbourne, 2019) 18.

Evaluation  405 also told the Senate that commercial insurers act as de facto regulators: ‘[I]t is not right that unaccountable private insurers effectively act as the financial assessors on behalf of state licensing authorities and may decide who is allowed to work as a builder’.223 In different ways this is also true in the UK and Ireland, though without the state being involved.

7.9.2  Consumers and Warranties On the consumer viewpoint, the APPG noted the scale of the problem in its 2016 report, concentrating on products structured, like Buildmark, on a ‘2+8’ basis: Often the warranties cover far less than consumers assume, and neither warranties nor building control functions provides any sort of comfort that items like finishes and fittings will be defect-free when the house is handed over. Nor do many consumers appreciate that it is down to the housebuilder to sort out defects for the first two years after completion, and for the remaining eight years the warranties are purely structural … [C]onsumers see both the building control process and warranties as a total hallmark of quality, rather than the limited service it actually is.224

It is not obvious how this mismatch of expectations against reality has come about, or what could be done about it; it is likely that warranty providers spend time puzzling why they regularly have to reject so many claims from over-optimistic policyholders. From their websites and printed literature, warranty providers are not obviously guilty of stoking exaggerated impressions of what each policy covers. Perhaps some consumers want to believe what they hope is true (‘cognitive dissonance’), whatever the documentation actually says; after all, few would study the small print of an insurance policy for pleasure. Despite homebuyers’ high level of ignorance of the detail, research suggests that those in England rate the existence of a warranty as an important factor in buying a home.225 This echoes James Somerville’s research findings for the OFT market study in 2008: Many of the respondents were unfamiliar with the contents and coverage of their new home warranty, were confused as to who actually provided the cover under the warranty and yet, they valued the warranty being available since it provided some form of ‘peace of mind’.226

So ‘peace of mind’ may be attained only with a degree of self-delusion: reluctance to engage with the reality of the contract entered into, encouraged by unfamiliarity with

223 Australian Senate, Standing Committee on Economics, Australia’s Mandatory Last Resort Home Warranty Insurance scheme (November 2008) (n 106) [1.17]. The insurers responded that they were better placed than state licensing bodies to assess financial and business risk: [5.21]. 224 APPG 2016 report (n 36) [4.3]. 225 The New Homes Review 2019 asked its 1000+ respondents (all had moved recently into a newly bought home with a Premier Guarantee or LABC Warranty) about the importance of a warranty or insurance: 69% rated it at 9 or 10 (on a scale of 1–10), 17% as 7 or 8 and only 14% as having lesser importance: www.premierguarantee.com/resource-hub. 226 OFT 2008 Report (n 42) Annexe J [1.5].

406  Insurance and Third-Party Warranties the technicalities of insurance policy terminology.227 Just as with Buildmark in the UK, it appears that few Australian consumers understand the limitations of the cover; nor would many more do so, even if there were a legal requirement that they see the full policy document, rather than just the certificate.228 Here is the conundrum of paying for insurance: not needing to call on it while it is in force naturally feels like a waste of money; but equally, finding that it does not respond to a problem with the home can also feel like ‘money for nothing’. It will be interesting, therefore, to see the impact of requirements, imposed in the late 2010s in several Australian jurisdictions, to provide homeowners with ‘information sheets’ about their rights and responsibilities under the legislation (including the limitations on those rights). Have they made a noticeable difference in the level of consumer engagement with residential building insurance there?229

7.9.3  What Role for Third-Party Warranties? A debate could be started about the goals that new home warranties could and should be pursuing; and whether the community in general would value – and see the point in paying for – a more ambitious product. Could we consider warranties as one step towards that ‘total hallmark of quality’ which in 2016 the APPG said consumers (wrongly) imagine already exists and would certainly like?230 The response to Grenfell Tower in the UK shows a new commitment by government, on behalf of ‘the community’, towards home users’ health and safety: ‘to make sure that residents of high-rise buildings are safe – and feel safe – now, and in the future’.231 This goal – a revived and more specific version of what was always the main aim of ‘the building code’ – is leading to an ambitious rethink of the whole of construction regulation, with new and clearer responsibilities on each link on the chain (including BCBs, who for new-build homes are often subsidiaries of warranty providers), led by a special concern with fire. How to fund the new system seems secondary to achieving the goal, which looks to a time period much longer than any warranty – the expected design life of the building. Is overall build quality – separate from, but including, safety issues – ever likely to have its ‘Grenfell Tower moment’? It seems unlikely. Nonetheless, could higher quality new homes become a community goal worth putting more resources into? Consumer satisfaction

227 The New Homes Review 2019 (n 225) reported that only 36% of its respondents thought they fully understood what was covered by their new build warranty, 53% understood a little and 11% declared that they were not aware at all about its cover. These are of course all self-reported figures. 228 Such policies are, because mandated by law, exempt from some of the disclosure and other consumer protection rules which otherwise apply to ‘retail clients’ for insurance in Australia: Senate, Standing Committee on Economics (n 106) [4.5]ff and [7.1]–[7.36]. 229 These requirements appear designed, in part, to respond to the Senate Committee’s recommendation (n 99) [8.10]ff that each policyholder should receive a copy of the certificate, but also a summary of the product and information about dispute resolution procedures. 230 See the main text to n 224. 231 MHCLG, Building Safety Programme: www.gov.uk.

Evaluation  407 levels – far lower than the small percentages who actually claim on a warranty – derive from many more aspects of a home’s construction than its structural stability, energy efficiency or resistance to fire.232 There is clearly a long way to go in raising the standards of construction up to the levels of competence and finish which consumers expect, especially when they learn how much profit a developer may make from each new home sold: for Persimmon in the UK, £65,567 on every house sold in 2019.233 In the UK, warranty providers are all private sector enterprises, theoretically in competition with each other, though many of their products are uncannily similar. As a result, the only forum in which such a rethink could be debated and – if agreed – ­implemented seems to be government and Parliament, these days potentially meaning Belfast, Cardiff and Edinburgh as well as Westminster. This could involve versions of ‘the state’ crossing a bridge it has traditionally been reluctant even to step on to – although it may do so to implement its commitment to a New Homes Ombudsman.234 The APPG reports in both 2016 and 2018 asked the DCLG (now MHCLG) to undertake a review of warranties, with reform ideas on the table; this has not yet materialised.235 What lessons does the Australian experience offer? It seems significant in this insurance context that construction regulation operates at the level of individual states and territories. Most of these are smaller markets even than Ireland (population 4.9 m); each is dwarfed by the UK, with a new-build housing market of 66 m inhabitants, and Australia would still be only 25 m inhabitants if it operated as one market in our field.236 All ­Australian states and territories long ago grasped the nettle of insisting on insurance for new homes, legislating to make this happen, but over time the ‘tail’ of what is thought to be insurable on the open market (or affordable as an extra cost of construction) seems to have wagged the consumer protection ‘dog’.237 The resulting gradual attrition of the offering makes its scope now more limited in every respect (Queensland the only real exception) than Buildmark in the UK. As the Victorian Auditor-General concluded in 2015, critical of that state’s mandatory insurance system (and could have been speaking of most other Australian regimes): ‘Domestic building insurance is widely misunderstood, provides only limited protection for consumers and is significantly more costly than it needs to be’.238 The Australian Senate Committee report from 2008 supported continuation of those mandatory systems still in place – thinking it unfair to place the risk of builder insolvency on consumers; others, notably in Tasmania, have voted with their feet, 232 The New Homes Review 2019 (n 225) reported that 89% of the sample of new home buyers experienced ­problems with snags or defects, only 60% were happy with the finish and 69.5% satisfied overall with the new home. 233 Julia Kollewe, ‘Persimmon Chief Quits Amid Row Over Firm’s Building Quality’ The Guardian (27 February 2020). 234 On the New Homes Ombudsman, see section [9.8]. 235 APPG 2016 report (n 36) Recommendation 6. 236 Queensland in total population, but no other characteristic, is comparable with Ireland, whose population density in 2020 is estimated at 72/km2, compared with Qld in 2019 at 2.76/km2: www.worldatlas.com and www.worldometers.info. 237 Daniel Smith (n 106) 24. 238 Victorian Auditor-General, Victoria’s Consumer Protection Framework (n 190) iii.

408  Insurance and Third-Party Warranties arguing that mandatory ‘last-resort’ systems add to the price of new homes without delivering any real benefits in return.239 There certainly seems no pressure from any direction in Australia to enhance the present minimum statutory offering, except from ­Queenslanders proud of their own more generous ‘first-resort’ approach. In transTasman contrast, New Zealand has started a debate about re-introducing a requirement for third-party warranties for residential building projects, in order in part to take the pressure off BCBs as ‘the last person standing’ in liability terms; but unlike Australia, New Zealand would permit the consumer to opt out.240

239 Australian Senate, Standing Committee on Economics, Australia’s Mandatory Last Resort Home Warranty Insurance Scheme (n 106) [6.29]ff. Senator Gavin Marshall argued, in a minority part of the report, for the Qld ‘first-resort’ approach: ‘Last resort insurance has been described as “junk insurance” by many commentators. Whilst the insurance industry disputes this label, what they don’t dispute is that few would purchase this insurance if it were not mandatory to do so.’ The Greens added a minority report, also supporting the Qld ‘first-resort’ approach and arguing for removing the mandatory status of all other present systems. 240 See section [5.13.2].

8 Inspections in Residential Construction Inspectors must be even cleverer and more rigorous than those they regulate. DAVID BOOTH1

8.1 Introduction A pervasive theme in this book is the importance of external and independent inspection of construction work in general. The reports or certificates which result from inspections are especially valuable for ‘the ultimate consumer’ of a home where that home is in a multi-unit development, for not just the home but also the building containing it (and an individual unit-owner may have no right of access to aspects of ‘the common parts’ in order to check build quality). Appropriately targeted, well-conducted and properly reported, an inspection offsets the average home buyer’s or homeowner’s inability to spot many kinds of defects and assess their significance. Inspections during construction also respond to the fact that key aspects of a building often become hidden and not easily inspected once the project is complete: at the macro level, every house’s foundations; at the micro level, the plumbing under the new shower unit which P installs for B1 in Scenario 3 (Table 1.2). As well as protecting – in our field – residential construction consumers, inspections have wider functions: they look to the community’s interest in safe, durable and efficient buildings. In the UK and Ireland, they also help facilitate transactions relating to homes by making available insurance against defects and finance for buyers. Although inspections can take place in a wide range of contexts, there are some common themes and issues: • • • • •

Who inspects what, with what aim? When is an inspection a legal duty, or at least tactically advisable? What form does the outcome of the inspection take? What practical consequences follow from the result of the inspection? What rights belong to a party who has incurred expenses or a loss by relying on a misleading report, certificate or valuation, following an inspection?

1 Obituary for David Booth, one of Her Majesty’s Principal Inspectors of Nuclear Installations, University College Record (Winter 2020).

410  Inspections in Residential Construction This chapter brings together information about the range of inspections, organised into sections corresponding to the different stages of a building’s life – from conception to construction, completion, occupation and, finally, sale to a new owner.

8.2  Before a Significant Project Starts ‘Significant’ here means a residential project which is required to demonstrate ‘building code’ compliance, according to the local threshold criteria. These will certainly apply to complete new homes being constructed in several of our numbered scenarios: 1 (Table 1.1), 6 (Table 1.2) and 7 (Table 1.3). By contrast, P the plumber replacing a shower unit at the home of B1, as in Scenario 3 (Table 1.2), will in most jurisdictions not need ‘building control’. But the relationship between B1 and P, depending on where work takes place, may still attract other kinds of regulation as a ‘residential construction contract’;2 at the same time, it is a B2C contract, entered into ‘off-premises’ at the home of B1.3 We first consider the stage before work starts, where the plans and specifications are reviewed by a neutral third party, external to ‘the project team’. Where a form of inspection is required by the general law, it occupies the first row in each table in bold type. Specific variations in individual subject jurisdictions are noted where appropriate. Table 8.1  Pre-Construction: Plans and Specifications WHO INSPECTS

DETAILED DISCUSSION

AIM

CONSEQUENCES

1 BCB (public or private) – at the initiative of the developer or a consultant on the project.

Statutory function: to verify compliance with ‘the building code’ and to develop a plan for on site inspections.

Approval or rejection, hence go-ahead (or not) for construction. If BCB rejects, developer may have right of appeal or may request suspension of rules.

ch 3

2 UK: the developer chooses a third-party warranty provider, W, which operates a pre-construction desktop risk analysis: components, construction methods etc.

To define areas for a focused on site inspection regime (commercial self-interest of insurer).

A well-targeted inspection regime ought to lead to fewer defects and claims; it also assists the developer and benefits future owners of homes.

[7.1.2]

2 For the threshold tests for ‘residential construction contracts’ in Australasia, see sections [4.13.2] (Australia) and [4.14.2] (NZ). In some Australasian jurisdictions, ‘single-trade’ projects may escape from the statutory residential construction contract regime. 3 For an ‘off-premises’ B2C contract, see section [6.2.1].

A New Home: Under Construction  411 In relation to item 1, it may be a criminal offence to start work without prior approval from the BCB, though in some situations in England & Wales a simple notice to the BCB of planned construction work may be sufficient. It generally seems the case that work on site, in fact, starts without completing all the necessary formal stages (much as it often does without all the contractual documentation finally agreed). No negative consequences necessarily result for the construction parties (though, potentially, the quality of the building as delivered may suffer). In relation to specific aspects of ‘the building code’, checking compliance may be the responsibility of an independent certifier (E&W, ­Scotland), or a member of a regulated trade body may be empowered to self-certify (E&W).4 Ireland’s building control regime operates with a lighter touch, usually requiring notice to, but never prior approval from, a municipal BCB before work starts.5 If the BCB wrongly approves non-compliant plans and specifications, and if there is a powerful building regulator, possible professional sanctions (affecting the right to practise) may follow; if the errors are not rectified during construction, a possible civil claim for damages against the BCB may follow (insurance cover is usually in place, but never unlimited). The possibility of the BCB’s civil liability for negligence (or for breach of contract, where the claimant commissioned a private sector BCB to do ‘building control’) varies widely between our subject jurisdictions, as do the statutory provisions affecting the possibility of such liability.6 As for item 2, a pre-construction check by a third-party warranty provider is the exception, rather than the rule, even in the UK (HomeBond does not appear to do the equivalent in Ireland). Insurers for residential construction in Australasia – whether cover is required by law for home buyers or not – appear not to review plans and specifications as a matter of course, nor do they regularly inspect work in progress. A UK developer choosing a third-party warranty provider W whose techniques include such a preconstruction check may pay fractionally more for the warranty than to one of the larger providers (passing that cost on to buyers). In return, the developer gets a greater assurance of the value of the inspections which W will operate on site. These, in turn, should diminish the occurrence of defects, hence protecting against expensive post-completion rectification work and enhancing the developer’s long-term reputation with home buyers.

8.3  A New Home: Under Construction Where a new home is constructed for sale as a speculative commercial venture – often as part of a larger residential development, as in Scenarios 1 (Table 1.1) or 7 (Table 1.3) – the contractual arrangements for the initial build or conversion will be those of a B2B construction project. The powers and obligations of each of the many members of the project team are likely to derive primarily from published standard forms: ­construction contracts and consultant appointments. These will bring with them well-developed 4 On private sector certifiers in Scotland, see section [3.10]; on alternatives to the traditional BCB in E&W, see section [3.6.7]. 5 On Ireland, see section [3.9]. 6 On the liability in contract of AIs in E&W, see section [3.6.7]; and on ‘building surveyors’ in Australia, section [3.7.3]ff. On BCBs’ liability in tort and under statute, see Case Study 1 at section [1.12], also section [5.8]ff.

412  Inspections in Residential Construction principles of construction law relevant to any large-scale project – including one with a residential focus. These may include obligations of supervision or inspection (not necessarily the same level of duty) on some members of the project team, perhaps linked to the role of the architect, project manager or contract administrator. Where the project has an external funder, providing some or all of the cash flow, this party will usually have inspection rights looking towards regularly valuing and certifying work done, as a step towards authorising stage payments to the main contractor. A potential or actual future buyer of a home being built is unlikely to know, or need to know, about these arrangements, unless insolvency affects the developer from whom the first buyer has committed to buy a home.7 Ahead of making a legal commitment offplan, an interested potential purchaser can find out what is planned from the developer’s website, sales office on site, brochure, scale models or a 3D animated ‘walk-through’ – even perhaps an already complete show home (‘display home’, in Australia); but may reasonably also wish to know about the planned and actual build quality. The decision to commit to buying may be made (or may have to be made) too early for this – when the site is no more than a hole in the ground. At the other end of the spectrum, our offplan buyer may come on the scene in a sense too late – after the foundations have been covered up, the pipework all installed in ducts or the cladding fixed. But to inspect work in progress, accompanied by an experienced professional (item 7 below) could provide valuable information, as recommended by the UK pressure group the HomeOwners Alliance.8 To organise this, in the absence of any legal rights, the developer’s willingness to co-operate will be essential, which in turn involves (as the UK Consumer Codes point out) making sure that a site visitor can be safe.9 If the site is tidy – a good organisational indicator in itself – then its potential for danger is already reduced. In Scenario 6 (Table 1.2), a one-off new home is being constructed for an individual who is the site owner; B2 then B3 as construction employer may need to engage with the different types of external inspection of work in progress and at completion, even if doing so may take place indirectly via a separate contract administrator under item 4 below. Table 8.2  During Construction WHO INSPECTS

AIM

3 BCB (public or private).

To verify compliance with ‘the building code’.

CONSEQUENCES Power to inspect work in progress; to require work to be opened for inspection and be redone, and stop further work.

DETAILED DISCUSSION ch 3

(continued) 7 On insurance cover for a home buyer against insolvency and failure to complete a home, see ch 7. 8 www.hoa.org.uk. 9 On Consumer Codes, see section [6.5]. On an owner’s right of access to the site under Victoria’s statutory scheme, if it is a Domestic Building Contract, see DBCA s 19.

A New Home: Under Construction  413 Table 8.2  (Continued) WHO INSPECTS

AIM

CONSEQUENCES

DETAILED DISCUSSION

4 Architect (or other construction professional) – appointed as contract administrator, project manager or simply representing the employer.

To administer the contract and make decisions under it (or to recommend decisions to the employer).

5 UK, Ire: a third-party warranty provider W, if requested by the developer.

To verify compliance Could refuse to issue a ch 7 with ‘the building code’ warranty unless work and warranty provider’s was redone properly. own ‘technical requirements’; and satisfy the first buyer’s lender.

6 UK, Ire: architect (or other construction professional), if instructed by the developer.

To verify compliance with ‘the building code’ and the plans and specifications.

UK: Professional Consultant’s Certificate (using standard wording).10

[5.9]

7 Building surveyor or other construction professional – instructed by a potential buyer.

To assess build quality in general.

Encouragement (or not) to commit to an off-plan contract to purchase, paying a deposit.

Below

Decisions on interim valuations, variations, extensions of time, identifying and rectifying of defects, termination and practical completion.

Below

In relation to item 3, private sector BCBs in England & Wales have no enforcement powers, enjoyed only by public sector BCBs. If an inspection is negligently done, causing actionable harm, the same possible consequences apply as in item 1 (Table 8.1). In the UK, the focus of BCB inspections appears limited, by law and in practice, to compliance with ‘the building code’; but other jurisdictions define the role more widely, as in the enforceable NSW Practice Standard for Registered Certifiers: A certifier carrying out an inspection (of both building work and a completed building) is there to first and foremost check that what is being constructed on site is what has been approved i.e. in accordance with a development consent, [Construction Certificate], and the endorsed plans and specifications. The other key considerations for a certifier carrying out an inspection is [sic] to determine whether statutory requirements have been met and whether the building will be suitable for occupation and use in accordance with its classification under the [Building Code of Australia].11 10 For an Irish equivalent, see Farrell v Arborlane Ltd [2015] IEHC 535: preliminary issues in a case where the first buyer of a damp flat was suing – amongst others – the chartered engineer who had given the developer an attestation of ‘substantial compliance of the works with the Building Regulations’. See, further, section [9.11.4]. 11 Construct NSW, Practice Standard for Registered Certifiers – 1-New Residential Apartment Buildings (2020).

414  Inspections in Residential Construction The downturn in construction activity necessitated by Covid-19 triggered an equivalent reduction in building control and third-party warranty inspections and the development of protocols and techniques for remote inspections, in particular using digital cameras and drones.12 Item 4: there is never any external legal requirement for the employer to appoint a professional to exercise functions in relation to the project, but such a role is central in many B2B standard forms for larger projects in all our subject jurisdictions. In a B2C residential project, there are good reasons for having a person with relevant experience who can act as a buffer between a consumer-employer (who may have no track record in managing a construction project) and the main contractor. The RIBA Domestic Building Contract 2018 allows ‘the Client’ (employer) to take this role on. However, except where the works are very simple or the Client has relevant experience, the contract’s Guidance Notes warn against it,: This is important because there are situations where the Architect/Contract Administrator is required to act impartially. Failure to carry out this role appropriately may result in the Works costing more and finishing later than envisaged.

Unsurprisingly, the RIBA favours an architect in the contract administrator role (appointed by the employer under a separate contract);13 but the employer is free to appoint anyone, as long as the choice is recorded in the Contract Details. Whoever administers the contract has a right of access to the site during the project in order to inspect work in progress, in ways the titular employer may not, having handed over possession of the site to the main contractor.14 In Australia, the Australian Building Industry Contract standard forms, which include a contract administrator role, assign this to a member of the Australian Institute of Architects (the local equivalent of the RIBA).15 As for item 5 (to which item 6 is the usual alternative, if there will be no third-party warranty): only some UK/Irish insurers impose their own ‘technical requirements’; but all theoretically require some form of inspection (rarely the case in Australia except for major residential projects).16 Leaving theory aside, it would be easy to imagine a longstanding relationship between developer X and its regular third-party warranty provider W which led W to rely on X to report whether all was well at practical completion. If so, W would then issue a cover note, following which the lender L to the first buyer B1 would release the loan and B1 would complete on purchasing their flat or house. Later on, B1 (or perhaps even a successor homeowner B2) may discover that (a) the insurer

12 See, eg, Jeremy Armour, ‘Drones Over the Castle – Time for a Victorian Access to Neighbouring Land Act?’ (2020) 193 Australian Construction Law Newsletter 36. 13 See, eg, the RIBA Domestic Professional Services Contract 2018: Architectural Services. 14 The RIBA Domestic Building Contract 2018 makes no provision at all for ‘the Client’ as such to have access to ‘the Site’ (even though they may, of course, be living in, over or under it); even the Contract Administrator’s access is not expressed, but implied from their role. The FMB Domestic Building Contract makes no provision for a Contract Administrator as such but allows the client to have ‘an authorised representative’. 15 Under the ABIC forms, the right of access to the site is given to the employer (as ‘owner’) and the architect (see, eg, ABIC MW 2018 H Vic cl F2.1 or ABIC SW 2018 cl F2.1). 16 For a list of those which do, see Table 7.1.

A New Home: Under Construction  415 had not seen an independent inspection report when issuing the cover note; (b) at that point there was no final certificate or notice from the BCB, and (c) there are significant defects. Where inspection by or for a third-party warranty provider does actually take place, there are potential economies of scale if the BCB in items 1, 3 and 8 is part of the same organisation as the warranty provider W in item 5 (eg, BCS Ltd and parent NHBC for Buildmark). It should mean cost savings both for the developer and the entities providing inspection services. This ‘twin-track’ approach happened in New Lawrence House in Manchester in Case Study 11 at section [11.8], described by Judge Stephen Davies in the TCC: [I]n reality there was a close connection between the building warranty functions and the building control functions. That is because the cover provided by the building warranty policies was very substantially aligned with the requirements of the Building Regulations, both because: (a) the cover in respect of present or imminent danger to health and safety applied where the danger resulted from the developer’s failure to comply with the Building Regulations; (b) the major physical damage cover applied where the damage resulted from the developer’s failure to comply with Zurich’s [the warranty provider’s] requirements as contained within its technical manual (‘the technical requirements’) which itself was in many respects closely aligned with the requirements contained in the Approved Documents issued under the Building Regulations. It followed that the inspections undertaken by the building warranty inspectors were either identical to or at least very similar in terms of their purpose, scope and performance as the inspections which would be undertaken by a building control inspector for building control purposes. It also followed … that a building warranty inspector was able to undertake much of the work which a building control inspector might otherwise have to do, and vice versa, thus allowing time and cost savings to be made.17

If, as happened here, inspections are not carried out satisfactorily for either purpose, consumers will suffer loss (acquiring flats in a defective building), as will their warranty provider (exposure to unexpected claims on the policy). If the construction employer prefers a private sector BCB, it may be better to choose an entity or individual which has no connection with the provider of a third-party warranty. Item 6: in the absence of a third-party warranty, a UK developer will know that lenders usually expect an alternative form of reassurance about the value of the home, as security for a mortgage offered to a home buyer. This usually means a Professional Consultant’s Certificate (PCC), which the developer will organise by instructing an appropriate professional.18 Their work will lead to a final PCC on completion, which is transferable with the home to a new buyer within a six-year period of validity. If the PCC is negligently misleading, the buyer (first or subsequent) may have a claim against the giver of the certificate if – but only if – they have suffered loss by relying on it.19 In relation to item 7, even a buyer who has already committed to an off-plan purchase contract may in the UK have no formal right to inspect; or at best may be able to do so

17 Zagora Management Ltd v Zurich Insurance plc [2019] EWHC 140 (TCC), 182 Con LR 180 [4.3]. 18 For a list of acceptable professionals in England & Wales and the minimum required PI cover, see the UK Finance Lenders Handbook (2017) [6.7.4]–[6.7.5]. 19 See Case Study 7 at section [5.9].

416  Inspections in Residential Construction only when construction is close to complete – when payment of most of the purchase price and the formal transfer of title (‘settlement’, in Australian terminology) takes place. This is triggered by what is usually a 14-day notice from the developer’s solicitors and the arrival of a cover note from a third-party warranty provider. The 2016 All Party Parliamentary Group report, More Homes, Fewer Complaints, recommended standardisation of off-plan sale contracts – but without much detail of what ‘core’ provisions each ought to contain, or how convergence should be attained. It also suggested that every such contract should give the buyer a right to inspect just before legal completion (the developer giving 10 days’ notice) and power to delay finalising the purchase if the inspection reveals significant defects.20 These new possibilities would not affect the home buyer’s post-completion rights; and might figure as part of the New Homes Quality Code bringing in the New Homes Ombudsman in the UK.21 By contrast, in Australia, head (main) contracts between the developer and main contractor for residential developments often include provisions permitting inspection at any stage. This may be available only to (technically qualified) representatives of first buyers, in order to measure work already completed and identify any defects or omissions; or may more widely permit ‘members of the public (including purchasers or potential purchasers, as the case may be) to access the site at the times agreed with the Contractor … for the purposes of sales, marketing and pre-settlement inspections’. The construction contract’s arrangements for the final stages of the project often provide that the buyer may inspect for defects once the contractor has given notice of practical completion; similar provisions often appear in off-plan sale contracts.22

8.4  A New Home Just Completed This is a crucial stage for the transfer of risk from developer X to first buyer B1, triggering (at least in the UK) the specific rights of the home buyer against the developer for the rectification of defects and their less serious companion ‘snagging’ (aspects of the home or development which B1 regards as unacceptable but which may not amount to breaches of contract by X). For most new UK home buyers, this immediate after-sales period brings in that aspect of the Consumer Codes regime, underpinned by the developer’s obligations under the relevant third-party warranty, with the warranty provider W in the frame if X fails to honour their obligations.23 In other jurisdictions, a developer is likely to operate a comparable system, but out of long-term commercial self-interest, rather than from external contractual compulsion.

20 All Party Parliamentary Group (APPG) for Excellence in the Built Environment, More Homes, Fewer Complaints (2016): www.cic.org.uk. 21 On the New Homes Ombudsman, see section [9.8]. 22 Based on examples from actual contracts for developments within Victoria, kindly made available by a lawyer in the field. A right to inspect is given to the purchaser or their representative within the seven days before settlement in the General Conditions of the statutorily approved Contract of Sale of Real Estate under the Estate Agents Act 1980 (Vic), widely used in practice. 23 On the Consumer Codes, see section [6.5].

New Home Buyers: Further Legal Issues  417 Table 8.3  On Completion of Construction WHO INSPECTS

DETAILED DISCUSSION

AIM

CONSEQUENCES

8 BCB (private or public).

To verify compliance with ‘the building code’.

‘Final certificate’ (public sector) or ‘final notice’ (Approved Inspector): ideally, the first buyer should not complete the purchase without it.

ch 3

9 Building surveyor or other construction professional – at the initiative of the first buyer.

To identify ‘snags’, defects and outstanding works.

Go-ahead (or not) for completion of the purchase.

[8.3] above

10 Independent snagging inspector – at the initiative of the first buyer.

To identify ‘snags’, defects and outstanding works to be notified to the developer for rectification.

Should lead to quicker Below and more complete early repair or other work on the home.

In item 8, if a certificate or notice is inaccurate and misleading, the same consequences follow as for the incorrect approval of non-compliant plans in Table 8.1 above; in the UK, to give an incorrect certificate or notice may be a criminal offence, though prosecutions are very rare. For item 9, see the discussion of item 7 under Table 8.3: much more an established practice in Australia and Ireland than it is in the UK.24 Item 10 is recommended in the UK by the HomeOwners Alliance, which has a link with New Build Inspections, offering this specific service commercially; this also meets developers’ duties under the Consumer Codes halfway. It is just possible that a reform linked to the introduction of a New Homes Ombudsman in the UK might standardise – even, organise – an inspection of a new home just before completion, rather than newly guaranteeing, as the APPG 2016 report had advocated, that the buyer should have an individual right to do this at their own initiative.25

8.5  New Home Buyers: Further Legal Issues Does a buyer ever have any obligation to inspect, if such inspection is possible? If they do, are their rights against the developer (or another project party) in some way reduced 24 There is even a specific standard in Australia: Australian Standard 4349-2007: Inspection of Buildings (SAI Global Ltd, 2011) s 1.3.5 (AS4349.0 – general); s 1.4.6 (AS4349.1 – pre-purchase inspections for residential buildings). 25 On the NHO, see section [9.8].

418  Inspections in Residential Construction if they miss this chance? In Scenario 2 (Table 1.1), the first buyer B1 is looking to the developer X in contract to achieve the objectives laid down in (or implied into) the written terms of the off-plan sale: these are definable end-result goals (though include some value-judgments about what is ‘good and workmanlike construction’, or ­equivalent).26 They leave no scope for arguments that B1 has failed to grasp opportunities (a site inspection) to stop X from committing breaches of contract along the way (and there is an argument that a situation only becomes a breach of contract at completion since the developer can rectify it at any time while the main construction phase is still ‘live’).27 So B1 is never prevented from later complaining of defects which could have been spotted before completion: failing to inspect when it might have been possible – or failing, during an inspection, to notice things which at completion constitute breaches of contract – ought to have no impact on a buyer’s rights. Such arguments could have more traction if B1 were considering a claim in tort, where to fail to take appropriate care to protect yourself against an actionable form of harm can be labelled as contributory negligence and reduce (potentially to zero) a claimant’s right to damages. In Case Study 1 at section [1.12], according to the New Zealand Court of Appeal, the defendant City Council in Invercargill originally claimed that Mr Hamlin was guilty of contributory negligence in relation to his new house’s foundations; this defence must have been abandoned early on, as it is not even mentioned in the first instance judgment. It clearly had no chance on appeal, where all the judges agreed that he was in no way the author of his own misfortune.28 It is not even clear what else Mr Hamlin could have done, since he was outside all the relationships and processes that led to his house being constructed in the way it was. In theory, he could have insisted, in his contract with the builder, on being able to instruct his own professional to inspect key stages of the construction. But, as the Court of Appeal pointed out, this would have been an unrealistically cautious and expensive approach (had the builder refused, Mr Hamlin might have had to look elsewhere for his new home); additionally, there was, perhaps surprisingly, no body of appropriately qualified building surveyors in New Zealand at that time (there is now).29 Backing existing local case law, the judges thought that a prudent buyer in his position should do no more than Mr Hamlin, in fact, did: to rely both on his builder and the City Council as BCB. This echoed what the English Law Commission said in 1970, proposing what became the Defective Premises Act 1972 (E&W, NI): There is no reason why a person who acquires a dwelling from the builder should have to examine it in detail to see whether it is in a sound condition. [They] should be entitled to rely on the diligence and skill of those whose work has gone into the provision of the dwelling and [they] should have a remedy if the dwelling proves to be defective.30

26 On end-result goals and the limited scope for contributory negligence as a defence in contract, see section [5.2.3]. 27 See also section [10.1.2]. 28 Invercargill City Council v Hamlin [1994] 3 NZLR 513, 79 BLR 39 (NZCA). 29 www.buildingsurveyors.co.nz (NZIBS). 30 Law Commission, Civil Liability of Vendors and Lessors for Defective Premises (Law Com No 40, 1970) [20].

A Recently Built Home  419 Such views would therefore doom a contributory negligence argument to failure against an individual in England, Wales or Northern Ireland who relies on section 1 of the DPA or its equivalent in relation to a dwelling.31 In commercial contexts, the courts may expect a much higher standard of selfprotection. So in a situation where the current owner makes a claim in tort (negligence) against one of the original construction parties for a design failure that has led to a building’s contents being ruined by flooding or fire, two issues may be crucial: (a) what inspection should the claimant have had on taking over the warehouse; and (b) what would a competent and appropriate inspection have revealed.32 These go to the latency of the defect and the opportunity (or not) for an intermediate inspection, by analogy with the opacity and sealed closure of the ginger beer bottle in Donoghue v Stevenson.33 In Australia, where relevant, these factors may also help assess the ‘vulnerability’ of the claimant; the answers may encourage a court to conclude that the defendant owes the claimant no duty of care at all, at least in relation to pure economic loss.34

8.6  A Recently Built Home Wise new homeowners will have an eye to the time limits which operate to end their rights to make particular categories of claim in relation to defects in their home, or the building (or wider development) of which it forms part – whether under the general law (a claim in contract, tort or under the Defective Premises Act 1972) or a third-party warranty or other form of insurance. Table 8.4  A Recently Built Home WHO INSPECTS 11 Building consultant – at the initiative of owner/s, if they suspect the building has defect(s).

AIM To confirm the existence of defect(s), seriousness and possible remedies, as a step towards assessing next steps – could include making a claim.

CONSEQUENCES A claim could be made against:

DETAILED DISCUSSION Below

–– Landlord or MCo under a long lease –– Developer or other original project party –– Building Control Body –– Earlier surveyor –– Insurer: a third-party warranty or other form of insurance.

31 On the DPA, see section [5.10.2]ff. An Australian ‘owner-builder’ lost a percentage of their damages for contributory negligence in Janbar Pty Ltd v Arborcrest Pty Ltd [2020] FCA 1519 [397]–[471], [588]–[595]. 32 The court may say that an inspection opportunity not taken up (or inadequately taken up) breaks the chain of causation, so the original designer or building contractor avoids liability. On this latency issue, the CA in Baxall v Sheard Walshaw Partnership [2002] EWCA Civ 9, [2002] BLR 100, 83 Con LR 164 differed from the TCC, partly also by describing differently the defect which was the cause of the relevant floods. In Pearson Education Ltd v The Charter Partnership Ltd [2007] EWCA Civ 130, [2007] BLR 324, a differently constituted

420  Inspections in Residential Construction Item 11 goes to the situation suggested in Scenario 7 (Table 1.3): the possibility that fire-stopping is missing or inadequate between a ground-floor commercial unit and the first-floor flat above, which B1 ‘bought’ and has let to short-term tenants. It has two aspects in a multi-unit development: how far to mobilise other residents to share responsibility for forensic investigation (perhaps at the same time alarming them unnecessarily); and how to organise (and pay for) the right level of such initial investigation, which may have to be intrusive in order to get hard evidence and may involve a selection of sites in order to suggest (but not yet prove) how pervasive the problem is. Even before litigation becomes a real possibility, a way forward is to instruct an appropriately qualified building consultant (in the UK and other places where the Royal Institution of Chartered Surveyors (RICS) is active, this person could be a chartered building surveyor) with a track record in this sort of forensic work. Professional bodies like the RICS offer a service helping a consumer find an appropriate professional by specialisation and region. Once the field has been narrowed, the lead homeowner should meet them and ask to see sample reports on similar cases. It is always possible to ask to contact former clients to find out how happy they were with the service. If at the first pass the consultant discovers problems in one flat (or house), the next step is to consider the implications for other flats (or other houses in the same development); whether there are safety and insurance concerns that need addressing immediately (perhaps with the fire authorities); the insurance position; and what kinds of rectification work would be necessary. It may be sensible to take preliminary legal advice and create a formal organisation channelling the residents’ concerns, which could commission further investigations on site. If so, the consultant must be familiar with the expert witness role and, at a later stage, able to draft a report complying with what a court or tribunal will expect.35 The consultant will owe a duty of care to the instructing owner/s, within the scope of the instructions as they evolve. To be aware of the impact of time passing and the situations in which it may become too late to start litigation is important even at this preliminary stage, notably because – at least under English law – a potential claimant will have knowledge attributed to them which they would have acquired, had they taken the professional advice which it was reasonable for them to do. Such knowledge may trigger an additional period of time running in which to start CA doubted whether the architects in Baxall should have been entirely exonerated by the inadequacies of the intermediate survey; and imposed liability on the newer case’s facts by saying that no intermediate inspection was reasonably foreseeable after the architects under-specified the capacity of the rainwater system; nor did a survey report commissioned by the insurers to the present claimants’ predecessors as tenants break the chain. On ‘latency’, see also section [5.7.3]. 33 Donoghue v Stevenson: section [5.7]. 34 On ‘vulnerability’ in Australian tort law, see section [5.12.3]. 35 In England & Wales, this brings in the Civil Procedure Rules pt 35 and its linked Practice Direction; in Scotland, the Law Society Expert Witness Code of Practice: www.lawscot.org.uk; in Northern Ireland, Practice Direction 1/2019 (Commercial Hub), which contains Practice Direction 1/2015 on Expert Evidence; in Ireland, see O’Leary v Mercy University Hospital Cork Ltd [2019] IESC 48, also Law Reform Commission (Ire), Report – Consolidation and Reform of Aspects of the Law of Evidence (LRC 117–2016) ch 6 (not yet implemented). In Australia, courts and tribunals have their own practice notes on the conduct of experts, eg, in VCAT ‘Practice Note PNVCAT2’ and, in the Supreme Court of Victoria, the ‘Expert Witness Code of Conduct’ under the Supreme Court Rules 2016 (Vic) reg 6. In New Zealand, see the High Court Rules 2016 sch 4: Code of Conduct for Expert Witnesses. On experts’ duties, see generally Secretariat Consulting Pte Ltd v A Company [2021] EWCA Civ 6, especially Coulson LJ at [34]–[58].

An Existing Home, Now for Sale  421 legal action; but if that period expires – or the overall longstop of 15 years since defects were definitively installed is reached – it will be fatal not to have started litigation.36 The law of procedure thus puts some pressure on homeowners to take proper steps without delay, if they suspect a construction problem.

8.7  An Existing Home, Now for Sale We do not include here the regular inspections and maintenance of services that a prudent homeowner would organise regularly, notably heating and air conditioning systems and servicing a swimming pool; a buyer is likely to be interested in knowing whether these have been done and see the resulting reports. Table 8.5  Selling an Existing Home WHO INSPECTS

AIM

CONSEQUENCES

DETAILED DISCUSSION

12a Scotland: an RICS survey is part of the mandatory Home Report – at the initiative of the seller.

To report on the condition of the building.

Assists potential buyers in deciding to buy and the price to offer.

Below

12b Building consultant – at the initiative of a would-be buyer.

To report on the condition of the building (could also include a valuation).

Choice of level of detail and cost; a client may need separate advice on choosing the level to suit their needs.

Below

13 Representative or agent of lender (if loan required to finance purchase).

Valuation: the adequacy of the building as security for the loan requested.

Go-ahead (or not) for the loan.

[5.9.5]

Items 12a and 12b: since 2008, under regulations adopted under the Housing (Scotland) Act 2006, a seller of a home in Scotland (brand new homes sold off-plan or recently completed/converted are excluded) must normally make available a ‘Home Report’, which includes a single survey, the same energy performance certificate as is required in the rest of the UK and the seller’s responses to a standard Property Questionnaire.37 This reform made mandatory a set of disclosures which, it was thought, the seller ought sensibly to make to all those interested; it contrasts with the position elsewhere, where

36 The detailed ‘constructive knowledge’ rules are in the Limitation Act 1980 (E&W) s 14A(5)–(10) and the Latent Damage Act 1986 (E&W) s 3(5)–(6); on limitation generally, see section [10.5]. 37 The Housing (Scotland) Act 2006 (Prescribed Documents) Regulations 2008 (SSI 2008/76); see also Scottish Government Social Research, Research to Inform the Five-Year Review of the Home Report (2015).

422  Inspections in Residential Construction the initiative – and the risk – rest heavily on a would-be buyer, with the result that as many surveys may be done as there are serious buyers. In both situations, the consultant owes a duty of care in contract to the instructing client/s, within and subject to the scope of the retainer; most regulated professions, like chartered surveyors and architects, are required to have PI cover against such liability. The RICS lays down standards for Home Surveys in general (the current text took effect on 1 March 2021), including specific guidance on the Home Report (Scotland);38 and the valuation aspects of such a survey.39 The Home Survey Standard requires RICS members and firms to benchmark the survey offered to one of the three levels in the Standard and the terms of engagement to be agreed before the service is delivered. Also, it lays down what the report should contain for each level and the need to discuss the findings with the client. Under item 12b, a surveyor in England recently incurred a heavy liability in damages to their clients, who bought the house surveyed and found that its pre-sale recent construction work left it taking in rainwater.40 The most common problems reported by UK surveys are damp, damage to structural timber, Japanese knotweed, subsidence, rotten window frames and old electrical wiring.41 Does the consultant who does a survey for a seller owe a duty of care in tort (delict) to a would-be buyer who sees the survey (especially in a Scottish context), buys the house in relying on it and then suffers a loss? That is less certain: the RICS guidance on the Single Survey Report suggests that they do, but not to a lender.42 If the wording of the surveyor’s report attempted to discourage reliance, this might be challenged as unfair in a B2C context.43 One thing is obvious in relation to an existing home, in contrast to all earlier examples in this chapter: the risk of the condition of the house, flat or development of which it is part lies entirely on the buyer, except in situations where disclosure of information is required by law, agreed between seller and buyer, or where the seller responds misleadingly to a question posed by the buyer.44 Those exceptions apart, any negative consequences of failing to take prudent precautions – which may result in failing to discover something unpleasant about the home – will rest where they fall, unless reasonable (and reasonably foreseeable) reliance on another party can be shown, whose negligence or breach of contract has triggered or enabled the transaction.

38 RICS, Home Survey Standard (2019) and Guidance Note: The Home Report, Scotland (2008). 39 RICS, Valuation – Global Standards (2019), and Valuation – Global Standards: UK national supplement (2018). 40 Hart v Large [2020] EWHC 985 (TCC) and Large v Hart [2021] EWCA Civ 24, discussed at section [5.9.1]. 41 Data from the HomeOwners Alliance. 42 RICS, Guidance Note: The Home Report, Scotland (n 38): Single Survey Terms and Conditions [1.3]. 43 See section [4.10] (the position in the UK). 44 On disclosure and misrepresentation, see Case Study 3 at section [4.4].

9 Pathways to Individual Redress Construction disputes have an emotional component which is often absent in other commercial litigation. … This may, in the extreme case, lead to the litigant announcing to a delighted lawyer that it would rather see its assets consumed in legal costs than pay a penny to the claimant. … a logical conclusion of this attitude is that litigation then takes on the characteristics of a war of attrition. THE HON DAVID BYRNE QC1

9.1 Introduction 9.1.1  Who is a ‘Complainant’, and What do They Want? This chapter looks at the choices available to an individual home buyer or homeowner (or long leaseholder) who wishes to pursue a claim relating to the quality of ­construction – or other aspects of the performance of construction work – in relation to their home or to the development of which it forms part.2 By ‘claim’ we do not only mean one already dressed up in legal language, with a view to an enforceable remedy from a court or tribunal; any complaint or grievance is included here, if the complainant is hoping for a form of redress in the power of the other party to grant. The ‘redress’ sought may be action – repairing or replacing work already done, or completing work left unfinished; it may be money – to pay for additional work or to compensate for harm suffered; but in some situations, an acknowledgment that something has gone wrong, together with an apology, may be enough. We also discuss the rarer situation where ‘the builder’ brings a claim against a homeowner.3 We do not consider here claims for death or personal injuries following events like the Grenfell Tower fire: some of the potential liability issues are covered in other c­ hapters; but in all our subject jurisdictions this is a separate area of practice, well discussed elsewhere.4 1 David Byrne, ‘The Future of Litigation of Construction Disputes’ (2007) 23 Building and Construction Law 398, 399. Byrne was formerly Judge in Charge of the Technology, Engineering and Construction List of the Supreme Court of Victoria. 2 Parts of this chapter are adapted from Buying a New Home: Your Rights Explained (2017), an online guide prepared by the Housing Research Group, King’s College London for the HomeOwners Alliance: www.hoa. org.uk. For the rights of short-term tenants against their landlord, see section [11.4]. 3 For examples of situations where a homeowner may find themselves defending a claim, see, eg, section [4.12.5] on quantum meruit claims; also Mylcrist Builders Ltd v Buck in section [4.10.2]. 4 On a landlord’s liability in England & Wales for personal injuries to residents and visitors from defective construction, see section [11.4.3]. On the procedural side of such claims, see, eg, John McQuater,

424  Pathways to Individual Redress Similarly, a disrepair claim by a social housing tenant against their landlord has its own particular procedures, both informal and formal.5 Nor can this chapter be a complete ‘how to’ guide on any procedure discussed: those processes are too varied, as are the problems a home buyer or homeowner may face. No book is a substitute for situation-specific professional advice. Gaining ‘individual redress’ sometimes needs collaboration with others: for example, with other unit owners in a multi-unit development with widespread original construction defects; or others who have the same problem in other developments built by the same developer or who share the same landlord or managers. To achieve rectification may require mobilising as many residents as possible and creating a simple membership organisation with a constitution. If litigation is a real possibility – or an inevitability – individual members can formally delegate their legal rights to the organisation’s elected committee; this can then instruct experts and lawyers and take decisions on behalf of the whole group.6 Collective action may also aim to change the law or policy – lobbying MPs or Parliament, organising demonstrations or a social media campaign. All these can be effective strategies, especially where a group of homeowners or residents can make common cause with a clear aim: in the UK, the Grenfell Tower survivors, the Leasehold Knowledge Partnership and the UK Cladding Action Group have shown how powerful such movements can be.7 But these broader forms of direct action, including how best to engage with the media (social and traditional), are beyond the scope of this book.8

9.1.2  Tactics and Priorities No judge, lawyer or construction professional would ever argue that ‘the royal road’ to a good outcome for a construction dispute passes via the law and judicial procedures. The 2016 Victorian Access to Justice Review put the point well: Court-based resolution of disputes can be costly, complex and slow. Adversarial court proceedings, especially when prolonged, can have considerable emotional costs for the parties involved and financial implications for both the parties and the taxpayer. ADR can increase access to justice by providing an alternative to formal court proceedings that is quicker, cheaper and more likely to result in an outcome that satisfies both parties and maintains their relationship.9 APIL Guide to Personal Injury Claims Procedure, 2nd edn (Jordans, 2015) and Gordon Exall, APIL Guide to Fatal Accidents, 4th edn (London, LexisNexis Butterworths, 2019). 5 In England & Wales, see Jan Luba, Catherine O’Donnell and Giles Peaker, Housing Conditions: Tenants’ Rights, 6th edn (London, Legal Action Group, 2019); there is now the Pre-Action Protocol for Housing Conditions Claims (England) (2020): www.justice.gov.uk. The new Protocol is relevant to claims before English courts by tenants and others under the Landlord and Tenant Act 1985 (E&W) ss 9A or 11, the Defective Premises Act 1972 (E&W) s 4, common law nuisance and negligence, and those brought under the express or implied terms of a tenancy agreement or lease. 6 See Community Action Groups Oxfordshire, Community Action Groups Quickstart Guide: www.cagoxfordshire.org.uk. 7 See www.grenfellunited.org.uk, www.leaseholdknowledge.com and www.facebook.com/ukcag. 8 See Bridget Pym, ‘The Making of a Successful Pressure-Group’ (1973) 24(4) British Journal of Sociology 448; and George Lakey, ‘Starting an Action Group’ (n.d.): www.wagingnonviolence.org. 9 Department of Justice and Regulation (Vic), Access to Justice Review, vol 1 Report and Recommendations (2016) 195.

Introduction  425 All official advice – and much of the policy underpinning court procedures – encourages disputing parties to consider simple negotiation or a form of Alternative (sometimes called Appropriate) Dispute Resolution. ADR can be defined as ‘a process where an independent and impartial third party considers the evidence in a dispute and makes a decision, offers a view or helps the parties to come to an agreement’.10 As this suggests, ADR may be either consensual – aiming to reach an outcome acceptable to both parties (mediation or conciliation); or determinative – more formal procedurally, looking to the law or other principles in order to find, perhaps impose, a ‘correct’ solution on the facts (arbitration or adjudication). The Practice Direction on Pre-Action Protocols in England & Wales says that ADR ‘might enable [the parties] to resolve their dispute without commencing proceedings’.11 Even commencing legal proceedings is officially discouraged, though a claimant may have to protect their position by taking the first formal steps in litigation if a time limit for legal action would otherwise run out.12 A potential claimant’s best first step is to approach ‘the builder’ informally for redress, as section [9.2] explores. Threatening litigation can always be in reserve, though this may be no more than a negotiating tactic: it never commits the party to ­carrying it out. Ideally, before deciding on a course of action a complainant should have a clear and accurate idea – supported by professional advice – of what would (or might) happen if the particular dispute did go to court or a tribunal; but this should primarily be the backdrop for exploring other more controllable options. When ‘the builder’ is first approached, their response will reflect an assessment of how far a complainant may ‘cause trouble’ generally. They will also consider their own chances of losing in court or before a tribunal; the likelihood that the complainant will actually take the dispute to law; or whether they might pursue less risky formal procedures – under a third-party warranty or other form of insurance, discussed in section [9.3], or complaining to a regulator, as in section [9.4]. Section [9.8] outlines the current UK proposals for a New Homes Ombudsman as a potential new avenue for such complaints.

9.1.3  If Negotiation Fails If the homeowner’s attempts to negotiate a satisfactory solution fail, more formal or bureaucratic approaches may be attempted. All versions of ADR have a possible place in our field: from mediation through to arbitration, expert determination and ­adjudication: the last is a specific statutory form of dispute resolution for construction contracts, discussed in relation to the UK in section [9.7] and in later sections for other subject jurisdictions. Beyond that, for the reasons discussed in sections [9.5]–[9.6] (and as the Practice Direction above suggests): ‘Litigation should be a last resort’.13

10 Department for Business, Innovation and Skills, Alternative Dispute Resolution Regulations 2015: Guidance for Business (2016) [3]. 11 Practice Direction: Pre-Action Conduct and Protocols (2020), adopted under the Civil Procedure Rules 1998 (SI 1998/3132); the CPR are massively and frequently amended. 12 See n 81; on time limits in general, see ch 10. 13 See n 11.

426  Pathways to Individual Redress Starting with how these issues are managed in the UK context, we provide comparative perspectives from our other subject jurisdictions in relation to complaining to a regulator in sections [9.4.3]–[9.4.4], then more generally in sections [9.9]–[9.11], before a final table-form summary and evaluation.

9.2  New Homes and New Work: Complaining to ‘The Builder’ Every ‘builder’ – if still in business when a buyer or owner of a home presents a problem – should prefer to resolve this informally, rather than see a formal claim arrive under a third-party warranty or from a law firm; or be exposed to a campaign of complaint and criticism; or (where available) the possibility of disciplinary action before a licensing body or regulator. A homeowner’s unhappiness (and ability to ‘cause trouble’ more widely) may immediately be lessened by a quick, relevant and empathetic response, whatever it actually offers: ‘a soft answer turneth away wrath’.14 Unhappiness with a service provider is usually shared with far more friends and contacts, including online, than any positive experience.

9.2.1 Introduction When a homeowner has a problem with their home (actual or intended), both sides’ self-interest ought to ensure two things: 1

2

The buyer or owner mobilises right away and, if they think an original construction party could (or should) offer a solution, contacts that party with a clear explanation of the problem and what they are hoping for, by way of investigation and remedy; and This party responds in a reasonable time and offers – if they can – a solution, or at least a way forward and a willingness to listen.

In new home situations, a developer can go one step further, incentivising itself to respond adequately and fast by giving the buyer a retention in the sale contract.15 Under the scheme introduced by UK volume housebuilder Persimmon in 2019, the developer receives only 98.5 per cent of the outstanding purchase price when the new homeowner moves in, accessing the remaining 1.5 per cent only after it has rectified any defects which the new homeowner has found during the first week after moving in.16 No other UK developer has publicly adopted such a commitment to after-sales service (modest and symbolic though it is).

14 Proverbs 15, v 1 (King James Version). 15 On retentions, see section [1.4.2]. 16 A statutory scheme with similar intent, based on a defects retention bond for 2% of the contract price, has been in place in relation to residential apartment buildings in NSW since 2018: see Strata Schemes Management Act 2015 (NSW) pt 11 div 3.

New Homes and New Work: Complaining to ‘The Builder’  427

9.2.2  Key Considerations Plentiful advice is available online to consumers in difficulty with ‘a builder’, especially where there may be no contract in writing or where it covers only the bare essentials. Here is a helpful checklist, from New Zealand’s Consumer Protection service, on how a consumer should approach trying to resolve a dispute themselves: • Try and talk it through first. It might simply be a mistake or misunderstanding. It’s cheaper and less stressful, in the long run, if you and your builder can sort things out yourselves When communicating with your builder: • • • • • • • • • • •

Voice your concerns as soon as possible – they may not realise there is a problem Put your views across clearly – writing it down first can help Be open to what the other party has to say Try to understand the other party’s point of view Check your builder has understood your concerns Try to come up with a range of options to sort things out – including possible compromises Have realistic expectations about what you expect to happen Make yourself available if your builder tries to contact you Keep talking and listening even when you can’t agree If you can’t solve the issue first time around, agree another time when you can try again Stick to the issues and be respectful, including in voicemail, text or email messages. A hasty, incomplete or poorly worded message can create confusion or unnecessary ill-feeling • Record what you agree in writing in case you need to refer to it later • If your issue is about workmanship you can decide to hire a building consultant to do an independent check. Your builder may agree to split costs.17

9.2.3  Formal Procedures In addition to these applications of ‘human nature’, there are more scientific and formal procedures which ‘the builder’ might consider adopting. ISO 10002:2018, the international standard for customer satisfaction, provides guidelines for putting in place a complaints management system – helping to identify complaints, their cause and how to eliminate them, as well as handling them more effectively and efficiently.18 Committing to ISO 10002 allows the business to use a certification mark: an internationally recognised sign of a verifiable commitment to good customer relations. This might be valuable to a volume developer or home builder or a large architectural or engineering practice. However, the time and expense of establishing systems to comply with the standard and to run them will hardly appeal to specialist subcontractors, even less so to a small enterprise doing residential extensions, maintenance or refurbishment – like our one-person plumber P in Scenario 3 (Table 1.2).

17 From www.consumerprotection.govt.nz, with ‘tradesperson’ replaced by ‘builder’. 18 See www.bsigroup.com/en-GB/iso-10002-complaints-management. The same ISO document is also an Australian Standard.

428  Pathways to Individual Redress In the UK, a developer offering a first buyer of a new home a third-party warranty usually becomes subject to one of the current Consumer Codes.19 As a result, the developer commits to having clear and accessible after-sales service standards during Years 1–2 (in some cases, Years 1–3). These must be communicated to the buyer (together with the developer’s membership of the Code and a copy of the Code text), as well as how complaints will be handled. All this is backed by independent dispute resolution if a home buyer alleges that a breach of the Code has taken place and is not satisfied with the developer’s response. This is a sector-specific equivalent to ISO 10002 certification – which may be why few volume housebuilders in the UK have gone down the ISO route, though some have the generic ISO 9001:2015 quality certification.20 Most professions’ codes of conduct (or equivalent) require members to adopt and publicise their own internal complaints procedure, activated if a client approaches them with a problem relating to work done. These requirements are likely to include normal maximum times for acknowledging receipt of a complaint and responding substantively, and may require making an ADR option available.21 External regulation of insurers achieves the same result.22 In all EU Member States, the 2013 Directive on Consumer ADR attempts to generalise access to ADR for disputes arising out of B2C sales or service contracts in almost all economic sectors.23 It requires Member States to ensure that – in our case – a consumer who wishes to claim against a supplier of services can submit this dispute to a publicly listed ‘ADR entity’ (one or more persons, or an organisation).24 However, it does not require ‘traders’ generally to commit to using such an entity, unless separately obliged to do so by law; reports suggest that only one in three is, in fact, so willing.25 A trader who does choose to commit to ADR must make information about these possibilities readily available to consumers.26 The fee to a consumer for using ADR must be no more 19 Consumer Codes are discussed at section [6.5]; third-party warranties and their links to Consumer Codes in ch 7. 20 See, eg, www.accueil.co.uk/new-homes. The All Party Parliamentary Group (APPG) for Excellence in the Built Environment strongly recommended those in new home building to adopt ISO accreditation: Better Homes, Fewer Complaints (2016), Recommendation 7: www.cic.org.uk. 21 See, eg, Architects Registration Board (UK), The Architects Code: Standards of Professional Conduct and Practice (2017), Standard 10; Victorian Building Authority, Code of Conduct for Building Surveyors in Victoria (2020), Principle 8; or Royal Institution of Chartered Surveyors, Rules of Conduct for Firms (2017), Rule 7. 22 See section [9.3.3]. 23 Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC, [2013] OJ L 165/63. It was implemented in the UK by the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015 (SI 2015/542), the Alternative Dispute Resolution for Consumer Disputes (Amendment) Regulations 2015 (SI 2015/1392) and the ­Alternative Dispute Resolution for Consumer Disputes (Amendment) (No. 2) Regulations 2015 (SI 2015/1972); in Ireland by the European Union (Alternative Dispute Resolution for Consumer Disputes) Regulations 2015 (SI 343/2015) (Ire). 24 But the Directive (n 23) does not apply to procedures initiated by a trader against a consumer, eg, for payment: art 2(2)(g). 25 Report from the Commission to the European Parliament, the Council and the European Economic and Social Committee on the application of Directive 2013/11/EU of the European Parliament and the Council on alternative dispute resolution for consumer disputes and Regulation (EU) No 524/2013 of the European Parliament and the Council on online dispute resolution for consumer disputes, COM(2019) 425 final. 26 The Directive (n 23) art 13.

New Homes and New Work: Complaining to ‘The Builder’  429 than nominal, and the process could take place online.27 Where the outcome of the ADR procedure will bind the consumer, the consumer must be informed of its binding nature in advance and expressly accept this.28 Where the outcome will not be binding, the limitation period for judicial proceedings must not expire while ADR procedures are under way.29 The Directive requires each Member State to set up (or name) one or more national ‘Competent Authorities’, whose role is to certify ADR providers and ensure they comply with the Directive’s requirements (expertise, impartiality and independence), as well as with its basic procedural standards.30 As a matter of EU law, the UK no longer had to give continued effect to the 2013 Directive after the end of the Brexit implementation period on 1 January 2021, but appears to intend to do so.31

9.2.4  The Impact of a Construction Contract In an off-plan purchase, like Scenario 2 (Table 1.1), the intending home buyer B1 has limited information about what is happening on site and often no contractual link with those doing the work. Hence they need to rely on construction inspections at different stages of the project by others, discussed in chapter 8. By contrast, in Scenarios 3 and 6 (Table 1.2), the homeowner is, practically and legally, a construction employer, living over (or next door to) ‘the job’: able to see what is going on daily as the project progresses and directly in contract (as well as contact) with the person or entity legally responsible for all the work. One of the key areas that a construction contract – meaning here the simpler published standard forms intended for straightforward B2C projects – should regulate is how issues arising while construction is under way or at its end should be resolved – by whom, in what form and to what timescales. The project may attract as a matter of law the possibility of statutory adjudication of disputes (all disputes, or perhaps only payment issues, depending on the jurisdiction where the project is taking place); or the contract may include similar possibilities without them being imposed by the law, as often happens in the UK. But the fact that parties are linked by a contract that includes

27 The earlier mediation Directive – Directive 2008/52/EC of the European Parliament and the Council of 21 May 2008 on certain aspects of mediation in civil and commercial matters [2008] OJ L 136/3 – was limited in scope to cross-border disputes and now largely overtaken by the 2013 Directive, which also had a linked EU Regulation 524/2013 on Online Dispute Resolution (ODR), specifically for online purchases and (again) for cross-border disputes. Both are of limited relevance in our field and not discussed further. 28 The Directive (n 23) art 10(2): this is the hurdle at which the builder fell in Mylcrist v Buck in relation to an arbitration clause: see section [4.10.2]. 29 The Directive (n 23) arts 9(2)(b)(ii) and 12. On the limitation period and the ADR Directive, see section [10.7]. 30 In the UK’s regulated sectors, like insurance, the sector’s own regulator is ‘the competent authority’ – which meant that existing ADR schemes (ombudsmen etc) in those fields could continue almost undisturbed; in non-regulated sectors (like construction), it is the Chartered Trading Standards Institute (under delegation from the Secretary of State), already running the Consumer Codes Approval Scheme: see section [6.5]. In Ireland, the ‘competent authority’ is the Competition and Consumer Protection Commission. 31 See the Alternative Dispute Resolution for Consumer Disputes (Extension of Time Limits for Legal Proceedings) (Amendment etc) (EU Exit) Regulations 2020 (SI 2020/1139).

430  Pathways to Individual Redress provisions for dispute resolution never excludes the simplest possibility: an open and unstructured dialogue about a problem. The RIBA Domestic Building Contract 2018 includes a section on Collaborative Working, which requires the parties (plus the contract administrator, if a separate person) to meet ahead of work starting, set out their mutual expectations, agree on communications procedures and identify particular project risks.32 This requires one party to give an early warning to the other of any potential or actual delay events, with a collaborative approach to resolve the situation and minimise the effect on the project. The legal consequences of failure to carry out these sensible steps are not spelt out, as they look to ‘best practice’, rather than arming one side with a tactical advantage over the other. After the RIBA contract has dealt with the central issues of rights and obligations, it invites the parties to choose, at the point where they commit to the contract, between negotiation and mediation to resolve ‘any dispute or difference’ arising under the contract. However, the text provides no more than permission: ‘the Parties may attempt to settle the dispute’ by one of these techniques; it goes on to preserve each party’s right to launch adjudication or the client’s right to give notice of arbitration (according again to their choice at the start), also allowing them to start court proceedings at any time.33 This focus on formal procedures is mostly because the common law usually considers duties to ‘work together’, to negotiate or take part in mediation or another form of ADR – even if, or perhaps especially if, the words ‘in good faith’ are added – too imprecise to be enforceable.34 There is also the risk that imposing a form of dispute resolution on a consumer will invite a challenge to that clause, especially if it limits access to the courts, as an unfair contract term.35 The FMB Domestic Building Contract similarly invites the parties to choose a method of dispute resolution, correctly suggesting that adjudication ‘applies’ if the client does not live, or plan to live, at the site. The form allows the parties to choose (contractual) adjudication, incorporating the Scheme, even though the client does, or will, live at the site; it allows the parties additionally to agree that an adjudicator’s decision is to be final and binding (excluding any later litigation or arbitration on the merits).36 Standard forms like this – intended uniquely for residential projects for an individual employer – are also published by the JCT, including the Building Contract and Consultancy Agreement for a Home Owner/Occupier.37 This provides for adjudication, with specially devised procedural rules: the implications of choosing what is in effect a statutory form of dispute resolution are discussed at section [9.7]. The RIBA also publishes separate appointment forms for architects, some specifically intended for use with individual residential construction employers, eg, its Domestic Professional Services Contract 2018: Architectural 32 RIBA Domestic Building Contract 2018 cl 3. 33 RIBA Domestic Building Contract 2018 cl 13. The Guidance Notes do not explain that, if the client is a ‘residential occupier’, adjudication is not imposed by law: see section [9.7]. Allowing only the client to launch arbitration is apparently to avoid the risk that a court would find the possibility of arbitration against the client an unfair contract term: see section [4.10.2]. 34 See, eg, Walford v Miles [1992] 2 AC 128 (HL); but compare The Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1984] UKPC 39, [1989] 1 Lloyds Rep 205. 35 On unfair contract terms, see section [4.10]. 36 FMB Domestic Building Contract cl 28. 37 JCT, Building Contract and Consultancy Agreement for a Home Owner/Occupier (HO/C and HO/CA 2005, revised 2015).

Claiming on Insurance or Under a Third-Party Warranty  431 Services, which claims compliance with the Consumer Rights Act 2015 (UK) and gives a choice of dispute resolution methods, to be selected as part of the Contract Data.

9.3  Claiming on Insurance or Under a Third-Party Warranty 9.3.1 Introduction There are only two substantive conditions for making a claim: 1 2

The claim must be lodged in time;38 and The policyholder must show that an ‘insured risk’ under the policy has occurred.

The formalities may be simple: a claim form will often be available from the insurer’s website. Urgent claims may even be possible by telephone. It may be important – especially if there could be an issue about time limits – for the consumer to take note of whom they speak to at the insurer, as well as that person’s job title; immediately afterwards, make a written note of the time and date of the call and the gist of what was said – in particular, what each side agreed to do and its timing. Time is, of course, also relevant to the scope of cover: each relevant policy has an end-point, which may (as in some Australian jurisdictions) vary depending on the substance of the claim.39 In the UK, the NHBC Buildmark and those other policies which copy its structure place primary responsibility on the developer to respond to claims in the policy’s early years. Every policyholder should note carefully the dates at which cover may change or run out, aiming at the same time to act fast after that deadline if there is any chance of making a claim relating to events before the deadline. There may also be financial conditions in the policy which impact the decision to make a claim: claims may have an ‘excess’ (‘deductible’) applied, which makes a lowvalue claim pointless, or the policy may (like Buildmark) impose a minimum value on each claim. Further, most policies have a maximum for each claim or a cumulative total for all claims under that policy (whether made by this policyholder or by a predecessor as homeowner) or – in the case of multi-unit developments – all claims in relation to ‘the common parts’ of that development.40

9.3.2  Dealing with a Claim Insurers regulated by a statutory body – as in all our subject jurisdictions – are under obligations from their regulator to respond promptly to communications (claims and subsequent communications) from policyholders.41 Some (like the NHBC in the UK) 38 On time limits for such claims, see section [10.2]. 39 See Table 7.2. 40 For these in relation to Buildmark in the UK, see section [7.2.9]. 41 In the UK, these are the Financial Conduct Authority rules, notably ICOBS 8.1.1 (top-level Business Standards binding on every insurer).

432  Pathways to Individual Redress have a published Claims Charter; in Ireland, the Consumer Insurance Contracts Act 2019 directly lays down duties on any insurer dealing with consumers;42 and the Financial Services and Pensions Ombudsman Act 2017 permits internal dispute resolution procedures to be imposed on all Irish providers of insurance products.43

9.3.3  Has ‘An Insured Risk’ Occurred? The policyholder always has the job – technically, the burden of proof – of convincing the insurer that they have a valid claim. For many, this will mean engaging for the first time with the detailed text of their policy. In relation to new home buyers in the UK, the 2019 New Homes Review reported that 64 per cent felt they knew little or nothing about what their warranty covered; only 36 per cent claimed fully to understand its coverage.44 For claims requiring the death, disappearance or insolvency of ‘the builder’ (DDI, in Australian terminology), the policyholder may have to research the activity on site and elsewhere to establish that trading has come to an end or insolvency procedures have taken place. At worst, the consumer may have to start formal dispute resolution processes to establish this, expecting that the builder will fail to engage with such processes or that formal insolvency will be the outcome.45 Where the claim is about defects in a home or development, the insurer is certain to want to inspect; in readiness, it often helps the homeowner to be armed with a report following an inspection by a construction professional – whose fee they will usually have to bear themselves. Presenting a claim with such a report attached will show seriousness and help the insurer respond completely. A well-prepared claim should also include photos (numbered and identified) and a table listing the different items of the claim, how they link to individual policy provisions, the proposed solutions and the rough cost of each item.46

42 See section [10.2.3]. 43 Financial Services and Pensions Ombudsman Act 2017 (Ire) s 55. 44 www.newhomesreview.com. These figures, of course, record only respondents’ self-reporting of their level of understanding; actual understanding may well be lower. 45 Such a tale of woe is told in the submission dated 3 August 2015 by Victorian homeowner Sonya TisseraIsaacs to the Australian Senate’s Inquiry into the Effects of Non-Conforming Building Products on the Australian Building and Construction Industry: www.aph.gov.au. She notes that the insurer initially refused cover because the builder was not DDI. A 17-day hearing at VCAT resulted in an order against the builder, which the builder refused to pay. Eventually, the homeowners commenced winding-up procedures in the Supreme Court of Victoria, at which point the builder put his company into voluntary administration. ‘DDI’ having been triggered, the insurer offered to pay a lesser sum than had been ordered for the defective and incomplete work but refused to cover the homeowners’ very substantial legal costs of the action against the builder. The homeowners then took the insurer to VCAT, where Deputy President Aird ordered the insurer to pay the full amount awarded previously for defective and incomplete work but confirmed that ‘[w]arranty insurance has never provided litigation costs insurance’; she acknowledged that it was ‘not surprising that homeowners are somewhat disenchanted with the current regime’: Isaacs v Vero Insurance Ltd [2009] VCAT 358 [54], [56]. 46 Such a report may usefully be the first draft of a Scott Schedule: a landscape-format table which sets out individual items in a building claim down the left-hand column, columns to the right recording the claimant’s estimate of the cost of rectification of each, the other party’s response on liability and cost and (ultimately) the judge’s or tribunal’s decision: see also Table 8.4.

Claiming on Insurance or Under a Third-Party Warranty  433 Most disagreements with insurers are about the scope of cover – whether or not the policy responds to a particular problem in a particular location. The figures from V ­ ictoria confirm this picture: the most common reasons for refusing claims in 2018–19 were that the reported fault was not deemed a defect (38.6 per cent of all claims), or the builder was not insolvent (this mandatory system having a DDI threshold) (23.3 per cent).47 No comparable figures for the reasons why claims fail or giving the range and amounts of payments where a claim succeeds seem to be available in the UK or Ireland. A policyholder might find themselves in dispute with their insurer on other issues: • The insurer does not offer the full cost of rectification, considering that the policyholder has unreasonably delayed in making a claim and made the problem worse. • The homeowner disagrees with the insurer about what remedial work should be undertaken and its cost: for example, the insurer may argue that to make the home comply with today’s mandatory standards constitutes ‘betterment’, for which it is not liable. • Where the insurer has a choice of how to respond to a valid claim (like the NHBC in the UK), it chooses to carry out remedial work – via one of its registered builders – when the homeowner would prefer to organise the work (or vice versa).48 • The homeowner has already incurred costs with a construction professional or solicitor for which the insurer refuses to pay, or would like authorisation from the insurer now to instruct a solicitor (and the insurer refuses). • For health and safety reasons, or simply because of the inconvenience, the policyholder wants to move out of their home while remedial work is carried out; the insurer considers this unnecessary and refuses to pay the costs of moving their belongings into storage or of alternative accommodation. • The policyholder thinks the terms of the policy unfair, or the insurer’s interpretation of them.

47 Essential Services Commission, Victoria’s Domestic Building Insurance Scheme: Performance Review 2018– 2019 (2019) 18 (percentages added from later parts of the report). The average cost of closed and finalised claims was around A$33,000, subdivided between failure to complete: A$64,525; defects: A$51,027 (structural) and A$33,798 (non-structural). The HBCF does not report in such detail for NSW, but its 2018–19 figures show A$4.1m paid out to 52 homeowners for building work not completed (an average of close to A$79,000): Insurance and Care NSW, Annual Report 2018–19 61. Figures from the Queensland Building and Construction Commission show non-completion claims totalling more than A$20m and defects claims of about A$15m, with A$1.7m recovered from ‘builders’: QBCC, Annual Report 2018–2019 40. 48 Where the NHBC exercises its right under Buildmark to organise rectification work itself, it could be argued that it undertakes a separate and new obligation to the homeowner to complete this work in such a way as to achieve a building compliant with (at the minimum) ‘the building code’ and – if relevant – its own technical standards. Failure to do this could create a free-standing claim in damages for breach of contract. The main head of damages would be the cost now of making the building compliant. This claim could, therefore, escape the limitations on the scope of the NHBC’s obligations under the policy: eg, (a) the need for ‘damage’ caused by a ‘defect’, as defined; (b) the irrecoverability of more than a fraction of consequentials and legal and other professional costs; and (c) the applicable overall financial cap on the NHBC’s liability.

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9.3.4  Disputes between Policyholder and Insurer Such disputes are, at bottom, about legal rights and liabilities, so if unresolved could be brought before a court or tribunal for determination. The insurer may instead suggest some form of ADR: perhaps mediation, which often means both sides giving ground in the interests of resolving the problem right away. This takes place in private, and the insurer may insist that the terms of any settlement are also confidential. If no agreed solution can be reached and court beckons, Case Study 11 at section [11.8] illustrates what may face a claimant: a tenacious and well-resourced insurer can legitimately take every possible point, procedurally and at trial, in order to limit its liability.49 It also has an interest in delaying this outcome as long as possible, perhaps in the hope of wearing down an individual claimant, whose resources and stamina are always finite; or to avoid losing in public on the interpretation of its standard terms, which may have implications for all policies using the same language. Only if the amount at stake is substantial, or if the consumer has legal expenses insurance or other sources of funding, would it be wise to consider litigating against an insurer.50 The low-risk alternative – if available – is to challenge the insurer’s refusal of a claim, or the amount offered, before a regulator.

9.4  Complaining to a Regulator 9.4.1  In the UK No official licensing or regulation: in relation to residential construction, the absence of any official occupational licensing across the whole sector means that there is no single body able to deal with all home buyers’ or homeowners’ complaints against ‘builders’ in general, or the other professionals involved in the process of buying a new home or having construction work done (solicitors, licensed conveyancers, architects, chartered surveyors). Professional bodies all regulate their members providing specific services in the sector; all have systems for receiving and dealing with complaints against members and disciplinary procedures, but these rarely extend to ordering a defaulting member to make redress to a complainant. Architects are formally the exception, as their regulation is statutory. Even here, the focus of the Architects Registration Board is on protecting the public against incompetent practitioners, rather than hearing and determining claims for compensation by consumers against an architect who, acting in a professional capacity, has caused them loss.51 Such a claim almost always looks to the general law, which means in the civil courts. New homes: Claims against developers whose sales of new homes bring in one of the Consumer Codes have a simple and accessible informal dispute resolution system as a

49 The 50 On

51 For

Isaacs case outlined in n 45 provides an example from Victoria (though less dramatic than Zagora). litigation funding, see n 295. an example, see section [5.9.4].

Complaining to a Regulator  435 safety net;52 but the whole landscape may be transformed by the arrival of a New Homes Ombudsman, discussed at section [9.8]. The Financial Ombudsman Service: this is the exception in our field – a statutory regulator, set up in 2001, with the power to hear and determine consumer complaints and award compensation.53 The FOS is relevant because third-party warranties which relate to construction are, despite their name, in the nature of insurance (as are other forms of home-related insurance, like buildings and contents policies). All these are ‘regulated activities’ under the Financial Services and Markets Act 2000, which puts them within the ‘compulsory jurisdiction’ of the FOS.54 The FOS reasonably expects anyone who wants to take action against an insurer – in this broad sense – to get a decision from the insurer first, then to challenge that before the FOS if there appear to be grounds for doing so.55 Any consumer has a right to go to the FOS, but individuals acting by way of trade, business or profession do not qualify – so ‘buy to rent’ homeowners may be excluded.56 The advantages of complaining to the FOS are (a) the service is free (no exposure to the respondent’s costs) and untechnical, so a consumer ought to be able to lodge a complaint without needing professional help; and (b) it can award compensation of up to £355,000 (lower limits apply for acts and omissions before 1 April 2019), the award being enforceable against the respondent (the warranty provider) as a judgment.57 However, the FOS is essentially a regulator of financial services, so its case officers and adjudicators are not experts in building defects: they may not engage well with a complaint against a third-party warranty provider.58 On the other hand, the FOS determines the complaint by reference to what is, in the ombudsman’s opinion, ‘fair and reasonable in all the circumstances of the case’59 – not limited by the technicalities of the law, so perhaps including compensation for distress and inconvenience where a court might award none, or more generously than a court would. And the award can recommend that the respondent insurer should offer additional compensation beyond the relevant FOS limit and take further action by way of non-financial forms of redress. However, there is evidence of delay in the FOS procedures, complex cases taking two years to reach an award.60 Accepting an FOS award has a downside: the consumer cannot then make (or pursue) a claim in court arising from the same facts, even though a court could (or might) award more as damages. This key point was made clear by the Court of Appeal in Clark v In Focus Asset Management & Tax Solutions Ltd: the common law doctrine 52 On Consumer Codes in the UK, see section [6.5]. 53 Set up under the Financial Services and Markets Act 2000 (UK) pt XVI and sch 17, as amended. 54 Financial Services and Markets Act 2000 (UK) ss 22, 225–26 and sch 17, as amended; also the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) ch III. 55 On claiming on insurance or under a third-party warranty, see section [9.3]. 56 The definition of ‘consumer’ for the FOS is ‘any natural person acting for purposes outside his trade, business or profession’: narrower than in the Consumer Rights Act 2015 (UK) s 2(3). 57 Financial Services and Markets Act 2000 (UK) sch 17, para 16, as amended. 58 However, the FOS reports 417 new cases about building warranties arriving in 2019–20; of the warranty cases resolved in the same period, 51% went in favour of the complainant: www.financial-ombudsman.org.uk. 59 Financial Services and Markets Act 2000 (UK) s 228(2). 60 Miles Brignall, ‘Whistleblower Reveals Financial Ombudsman Service in Disarray’ The Guardian (14 December 2019).

436  Pathways to Individual Redress of res judicata (‘the matter has [already] been judged’) means that a claimant cannot re-litigate before the same or another judicial body – except by using a right of appeal, where available – a cause of action already definitively determined.61 So a consumer who has gone to the FOS but wants to preserve the right to go to court, or continue court proceedings already started, must reject an FOS award if offered: to accept it, attempting at the same time to reserve the right to go to court (as the claimants did in Clark) will not work, as the award is ‘binding on the respondent and complainant and final’.62

9.4.2 Australasia As explained in chapter 3, several Australian jurisdictions have statutory regulators for construction in general – residential projects having an extra layer – which operate as licensing/registration bodies for practitioners. Regulators have the capacity to take action against those who do not have the relevant licence for the activity they are undertaking, as well as investigating complaints of inadequate or inappropriate work by those who are licensed, with significant disciplinary sanctions in their repertoire. Some have powers lacking so far in any UK regulator (though subject to significant limits in each case): to order defective work to be redone at the expense of ‘the builder’;63 and to respond to serious complaints against a construction professional by immediately suspending their licence (making it criminal to continue to operate).64 New Zealand’s Building Practitioners Board (BPB) is the regulator for Licensed Building Practitioners – a licensing system looking specifically to competence in relation to the structure and weathertightness of residential buildings. The BPB hears complaints against Licensed Building Practitioners, with powers under the Building Act to impose a fine and cancel that person’s licence (but not award compensation or any other form of redress to a client).65 Wherever residential construction insurance is mandatory (the whole of Australia, minus Tasmania), Australia’s General Insurance Code of Practice applies, requiring insurers to have two distinct complaints processes in place, open to policyholders.66 The first is an internal process within the insurer; the second, an external dispute resolution 61 Clark v In Focus Asset Management & Tax Solutions Ltd [2014] EWCA Civ 118, [2014] 1 WLR 2502; see also the judgment of Lord Sumption in Virgin Atlantic Airways v Zodiac Seats UK Ltd [2013] UKSC 46, [2014] AC 160. 62 Financial Services and Markets Act 2000 (UK) s 228(5): see Clark (n 61) [41]ff (Arden LJ) On staying litigation in order permit a claim to the FOS, see Templars Estates Ltd v National Westminster Bank [2016] EWHC 2020 (Comm). 63 See, eg, the powers given to (in practice) the NSW Building Commissioner under the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) pt 5 and to the VBA under the Building Act 1993 (Vic) pt 4 div 2. 64 See, eg, the Building Act 1993 (Vic) pt 11 div 3 and, for an explanation of the transition arrangements in the enforcement of certain powers from the now-defunct Building Practitioners Board to the VBA, Draper v VCAT [2020] VSC 720. These powers have been expanded in recent years; eg, the VBA obtained this suspension power from 1 December 2020 in relation to plumbers, through provisions in the Building and Environment Protection Legislation Amendment Act 2020 (Vic), newly inserted into the Building Act 1993 (Vic) as ss 221ZZZFA, 221ZZZKA–B. 65 Building Act 2004 (NZ) s 318. 66 For insurance in Australasia, see section [7.5].

Complaining to a Regulator  437 scheme independent from the insurer; in most cases, this is the Australian Financial Complaints Authority (in 2018 replacing its Financial Ombudsman Service).67 As with the UK FOS, the procedure AFCA uses may include attempting to broker a solution acceptable to both sides; if that fails or is unavailable, it will investigate and reach a legally binding determination, looking at the fairness and reasonableness of the insurer’s decision, so the legal position is only one of the relevant factors. Accepting an AFCA award prevents litigation on the same claim, but rejecting it does not.68 As chapter 7 explained, insurance is not at present compulsory for any residential construction projects in New Zealand. Where such products are available – notably from or via builders’ trade associations – their providers are regulated as insurers by the Reserve Bank of New Zealand;69 but there is no ombudsman to determine challenges by policyholders against decisions of insurers on claims.

9.4.3 Ireland Closely similar to the position in the UK, those providing construction services in Ireland are – at best – self-regulated, with no central registration or disciplinary body across the whole sector and no avenue for compensation except litigation or the threat of it, or a warranty claim against HomeBond or another third-party insurer, within the terms of the policy.70 Providers of insurance services – including third-party warranties for new homes – in Ireland are regulated by law, under the overall responsibility of the Central Bank of Ireland for the provision of financial services. Under the Central Bank Act 1942 (as substantially amended), it has rule-setting, authorising, monitoring and disciplinary powers, leading to a general Consumer Protection Code, binding on all regulated entities (including third-party warranty providers), now in its second edition.71 Since 2018 Ireland has had the Financial Services and Pensions Ombudsman. Like the FOS in the UK and AFCA in Australia, the FSPO was set up to be independent, impartial, fair and free, with the power to award compensation up to €500,000.72 It actively encourages the resolution of complaints via mediation, with a formal investigation procedure as the next stage;73 the final decision, like the FOS award, can be based on a range of considerations far beyond legal technicalities.74 An FSPO decision is legally binding and enforceable but can be appealed to the High Court.75 No complaints relating to third-party new home warranties appear yet to have reached the FSPO.76 67 AFCA was established under the Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Act 2018 (Cth). 68 www.afca.org.au. 69 Under the Insurance (Prudential Supervision) Act 2010 (NZ), as amended in 2013. 70 For one proposed version of a sector-wide register, CIRI, see section [6.6.3]. On HomeBond, see section [7.6]. 71 Consumer Protection Code (2012): www.centralbank.ie. 72 Financial Services and Pensions Ombudsman (Compensation) Regulations 2018 (Ire) (SI 154/2018). 73 Financial Services and Pensions Ombudsman Act 2019 (Ire) s 58. 74 Financial Services and Pensions Ombudsman Act 2019 (Ire) s 60. 75 Financial Services and Pensions Ombudsman Act 2019 (Ire) ss 62, 64. 76 www.fspo.ie.

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9.5  Considering Litigation 9.5.1 Introduction The ‘inequality of arms’, which in other chapters has characterised relations between consumers of construction services and the providers of those services, operates with particular intensity in relation to civil litigation. This structural imbalance amplifies the force of the truism in our field that it is always better to be a defendant than a claimant – and most unhappy home buyers or homeowners are, or would be, claimants. Anecdotally, it is rare for an individual to be the claimant in a case before England & Wales’ specialist Technology and Construction Court (TCC), let alone for such a case to get to trial and judgment.77 To start and manage a claim in the TCC without specialist legal representation would be almost unknown and probably unwise. In traditional civil litigation, the pressures to settle – even ‘at the court door’ on the day of a trial before a judge – derive from the risks weighing heavily on any claimant. The main driver is the widely dominant principle that ‘costs follow the event’: ‘costs’ meaning the expenses of mounting a case, including lawyers’ and experts’ fees, the court’s fees and the other expenses of the case; in this context, ‘event’ means the outcome of the case. Under this, the winner may well not get back all their own side’s costs (especially if they win overall but lose some aspects of the case); worse still, to lose means having to pay not only any damages awarded against you but also the other side’s costs, though a losing party may be able to challenge the reasonableness of the winner’s costs.78 Courts and tribunals have increasing numbers of procedural devices available – varying in how far they can be imposed on the parties79 – to encourage litigants towards an agreed outcome, including with the skilled help of a mediator or arbitrator (who may even be one of the court’s judges).80 Some take effect even before the case arrives in court or at the tribunal, like the Pre-Action Protocols in English law, notably one 77 The Annual Report 2018–2019 of the TCC does not distinguish between parties who were individuals and those who were legal entities, but only about 1/3 of those cases set down for trial during that period at the TCC in London actually went to trial; all others settled. Of reported TCC cases about residential construction in this book where individuals were claimants (all legally represented), examples include West v Ian Finlay & Associates [2013] EWHC 868 (TCC) and Harrison v Shepherd Homes Ltd (No 2) [2011] EWHC 1811 (TCC), (2011) 27 Const LJ 709, both in section [4.10.2]; also Case Studies 5, 6 and 11 at sections [5.5], [5.6] and [11.8] respectively. 78 For an exceptional case where the winning side (eventually) got, in principle, all their costs from the loser (‘indemnity costs’), see Burgess v Lejonvarn [2019] EWHC 369 (TCC), [2019] Costs LR 549, at section [5.6.6]. See also n 83. 79 Under English law, an unreasonable refusal to undertake ADR may lead to a costs sanction if the dispute ends up in court: Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, [2004] 1 WLR 3002, applied by PGF II SA v OMFS Co [2013] EWCA Civ 1288, [2014] 1 All ER 970 [22]ff (Briggs LJ, with McFarlane and Maurice Kay LJJ concurring). What happens during an ADR procedure, like a mediation, is usually protected against later disclosure in court by ‘without prejudice’ principles: see Berkeley Square Holdings Ltd v Lancer Property Asset Management Ltd [2021] EWCA Civ 551. Such principles may have statutory force in other jurisdictions: in Victoria, eg, parties’ and their lawyers’ ‘overarching obligations’ in civil proceedings include ensuring that costs are reasonable and proportionate: Civil Procedure Act 2010 (Vic) s 24. 80 Under the Civil Proceedings Fees Order 2008 (SI 2008/1053) (E&W), as amended by the Court of Protection, Civil Proceedings and Magistrates Courts Fees (Amendment) Order 2018 (SI 2018/812) (E&W), to have a TCC judge as an arbitrator or umpire costs £1800 a day.

Considering Litigation  439 specifically for construction and engineering disputes.81 Imposing a ‘quick and dirty’ dispute resolution procedure on construction disputes has been a parallel development: statutory adjudication, relevant to residential projects in some states of Australia and in New Zealand, as well as in some situations in the UK and Ireland.82 Other jurisdictions have chosen a different path: to reduce the risks a claimant must run in taking a dispute to law and make it less challenging for an individual to bring a claim unrepresented. Many Australian jurisdictions have allocated all residential construction disputes to less formal (but no less skilled) tribunals, whose fees and costs rules are not so deterrent as those of the traditional courts.83 In a unique initiative, there is Domestic Building Dispute Resolution Victoria, an agency with a statutory role of attempting to conciliate between parties to residential construction disputes, but also acting as the gatekeeper to the formal legal proceedings described in section [9.9.3].

9.5.2  Going to Court or a Tribunal It is a question of law whether a would-be claimant has a ‘right of action’: meets the requirements of one of the labels the law gives to the bases on which remedies can be claimed in a civil court. Other chapters consider the different ways in which a home buyer, homeowner or social housing resident may fulfil one or more of these sets of requirements in relation to construction work, against whom and for what remedy. Although it is vital to satisfy at least one of these (in our field, usually in contract, tort or under statute), doing so does not guarantee a successful claim. Winning depends on proof – on the facts, with evidence satisfying the judge or tribunal, usually on the ‘balance of probabilities’ civil standard of proof – of all the legal ingredients for the particular ‘right of action’. Doing this in a building defect case often involves one or more expert witnesses on each side, which exponentially increases the amount of costs at stake: their fees and expenses alone may easily exceed the maximum sum attainable in damages. Although most courts and tribunals have the power to appoint a single joint expert, they seldom exercise this against the opposition of one of the parties, so that each party usually has its own. The claimant must also justify the particular remedy sought – for example, why an order for specific performance is the right outcome, in preference to damages, and what it should require – and must be able, if necessary, to prove the categories and amounts of loss caused by the other party’s conduct, if claiming damages for this.84 As Judge Stephen Davies said in the TCC, rejecting the counterclaim brought by two 81 Pre-Action Protocol for Construction and Engineering Disputes, 2nd edn (2017): www.justice.gov.uk. Compliance with the Protocol is not necessary before starting proceedings if complying could make the claim out of time, nor for an application to enforce an adjudicator’s decision. On non-compliance with a Pre-Action Protocol as contempt of court, see Jet 2 Holidays Ltd v Hughes [2019] EWCA Civ 1858, [2020] 1 WLR 844. 82 See sections [9.7] (UK); [9.9.2] (Australia); [9.10.2] (NZ); and [9.11.2] (Ireland). 83 For a rare case before VCAT where the losing builder’s ‘elaborate and deceitful conduct in trying to defend an otherwise hopeless case’ (Jenkins J) meant that they had to pay all the winning client’s costs (on an indemnity basis), see Lin v P & T Constructions (Vic) Pty Ltd [2014] VCAT 1125; see also n 255 and its main text. 84 The usual exception is where the damages claimed derive from a liquidated damages (LD) provision in a contract with the other party: see section [4.12.4].

440  Pathways to Individual Redress ­ omeowners against ‘the builder’ in relation to a home extension project, on evidential h as well as legal grounds: [T]he court ought not to insist on the same degree of particularity in a small claim as might be expected of a multi-million pound claim, nonetheless a party who wishes to persuade a court to award him a five figure sum in damages is under a duty to comply with the duty to disclose the documents reasonably necessary to prove the claim and to provide the other party and the court with sufficient information to subject the detail of the claim to reasonable scrutiny.85

More fundamentally, succeeding in court also depends on the target defendant (or at least one, if there are several) being traceable; and able (or at least likely) to satisfy any judgment or order against them – including by being insured against that sort of liability, with cover of at least the sum claimed.

9.5.3  Multiple Possible Defendants: ‘Concurrent Wrongdoers’ Where a new-build project has widespread construction defects, appearing to have many possible causes, an unhappy homeowner or group of homeowners as potential claimants may consider that there are – or at least should be – several possible targets for legal action: for example, the developer/seller X (who may also be the landlord of the multi-unit block with the problems); the main contractor M (if not the same entity as X); subcontractors or consultants for the project; the relevant Building Control Body (BCB); and W, the provider of a third-party warranty.86 One or more of these may in law be responsible for the cost of rectifying present defects, actively having created them (X, M, subcontractor or designer); culpably having failed to stop them becoming definitive parts of the development (the BCB and W, each inspecting the project at different stages); or having undertaken to ‘indemnify’ the claimant(s) against the occurrence of such an event (W). How do the courts deal with a situation where it will take forensic investigation to establish who had (sole or shared) responsibility for the different problems, but where some potential defendants may not be worth suing (no assets, no PI cover)? Some may already have ceased trading; or are protected by the law of limitation (time limits), making it too late for their involvement long ago to lead now to legal liability; and some may be willing to settle out of court. The starting-point in all common law systems is the principle of joint and several liability: this makes each individual party labelled in law as a ‘concurrent wrongdoer’ potentially liable for the whole of the damages sought, so at risk of being ‘the last person standing’. English law applies this principle undiluted, as does the law of New Zealand.87 85 Optimus Build Ltd v Southall [2020] EWHC 3389 (TCC) [92]. 86 For a post-Grenfell Tower cladding-related case, illustrating the multi-party nature of a B2B project to build a hotel, see Bouygues (UK) Ltd v Sharpfibre Ltd [2020] EWHC 1309 (TCC) [1]–[14]. 87 For a graphic limitation example from New Zealand, see Carter Holt Harvey v Minister of Education [2016] NZSC 95, [2017] 1 NZLR 78, discussed at section [10.8]. In 2014 the Law Commission (NZ) advocated retaining joint and several liability: Liability of Multiple Defendants (Report 132, 2014). But it recommended changes in the contribution rules to minimise the risk that one solvent defendant carries financial liability for a contribution which another defendant would otherwise be required to make but which is, in fact, unrecoverable. Directly addressing one of this book’s central topics, it also suggested a monetary cap on the future

Considering Litigation  441 However, in every subject jurisdiction, such a defendant is in theory able to claim contribution from one or more other concurrent wrongdoers, bringing these in as extra defendants in litigation already under way; the court has the discretion to apportion the totality of the damages between each defendant shown to be liable to the claimant. English law allows for contribution, whatever the legal basis of the claim against any defendant;88 Irish law similarly provides for the apportionment of liability between two or more concurrent defendants before the court (whose wrongdoing has – perhaps independently – caused the same damage), according to their relative blameworthiness.89 Applying these Irish rules, a claim against an architect for negligent architectural services did not cause ‘the same damage’ as the solicitors’ firm, which allowed the claim against that architect to be ‘timed out’ on limitation grounds.90 This is highly significant, as the Civil Liability Act 1961 (Ire) provides that a plaintiff will be identified, by way of contributory negligence, with the wrongdoing of any concurrent wrongdoer in respect of whom the plaintiff has allowed the limitation period to lapse.91 Australia has gone much further in attempting to protect a solvent defendant (notably a professional defendant with PI cover) against carrying the whole risk of liability for harm to which another potential or actual defendant contributed and for which the other defendant would also be liable in law. Its system of proportionate liability turns joint and several liability on its head. The scheme was adopted specifically for defective building work in most Australian jurisdictions in the 1990s;92 then replaced in the early 2000s with more wide-ranging statutory provisions.93 The majority of jurisdictions apply the new rules to, in principle, to any ‘claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise), arising from a failure to take reasonable care …’.94 And they define ‘concurrent wrongdoer’ as ‘a person who is one of two or more persons whose acts or omissions caused, independently

liability of territorial authorities as BCBs, at NZ$300,000 for a single building and NZ$3m for a multi-unit development. It now seems unlikely that these proposals will be legislated. 88 Under the Civil Liability (Contribution) Act 1978 (E&W): see, however, Birse Construction Ltd v Haiste Ltd [1996] 1 WLR 675 (CA). 89 Civil Liability Act 1961 (Ire) s 11, with apportionment under s 21. See ACC Bank plc v Johnston [2011] IEHC 502 and Hussey v Dillon [1995] 1 IR 111 (IESC). For the impact of s 17 on apportionment when one defendant has settled, see Defender Ltd v HSBC France [2020] IESC 37 and Ulster Bank DAC v McDonagh [2020] IEHC 185. 90 Moloney v Liddy [2010] IEHC 218, [2010] 4 IR 653. 91 Civil Liability Act 1961 (Ire) s 35(1)(i): see Deirdre Ní Fhloinn, ‘Contributory Negligence and Identification: Section 35 of the Civil Liability Act 1961 Awakens’ (2018) 1(2) Tort Law and Litigation Review. 92 Development Act 1993 (SA) s 72; see also Environmental Planning and Assessment Act 1979 (NSW) s 109ZJ (repealed); Building Act 1993 (Vic) ss 129–131 (repealed); Building Act 1993 (NT), s 155 (repealed); Building Act 2000 (Tas) s 252; and Building Act 2004 (ACT) s 141. 93 Civil Law (Wrongs) Act 2002 (ACT) ch 7A; Civil Liability Act 2002 (NSW) pt 4; Proportionate Liability Act 2005 (NT); Civil Liability Act 2003 (Qld) ch 2 pt 2; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) pt 3; Civil Liability Act 2002 (Tas) pt 9A; Wrongs Act 1958 (Vic) pt IVAA; Civil Liability Act 2002 (WA) pt 1F. 94 This is the formulation used in NSW, Victoria, WA, the ACT, NT and Tasmania. Most jurisdictions also exclude claims under the Australian Consumer Law s 18 from their proportionate liability regimes (eg, the ACT, NSW and Vic); WA excludes ‘consumer claims’ in general. These are instead dealt with under the Competition and Consumer Act 2010 (Cth) pt VIA. NSW now prevents its proportionate liability law from applying to any claim for breach of a statutory warranty in a domestic building contract: Civil Liability Act 2002 (NSW) s 34(3A), added by the Home Building Amendment Act 2011 (NSW).

442  Pathways to Individual Redress of each other or jointly, the loss or damage that is the subject of the claim’.95 If both these conditions are satisfied, the court then awards against each relevant defendant an amount reflecting (only) that proportion of the damage or loss claimed that the court considers just, having regard to the extent of that defendant’s responsibility. An example of such a scheme’s practical impact comes from Woodward J’s judgment at trial in the Lacrosse building case. The effect was that the builder was liable to the owners for around A$12m, but in practice insulated from all but three per cent of that liability by its consultants: as ‘concurrent wrongdoers’ under the Victorian proportionate liability scheme, the building surveyor was held to bear 33 per cent, the architects 25 per cent and the fire engineer 39 per cent of the total liability.96 There are real differences in proportionate liability schemes between the states and territories. Those jurisdictions which prohibit the court from taking account of the share of responsibility of an absent defendant (Vic) or give the court discretion not to do so (NSW, Qld, the NT and the Commonwealth) have not moved the goalposts very far from the English law starting-point. All these statutory regimes have their critics, some even suggesting that Australia should abandon proportionate liability altogether.97

9.6  Litigation Risk in the UK In every situation where a would-be claimant takes the initiative to protect their position or rights, there are ‘access to justice’ questions that will impact how realistically – and at what expense or risk – such protection can be won via available judicial or other formal machinery. These procedural issues can be crucial in determining how reliably the law is actually – or can be – implemented ‘on the ground’. The UK is an international centre for the resolution of disputes about construction, with a body of highly expert professionals and a range of well-administered ADR possibilities. It also has one of the common law’s busiest specialist courts for construction litigation, the TCC. This is a specialist subdivision of the Queen’s Bench Division of the High Court, at the same time part of the Business and Property Courts; but no rules require cases involving construction to be taken to the TCC.98 Its roster of full-time 95 This is the formulation used in NSW, Victoria, WA, the ACT (with apparently insignificant drafting differences), NT and Tasmania. Showing its limitations, see Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10, (2013) 247 CLR 613. 96 Owners Corporation No 1 of PS613436T v LU Simon Builders Pty Ltd [2019] VCAT 286 [7], [240], [525], [598]. The 3% share of liability was ascribed to an apartment occupant (a French national on a working holiday): he took no part in the proceedings, Woodward J finding no evidence that he knew, or ought to know, that the external walls were combustible; but was ‘compelled’ to find that the occupant breached his duty by failing to ensure that his cigarette was fully extinguished before leaving it in the plastic container, leading to the conflagration. As noted in ch 2 n 96, the one ground which succeeded on appeal was in relation to the building surveyor’s proportionate liability vis à vis the other concurrent wrongdoers: Tanah Merah Vic Pty Ltd v Owners’ Corporation No 1 of PS631436T [2021] VSCA 72. The Victorian Court of Appeal provided a detailed commentary on its state’s proportionate liability scheme in that case, especially at [101]–[118], and subsequently adjusted the proportionate liability of the fire engineer and building surveyor to become, respectively, 42% and 30%: Tanah Merah Vic Pty Ltd v Owners Corporation No 1 of PS613436T (No 2) [2021] VSCA 122. 97 The range of options for reform in Australia are summarised in: Standing Council on Law and Justice, Proportionate Liability Model Provisions: Decision Regulation Impact Statement (2013). 98 For the official advice on what cases it may be appropriate to start in, or ask to be transferred to, the TCC, see the Civil Procedure Rules, pt 60 and Practice Direction 60. The ‘Technology’ part of the Court’s jurisdiction covers any issues and questions which are technically complex.

Litigation Risk in the UK  443 judges (since 2004, all in London are of High Court rank) have significant experience of construction and related technical questions, often internationally. Most cases are heard in London, but there are TCC judges in seven regional centres; for smaller cases, some County Courts (the lower tier of first-instance civil courts in England & Wales) are authorised to hear those that would otherwise naturally go to the TCC.99 High value construction cases in Scotland – not numerous enough to have special provision – usually go to the Commercial Court within the Court of Session, offering greater judicial management of the procedure than in ordinary civil cases. Cases with a value below £100,000 – including enforcement of an adjudicator’s decision – must go to a Sheriff Court.100 London’s range of specialised legal expertise and possibilities, backed by a long history, explains the UK’s position in the international world of construction. However, this hardly assists a home buyer or homeowner with a defect claim or a dispute with a third-party warranty provider. In the first place (and this book apart), getting skilled but affordable legal advice about a residential construction law issue is not straightforward. Few lawyers (solicitors or barristers), even Society of Construction Law members active in cases before the TCC, have significant experience of consumer clients and residential problems, which by the standards of B2B infrastructure projects are ‘small beer’. Such practitioners mostly concentrate in London and other cities where the TCC also sits (nowhere south and west of Bristol or Cardiff). Their equivalents in Scotland and Northern Ireland are very few and far between. As a result, an unquantifiable number of potential claimants fall at the first hurdle, never finding out whether they do have a case worth pursuing and abandoning the attempt – or paying up when ‘the builder’ demands money. Most of the construction cases before the TCC – even those which are started formally but settle before trial, as most do – concern commercial, industrial or infrastructure projects where the amounts of money at stake make the exposure of both sides to the impact of the common law courts’ rules on costs and the challenges of document management an affordable and worthwhile risk.101 The TCC has shared – in some respects, led – attempts to streamline litigation by greater judicial control of pre-trial procedure and by limiting the parties’ freedom to throw resources at a dispute. Despite those welcome and inventive reforms, the court system in England & Wales does not do well in either accessibility or affordability: [T]he single, most pervasive and indeed shocking weakness of our civil courts is that they fail to provide reasonable access to justice for the ordinary individuals or small businesses with small or moderate value claims, save for certain specific categories of litigants.102

It is, therefore, only in the rare residential case that a ‘builder’, as the potential defendant, would take seriously a threat of litigation by a home buyer or homeowner: where, for example, a group of claimants share the risk and potential reward, and the value of the claim is high; where litigation is externally funded (usually meaning: the funder will 99 See n 114. 100 Courts Reform (Scotland) Act 2014 s 39. 101 For the principles on costs, see section [9.5.1]. 102 Lord Justice Briggs, Civil Courts Structure Review: Final Report (2016) [5.14]. ‘Certain specific categories of litigants’ would have included ‘repeat players’, like utilities and others, who use the courts as a debtcollecting service. He certainly did not mean a consumer in a construction dispute.

444  Pathways to Individual Redress take a first share of what are expected to be substantial winnings); or where the legal principle at stake makes a fight worthwhile. The real-life examples analysed in other chapters show how being a claimant in litigation can backfire, notably because winning in the TCC may mean becoming the respondent in the Court of Appeal – and a second appeal to the Supreme Court can never be ruled out.103 To lose at first instance and to attempt on appeal to challenge the first judge’s adverse conclusions is not a strategy ever to rely on, notably because English appeal courts’ willingness to intervene has welldefined limits: The need for appellate caution in reversing the judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance … of which time and language do not permit exact expression, but which may play an important part in the judge’s overall evaluation … Where the application of a legal standard such as negligence or obviousness involves no question of principle but is simply a matter of degree, an appellate court should be very cautious in differing from the judge’s evaluation.104

In the opposite direction, a well-advised homeowner should realise that an unhappy builder, in a dispute over sums in the hundreds or low thousands, is unlikely actually to go to court. But the builder – at least in the UK or New Zealand – might instead launch an adjudication: faster, cheaper and much less risky. An individual homeowner or home buyer who benefits from the UK’s ‘residential occupier exception’ may have statutory protection against such an adjudication – but current case law requires them to assert that at the right moment.105 This is the scenario most likely to bring an individual homeowner into court – as an unwilling defendant in proceedings to enforce the decision of an adjudicator.

9.7  Statutory Adjudication in the UK 9.7.1 Introduction When the UK decided to legislate to make adjudication available to resolve construction disputes – the first jurisdiction to do so – the basic idea was to impose (at least as a default) an expert, quick and mostly documents-only procedure to decide legal issues between parties to construction projects, without any of the delay or costs of traditional litigation – simpler and quicker even than arbitration.106 The perceived need for l­egislation came from evidence that ‘repeat player’ project parties (above all, 103 See, eg, Case Study 6 at section [5.6]. 104 Lord Hoffmann (with whom all the other Lords concurred) in Biogen Inc v Medeva plc [1997] RPC 1 (HL) [54]. See also the quotation from Coulson LJ in section [5.6.7]. 105 See section [9.7]. 106 Parts of this section derive from Philip Britton, ‘Adjudication and the “Residential Occupier Exception”: Time for a Rethink?’ (Society of Construction Law (UK) Paper 193, 2015).

Statutory Adjudication in the UK  445 s­ ubcontractors) were regularly deprived unjustly of cash flow by those higher up the contractual chain; and that the industry itself seemed unable to remedy this problem. The primary legislation is Part II of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA), in force in England, Wales and Scotland, but with equivalent rules in Northern Ireland.107 It includes not just adjudication as a new kind of sectorspecific dispute resolution machinery but also stage payment requirements in contracts, limitations on set-off and on ‘pay-when-paid’ clauses and a new right to suspend performance.108 If improving cash flow was the principal aim, reform could have been limited to what became known elsewhere as ‘security of payment’. However, following suggestions in Sir Michael Latham’s Constructing The Team, the HGCRA contains a wide definition of its scope via the phrase ‘dispute arising under the [construction] contract’;109 it further provides that a contracting party is empowered to give notice of an intention to refer a dispute to adjudication ‘at any time’.110 In practice, ‘payment issues’ seem to have been the focus of most UK adjudications.111 Sir Michael wanted the adjudicator’s decision to be implemented right away, though reached only ‘provisionally’.112 It was to be ‘pay now, argue later’.113 However, the UK regime does not make the adjudicator’s decision immediately enforceable (equivalent to a court judgment): if the losing party fails to honour the adjudicator’s decision (sometimes called an award), the other party must ask a court to make it enforceable. In England & Wales, this usually takes place in the TCC via an accelerated procedure for summary judgment under CPR Part 24;114 in Scotland, before a Sheriff Court or one of the four Commercial Judges of the Court of Session, including by lodging a motion for summary decree;115 in Northern Ireland, in the commercial list in the Queen’s Bench Division of the High Court of Justice Northern Ireland.116

107 In NI, see the Construction Contracts (Northern Ireland) Order 1997, as amended. 108 Many remained strongly opposed to the inclusion of quality issues within the scope of adjudication, notably Professor John Uff QC in Frances A Paterson and Philip Britton (eds), The Construction Act: Time for Review (Centre of Construction Law, King’s College London, 2000). 109 Michael Latham, Constructing the Team: Final Report (HMSO, 1994) [9.14]. The HGCRA s 108(1) adds: ‘For this purpose “dispute” includes any difference’. During the lengthy first review of the 1996 Act (2004–08), some even suggested broadening this further to ‘arising under or in connection with the contract’; on the review, see also n 126. For an example of difficulties caused by the present words, see Hillcrest Homes Ltd v Beresford and Curbishley Ltd [2014] EWHC 280 (TCC), 153 Con LR 179. 110 HGCRA 1996 s 108(2)(a). 111 Janey Milligan and Amy Jackson, Adjudication Report No 18 (December 2019): www.cdr.uk.com. Figure 6 shows that the largest category of referrals between May 2018 and April 2019 was by a subcontractor against the main contractor, with homeowners hardly figuring at all, either as referring or responding party; Figure 7 records that almost half the adjudications analysed – the largest group – had payment-related issues as their primary focus. 112 ‘Provisionally’: the HGCRA 1996 s 108(3). 113 Lord Ackner, HL Debs vol 571, col 989 (22 April 1996). 114 The TCC Annual Report 2018–19 records that some lower-value adjudication enforcement cases (with less than £1m at stake) have since 2019 been transferred from the High Court to TCC judges in the Central London Civil Justice Centre. The report also confirms that adjudication enforcement cases represent the second largest category of TCC cases, at close to a fifth of all cases in that period. On the TCC’s procedures for hearing enforcement applications rapidly, see Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412 (TCC), [2015] BLR 321 [37]ff (Edwards-Stuart J). 115 www.scotcourts.gov.uk includes specific guidance on the enforcement in Scotland of awards (decisions) of adjudicators. In theory, an adjudicator’s decision can also be made enforceable there by registering it in the Books of Council and Session, but this requires both parties’ consent. Scottish courts have no power to impose

446  Pathways to Individual Redress This court stage – wherever in the UK it takes place – gives the losing party an almost last chance to make a very limited range of arguments against enforcement, which include challenging the whole legal basis of the adjudication (including the validity of the adjudicator’s appointment), or the procedure by which the adjudicator conducted the adjudication or reached the decision – but not the merits (the correctness) of the decision itself.117 If the court orders enforcement, the losing party may appeal against this;118 or even start separate legal proceedings against the other party, on condition of paying up meanwhile.119 It fell to Tony Blair’s first New Labour administration to implement the new regime, notably by drafting the Scheme(s) for Construction Contracts – crucial pillars supporting the whole structure in each part of the UK.120 When the legislation came into force in 1998, the courts generally played the supportive and non-interventionist role the Latham Report hoped for, starting with Dyson J in the first reported TCC case on the HGCRA, Macob Civil Engineering Ltd v Morrison Construction Ltd.121 Where any adjudication is successful, the losing party – which may include an individual residential construction consumer – will come under what the courts call the ‘imperative’ of complying with the adjudicator’s decision.122 Failing to do so activates a strong presumption in favour of court enforcement. In a recent example, Kew Holdings Ltd v Donald Insall Associates Ltd, the losing party (the employer) in an adjudication started by the architect on a residential project in west London failed to pay the amount in the adjudicator’s decision. The architect successfully asked the TCC for summary judgment to enforce the decision, next obtaining a charging order against the project a stay on execution of enforcement of a decision, but their approach otherwise closely follows TCC case law, though the procedure may take longer to reach a final decision than in the TCC. 116 For examples from Scotland and NI, see n 121. 117 As Waksman J said in ICCT Ltd v Pinto [2019] EWHC 2134 (TCC) [4]: ‘So far as the law in the context of adjudication enforcement is concerned, it is trite law that it is not possible on a summary judgment application to resist enforcement simply on the basis that the defendant disagrees with the adjudicator’s decision or thinks, however strongly and in however much detail, that the adjudicator has got it wrong’. 118 Shaw v Massey Foundation & Pilings Ltd [2009] EWHC 493 (TCC). Stephen Furst QC points out in The Construction Act: Time for Review (n 109) 61 that because adjudicators’ decisions are only temporarily binding, few parties appeal beyond the TCC on enforcement issues, so CA authorities in our field are rare. 119 See Kew Holdings Ltd v Donald Insall Associates Ltd: the main text to n 123. 120 The original Scheme for Construction Contracts (E&W) Regulations (SI 1998/648) was amended by the Scheme for Construction Contracts (E&W) Regulations 1998 (Amendment) (England) Regulations 2011 (SI 2011/2333); there are comparable equivalents for Scotland and Northern Ireland, where the Construction Contracts (Amendment) Act (Northern Ireland) 2011 made changes there comparable with those in the rest of the UK. 121 Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93, (1999) 1 TCLR 113. Sir John Dyson, now retired from the UK Supreme Court, in his autobiography A Judge’s Journey (Oxford, Hart Publishing, 2019) says of this case at 332: ‘I believed that a strong approach was necessary; otherwise the effectiveness of the adjudication scheme would have been undermined’. For recent Scottish re-affirmation of support for the policy behind the HGCRA, see Mars Black Sheep Hotels Ltd v Douglas & Stewart UK Ltd [2019] CSOH 64, 2019 SLT 1159 (Lord Doherty) and D McLaughlin & Sons Ltd v East Ayrshire Council [2020] CSOH 109 (Lord Clark); in NI, see DG Williamson Ltd v Northern Ireland Prison Service [2009] NIQB 8 (McLaughlin J) and NIHE v Dixons Contractors Ltd [2019] NIQB 19 (Horner J). 122 See, eg, Chadwick LJ (giving the judgment of the Court) in Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358, 104 Con LR 1, [2006] BLR 15 [87]: ‘the proper course of the party who is unsuccessful in an adjudication … must be to pay the amount which he has been ordered to pay by the adjudicator.’ Reg 23(2) of the Scheme (n 120) provides, for an adjudication to which the Scheme applies: ‘The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined’. For court support for this approach, see n 121.

Statutory Adjudication in the UK  447 site, leading to the possibility of selling the property in order to guarantee payment. At that point, the construction employer started traditional legal action against the architect in the TCC, claiming damages for breach of contract for negligent work. O’Farrell J accepted that adjudication was only ‘provisionally binding’, so the employer had a right to (in effect) re-open in separate court proceedings issues in the adjudication; but stayed the court action until the employer paid the amount in the adjudicator’s decision, as well as requiring £600,000 paid into court as security for the defendant architect’s costs.123

9.7.2  The ‘Residential Occupier Exception’: Scope The Latham report proposed that adjudication should apply to any construction activity undertaken in a contractual framework. But the passage of the legislation gave interest groups a chance to argue that their particular sector or activity should – more often, should not – be included.124 However, not all the significant carve-outs in Part II of the HGCRA were the fruit of successful lobbying. Like home buyers, individuals who are construction employers for residential projects (past, present or future) have had little influence in Whitehall or at Westminster, at least until recently.125 However, the 1996 Act contains an exception where a construction employer is an actual or intending residential occupier of the dwelling on which work is to take place: A construction contract with a residential occupier means a construction contract which principally relates to operations on a dwelling which one of the parties to the contract occupies, or intends to occupy, as his residence. In this subsection ‘dwelling’ means a dwelling-house or a flat; and for this purpose –

‘dwelling-house’ does not include a building containing a flat; and ‘flat’ means separate and self-contained premises constructed or adapted for use for residential purposes and forming part of a building from some other part of which the premises are divided horizontally.126

The key terms are ‘construction contract’, ‘operations’, ‘dwelling’ and ‘occupy as a residence’. Sections 104–105 already define ‘construction contract’ and ‘construction operations’ in generous detail, so the extensive case law interpreting these phrases may 123 Kew Holdings Ltd v Donald Insall Associates Ltd [2020] EWHC 1862 (TCC), [2020] BLR 578, with the expected sequel three months later: [2020] EWHC 3069 (TCC). It could not have been argued that this contract fell within the ‘residential occupier exception’, as the construction employer was a corporate entity. 124 One of these interest groups comprises project sponsors from the public sector. From the start, s 106(1)(b) was used to exclude the head contracts for PFI and PPP projects from the HGCRA via the original Construction Contracts (E&W) Exclusion Order 1998 (SI 1998/648), replaced by the Construction Contracts (England) Exclusion Order 2011 (SI 2011/2332). There are now comparable equivalents for Scotland and Northern Ireland, and Ireland in the Construction Contracts Act 2013 (Ire) s 2(3). 125 There is now the HomeOwners Alliance, involved via one of the present authors in the development of the RIBA Domestic Building Contract 2018: www.hoa.org.uk; and government plans for a New Homes Ombudsman: see section [9.8]. 126 HGCRA 1996 s 106(2). The Secretary of State, but now also the Welsh Ministers in relation to Wales, have power under s 106(3) to modify the text of s 106(2); see also s 106A. During a review of the HGCRA and the Scheme, the Construction Umbrella Bodies Adjudication Task Group argued for the abolition of the exception. This never reached the shopping list that was the review’s eventual outcome. With wide industry support, a modest but real improvement package was eventually implemented as the Local Democracy, Economic Development and Construction Act 2009 pt 8.

448  Pathways to Individual Redress be relevant.127 However, few reported cases discuss the exception. All are in the TCC, so of limited value as authority, even in the same court. In each, the individual as construction employer attempted to resist the enforcement of an adjudicator’s decision – for a range of reasons, all in the end failed.128 Such paucity of case law may be a good sign, if it means that this generally unregarded aspect of the 1996 Act seldom gives rise to problems in practice. But perhaps few residential construction employers, especially on smaller ‘one-off ’ projects, have the knowledge or resources to rely on section 106(2), before an adjudicator or in court. Some may pay up when the other party threatens or launches a referral; others may resist, in the end going along with an adjudication. Crucially, an unrepresented consumer as the defending party may not realise that failing to challenge the adjudicator’s jurisdiction at this first stage could lead a future court to treat them as having waived the right to do so definitively.129 Section 106(2) is evidently designed to cover work not just on an existing dwelling, but also new build or conversion: hence occupation by the employer may be either actual or intended. Coulson J suggests (obiter) in Westfields v Lewis that no one can, in fact, be occupying more than one dwelling as their residence at a time.130 However, it seems consistent with the words of the subsection for a consumer to occupy Dwelling A while having the intention to occupy Dwelling B – presently the construction site – as a home, once work there is complete, and for Dwelling B to be only a second home. It also seems likely that only one or more individuals, acting as such, can qualify, no legal entity being able to occupy it ‘as his residence’.131 However, such an entity could own or let the dwelling, as long as an individual – in a personal capacity – was the construction employer and fulfilled the other tests in the statute. Although the statute says nothing about the status of the construction work, a 2019 TCC case on enforcement of an adjudicator’s decision suggests that a construction employer whose project is technically illegal (in breach of the planning permission in force, if this does not allow ‘a dwelling’ to be created) may not be able to claim protection under the exception, as their intention to occupy would not be lawful.132 More problematic is the question of the appropriate time to assess the situation. Is the key moment entering into the contract, or can the employer’s conduct (or intention) during construction be relevant too? This was a further issue in Westfields v Lewis, ­Coulson J taking the view – more clearly than he had in Shaw v Massey133 – that where the 127 Richard Wilmot-Smith QC, Wilmot-Smith on Construction Contracts, 3rd edn (Oxford, Oxford University Press, 2013) [21.06]–[21.29]. Note that the Communications Act 2003 s 406(1) modifies part of s 105(1)(b). For a review of the case law on ss 104–105, see Savoye and Savoye Ltd v Spicers Ltd [2014] EWHC 4195 (TCC), 159 Con LR 120, [2015] BLR 151. 128 Samuel Thomas Construction v Anon (HH Judge Overend, 28 January 2000); Lovell Projects v Legg [2003] BLR 452 (TCC); Domsalla (t/a Domsalla Building Services) v Dyason [2007] EWHC 1174 (TCC), 112 Con LR 95, [2007] BLR 348; Edenbooth Ltd v Cre8 Developments Ltd [2008] EWHC 570 (TCC); and Westfields Construction Ltd v Lewis [2013] EWHC 376, [2013] BLR 223. 129 Allied P&L Ltd v Paradigm Housing Group Ltd [2009] EWHC 2890 (TCC), [2010] BLR 59 [32] (Akenhead J). 130 Westfields v Lewis (n 128) [9]. In St Peter Total Building Solutions Ltd v Rhodes [2020] EWHC 2036 (TCC), Adrian Williamson QC suggested obiter that a project to convert a single dwelling into three separate dwellings for members of the same family did not fall within the s 106 exception, also holding that the defendant employer had failed to raise the jurisdictional point adequately before the adjudicator. 131 Edenbooth v Cre8 (n 128) [9] (Coulson J); for another example, see Kew Holdings v Donald Insall Associates: n 123. 132 Howsons Ltd v Redfearn [2019] EWHC 2540 (TCC), 186 Con LR 222 (Judge Nigel Bird). 133 Shaw v Massey (n 118) [26].

Statutory Adjudication in the UK  449 employer is not resident at any time once the contract is entered into (indeed, may never have been resident at all), the time of entering into the contract and later may both be relevant, as showing (or failing to show) the intention to occupy.134 In the case itself, the construction employer Mr Lewis had, the judge found, always intended to let the dwelling (his former home) once work on it was complete, having told his builder so. Even if he intended to live there again when making the contract with the builder, the judge thought he would have lost the protection of the exception if the evidence showed that he changed his mind midway. As this illustrates, there are mixed questions of fact and law that may need to be resolved, potentially with oral evidence in court, if the exception determines the outcome of a case. The result seems to be, as the Guidance Notes to the RIBA Domestic Professional Services Contract 2018: Architectural Services suggest: ‘if the Client’s second home is to be let at any time as a holiday rental or to other tenants, the Client will be deemed to be a business Client and the exemptions will not apply’.135 This has obvious relevance to Scenario 6 (Table 1.2), where current homeowner B2 subdivides a plot and has a new house designed and built on it by architect A and main contractor M2 – then sells the partly constructed house to B3. If B2 had a plan to rent the new house out, then Westfields v Lewis suggests that disputes with A or M2 would not fall within section 106(2); but once B3 enters the story, it must be their intention which matters. However, the contract between B2 and M2 contains, we are told, an adjudication clause, which it is likely will equally bind B3 after they buy the site. Here, a contractual commitment to adjudication – like a failure to object if ‘the builder’ launches an ­adjudication – may overtake questions of the application of the HGCRA to the facts.136

9.7.3  The ‘Residential Occupier Exception’: Resolving Uncertainty Who has – or must take – the initiative to argue that the situation fits within the exception? The judicial answer is straightforward: ‘the burden is on the [construction] employer to demonstrate that the exclusion [section 106(2)] applies to them’.137 However, the Court of Appeal has made clear that the adjudicator’s fees will not be 134 Westfields v Lewis (n 128) [39]. 135 RIBA Domestic Professional Services Contract 2018: Architectural Services. By ‘exemptions’ are meant not only the HGCRA but also the Late Payment of Commercial Debts (Interest) Regulations 2002 (SI 2002/1674), as amended. Note that it is only the (main/head) contract between employer and builder (or other provider of construction services within the 1996 Act) which can qualify under s 106(2). Excluding such a contract from the HGCRA regime does not protect any other linked contract for the same project (notably a subcontract ‘down the line’ or a collateral warranty given to a third party) against having pt II of the Act apply to it if this would otherwise be the case. 136 No case has yet had to grapple with ‘principally relates to’ – which obviously allows a contract which includes ancillary work other than on the dwelling in question (even on a flat which is not the central dwelling) to retain the protection of s 106(2), if it otherwise qualifies. Nor has the distinction between ‘dwelling’ and ‘flat’, or the ‘horizontal division’ point, yet surfaced in court, though many other statutes use the word ‘dwelling’ or ‘residence’ (both terms usually left undefined), on which there is, therefore, copious case law: see, eg, Uratemp Ventures Ltd v Collins [2001] UKHL 43, [2002] 1 AC 301. In the context of the DPA, see Rendlesham Estates plc v Barr Ltd [2014] EWHC 3968 (TCC), [2015] 1 WLR 3663 [33]–[54], discussed at section [5.10.3]. On ‘residence’, see eg, the Representation of the People Act 1983 s 5, as amended. 137 Coulson J in Shaw v Massey (n 118) [23]. Similarly, where a contract term is challenged as unfair, a trader who claims that an individual is not a consumer must prove it: CRA 2015 (UK) ss 2(4) and 76(3).

450  Pathways to Individual Redress payable if the decision turns out to be unenforceable, unless the terms of the adjudicator’s appointment provide otherwise (which the parties might be unwilling to accept at the appointment stage).138 Anecdotal evidence suggests that, out of self-interest, adjudicators themselves now raise points about the legal basis of the proceedings which a party (in our case, the consumer-employer) might otherwise have to make. Does the contract fall within section 106(2)? Is there a clear alternative (contractual) basis for the referral? If the adjudicator concludes early on that there is a real risk that the eventual decision may be unenforceable, they may simply withdraw from the case, leaving the referring party empty-handed. Where a court has to choose between possible meanings of section 106(2), the alternatives being otherwise evenly balanced, should it lean against bringing the situation within the clutches of the HGCRA – a statute which limits parties’ traditional freedom of contract, affects their fundamental common law right to bring disputes before the courts at any time and restricts a consumer’s ability to challenge a contract term as unfair?139 Or should the court be inclined to limit the exception – since it is a carve-out from the more general industry-wide HGCRA regime, which implements a clear and widely accepted policy objective? In the early days of the 1996 Act, judges would probably have favoured the first approach, interpreting section 106(2) as Parliament’s wish to protect an individual against an adjudication launched by the other party (builder or construction professional), who would often be a ‘repeat player’ and might be canny enough to mount an ambush with copious documentation, to which the responding party would have difficulty in responding within the tight standard timescales: The proceedings [adjudication] themselves place substantial and unexpected demands upon the consumer. These are demands not only of the cost of dealing with the proceedings, of having to retain persons to assist in those proceedings, but also the need to maintain documentary records throughout a job in permanent readiness to deal with an adjudication that may be launched with little or no prior notice when it will not be possible to rely upon disclosure procedures to ensure that a common documentary basis is established. A consumer that has failed to take steps to ensure that he has all the requisite records and so forth may be unable to defend him or herself when the adjudication is commenced.140

More than 15 years further on, the judges’ broadly positive experience of adjudication, from regularly deciding enforcement applications, could easily lead to the opposite approach. This new attitude may have been encouraged by the legislative changes meanwhile, notably on parties’ costs within adjudications.141 It may also reflect judicial

138 PC Harrington Contractors Ltd v Systech International Ltd [2012] EWCA Civ 1371, [2013] 2 All ER 69, [2013] BLR 1: unenforceability came from the adjudicator’s failure to observe the rules of natural justice. 139 It seems likely that neither statutory nor contractual adjudication can be challenged as violating the European Convention on the Protection of Human Rights and Fundamental Freedoms art 6(1): see Philip Britton, ‘Court Challenges to ADR in Construction: European and English Law’ (Society of ­Construction Law (UK) Paper 152, 2009); also Andrew Bartlett QC, ‘The Limits of Adjudication: The Impact of the European Convention on Human Rights’ (Society of Construction Law (UK) Paper D175, 2014). 140 Michael Bowsher in Bryen & Langley Ltd v Boston [2004] EWHC 2450 (TCC), [2005] BLR 28 [41]. 141 The LDEDCA 2009 pt 8 filled the silence of both the original HGCRA and Scheme on the adjudicator’s power to award costs – which had potentially allowed contractual provisions to make the referring party responsible for both parties’ costs, whatever the outcome. It inserted the elaborate ss 108A–C into the

Statutory Adjudication in the UK  451 anxiety about the risks which any individual would undertake if, instead, they became a party in ordinary litigation before the TCC.

9.7.4  The Effect of the ‘Residential Occupier Exception’ A residential construction contract within the exception does not need to comply with any aspect of the 1996 Act regime – the payment rules (including notices replacing setoff), the right to suspend performance or the possibility of adjudication. As a result, the provisions which support that regime, supplying default rights and remedies where the parties’ arrangements fail to comply with the statutory ‘shopping list’ in section 108, do not apply either, at least as a matter of law – notably the relevant Scheme, in relation to both adjudication and payment.142 So ‘the builder’, if dealing with a residential occupier employer, does not have the safety net of rights in the HGCRA, nor a speedy method of asserting and enforcing these via adjudication. Equally, the individual employer is, at least in theory, protected against being ambushed by an adjudication brought by a construction ‘repeat player’. However, this works in both directions, the whole contract (not just one of its parties) sitting outside the HGCRA; it does not give an employer, wishing to take action against ‘the builder’, guaranteed access to adjudication as a relatively low-cost and speedy method of establishing and then enforcing a claim. But the statutory scheme does not prohibit contracts within section 106(2) from leading to adjudication, so the employer-consumer may – often unwittingly – be at risk of the very mischief against which the exception is designed to protect them. This odd outcome can arise in two different categories of case: • Category 1: the parties have agreed no dispute resolution provisions. • Category 2: a published standard form is used, providing for adjudication in situations where objectively the HGCRA does not require it.

9.7.5  Category 1 Situation: No Dispute Provisions in the Contract This might occur in Scenario 3 (Table 1.1), where B1 wants P to replace a shower unit at home; the contract may have been made almost entirely orally, round the homeowner’s kitchen table – whether in Coleraine, Swansea or Dundee. Even if some aspects of this project are documented – as this one should have been, by law or as a matter of good practice143 – nothing may have been said, or can later be proved to have been said, about HGCRA. But see Dominic Helps, ‘Outlawing Tolent clauses and the LDEDC Act 2009: The Dénouement of s 108A’ (2011) 27 Construction Law Journal 575, followed by ‘The New Construction Act: Life after Part 8 of the LDEDCA 2009’ (2012) 28 Construction Law Journal 22. 142 See n 120. 143 As explained at section [6.2], such a contract, if made in the UK or Ireland, is an ‘off-premises’ B2C contract within the EU Consumer Rights Directive, so in theory, subject to formal requirements (not necessarily satisfied).

452  Pathways to Individual Redress dispute resolution.144 However, the common law rules on formation of contract  – in Scotland, as well as England & Wales – do not ever make failure to address dispute resolution fatal: traditional litigation is the default safety net, always available unless a form of ADR has been validly selected (or imposed), whether preceding, postponing or completely replacing court action. The parties are free to adopt such an alternative if they wish, provided they express their choice clearly.145 If the consumer gets into a dispute with the builder, the builder may then serve a notice of intention to launch an adjudication, asking one of the Adjudicator Nominating Bodies (ANB) to appoint an adjudicator. The ANB may first check that there appears to be a dispute arising under a construction contract, apparently within the HGCRA; then it will trigger an appointment from its list of adjudicators. It certainly will not consider whether the contract falls within the section 106(2) exception – that is for the relevant party to raise. This sequence of events happened in ICCT Ltd v Pinto, where the consumer Mr Pinto turned the builder off the job (waterproofing the cellar at his home) without paying.146 The builder’s referral to adjudication claimed the orally-agreed day rate for the work already done. Mr Pinto responded on paper, counter-claiming that the builders did not appear to know what they were doing, but the adjudicator found for the builder and awarded the amount claimed (just under £6,500). When the employer did not pay, the builder then went to the TCC to enforce the decision, also claiming the cost of the adjudicator’s fees. In court, it turned out that neither builder nor consumer (who represented himself) had ever taken part in an adjudication before. The judgment by Waksman J strongly suggests that neither knew about the residential occupier ­exception – so the builder was not knowingly taking advantage of the employer’s ignorance. If the contract falls, as this one clearly did, within section 106(2) and itself contains no adjudication provisions, a purported Scheme adjudication (as occurred) is, in theory, a nullity. But Waksman J held that, by taking part, the employer in effect agreed to adjudication: [I]it is well-established in law that even if there is not formal adjudication jurisdiction, an ad hoc jurisdiction can arise where both sides engage fully in the adjudication process on the merits thereof unless there has been a reservation of rights which are sufficient in the circumstances …. Mr Pinto [the employer], who is a professional albeit going into this adjudication process for the first time, is, I am afraid, deemed to know what the law is and this is not some arcane jurisdictional point. Therefore … Mr Pinto has fully engaged with this process and, on that basis, an ad hoc adjudication came into being and any jurisdictional point was waived.147

So Mr Pinto’s unawareness of the law led him into a trap: engaging with the adjudication limited his ability to challenge the adjudicator’s decision (he had unknowingly ‘waived’ 144 As in Westfields v Lewis (n 128) and Khurana v Webster Construction Ltd [2015] EWHC 758 (TCC), [2015] BLR 396. 145 In Khurana v Webster Construction (n 144), Judge Stephen Davies said at [18]: ‘it is important that clear words should be used before parties effectively exclude the unrestricted right which they would otherwise have to require a court to adjudicate all disputes which may arise between them … [but] there is nothing intrinsically unusual in parties seeking to achieve this result’. 146 ICCT Ltd v Pinto: n 117. 147 ICCT Ltd v Pinto (n 117) [35], [38]. On what constitutes submission to the jurisdiction of an adjudicator, see Clark Electrical Ltd v JMD Developments (UK) Ltd [2012] EWHC 2627 (TCC), [2012] BLR 546.

Statutory Adjudication in the UK  453 his right to claim the protection of section 106(2)). He went on to argue that the adjudicator should have realised that the case apparently fell within section 106(2) and at least raised this – by analogy with judges’ duty to raise the possible unfairness of terms within any B2C contract before them.148 Waksman J disagreed: The adjudicator was entitled when he received the referral, which on the face of it appeared to be applying the Scheme, referred to works, referred to the responding party and when the responding party engaged, had no obligation to enquire any further especially, as in this case, there was no reservation of rights in any way at all.

As this illustrates, where an adjudication like that in ICCT Ltd v Pinto produces an outcome which at least looks like a decision, it benefits, in the courts’ eyes, from a presumption of validity – so it will stand until successfully challenged.149 In the case itself, Mr Pinto had to pay; to claim any money back, he would have to start separate court proceedings. Had he been aware of the legal position from the start, he could have objected to the purported adjudication and otherwise taken no part in it.150 The outcome of enforcement proceedings would then have hinged directly on whether the facts fell within the section 106(2) exception (which they clearly did) – unless, of course, Mr Pinto had other grounds for impugning the adjudicator’s decision.151

9.7.6  Category 2 Situation: A Standard Form Provides for Adjudication On a substantial project for a ‘residential occupier’, a standard form may be used (unamended) which has been drafted to comply with the HGCRA, so that it can be used on any project.152 Such a contract will therefore provide, at least as a default, for adjudi 148 Consumer Rights Act 2015 (UK) s 71: see section [4.10.1]. 149 See Project Consultancy Group v Trustees of the Gray Trust [1999] BLR 377 (TCC), where Dyson J said at [9]: ‘it is open to a defendant in enforcement proceedings to challenge the decision of an adjudicator on the ground that he was not empowered by the [HGCRA] to make the decision’. The same should surely apply if the adjudicator depends on contractual provisions to have the power to make a decision, which was the issue in Bryen & Langley v Boston: n 140. 150 Mr Pinto could even have attempted to undermine or stop the process via court intervention: on the TCC’s powers to grant declarations while adjudication is under way, see WW Gear Construction Ltd v McGee Group Ltd [2012] EWHC 1509 (TCC), [2012] BLR 355; and (on injunctions and waiver) Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2019] EWCA Civ 27, 182 Con LR 1 (Coulson LJ). On post-adjudication declarations, see MW High Tech Projects UK Ltd v Haase Environmental Consulting GmbH [2015] EWHC 152 (TCC), 158 Con LR 260 [35] (Coulson J). 151 For example, breach of natural justice by the adjudicator, or fraud or dishonesty by the adjudicator or by the other party: see Eurocom Ltd v Siemens plc [2014] EWHC 3710 (TCC), [2015] BLR 1 and Beumer Group UK Ltd v Vinci Construction UK Ltd [2016] EWHC 2283 (TCC), [2017] BLR 53; on apparent bias by the adjudicator, see Paice v MJ Harding [2015] EWHC 661 (TCC), [2015] BLR 345. 152 Westfields v Lewis (n 128) [3] (Coulson J). Conversely, a hybrid ‘construct-and transfer’ contract, where a buyer commits to buy a new dwelling ‘off-plan’ from a developer, may include no dispute resolution provisions, though all the UK Consumer Codes include an independent dispute resolution scheme: see section [6.5]. Intermediate situations are possible: there may appear to be an adjudication clause, but a judge later holds that this has not been incorporated into the contracts. This happened in Picardi v Cuniberti [2002] EWHC 2923 (TCC), [2003] BLR 487, and at first instance in Bryen & Langley v Boston: n 140. The CA in Bryen & Langley v Boston [2005] EWCA Civ 973, [2005] BLR 508 took the view that the JCT98 form – with its adjudication provisions – had been incorporated into the contract. The residential employers in

454  Pathways to Individual Redress cation. As in a Category 1 case, the parties may be ‘contracting in’ to the statute, but at an early stage of the project and with a good chance that the individual employer becomes aware of the possibility of adjudication. Examples of such forms abound: in addition to the RIBA and FMB forms discussed at [9.2.4], the all-purpose JCT Standard Building Contract With Quantities 2016 and Design and Build Contract 2016 are still widely used for private sector projects within the UK. Both take a short cut to compliance, expressly incorporating the relevant statutory Scheme in their adjudication provisions.153 The JCT Minor Works Building Contract 2016, perhaps more often seen on residential projects, does the same.154 Though all such contracts refer to the 1996 Act and/or the Scheme, the parties cannot by their own initiative extend the scope of the HGCRA to section 106(2) situations: in such circumstances, the adjudication provisions in the standard form are – at best – contractual in nature, though may incorporate the Scheme’s provisions by reference.155 Anecdotally, these forms are rarely used in residential projects for an existing homeowner or ‘owner-builder’ in Scotland, but the SBCC Building Contract for a Homeowner/Occupier (HO/C/Scot 2015 – uptake in practice unknown) does include a power to mediate, then adjudicate, and the SBCC publishes linked Adjudication Rules: neither document refers to the ‘residential occupier exception’. It is doubtful whether an individual employer who becomes a party to a contract using one of these forms will realise the significance of a reference to ‘the Scheme’, if that is all there is; or will understand that the form’s adjudication provisions – among others – are included only in order to address issues which the HGCRA requires to be addressed in some construction contracts (but not all). They may not realise that such provisions are not obligatory for a project within section 106(2). The current JCT Minor Works contract, to its credit, makes this clear: its linked Guidance Note 8 points out that if the parties adopt the contract unamended, the client will be committed contractually to the form of adjudication which it provides.

Malcolm Charles Contracts Ltd v Crispin [2014] EWHC 3898 (TCC), 159 Con LR 185 attempted to stop enforcement of a decision against them by arguing (unsuccessfully) that the JCT Standard Form of Building Contract for a Home Owner/Occupier who has appointed a Consultant to Oversee the Work (HO/B 2005), containing adjudication provisions, had never been agreed. Or the employer may argue that the clause covers only contracts already within the scope of the HGCRA: such an argument failed in Domsalla v Dyason (n 128) [17]–[20]. 153 JCT, Standard Building Contract With Quantities 2016 (SBC/Q 2016) and Design and Build Contract 2016 (DB 2016); cl 9·2 in both cases. On the Scheme, see n 120. The earlier Private with Quantities form (JCT98) contained its own HGCRA-compliant adjudication provisions, discussed in relation to residential projects in Bryen & Langley v Boston (n 140) and Speymill Contracts Ltd v Baskind [2010] EWCA Civ 120, [2010] BLR 257, 129 Con LR 66 (fraud as a reason for not enforcing an adjudicator’s decision). 154 JCT, Minor Works Building Contract 2016 (MW 2016) cl 7·2; the same clause is in the Minor Works Building Contract with contractor’s design 2016 (MWD 2016). The 1998 version of the MW form, with HGCRAcompliant adjudication provisions in art 6, cl 8 and Supplemental Condition D, was used in Lovell Projects v Legg and Domsalla v Dyason (agreed between the consumer’s insurer and the builder) (n 128) and Shaw v Massey Foundation (n 118). The JCT Prime Cost Building Contract (PCC98, with Amendments 1 and 2) was used in a residential project in Treasure & Son Ltd v Dawes [2007] EWHC 2420 (TCC), [2008] BLR 24. 155 Treasure & Son Ltd v Dawes (n 154) [32] (Akenhead J); and Domsalla v Dyason (n 128) [99] (Judge Anthony Thornton QC). Clive Freedman points out in ‘Non-Statutory Adjudication: Is it Expert Determination, or Something Different?’ (2011) 27 Construction Law Journal 3 that a decision of an adjudicator in a situation properly within the 1996 Act is equally the result of a contractual process, relying on Coulson J in AMEC Group Ltd v Thames Water Utilities Ltd [2010] EWHC 419 (TCC) [24].

Statutory Adjudication in the UK  455

9.7.7  Is Adjudication Unfair in Law? Few individual consumers are likely to realise that adjudication provisions in a B2C construction contract would be protected against challenge as unfair if the contract was under the ordinary HGCRA regime, but are not so protected if the contract falls within the section 106(2) exception.156 Success for the consumer makes a term then labelled as unfair unenforceable, though the rest of the contract will usually survive.157 If the other party to the contract triggers an adjudication in reliance on a term which the consumer considers unfair, the consumer has the same tactical possibilities as Mr Pinto could have used, had he known from the start that his contract with ‘the builder’ fell within the section 106(2) exception.158 Whether adjudication provisions are of themselves unfair may, therefore, determine the outcome of enforcement proceedings, as in Lovell Projects v Legg, a project for refurbishment of the employers’ house in Maida Vale.159 Judge Moseley QC started from the builder’s concessions that the adjudication provisions, from the JCT 98 Minor Works form, did not satisfy the substantive tests of unfairness: they were not shown to cause ‘a significant imbalance in the parties’ rights and obligations, to the detriment of the consumer’, nor were they ‘contrary to the requirement of good faith’.160 This conclusion drew its main support from the fact that HGCRA-style adjudication is open to both parties and its outcome only provisional. It did not, the judge thought, hinder the consumer’s access to court;161 and the contractual arrangements providing for it were open and clear: [T]he contractor did not either deliberately or unconsciously take advantage of the consumers’ necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or any other factor listed in [the ‘Grey List’].162

An additional, perhaps decisive, factor was that the form containing the contested provisions was imposed on the builder by a construction professional (here an architect as contract administrator), appointed by the consumers and acting on their behalf.163

156 On unfair contract terms in English law, see section [4.10]. 157 CRA 2015 (UK) s 67. 158 ICCT Ltd v Pinto: n 146 and its main text. 159 Lovell Projects v Legg: n 128. 160 CRA 2015 (UK) s 62(4). On these tests, see Director General of Fair Trading v National Bank plc [2001] UKHL 52, [2002] 1 AC 481. 161 Lovell Projects v Legg (n 128) [27]: a view hard to reconcile with Joint Cases C240/98–244/98 Oceano Grupo Editorial SA v Rocio Murciano Quintero EU:C:2000:346, [2000] ECR I-4941. Even if the clause came within ‘the Grey List’, as explained in section [4.10.1], the judge thought it still had to meet the substantive tests of unfairness deriving from the 1993 Directive. 162 Lovell Projects v Legg (n 128) [29]. 163 Echoed by Rimer J in Bryen & Langley Ltd v Boston (n 140) [46]: ‘in light of the fact that it was Mr Boston [the consumer], by his agent, who imposed these terms on B & L [the building contractors], I regard the suggestion that there was any lack of good faith or fair dealing by B & L with regard to the ultimate incorporation of these terms into the contract as repugnant to common sense’. Clarke and Pill LJJ gave concurring judgments. The conflict may, of course, be between the employer(s) and their architect, as in Picardi v C ­ uniberti (n 152) – especially if their builder has by then become insolvent, as in West v Ian Finlay Associates: n 77.

456  Pathways to Individual Redress This reasoning has been followed in four later residential construction cases, one at Court of Appeal level.164 The pattern suggests that few consumers of ­construction services will ever successfully challenge contractually agreed ADR on unfairness grounds alone, especially where the provisions copy statutory adjudication and/or come from a published and widely used standard form (an unconvincing piece of ­reasoning).165 But the cases are not all one way. In Mylcrist v Buck, about an arbitration clause in a non-negotiated contract between a builder and a residential consumer, Ramsey J considered that the wording failed the ‘fair and open dealing’ test deriving from the parent E ­ uropean Directive.166 The consumer had no professional adviser in her relations with the builder, who did not adequately explain the implications of the key clause in its own standard contract.167

9.7.8  Application to Scenarios 3 and 6 The main value of the ‘residential occupier exception’ must be to protect an underinformed individual construction employer against being dragged (perhaps unrepresented) as a responding party into an adjudication they may be ill-equipped to fight, with a strong possibility of losing at that stage and then having the adjudicator’s decision enforced against them by the TCC. ICCT Ltd v Pinto shows that the doctrine of ‘waiver’ allows statutory protection to be lost before the consumer even knows it is there.168 In a modest project, like Scenario 3 (Table 1.2), where plumber P agrees with homeowner B1 to replace a shower unit, and if the parties then disagree about what B1 owes, 164 Westminster Building v Beckingham [2004] EWHC 138 (TCC), [2004] BLR 163; Bryen & Langley Ltd v Boston (n 140), on this point followed by the CA: n 163; Domsalla v Dyason (n 128); and Khurana v Webster Construction (n 144). In Domsalla, enforcement was refused because aspects of the withholding notice procedure (but not adjudication itself) were unfair. In the first two cases, there was an issue about the contractual status of the adjudication provisions, but in none was there a dispute about the relevance of s 106(2). 165 In West v Ian Finlay & Associates [2014] EWCA Civ 316, 153 Con LR 1, [2014] BLR 324, the CA judgment made the point at [59] that net contribution clauses (the type of clause here attacked as unfair) are common in RIBA standard forms, as well as in commercial contracts generally (Vos LJ giving the judgment of the Court). This was a factor against regarding such a clause as unfair; even though, unlike an adjudication clause, the clause was one-sided – affecting only the consumers’ position and entirely negatively. See, further, section [4.10.2]. 166 Mylcrist Builders Ltd v Buck [2008] EWHC 2172 (TCC), [2008] BLR 611, [2009] 2 All ER (Comm) 259, discussed at section [4.10.2]. It could be argued that an arbitration clause has a more serious impact than an adjudication clause, excluding court intervention more completely and involving a higher level of costs, but HGCRA-type adjudication likely requires the losing party to pay more quickly. 167 For earlier cases where a challenge to contractually agreed ADR was successful on fairness grounds, see Zealander v Laing Homes Ltd (2000) 2 TCLR 725 (TCC) and Picardi v Cuniberti: n 152. In Lovell Projects v Legg (n 128), Judge Moseley accepted the correctness of both these decisions but at [30] distinguished them from his case. 168 ICCT Ltd v Pinto (n 117) and the main text to n 147. On the doctrine of waiver, see Bresco v Lonsdale (n 150) [82]ff (Coulson LJ). No-one appears yet to have argued in court that any aspects of the HGCRA should be incapable of being contracted out of by conduct, short of an express agreement. On unrepresented parties in adjudications, the CIArb/Adjudication Society Guidance Note Natural Justice (2019) acknowledges the difficulty at [3.8]: ‘The Adjudicator must always remain independent of the Parties. This can be difficult where one of the parties is unpresented and/or unfamiliar with the adjudication process. Helping the unrepresented Party may easily create the impression of bias. An Adjudicator cannot make the case for that party, only try to prevent one party from taking unfair advantage’: www.ciarb.org.

Statutory Adjudication in the UK  457 P may launch an adjudication, even though the contract contains no dispute resolution provisions. If there is really no way of resolving the dispute by negotiation or mediation, and if B1 is sure that the situation does fit within the section 106(2) exception, then: • Either B1 refuses to take part in the adjudication, saying to any adjudicator purportedly appointed that they have no jurisdiction because the employer is a ‘residential occupier’ and has not consented to adjudication. • Or B1, with specialist legal advice, takes part in the adjudication, reserving the right both before the adjudicator and in any enforcement proceedings to argue that the adjudicator has (had) no jurisdiction and that any decision against B1 is (or should be) unenforceable.169 The hope here is that if P is claiming a small amount of money, they may be unwilling to risk going to court if adjudication proves unworkable. In a more substantial project for the construction of a new home, like Scenario 6 (Table 1.2), it may be a good solution actively to choose a standard form contract that includes adjudication provisions; as the first port of call in case of a dispute, it will protect both parties against wasteful and slow alternative procedures in court. This approach also avoids any issue later about whether the construction employer is (or was) a ‘residential occupier’ within section 106(2), but opting for the particular standard form – especially if proposed by ‘the builder’ – and for the form’s choice of adjudication rules and Adjudicator Nominating Body should only be done with specialist legal advice. The need to refine the procedure for adjudication to make it attractive (at least, less unattractive) to those who find themselves in low-value disputes has led to three initiatives. 2019 saw the introduction of a Low Value Disputes adjudication service run by the Technology and Construction Solicitors Association (TeCSA), where the claim is for a specific amount of money under £100,000 (the adjudicator’s fees are capped in relation to the amount claimed, on a sliding scale between £2,000 and £5,000). There is also the Construction Industry Council’s Low Value Disputes Model Adjudication Procedure, intended for disputes of £50,000 or less, by the end of 2020 already used in over 60 cases where the RICS was the ANB (fees between £2,000 and £6,000).170 These were joined in 2021 by UKA’s Capped Fee Scheme (a scale running from £1,750 for a claim up to £10,000 to £10,000 for a claim between £200,000 and £250,000). None of the schemes prohibit parties from using lawyers or other representatives, but all assume a documentsonly procedure, normally meeting the statutory 28-day deadline for a decision. Such adjudication procedures, if expressly adopted contractually, do not necessarily exclude traditional litigation (or any other method of dispute resolution), giving each 169 This is precisely what happened at the adjudication in Howsons Ltd v Redfearn (n 132), the responding party being legally represented. Participating but protecting the right to argue later on that the adjudicator had no jurisdiction may have to be done very clearly to be effective: Hochtief Solutions AG v Maspero Elevatori SpA [2021] CSIH 19. 170 Construction Industry Council, Low Value Disputes Model Adjudication Procedure (LVD MAP) (2020). Following tribunal traditions, the rules require each party to bear their own costs, but the decision may require the losing party to pay the adjudicator’s fees and expenses, for which the parties are otherwise jointly and severally liable. In the specific field of professional negligence, the Professional Negligence Bar Association offers an adjudication scheme, supported by insurers, strongly recommended by Fraser J in Beattie Passive Norse Ltd v Canham Consulting Ltd [2021] EWHC 1116 (TCC) [152].

458  Pathways to Individual Redress party only the power to refer a matter to adjudication; the three low-value schemes aim to impose a ceiling on the scale of risk that the procedure represents if launched by the other party. However, an individual construction employer should always beware of going a step further: agreeing that adjudication should be ‘final and binding’. This may exclude all other forms of dispute resolution, even the court’s modest supervision of adjudicators and their decisions. It is rare for a standard form contract to offer such a clause, even as an option, so back in Scenario 6 (Table 1.2), the fact that the contract between B2 and M2 provides for adjudication ought to mean that neither party (or their successors) must go to adjudication, and only to adjudication, if a dispute arises.

9.8  A New Homes Ombudsman for the UK? 9.8.1 Introduction Pressure has been building for some time to improve the accessibility and effectiveness of means of redress for homeowners in relation to construction defects in new homes. Any serious defect will be a breach of the contract between developer X and first buyer B1, giving rise to the possibility of legal action and remedies described elsewhere in this book; fundamental problems may lead to a claim under the Defective Premises Act 1972, though not in Scotland.171 But smaller problems with the home may not reliably be classed as breaches of contract at all – let alone going to habitability under the DPA. As analysed in chapter 2, matching what has been built against the applicable standards is an imprecise process, and divergence between what was expected and what was delivered does not always lead automatically to a remedy in law. We must also accept that some home buyers are abnormally fussy and demanding: for them, nothing may ever be good enough, and no form of redress will satisfy them.172 Existing machinery already attempts to deal with these problems: in most new homes which come with an NHBC-type warranty, the developer is the first port of call for problems in Years 1–2; but the insurer is there as ‘second-resort’ backup if the developer fails to respond adequately or speedily enough.173 Also, if it has a third-party warranty from almost any provider, the same new home will come with information about postcompletion after-sales service from the developer: this is a key requirement of each existing Consumer Code, with its own machinery for investigating complaints.174 However, the evidence strongly suggests that there is scope for ‘levelling up’.175 Two reports from the All Party Parliamentary Group (APPG) on Excellence in the Built Environment in 2016 and 2018, combined with pressure from the HomeOwners

171 On the DPA, see section [5.10.2]ff. 172 This will be especially so if they already regret having bought the house and thus focus all their discontents on alleged defects. 173 On the NHBC Buildmark, see section [7.2]; for those third-party warranty products which copy Buildmark’s ‘2+8’ structure, see Table 7.1. 174 On Consumer Codes, see section [6.5]. 175 For the scale of defects and consumer unhappiness, see section [2.4].

A New Homes Ombudsman for the UK?   459 Alliance, seem to have provided the final push towards government action.176 As the second report concluded: Consumers faced a confusing landscape caused by a plethora of warranties, housebuilding codes and complaints procedures, each offering something slightly different. Buying a new home is stressful enough but buying a defective one, as we heard from submissions and witnesses, can take a massive toll on people’s wellbeing as they wrestle with an almost Kafkaesque system seemingly designed to be unhelpful. Consumers are confused by what warranties cover, which is far less than consumers assume, and neither warranties nor building control functions provide any sort of comfort that items such as finishings and fittings will be defect-free when the house is handed over.177

9.8.2  The Scope of a New Consumer Mechanism As the ‘New Homes Ombudsman’ phrase suggests, the focus here is only on newly built (also converted) homes and on after-sales redress in (only) Years 1–2, so the reforms will not be relevant to other works of residential construction and – presumably – leave all existing rights of action and remedies untouched. But the new system is envisaged to apply to all new homes in the UK, so protection will no longer depend on membership of a Consumer Code or possession of a third-party warranty. In other words, developers will eventually have to belong to the new system by law, as a condition of being able to trade.178 This could mean that, at least indirectly, third-party warranties would become mandatory for the first time – which may please their providers, who would then share a new statutory monopoly. Additional rules might be needed guaranteeing fair access to third-party warranties for developers. Since any form of effective redress requires the adoption of standards that have teeth (a Code of Practice is envisaged, rather than a new set of statutory obligations), the hope is that more effective and more widely available remedies flowing from this New Homes Quality Code will, in turn, translate into higher quality and reduce the future incidence of defects. In his statement heralding action to implement these changes, following a consultation period, Housing Secretary Rt Hon Robert Jenrick MP said: It’s completely unacceptable that so many people struggle to get answers when they find issues with their dream new home. That’s why the Ombudsman will stop rogue developers getting away with shoddy building work and raise the game of housebuilders across the sector. Homebuyers will be able to access help when they need it, so disputes can be resolved faster and people can get the compensation they deserve.179

176 All Party Parliamentary Group (APPG) for Excellence in the Built Environment, More Homes, Fewer Complaints (2016) and Better Redress for Homebuyers (2018): www.cic.org.uk. 177 APPG 2018 report (n 176) 5. 178 Section [9.8.4] outlines the current status of the proposal. 179 MHCLG and Robert Jenrick MP, ‘Housing Secretary Clamps Down on Shoddy Housebuilders’ (press release, 24 February 2020). The results of the consultation were MHCLG, Redress for Purchasers of New Build Homes and the New Homes Ombudsman – Summary of Responses to the Consultation and the Government’s Response (2020): www.gov.uk.

460  Pathways to Individual Redress

9.8.3  What May the New Homes Quality Code Contain? The APPG laid out a ‘shopping list’ of requirements; to be effective, these would be included in the Code the New Homes Ombudsman would administer: • That a builder will use an approved warranty scheme which must be fit for purpose.180 • Basic specifications that new homes should meet, which provide an inventory of what consumers should expect of a home built to high quality. • Set out better inspection and quality control regimes that must be undertaken for new homes and determine how these should be documented and made available to homebuyers’ solicitors as part of the conveyancing process, and as part of a home information pack. The purpose would be to improve transparency of the design, building and inspection process. • The need for comprehensive home information packs and what they should contain. We think this must include: what the warranty covers in plain English and clarify whether it covers white goods; which version of the Building Regulations the house was built to and complies with; and how to contact the builder to rectify defects. • The need for sales offices to have clear documents about after-care responsibilities of builders and the warranties. • Independent investigation of and rectification of defects (pre- and post-occupation). We think contracts should allow homeowners to appoint an independent building consultant/ surveyor to review the issues and agree with the builders a schedule of repair work with all costs being picked up by the builder, including those of the building consultant/surveyor. • In the event of a dispute, a clear timetable for responding to complaints, rectifying defects and compliance with any requirements of the ombudsman. • The ability for all homebuyers to carry out surveys before final completion. • Compensation scales to homeowners for damage arising.181

To approach the ombudsman would be free for the consumer. The ombudsman would have the power to award up to £50,000 to a consumer against a developer, its decisions being made public. The possible outcomes may also include: • • • •

Requesting developers to undertake or refrain from undertaking work. Directing developers to improve their service. Publishing details and reasons for the expulsion of a developer. Ability to make recommendations to resolve disputes and timescales for rectifying disputes. • Requesting apologies and explanations from developers.182 In this sense, the ombudsman would be a form of specialist ADR, but with teeth. A close comparison would be with those statutory regulators in Australia which have the power to order builders to do additional work or repairs.183 We are assuming here that within the two years after completion and handover, a successor homeowner (B2) will also be able to approach the ombudsman, just like the first buyer, B1.

180 The

report repeats its 2016 request for a review of third-party warranties. 2018 report (n 176) 7. 182 See n 176. 183 See nn 63–64 and their main text. 181 APPG

A New Homes Ombudsman for the UK?   461

9.8.4  Progress So Far The detail is still some way in the future, though an interim New Homes Quality Board (NHQB) has been set up, with Natalie Elphicke MP as its interim independent chair and broad representation of ‘the industry’, but only one clearly representing ‘the consumer  interest’. Early tasks have included drafting the Code recommended by the APPG (not yet published at the start of 2021), designing the composition and membership of a permanent oversight body and defining the powers of the eventual ombudsman. All this is intended to be in place, at least in ‘shadow’ form, during 2021: its formal establishment appears to depend on the Building Safety Bill being passed in roughly its 2020 draft form, but Homes England are already insisting that developers who want to participate in the new Help to Buy scheme must be members of the NHQB. Providers of third-party warranties are likely to require all developers taking out warranties with them to do likewise, and lenders may adopt the same line. If the statutory framework makes membership mandatory, then anxieties about how to reach most, if not all, of the market disappear. Part 5 of the draft Bill (2020) contains a statutory and regulatory framework for the creation of the ombudsman service, which will take the form of a scheme approved by the Secretary of State that complies with the requirements of Schedule 7 of the Bill. This contains most of the points from the APPG’s ‘shopping list’ above, including the powers the ombudsman must have in terms of the possible outcomes of complaints brought before it (at this stage, no financial limit has been fixed on the compensation the NHO can award) and that the scheme must include provisions for the enforcement of the NHO’s determinations and may provide for expelling ‘scheme members’. According to clause 106, the scheme will be open to all developers as members – defined in clause 107, with power in clause 108 to require developers to belong to the scheme – and enable ‘relevant owners of new build homes’ (but potentially others too) to bring complaints to the NHO. Doing so will be available to individual occupiers (owners or long leaseholders) of newly built or converted homes where the construction or conversion began after clause 106(9) comes into force – some way in the future, in other words, giving time for ‘the scheme’ to be drafted and set up. Reviewing the draft Bill, the House of Commons Committee on Housing, Communities and Local Government welcomed the proposals, though recommended a wider definition of ‘developer’ and proposed that would-be buyers who have to pull out of a purchase because of the insolvency of a developer should also come within the NHO if they otherwise have grounds for complaint.184 The wording seems to suggest that ‘another person’ (other than the Secretary of State) may actually run the NHO, and Schedule 7 permits the new scheme to be run jointly with another (existing?) redress scheme. A final post-consultation version of the New Homes Quality Code may be published in mid-2021; under clause 109 of the Bill, it will look to ‘the standards of conduct and standards of quality of work expected’ of developers who are members of the scheme and can be adopted and published by the Secretary of State.

184 Housing, Communities and Local Government Committee, Pre-legislative Scrutiny of the Building Safety Bill (HC 2019–21, 466) [216].

462  Pathways to Individual Redress One of the aims here is to simplify home buyers’ understanding of what to expect and how to get redress when their expectations are not met: to achieve this, the New Homes Quality Code ought to replace all the existing Consumer Codes and much of the machinery of most third-party warranties’ dispute resolution procedures in Years 1–2. This will require generous collaboration between all the different interests involved, including abandoning long traditions of independent action. How the NHO’s procedures will relate to traditional litigation will also have to be resolved, along lines familiar from the FOS in relation to claims against third-party warranty insurers.185 Will an unhappy consumer be able to go to court if the NHO rejects the claim, but unable to have a second bite at the cherry if they accept an award from the NHO? This seems likely. These details are not yet clear, nor does the Building Safety Bill itself empower or require developers who belong to the NHO scheme to provide a third-party warranty. Such broad intervention into the new homes market must be welcomed, as long as it delivers at least what the APPG suggested should be on the outside of the tin, as well as inside. However, the proposals fail to give any additional help to two significant categories of consumers of residential construction services: 1 2

Those who wish to take action against a provider of construction services who is not also the seller to them of a new home: in Scenario 3 (Table 1.2), our homeowner B1 against the plumber P; and Those who have problems with the build quality of a home in Year 3 or later, especially if they are not the home’s first buyer: in Scenario 8 (Table 1.3), the current homeowner B2.

For such problems, and for all those already in existence before the new scheme starts operation, the traditional legal basis of a claim in contract or tort (or under statute) remains centre stage, save for the serious structural problems to which a third-party warranty – if there is one – may respond. It now seems possible that the New Homes Quality Code may, in effect, define in a new and comprehensive way the acceptable standards for build quality for homes: these may be relevant in court, as well as before the NHO.

9.9  Contrasts: Australia 9.9.1 Overview The many contrasts between Australia and England & Wales in this book rest on two pillars: Australia’s federal system and its allocation of legislative powers, and the generally wider prevalence in Australia of regulatory interventions providing pathways to consumer protection. These pillars are prominent in the landscape of individual legal redress for residential construction: Australia has consumer-focused measures for dispute avoidance and resolution, but they vary across the states and territories. Here we focus specifically on Victoria, with one of Australia’s most highly-developed schemes.



185 See

section [9.4.1].

Contrasts: Australia  463 The emphasis here is on specialist tribunal and ADR measures for residential building disputes. This should not be taken to indicate that contractual mechanisms for dispute avoidance and resolution, of the type discussed above in the UK context, are not an important part of the landscape in Australia. Widely used standard forms of contract, such as AS4300-1995 and ABIC MW 2018, provide mechanisms including negotiation and (in the case of ABIC) mediation.186 And, parties remain free – subject to the constraints discussed in section [4.13] – to agree on their own mechanisms. The statutory schemes in Australia, in fact, cast a heavy shadow over the scope of such agreements: in practice, residential building contracts (at least, those which are enforceable) tend to stick closely to what the relevant scheme provides or requires. For example, clause P5 of the ABIC MW version for use in residential building in Victoria (ABIC MW 2018-H) expressly anticipates the statutory conciliation processes discussed in section [9.9.3] below. Standard forms used in NSW, NT, Queensland and Victoria are careful not to include arbitration clauses of the type discussed in section [9.2.4]: they are effectively prohibited in residential building contracts in those jurisdictions.187

9.9.2  Victoria: Courts and Tribunals The judicial power of the state of Victoria is primarily vested in the Supreme Court of Victoria.188 There is also a County Court and Magistrates’ Court of Victoria. Each of these has jurisdiction to hear civil matters – that is, disputes arising between private parties, including in construction; the Supreme Court has a Technology, Engineering and Construction List.189 This arrangement is typical of the hierarchy of courts across each of the states and territories, though there are differences in detail and terminology.190 Australia’s Federal Court may also hear claims related to residential construction, usually because they incorporate a head of claim that the Australian Consumer Law has been contravened in one or more respects.191 Although the courts in Victoria retain their general jurisdiction in civil cases, the Victorian Civil and Administrative Tribunal (VCAT) is ‘chiefly responsible’ for hearing and resolving ‘domestic building disputes’ (definition discussed below).192 Thus, if 186 See, respectively, AS4300 cl 47 and ABIC cl P. In survey-based research carried out by Melbourne Law School with the Society of Construction Law Australia in 2014, AS4300 was found to be the most widelyused standard form for residential building in Australia where the employer was a commercial developer, and ABIC MW (albeit the previous version published in 2008) where a private individual was the employer (though the survey elicited only two responses in that category): John Sharkey, Matthew Bell, Wayne Jocic and Rami Marginean, Standard Forms of Contract in the Australian Construction Industry: Research Report (The University of Melbourne, 2014) 31. 187 See section [4.13.4]. Thus, eg, the arbitration agreement in clause 47.3 of the standard form AS4300 would need amending in those jurisdictions. 188 Constitution Act 1975 (Vic) s 75. 189 Constitution Act 1975 (Vic) s 85; County Court Act 1958 (Vic) pt II div 2; Magistrates’ Court Act 1989 (Vic) pt 5. 190 For example, in NSW, Queensland, SA and WA, the mid-tier Court is named ‘District’ rather than ‘County’; the ACT, NT and Tasmania have no such intermediate court. 191 See, eg, Janbar Pty Ltd v Arborcrest Pty Ltd [2020] FCA 1519, which included a claim for misleading and deceptive conduct under ACL s 18: see, further, section [6.3.2]. 192 DBCA s 57: see n 201.

464  Pathways to Individual Redress an action ‘arising wholly or predominantly from’ such a dispute is commenced in the Supreme, County or Magistrates’ Court, the court must stay that action (on application of one of the parties) if it could be heard by VCAT, provided that the court has not yet heard any oral evidence concerning the dispute itself.193 Similarly, residential building disputes ordinarily commence in tribunals rather than courts in the ACT (the ACT Civil and Administrative Tribunal), NSW (NSW Civil and Administrative T ­ ribunal), NT (NT Civil and Administrative Tribunal), Queensland (Queensland Civil and Administrative Tribunal), and WA (WA State Administrative Tribunal). Apart from these main channels for dispute avoidance and resolution, via tribunals or courts, disputes over residential construction matters could find themselves in other fora. In Victoria, for example, challenges to administrative decisions in relation to construction work (determinations about the applicability of the Building Regulations, issue of permits, protection works, appointment or decisions of building surveyors, directions to fix building work and so forth) are heard in the first instance by the Building Appeals Board.194 Between 2016 and 2020, the Board disposed of around 900 proceedings a year, including such high-profile matters as an appeal by certain owners and owners’ corporations at the Lacrosse building against orders requiring the removal and replacement of external cladding, following the 2014 fire.195 Residential construction matters can also be determined, on an interim basis, by an adjudicator appointed under the various state-based ‘security of payment’ Acts – at least in NSW, NT, Queensland, Tasmania and WA.196 The ACT, SA and Victoria statutes expressly exclude residential building contracts between the owner and main contractor from statutory adjudication.197 The review of security of payment legislation around Australia conducted by John Murray AM in 2017 recommended that the regime should allow claims by builders against owner-occupiers, so these carve-outs may be modified in future (NSW has already made moves to bring residential contracts into its scheme).198 In any case, they do not preclude adjudication of payment disputes in

193 DBCA s 57(2). 194 See Building Act 1993 (Vic) pt 10 and sch 3, and www.buildingappeals.vic.gov.au. 195 Statistics extrapolated from Building Appeals Board, ‘Report from the Board’s Chair: 2019–2020 F ­ inancial Year’ 2. The Lacrosse building determination is dated 16 January 2017. Selected Board determinations are available at www.austlii.edu.au. 196 As of 2020, Building and Construction Industry (Security of Payment) Act 2009 (ACT); Building and Construction Industry Security of Payment Act 1999 (NSW); Construction Contracts (Security of Payment) Act 2004 (NT); Building Industry Fairness (Security of Payment) Act 2017 (Qld); Building and ­Construction Industry Security of Payment Act 2009 (SA); Building and Construction Industry Security of Payment Act 2009 (Tas); Building and Construction Industry Security of Payment Act 2002 (Vic); and Construction Contracts Act 2004 (WA) (to be replaced on entry into force of the Building and Construction Industry (Security of Payment) Act 2021 (WA)). 197 Building and Construction Industry (Security of Payment) Act 2009 (ACT) s 9(2)(b); Building and Construction Industry Security of Payment Act 2009 (SA) s 7(2)(b); Building and Construction Industry Security of Payment Act 2002 (Vic) s 7(2)(b). 198 ‘Review of Security Payment Laws: Building Trust and Harmony’ (Canberra, 2017). The NSW amendments occurred in two stages: from 21 October 2019, repealing the residential building work contract exemption from application of its Act, previously in the Building and Construction Industry Security of Payment Act 1999 (NSW) s 7(2)(b); from 1 March 2021, by deeming an ‘owner occupier construction contract’ to be an ‘exempt residential construction contract’ and therefore (somewhat counter-intuitively, given the ‘exempt’), brought within the Act’s payment processes under its s 11(1C) (via the Building and Construction Industry Security of Payment Regulation 2020 (NSW) sch 2).

Contrasts: Australia  465 downstream contracts for residential construction (for example, between builder and subcontractors); or a claim by a builder against the owner, where the relevant work sits outside the terms of the relevant carve-out.199

9.9.3  Dispute Avoidance: Domestic Building Dispute Resolution Victoria Each of the state-based tribunals, including VCAT, uses processes explicitly designed to be less formal than in courts, therefore incorporating flexibility, including the possibility of mediation and other forms of ADR. Since 2017, the Victorian system has also incorporated a measure of dispute avoidance through ‘conciliation’ administered by Domestic Building Dispute Resolution Victoria (DBDRV), a new body created by sections added to the Domestic Building Contracts Act 1995 (DBCA).200 These processes must be exhausted before parties can apply to VCAT or a court (other than for injunctions) in relation to a ‘Domestic Building Work Dispute’ (DBWD).201 In each of its first three years of operation, from 2017, DBDRV received over 6,000 applications, which the Department of Justice said ‘exceeded initial expectations’.202 However, the DBDRV processes did little to relieve VCAT’s caseload: the number of cases lodged in the Building section of the VCAT Building and Property List rose from 1,401 in 2016–17 to 1,753 in 2018–19. VCAT observed in its 2018–19 Annual Report that DBDRV ‘initially reduced applications to VCAT … [but] we are now receiving more building applications than ever before … this led to an increase in the number of pending building cases, up 66 per cent compared to 2017–18’.203 Here are the essential elements and processes of the DBDRV conciliation regime: • Referral of a DBWD, by a party to that dispute, to the Chief Dispute Resolution Officer (CDRO),204 who then decides whether to accept the dispute for conciliation.205 • If accepted, conciliation of the DBWD by a Conciliation Officer (CO).206 199 For example, in Ian Street Developer Pty Ltd v Arrow International Pty Ltd [2018] VSC 14 [102], Riordan J found that the employer under the building contract to construct a mixed use apartment building (a Special Purpose Vehicle and not the owner of the relevant land), was ‘in the business of building residences’, such that the ‘exception to the exception’ in the Building and Construction Industry Security of Payment Act 2002 (Vic) s 7(2)(b) applied; the contractor could, therefore, claim under that Act. 200 Part of the discussion in this section derives from Matthew Bell, ‘Are Australia’s Cities Outgrowing its Construction Legislation?’ (2017) 43 Monash University Law Review 648, 676–78. 201 As defined in DBCA s 44, a ‘domestic building work dispute’ is a ‘domestic building dispute’ between owners and builders (or building practitioners), subcontractors or architects in relation to a ‘domestic building work matter’, being ‘any matter relating to’ a ‘domestic building contract’ or the carrying out of ‘domestic building work’, including alleged breaches of the DBCA s 8 warranties, failures to maintain the standard or quality specified in the contract, failure to complete the work (including within the times specified) or to pay money for work performed. 202 Extrapolated from Victorian Department of Justice and Community Safety, Annual Reports: 2017–18 (at 87), 2018–19 (142), 2019–20 (38). 203 Victorian Civil and Administrative Tribunal, Annual Report 2018–19 (Melbourne, 2019) 9, 40–41. 204 The Director of Consumer Affairs appoints the CDRO under DBCA s 52C. The CDRO, Conciliation Officers appointed under s 52E (see below) and Assessors (see below) together comprise DBDRV (s 52A). 205 DBCA pt 4 div 2, ss 45–45G. 206 DBCA pt 4 div 3, ss 46–46H.

466  Pathways to Individual Redress • If conciliation resolves the dispute, the CO prepares a written record of the agreed terms for resolution, including actions (and time frames for such action) to be taken by each party.207 • The CDRO may issue a stop work order, pending resolution of the dispute.208 • The CDRO may issue a Dispute Resolution Order (DRO) in certain circumstances (including where there has been a breach of a DBCA s 8 warranty) where the parties have not resolved their dispute.209 The core actions which can be required under a DRO are: ➢➢ (by either party) payment of money, either directly to the other party or into the DBDRV Trust Fund.210 ➢➢ (by a builder) rectification or completion of work and rectification of damage.211 ➢➢ (by the owner) compliance with specified conditions, including payment of money.212 The conciliation regime is detailed and lengthy, running to more than 60 pages. Much of it is procedural in nature and, therefore, of marginal direct relevance to this book. But some aspects are noteworthy, reflecting both the complexity of the scheme and its ‘traps for the unwary’: • The limitation period for referral of DBWDs to the CDRO mirrors (with some modification) that of the Building Act 1993 (Vic) s 134: by default, 10 years after issue of the occupancy certificate in relation to the relevant domestic building work.213 • In making the initial assessment of whether a referred DBWD should proceed to conciliation, the appointed CO needs to assess several criteria, including whether ‘at least one of the parties appears willing to participate in conciliation in good faith’.214 The CO then makes a recommendation to the CDRO, who may assess the dispute as not being suitable for conciliation if one or more listed criteria apply – including that there is no reasonable likelihood of the dispute being settled by conciliation, or the referral is frivolous, vexatious or not made in good faith.215 • The party which referred the DBWD to the CDRO may seek to withdraw the referral while the process is in train, but the CDRO may refuse to accept the withdrawal for reasons including that the CDRO considers that the dispute indicates a contravention of the DBCA, Building Act or the regulations made under them.216

207 DBCA s 46F. 208 Under DBCA pt 4 div 4 (ss 47–47D). 209 DBCA pt 4 div 6 (ss 49–49X). 210 This Fund is established under DBCA pt 4 div 8, ss 51–51B. Amounts are paid out of it when the Director of Consumer Affairs is satisfied that the relevant DRO has been complied with (DBCA s 49G). 211 See discussion below: this apparently does not need to be the builder which undertook the work originally. 212 DBCA ss 49B, 49C. 213 DBCA s 45(3). Like the Building Act 1993 (Vic) s 134, this anticipates that an occupancy certificate might not be issued, allowing for the issue of a certificate of final inspection to be a fall-back trigger. On s 134, see also section [10.8]. 214 DBCA s 45A(c). Matters which might be taken into account in relation to good faith include a refusal by the Owner to allow an Assessor access to the site: DBCA s 48D(3)(c), (4). 215 DBCA s 45C. 216 DBCA s 45G(3).

Contrasts: Australia  467 • There is an evident public interest aspect to the confidentiality of proceedings. Evidence of what occurs during the conciliation (other than reports by Assessors and findings in DROs based on those reports) is generally not admissible in evidence in proceedings before VCAT or a court.217 However, this is subject to various exceptions, including for the purpose of disciplinary proceedings in relation to contraventions of the legislation.218 The requirement that COs and Assessors do not disclose any information obtained in carrying out their functions is subject to similar exceptions.219 • There is an element of coercion towards participation in the conciliation process. This is deployed concerning the cost of tests and expert advice obtained by Assessors, and issuance of DROs. Generally, no costs are payable unless a party has requested that the Assessor carry out the investigation under DBCA s 48C, in which case the requesting party is liable for such cost (but has the right to disagree to the test or advice being obtained, in which case the Assessor will not obtain it).220 However, the costs are to be paid by a party to the DBWD if it has been given notice of a conciliation conference, failed to participate in the conference, and a DRO is issued against the party because the building work was defective or incomplete.221 Similarly, the CDRO may take into account the conduct of the parties during any conciliation in deciding whether to issue a DRO.222 • A DRO may be issued to a builder other than the builder under the contract, requiring that other builder undertake rectification or completion work (or, if not itself appropriately registered, to procure one to do so).223 The DRO may require this work to be done at the original builder’s expense, so long as the DRO includes a finding that the work carried out by the original builder ‘is so defective that it would not be appropriate’ to allow that builder to rectify or complete it.224 • This express power to order another builder to rectify or complete the work by way of DRO (especially where it is linked to a requirement that the original builder pays for it) represents a significant intervention into the common law principles around the right of the builder (as well as its obligation) to rectify its defective work.225 • These specific powers also go beyond the generic (but not exhaustive) heads under which VCAT may make orders to rectify or complete building work.226 They are, however, highly advantageous for homeowners and disadvantageous to builders. Indeed, VCAT rarely issues orders under the generic heads to the original builder: [S]uch an order risks yoking together for a further period the residential construction employer and a builder, developer or construction professional, between whom trust 217 DBCA ss 48O, 49D(3). 218 DBCA s 46C(3)(b). 219 DBCA s 52I. 220 DBCA ss 48J(3), 48L, 48M, 48N. 221 DBCA s 48K. The builder also pays the Assessor’s costs of examining whether the builder has breached a DRO under s 48S: s 49U(6). 222 DBCA s 49A(1)(b). 223 This is the combined effect of DBCA ss 49B(1), (5) and its definition of ‘builder’ (which has no nexus to the contract between the parties). 224 DBCA s 49C(1)(c). 225 See section [4.12.2]. 226 DBCA ss 53(2)(g)–(h). These heads are discussed in section [9.9.4].

468  Pathways to Individual Redress may have definitively broken down. It is the builder who is often eager for the tribunal to allow (require) [them] to do the additional work necessary, as this will cost [them] – or so [they think] – far less than paying damages at the level or estimates the claimant will have produced from in-the-wings new builders.227

• If the CDRO determines that a party required to take action under an agreement following a successful conciliation has failed to take it within the time required, the record of agreement ‘ceases to have effect’.228 The owner has the right to terminate the building contract for failure by the builder to comply with a DRO.229 • The Director of Consumer Affairs Victoria can institute proceedings on behalf of owners or defend proceedings brought against them, where the Director is satisfied that the owner has a good cause of action or defence and it is in the public interest to do so.230 • As noted above, DBWDs cannot (with some exceptions) be heard by VCAT unless the CDRO issues a certificate that the dispute was not suitable for, or was not resolved by, conciliation.231 However, VCAT has a supervisory role in relation to the conciliation process: parties to DBWDs may apply for review of: ➢➢ failures by the CDRO to issue a certificate that the DBWD is not suitable for conciliation, or had not been resolved by conciliation232 ➢➢ a decision to pay money out of the DBDRV Fund233 ➢➢ a decision to issue or amend a DRO234 ➢➢ a breach of DRO notice.235

9.9.4  A Specialist Tribunal: VCAT VCAT was established in the mid-1990s, consolidating a number of existing tribunals in Victoria. Its purpose is ‘to provide a fair and efficient dispute resolution service to the Victorian community’.236 Consistent with that purpose, even if a domestic building dispute has been to DBDRV and has a certificate from the CDRO allowing it to proceed

227 Philip Britton, ‘Judicial Remedies for Construction Defects: Common Law, Equity or Statute?’ (Society of Construction Law (UK) Paper 200, 2016) 20, referring to Stiff v Barton (Domestic Building) [2005] VCAT 821 [7.1]. 228 DBCA s 46H. 229 This right is subject to compliance with the process in DBCA s 49W. The builder has similar rights of termination in s 49X. While the owner is then released from further performance of the contract (DBCA s 49W(2)), the builder is entitled to a ‘reasonable price’ (not exceeding the amount it could have recovered under the contract) for the work carried out prior to termination: ss 49W(3)–(4). This is the same formulation that applies where the contract is terminated for matters beyond the parties’ control under s 41. Here, though, the possibility of recovery on a quantum meruit basis may provide a perverse incentive to the builder not to comply with a DRO. That said, the owner has the right to seek further orders from VCAT under DBCA s 67, including payments by the builder to the owner by way of restitution. 230 Under DBCA pt 4 div 7, ss 50–50A. 231 DBCA s 56(1). These certificates are issued under, respectively, ss 45F and 46E. 232 DBCA ss 45F(5), 46E(5). 233 DBCA ss 49G(4), 65. 234 DBCA s 63. 235 DBCA ss 49U(3), 66. These notices are issued by the CDRO under DBCA s 49U. 236 VCAT Practice Note PNCAT1 ‘Common Procedures’ (19 August 2019) 2.

Contrasts: Australia  469 to VCAT, on arrival at the tribunal it remains subject to a number of filters, seeking to limit the need for a full hearing. The first of these is a triaging system: • Claims under A$25,000 are usually sent straight to a hearing. • Claims between A$25,000 and A$100,000 usually go first to a mediation. • Claims over A$100,000 are actively case managed and may also be diverted to a mediation or compulsory conference.237 Compulsory conferences offer an opportunity for settlement to be facilitated by a VCAT list Member or, if a settlement is not possible, for the issues in dispute to be ventilated and rationalised.238 That the parties are expected not to simply ‘go through the motions’ is made clear by standard directions: they must have personnel at the conference with unlimited authority to settle, failing which (or, if a party refuses to negotiate in good faith) costs may be awarded against that party.239 In 2018–19, 174 of the cases in the Building and Property List at VCAT were resolved by compulsory conference and 186 by mediation, figures broadly reflecting VCAT Deputy President Aird’s observation that around 70 per cent of mediations resolve the dispute.240 If a matter does proceed to a hearing, the key governing principles include that VCAT is not bound by the rules of evidence, though it is by the rules of natural justice; and must ‘act fairly and according to the substantial merits of the case’.241 The flexible and informal nature of VCAT’s approach (at least, compared with traditional courts) is emphasised by its power to ‘make any order it considers fair to resolve a domestic building dispute’.242 VCAT’s residential building jurisdiction is unlimited by value. This means that its processes need to be flexible enough to deal expeditiously with matters ranging from minor building disputes with self-represented parties to multi-million dollar disputes involving some of Melbourne’s largest buildings. Reflecting this diversity, of the applications to the Building and Property List in 2018–19, 564 (24.5 per cent) were claims less than A$10,000, 724 (31.5 per cent) for A$10,000–A$100,000, and 329 (14.3 per cent) for amounts over A$100,000.243 The tribunal and its Members have a range of tools (and experience) available to resolve the dispute. Among these, expert conclaves have been deployed in the Domestic 237 VCAT Practice Note PNBP1 ‘Building and Property List (Building Disputes) – General Procedures’ (13 December 2018 version 3). VCAT’s powers to conduct compulsory conferences are under the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (VCAT Act) pt 4 div 5. 238 VCAT Act s 83. 239 Catherine Aird, ‘Compulsory Conferences, Expert Conclaves and “Hot Tubs”’ (Conference Paper, AIJA Tribunals Conference, Sydney, 2009) 2. 240 VCAT Annual Report 2018–19 (n 203) 26. The Building and Property List includes real property and retail tenancies cases, but the bulk of cases in the list are in relation to the Building section (indicated by 55.1% of cases initiated under the DBCA); figures are not published by VCAT about the compulsory conference and mediation outcomes in the Building section specifically. 241 VCAT Act ss 97–98. In Tanah Merah (n 96), for example, the Victorian Court of Appeal upheld VCAT’s having accepted, as evidence of increases to owners’ insurance premiums, emails, oral evidence and witness statements: [204]. 242 DBCA s 53(1); sub-s (2) sets out a wide but non-exhaustive list of powers that VCAT has in relation to such disputes. 243 VCAT Annual Report 2018–19 (n 203) 41. 681 applications (29.6%) had no stated value. As indicated in n 240, around 45% of the cases in the List are not in relation to building, so on the published figures, it is not possible to ascribe exact percentages to values of building-related cases.

470  Pathways to Individual Redress Building List for many years, often in relation to Scott Schedules of issues.244 These are then whittled down in the conclave, leaving for resolution only those of greatest difference between the parties. Likewise, the concurrent taking of expert evidence (otherwise ‘hot tubbing’) is routinely deployed. Deputy President Aird has observed that this requires the presiding Member to take an inquisitorial rather than adversarial stance, and it is ‘not unusual for experts to problem solve together when free of adversarial constraints’.245 The full range of resources available to VCAT was deployed in the Lacrosse building case.246 It was heard by Judge Woodward, who is both a Judge of the County Court and a Vice President of VCAT, giving him jurisdiction to decide the matter under the DBCA and hear the case in the better-resourced County Court setting. Woodward J’s judgment describes the processes at some length, noting that the hearing was completed a day shy of its allotted six weeks even though it encompassed 91 volumes of hearing material (all available electronically via an agreed protocol), 56 witness statements, evidence from seven lay witnesses and 11 experts, a two-day expert witness conclave and a view of the Lacrosse building itself.247 He observed that this result was achieved ‘largely … by the cooperation of the parties’.248 Appeals are possible from VCAT decisions – generally to the Trial Division of the Supreme Court of Victoria, but a decision made by the VCAT President or (as in the Lacrosse case) Vice President is appealed to the Victorian Court of Appeal. In both cases, this requires leave from the court which will hear the appeal.249 VCAT’s fees are, generally, considerably less than those payable in Victoria’s courts. They do, however, increase significantly if a hearing runs for several days, providing the parties with an additional incentive to settle (or, at least, avoid unnecessary pointtaking). For example, on 1 July 2020, the first day’s trial hearing fee in the Commercial Court of the Supreme Court of Victoria ranged between A$306.60 (concessionary rate) and A$1,433.60 (corporate rate).250 In VCAT, on the other hand, no daily hearing fee is payable if the claim is under A$15,001 or (for the first day) if the claim is under A$100,000; however, if the claim exceeds A$100,000 or a hearing for a claim between A$15,001 and A$100,000 runs for more than a day, a A$362.90 daily fee applies. This increases to A$725.70 for days 5–9 and to A$1,088.60 for day 10 and beyond.251 In most dispute proceedings, hearing fees of this type are the tip of the iceberg of the costs parties face. As noted in many places in this book, lawyers’ and experts’ fees can resemble a runaway train, often significantly exceeding the amount in dispute.252

244 Also known as ‘joint conferences’, in a conclave experts engaged by all parties confer and present to the tribunal or court a united experts’ opinion (also indicating any areas of continuing disagreement): see, eg, Richard Manly, ‘The Use of Scott Schedules in Technology, Engineering and Construction Litigation’ (2011) 27 Building and Construction Law 151, 168. 245 Aird (n 239) 4. 246 PS613436T v LU Simon (n 96). 247 PS613436T v LU Simon (n 96) [13]–[23]. 248 PS613436T v LU Simon (n 96) [13]. For its part, the Victorian Court of Appeal commended Woodward J for providing reasons of ‘an exceptionally high quality’ for their clarity and detail: Tanah Merah (n 98) [64]. 249 If an appeal is to the Trial Division, it must be lodged within 28 days of the decision: VCAT Act s 148. 250 Supreme Court of Victoria. ‘Prothonotary’s Office Fees’ (effective 1 July 2020) [3.13(a)]. 251 www.vcat.vic.gov.au/fees. Concessional arrangements may be available in respect of these rates, and cases deemed ‘complex’ attract a blanket rate of A$1,835.00 per day. 252 See, notably, Case Study 6 at section [5.6].

Contrasts: New Zealand  471 It is significant in the VCAT context, therefore, that costs are not usually awarded by the Tribunal, meaning that they lie with whichever party has incurred them.253 However, VCAT retains the discretion to order one party to pay all or part of the costs of another party; its procedures also explicitly provide that the Tribunal may, for example: [award] some of all of the daily hearing fee … against another party if they conduct the hearing in a manner that unnecessarily causes disadvantage or delay … or causes an adjournment or unreasonably prolongs a hearing …254

VCAT may go further, using costs awards as a means of deterring uncooperative or (in exceptional cases) recalcitrant behaviour by parties. From time to time, it awards costs against a party on the very generous (from the claimant’s point of view) ‘indemnity’ basis, where the conduct of that party ‘has been so extreme as to be quite vexatious or bloody-minded’.255

9.10  Contrasts: New Zealand 9.10.1 Introduction Earlier chapters have given examples of New Zealand’s civil courts’ involvement in disputes relating to the build quality of homes. One example illustrated a claim in contract (the purchase of what turned out to be a less than watertight townhouse);256 many others were claims in tort (Mr Hamlin’s bungalow and all the more recent ‘leaky buildings’ cases).257 These might give the impression that ‘the ordinary courts’ (District Court and High Court) are central in our field, or alternatively (for disputes up to NZ$30,000) the Disputes Tribunal.258 That has never been true since New Zealand introduced the Construction Contracts Act 2002 (CCA) – its distinctive version of the adjudication regimes already in place in the UK and Australia. Before that legislative revolution, arbitration was the preferred method of resolving disputes in construction contracts – and remains so for B2B projects relying on a published standard form, with ad hoc arbitration sometimes agreed in other circumstances. There was never enough court work for specialist judges or procedures, but the ordinary courts now attempt to encourage the parties to resolve their dispute without a court hearing – the norm almost everywhere. 253 VCAT Act s 109. 254 VCAT Practice Note PNCAT6 ‘Hearing Fees’ (20 September 2019 version) 8. 255 Cao v Al Bahjeh Pty Ltd [2019] VCAT 998 [20] (part of Kirton SM’s summary of the relevant principles). For another example, see n 83. 256 See Case Study 3 at section [4.4]. 257 See Case Study 1 at sections [1.12] and [5.13.2]. 258 The Disputes Tribunal Act 1988 (NZ) and the Disputes Tribunal Rules 1989 (1989/34) (NZ), as amended, together replaced the Small Claims Court. Before the Tribunal, the fee for lodging an application for over NZ$5000 is NZ$180. Unlike before an adjudicator, lawyers are not permitted; parties need permission to have anyone represent them; there are Dispute Referees instead of judges; the Tribunal will assist the parties to reach their own solution if possible, wanting to know at the start what the applicant has done to try and resolve the dispute before bringing it to the Tribunal; and it has no power to award costs. But if the application does get to a Referee’s decision, this Order is binding and enforceable as a judgment.

472  Pathways to Individual Redress The CCA was extensively amended in 2015; some of the cashflow-related changes (notably retentions) were a reaction to the collapse of one of New Zealand’s largest construction companies, Mainzeal, in 2013.259

9.10.2  Adjudication in New Zealand The regime under the CCA shares one feature with all other statutory adjudication regimes: a claim in tort separate from one in contract (eg, against a BCB) must be taken to the ordinary courts. The New Zealand regime has three key features distinguishing it from the UK model: 1 2

3

There is no ‘residential occupier exception’, so adjudication has always been available for a dispute between ‘the builder’ and a homeowner, at either’s initiative, as long as this arises from a ‘construction contract’ (as defined) between them; The scope of adjudication was extended in 2015 to include a claim relying on a statutory implied warranty enforceable by the present claimant or respondent (who may not be an original party to the residential construction contract into which the warranty has been implied);260 and A determination by an adjudicator (the decision itself) is enforceable simply by lodging a copy of the order in court (‘pay now’), though can be re-opened (‘argue later’) in separate later proceedings (usually arbitration or litigation).261

Potential concerns about individual consumers being unwillingly dragged into adjudications seem to have been met by the information requirements which apply where a notice of adjudication is sent to the potential respondent.262 Unlike the situation in the UK, it seems that parties whose contracts or disputes do not fit within the statutory scheme cannot ‘opt in’ to it voluntarily (or by mistake), giving the adjudicator ad hoc jurisdiction. Further, enforcing a determination in New Zealand gives the losing party no opportunity before a judge to challenge what the adjudicator has done – and the winning party does not normally need to spend on a court appearance. Where the New Zealand courts have been asked to hear challenges to adjudicators’ actions – by way of an application for judicial review – they have been as robust as the English courts in limiting to the bare minimum the grounds which, if made out, might lead such a challenge to succeed.263 Therefore, the current situation is the reverse of 259 The Construction Contracts Amendment Act 2015 (NZ). See, generally, Peter Degerholm, CCA Handbook: Making the Construction Contracts Act work (Wanaka NZ, Calderglen Associates, 2016). 260 On the statutory regime for residential construction contracts in NZ, see sections [4.5.2] and [4.14]. 261 The 2015 Act also added new but modest possibilities for the District Court to review the determination of an adjudicator, under the CCA 2002 (NZ) ss 71A–D. 262 CCA 2002 (NZ) s 28 and the Construction Contracts Regulations 2003 (SR 2003/30) (NZ), as amended by the Construction Contracts Amendment Regulations 2015 (2015/256) (NZ): Forms 1 and 2. 263 Rees v Firth [2011] NZCA 668, [2012] 1 NZLR 408 [27] (O’Regan P, Chambers and Arnold JJ): ‘In principle, any ground of judicial review may be raised [against an adjudication], but a plaintiff must demonstrate that the court should intervene in the particular circumstances, and that will not be easy given the purpose and scheme of the CCA. Indeed, we consider that it will be very difficult to satisfy a court that intervention is necessary … In the great majority of cases where an adjudicator’s determination is to be challenged, the appropriate course will be for the parties to submit the merits of the dispute to binding resolution through arbitration or litigation (or, of course, to go to mediation).’

Contrasts: Ireland  473 the UK and Ireland: specific rights and protections for residential contract parties and procedure carrying a limited ‘litigation risk’ by which those rights can be asserted. There are no nationally collected figures on the numbers of adjudications in New Zealand, amounts claimed (or awarded), who the parties are and how many determinations are enforced without further ado; nor on how many adjudications get launched in which the parties settle, ahead of an adjudicator even being appointed. Not all agree that the system works well. Adjudications are relatively expensive – adjudicator’s fees at the level of NZ$20,000–NZ$70,000, with legal fees also in many circumstances.264 And a single project can generate several adjudications, with the risk of one or more outings to court for a judicial review application on top.265 Although the timescales for adjudication guarantee a speedy provisional outcome, the result may be to harden, rather than soften, the parties’ attitudes, leaving not enough time for second thoughts and the possibility of resolution by agreement or an alternative form of ADR.266 For an unskilled consumer, receiving a notice of adjudication and seeing the speed with which a response is required may make finding skilled legal advice beyond their capacity – ‘access to justice’ suffering once again.

9.11  Contrasts: Ireland 9.11.1 Introduction As in all our other subject jurisdictions, informal approaches to ‘the builder’ are usually the first tactic for an unhappy home buyer or homeowner, backed (where available) by a claim under a third-party warranty, in turn subject to review by the Irish insurance regulator. The standard form B2C contract for construction of a new home, agreed in the 1990s between the Law Society of Ireland and the Construction Industry Federation, contains an arbitration clause – another reason why few residential construction disputes appear in court in Ireland. Pre-conditions to arbitration may apply in the contract; in editions of the standard form building contract published by the Royal Institute of Architects in Ireland prior to the current one, parties were required to attempt to resolve their dispute by conciliation before commencing an arbitration in respect of the dispute. In Achill Sheltered Housing Association CLG v Dooniver Plant Hire Ltd, the High Court held that a notice of referral to arbitration was invalid in the context of a building contract in the RIAI form, if the dispute had not first been referred to conciliation, as the contract required.267 Although Ireland has introduced its own statutory adjudication system, traditional litigation remains centre stage for residential housing defects, but without any specially designated procedures, judges or tribunals. Though starting from the same ‘costs follow 264 Information to one of the authors from an NZ legal practitioner. 265 See, eg, Haskell v Ashcroft [2020] NZHC 772, where Grice J held that an adjudicator has the power to award damages for breach of an implied statutory warranty in a residential building contract, even though this is a version of a common law claim for damages for breach of contract. 266 Information to one of the authors from an NZ legal practitioner. 267 Achill Sheltered Housing Association CLG v Dooniver Plant Hire Ltd [2018] IEHC 6.

474  Pathways to Individual Redress the event’ principles as other common law courts, Irish civil procedure has not yet embraced active judicial case management as universally as courts and tribunals in the UK and Australasia.268 ‘Litigation risk’ – including the possibility of two appeals against a first-instance judgment – is as great in Ireland as before the specialist TCC in London, although the procedural landscapes are different.

9.11.2  Adjudication in Ireland The Construction Contracts Act 2013 (Ire) established a new statutory dispute resolution procedure for payment disputes under construction contracts (as defined), which involves giving both parties – whatever the contract provides – the power to request the appointment of an adjudicator, whose role is to resolve the dispute within 28–42 days and whose determination is provisionally binding.269 It came into force in July 2016 and is closely similar to statutory adjudication elsewhere. However, in contrast to the HGCRA in the UK and the New Zealand position, it applies only to a ‘dispute relating to payment’, not ‘any dispute arising out of the contract’ (or equivalent).270 Although there are as yet no judicial authorities on point, it does not appear to be available for a dispute relating to defects not at least related to a payment dispute (such as a dispute over release of a retention). The Irish Act has a minimum value threshold, not applying if the value of the contract is less than €10,000 – thus probably excluding our shower unit replacement in Scenario 3 (Table 1.2).271 The same project would probably be excluded from the CCA on a second ground: as in the HGCRA, there is a ‘residential occupier exception’. Adjudication in Ireland also does not apply to a contract for construction in relation to a dwelling where one of the parties to the building contract intends to live or already lives, unless its floor area is greater than 200 m2.272 So adjudication will not usually apply to disputes relating to residential defects. Anecdotally, the statutory process has so far been used – where applicable – very little, informal negotiation or other ADR methods being used to resolve disputes on projects where adjudication might otherwise be triggered. Where adjudication could be available in a residential construction context, the Irish procedure for enforcement of adjudicators’ decisions may be a significant factor in whether a homeowner would be advised to engage with the process as referring party. As in the UK, this requires court action, under Order 56B of the Rules of the Supreme Courts, introduced by regulations under the Act.273 These provide for applications for enforcement to be dealt with on affidavit. By the usual standards of the Irish High 268 As in most other jurisdictions, costs liability for another party’s costs can be challenged in Ireland, adjudicated by a legal costs adjudicator in default of agreement between the parties: Legal Services Regulation Act 2015 (Ire) pt 10. For a complex costs issue between homeowners and ‘the builder’, where the homeowners won on the merits, but the builder attempted to deny them some of their costs, see O’Reilly v Neville [2018] IEHC 228 and [2020] IECA 215. 269 Construction Contracts Act 2013 (Ire) ss 2(5)(b) and 6(10). 270 Construction Contracts Act 2013 (Ire) s 6(1). 271 Construction Contracts Act 2013 (Ire) s 2(1)(a). 272 Construction Contracts Act 2013 (Ire) s 2(1)(b). 273 Rules of the Superior Courts (Construction Contracts Act 2013) 2016 (SI 450/2016) (Ire). See also the Practice Direction HC 105 on Applications Pursuant to Construction Contracts Act 2013 (April 2021).

Contrasts: Ireland  475 Court, this should be relatively speedy and cost-effective; but in a low-value residential payment dispute, the costs could easily exceed the amount awarded in the adjudicator’s decision. Adjudication has been slow to gain traction and widespread usage in Ireland. This is partly because most Irish standard form contracts look to conciliation as a precursor to arbitration, which often resolves the dispute. The industry awaits a line of jurisprudence similar to that of the UK courts, supporting adjudication via a robust approach to enforcement.274 A significant milestone was reached in 2021 in Gravity Construction Ltd v Total Highway Maintenance Ltd, where the applicant sought court enforcement of an adjudicator’s decision.275 Although the respondent had already offered to pay the amount in the decision, the parties’ failure to reach agreement on the costs of the proceedings led to the High Court. In his reserved judgment, Simons J noted the legislative intent underlying the Construction Contracts Act 2013 – ‘in particular, the need for expedition’ – concluding that ‘the applicant is entitled to have the matter ruled upon by the High Court’.276 The Court granted leave to enforce the adjudicator’s decision;277 this was framed as an ‘unless’ order, taking effect if the monies due were not paid within seven days of the Court’s decision, thus giving the respondent one last chance (having already had nine months’ grace between the adjudicator’s decision and the court action). In a later High Court case, Construgomes v Dragados Ireland Ltd, Butler J summarized – in terms very familiar from judges’ approaches to the HGCRA in the UK – the impact of the decision of an adjudicator in Ireland: [T]he adjudicator’s decision is presumptively binding but the parties to a contract may continue to seek to resolve the dispute through whatever other mechanisms are provided for in the contract such as arbitration or litigation. In the interim there is a legally binding obligation to pay on foot of the adjudicator’s decision and the decision itself can be enforced unless the payment dispute is finally settled through other means.278

9.11.3  Other Forms of ADR As an EU Member State, Ireland has given effect to all the consumer protection measures discussed elsewhere in this book, including the 2013 Directive on ADR in B2C disputes.279 It has also adopted its own Mediation Act 2017 (Ire), which aims to encourage mediation in a wide range of disputes, to lay down ground rules for the conduct of mediations (and competence of mediators) and ensure the enforceability of the outcome if the process reaches a resolution of the dispute and the parties so wish.280 274 As started in the UK by Macob v Morrison: n 121. 275 Gravity Construction Ltd v Total Highway Maintenance Ltd [2021] IEHC 19. This book’s Irish contributor was part of the applicant’s legal team. 276 Gravity Construction (n 275) [12]. 277 Under the 2013 Act s 6(11). 278 Construgomes v Dragados Ireland Ltd [2021] IEHC 79 [35]. An English case illustrates how there may be uncertainty whether a dispute which has already been adjudicated has been ‘settled through other means’: Aqua Leisure International Ltd v Benchmark Leisure Ltd [2020] EWHC 3511 (TCC). 279 For general consumer protection measures, see ch 6; on unfair terms in consumer contracts, see sections [4.10] and [4.15.3]; and on the 2013 ADR Directive, see n 23 and its main text. 280 Mediation Act 2017 (Ire) s 11.

476  Pathways to Individual Redress The 2017 Act has no impact on arbitration. However, it requires solicitors, before issuing proceedings on behalf of a client, to advise the client to consider mediation as a means of attempting to resolve the dispute and provide them with information about mediation services, including contact details.281 The statute also: • Expressly authorises courts to invite the parties to consider mediation, adjourning the proceedings while mediation takes place.282 • Requires the mediator to report to court (but only on the outcome) if mediation fails and the parties apply to continue their litigation.283 • Authorises the court to take into account a party’s unreasonable refusal to consider mediation or to attend a mediation in its decision on costs.284 The 2017 Act allows 30 days from the parties making an agreement to mediate to be disregarded in calculating the limitation period, which will not expire while parties are actively involved in mediation.285

9.11.4  Litigation in Ireland There are relatively few reported cases from the Irish courts in relation to housing defects in general; this is especially striking concerning apartments, where it is estimated that 75 per cent of those built in Ireland since the 1990s are affected by fire safety or water ingress problems (or both).286 As elsewhere, many homeowners with defects will engage an architect or a surveyor to assess and report in relation to any visible signs of defects, either before or after attempting informal resolution of the matter with ‘the builder’. The expert will be aware of potential limitation problems if a claim is not formalised fast enough, so may prompt the claimant to consult a solicitor. A potential claimant may have difficulty in identifying a lawyer experienced in the field of residential construction litigation. The initial investigation and report from a surveyor or architect are likely to cost several thousand euro, with similar costs involved in the initial stages of legal advice and the drafting of appropriate legal proceedings, mediation or conciliation submissions, or a referral to arbitration. There are relatively nominal fees payable for starting a civil action in the Irish courts, ranging from €90 to €400 to issue Circuit and High Court proceedings, but €5,000 for motions for entry to the case-managed commercial list of the High Court. It is highly unusual for an Irish homeowner pursuing a defects claim to engage in arbitration or litigation without legal representation; they could not expect significant help from the court, beyond an encouragement to appoint lawyers. Part of the reason is that arguing a defects case will require significant input from the plaintiff ’s experts, which must then be cast into appropriate pleadings. The procedural steps required to be followed during pre-trial will also require detailed knowledge of court procedure (eg, in 281 Mediation Act 2017 (Ire) s 14. 282 Mediation Act 2017 (Ire) ss 16 and 19. 283 Mediation Act 2017 (Ire) s 17. But in almost all other respects, the mediation is confidential: s 10. 284 Mediation Act 2017 (Ire) s 21; see also (in E&W) n 79. 285 Mediation Act 2017 (Ire) s 18. 286 Cianan Brennan, ‘Huge Numbers of Celtic Tiger Apartments May be Affected by Fire Defects, Housing Committee Hears’ Irish Examiner (1 December 2020).

Contrasts: Ireland  477 the preparation of requests to the defendant for discovery of documents) and in the drafting of procedural documents. For an action in the District Court (maximum claim €15,000) or Circuit Court (maximum claim €75,000), solicitors will assemble documents in order to brief a junior barrister, who will take responsibility for the drafting. In a case in the High Court (which has unlimited jurisdiction in civil cases), senior counsel may be retained at the same time as junior counsel to advise generally with regard to strategy and merits; and to settle draft documents before issue and delivery. Where High Court proceedings are initiated in a typical building defects case, a lengthy process will be followed before getting to trial. Plaintiffs will typically plead breach of contract, negligence, negligent misstatement and breach of statutory duty. A plenary summons is a very brief statement of the reliefs sought, issued ahead of the substantive claim, in part to stop the limitation period from expiring. A claimant must next set out a statement of claim: this sets out the allegations against the defendants (often both the actual ‘builder’ and members of the professional team), together with particulars of the defects discovered by the claimant’s experts. The parties exchange pleadings and seek discovery of documents once the pleadings have been closed. It is quite common for the process to take several years between the issue of a plenary summons, trial and judgment. Even if there are no limitation issues at the plenary summons stage, a plaintiff ’s slowness in moving forward may lead a defendant (especially a construction professional) to ask the court to strike out an ongoing claim for reasons of delay, including pointing to time wasted before starting litigation. In Farrell v Arborlane Ltd, the homeowner’s civil action about defects in her apartment development had already run for more than 10 years. She was clearly partly responsible for the delay – waiting five years to issue proceedings and then a further five years to serve a statement of claim. As a result, the Court of Appeal dismissed proceedings against one of the defendants, an engineer, brought into the litigation based on their opinion on compliance with ‘the building code’ given 15 years before. It was unfair to have an allegation of professional negligence hanging over them for so long, making it impossible to get PI cover.287 In Cavanagh v Spring Homes Developments Ltd, the plaintiffs (in fact the UK thirdparty warranty provider Premier Guarantee, exercising its right of subrogation) alleged that their new house, completed in 2006, was uninhabitable, suing both the building contractor and the engineer who had certified its compliance with planning permission and ‘the building code’.288 The engineer claimed that he owed the Cavanaghs no duty of care and had been employed by the builders, on whom any liability should, therefore, rest. The case law showed that a claim could be struck out where the plaintiff(s) had been guilty of ‘inordinate and inexcusable delay’ or where the lapse of time (even if not the plaintiff ’s fault) meant that a fair trial of the issues was no longer possible.289 Noonan J explored the factors to be taken into account: It has to be recognised that a building contract type case such as the present would not normally be expected to proceed with the same expedition as an uncomplicated personal 287 Farrell v Arborlane Ltd [2015] IEHC 545 and [2016] IECA 224. 288 On an insurer’s right of subrogation, see section [7.2.10]. 289 Primor plc v Stokes Kennedy Crowley [1996] 2 IR 459 (IESC), also Millerick v Minister of Finance [2016] IECA 206. Both of these are exercises of the Court’s inherent jurisdiction.

478  Pathways to Individual Redress injuries claim, for example, and I do not think the two are directly comparable. Inevitably a claim such as this requires input from a range of experts such as architects, engineers, quantity surveyors, valuers and the like. Detailed and lengthy assessment of defects is frequently necessary which can in some cases involve substantial opening up works, although that is not in issue here. However, experts inevitably require time to carry out surveys, compile their findings and report on them. In the context of that and the relevant six year limitation period, I do not think that a delay of some two years between the appearance of the defects and the institution of the proceedings is to be regarded as necessarily unreasonable.290

In this case, Noonan J held that the engineer could identify no specific prejudice from the delay, and the plaintiffs had not sat back inexcusably (their lawyers’ sharing much of the blame for procedural steps which misfired), so the request to strike out was refused. It was relevant that to strike out would leave no ‘live’ defendant (the building contractor having been dissolved in 2006), so would close off all chance of remedy for the plaintiffs’ insurers.291 As these cases show, Irish civil procedure has largely left it to defendants to put pressure on plaintiffs to make proper progress with building defect claims – as with civil claims generally. The court will hold the ring between the parties, looking to ‘the balance of justice’, but only exceptionally insists on active case management at first instance (more frequently in the Court of Appeal and the Supreme Court).292 The commercial list of the High Court (‘the Commercial Court’, established in 2004) operates as a case-managed list, as under the Civil Procedure Rules in England & Wales. Its role is limited to commercial disputes of a value over €1m, of significant urgency, and certain intellectual property disputes. Parties may not gain entry to the list as of right, having to apply to the judge in charge, but it has taken on nine out of 400 claims relating to pyrite in homes as test cases, triggered by the third-party warranty provider Premier Guarantee.293 Significant reforms in the direction of greater court involvement in active case management, pre-trial production of documents and automatically discontinuing proceedings that have not progressed within 30 months of their commencement were recommended in the 2020 report of the Review of Administration of Civil Justice, conducted over a number of years and chaired by former President of the High Court, The Hon Mr Justice Peter Kelly.294

290 Cavanagh v Spring Homes Developments Ltd [2019] IEHC 496 [27]. A party who can be said to have acquiesced in delay cannot then complain of it: McGann v Connellan [2011] IEHC 462. 291 Another subrogation case brought by Premier Guarantee is Gillivan v Sitreas Construction Management Ltd, arising from defects in a development of several hundred apartments in Dublin city centre: High Court Record No 2019/7612P. See Jack Horgan-Jones, ‘Celebrities Drawn into Legal Action over Dublin Luxury Flats’ Irish Times (4 October 2019). 292 For a direction to the parties to summarise the issues, see University College Cork v Electricity Supply Board [2015] IEHC 598. And for the production of a Scott Schedule in a construction case, see WL Construction Ltd v Chawke [2016] IEHC 539 and O’Reilly v Neville [2017] IEHC 554, also n 46. 293 Dearbhail McDonald, ‘Building Giants to Fight Liability as 400 Pyrite Claims Filed’ Independent (19 January 2014). On pyrite problems in Ireland, see section [7.1.2]. 294 Ministry of Justice (Ire), Review of the Administration of Civil Justice: Report (2020). The report’s Foreword records there was no consensus on how to achieve a reduction in levels of litigation costs. The report recommends greater use of existing legislation and procedure in order to manage these, noting that the Legal Services Regulation Act 2015 (Ire) s 169(1), together with Order 99 of the Rules of the Superior Courts, set out a comprehensive regime for the regulation of costs in the context of the duration of trials.

Chapter Summary  479

9.12  Chapter Summary Table 9.1  Pathways to Individual Redress PATHWAY INFORMAL NEGOTIATION

AVAILABILITY? In all situations in all our subject jurisdictions, whatever the contract says.

COMMENT Most formal systems of dispute resolution require an attempt to negotiate first. In the early years of the policy, most UK third-party warranties require the consumer to attempt first to get a remedy from the developer.

ADR: CONSENSUAL For example, conciliation or mediation

By agreement between the parties (either in their contract or when the dispute arises). Vic: DBDRV imposes conciliation as a hurdle before allowing a case onwards to VCAT.

ADR: DETERMINATIVE

UK, Ire, NZ, some Aus states: For example, adjudication Adjudication imposed as a statutory right (but residential or arbitration exception in the UK, Ire). UK: adjudication may also be chosen by the parties (either in their contract or when the dispute arises). Under the UK Consumer Codes, a binding form of ADR is imposed on developers for disputes with new-build consumers. CLAIM UNDER INSURANCE/ THIRD-PARTY WARRANTY

A skilled third party attempts to find common ground for an agreed solution.

Insurance mandatory only in Australia (but not Tas) UK, Ire: third-party warranty offered with most new homes.

Never mandatory except in a contractual or statutory context. Adjudication has tight timescales, and the outcome is only provisionally binding; court intervention is limited. Arbitration may replace the possibility of litigation; a party may need to go to court to enforce an award (possibilities of challenging the award and the procedure). Scope and duration of cover crucial in defining when a claim can be made. Policyholder must not delay in making a claim. Possibility of negotiation and ADR with warranty provider/insurer.

COMPLAINT BY CONSUMER TO REGULATOR

Aus: a construction regulator may have the power to order ‘the builder’ to complete or redo work; may also have power to fine ‘the builder’ or suspend their licence.

Usually at no cost and no risk to the consumer. UK, Ire: the absence of a sectoral regulator reduces the pathways available to a consumer. (continued)

480  Pathways to Individual Redress Table 9.1  (Continued) PATHWAY

AVAILABILITY?

COMMENT

UK, Ire, Aus: insurance regulation gives a consumer the right to challenge a decision of an insurer/ warranty provider before an Ombudsman. UK: (proposed) New Homes Ombudsman. LITIGATION: LEGAL ACTION IN A CIVIL COURT

In all our subject jurisdictions, with a view to an award of damages (in contract, tort, by way of restitution or under statute), an injunction or order for specific performance (or equivalent). Aus: residential construction contract disputes may be allocated to a specialist tribunal (same powers as a civil court, but wider procedural scope).

This is the universal default pathway for resolving all legal issues, usually carrying a high level of ‘litigation risk’ for a claimant/ plaintiff: fees, costs, uncertainty of outcome, possible appeal(s), the need to enforce a judgment. Most first-instance courts and tribunals are now eager to encourage parties to settle or attempt a form of ADR, ahead of the next stage of their own procedures.

Vic: DBDRV attempts to conciliate residential construction disputes before they can arrive at VCAT.

9.13 Evaluation Construction projects have two shared and linked characteristics: each project is, in some respects, unique; and each carries the potential for disputes. The risks posed by uniqueness could be reduced – but not eliminated: ground conditions are always to an extent uncertain – by greater use of modern methods of construction (MMC). Identifying the causes of disputes (prevention) and dealing with them better when they do arise (cure) is as great a challenge in our field as it is in larger commercial or infrastructure projects; in some ways, a greater challenge, as the consumer of residential construction often has no relevant track record, was not necessarily present when the project’s details were fixed and may not have the resources to spend much up-front in trying to get redress. In this context, all our subject jurisdictions recognise the need to make it easier (or a less uphill task) for a ‘builder’ and home buyer or homeowner to resolve a construction problem. This book has taken legal analysis of the process and consequences of construction as its central theme, at the same time recognising that a consumer’s ­pleasure (or lack of it)

Evaluation  481 in their home may not always be amenable to this approach; and that traditional judicial remedies may not be appropriate, or even necessary. The explosion of ADR possibilities, including courts and tribunals putting potential litigants under pressure to attempt to resolve their dispute informally (as with mediation in Ireland), reflects the psychological truth that an agreed outcome may be easier to ‘own’ and live with than one imposed by a third party, as well as discouraging the parties from committing the far greater resources that any formal procedure will require. Traditional civil courts know that they cannot be made accessible for disputes of modest value unless litigants can be assisted financially – civil legal aid or its equivalent, or third-party funding for litigation (still illegal in some jurisdictions).295 But state support for litigants is in decline everywhere, and investors will only be interested in a dispute if the damages potentially run into six figures or more. Better to hive off construction disputes as a category to adjudication, which is rough and ready but produces an enforceable outcome fast, than to expect parties to risk much more in litigation which – as in the TCC in London – will take at least eight months to get to a hearing on the merits.296 In the context, eight months is an impressively positive figure, reached thanks to the court’s tenacious control of pre-trial processes – encouraging the issues to be refined, the factual material to be reduced and settlement to be facilitated. However, this is ‘Rolls-Royce justice’, of no direct relevance to our buyer B1 in Table 2.1, who has an oven which is the wrong model and fitted not quite level; and a pathway to the front door which has lights missing. There are alternatives: one is to treat residential construction as an area of its own and fashion processes that recognise the specific profile of the disputes it throws up and the low value (but high emotional content) of many such claims. Such thinking is already in place in the Australian jurisdictions which allocate such disputes to tribunals, Victoria having added an institutionalised form of ADR as the first port of call. The same diagnosis is behind plans for a New Homes Ombudsman in the UK, recognising that an inquisitorial regulator can typically achieve more (with fewer total resources involved) than a theoretically neutral judicial body. At the abstract level of concern with ‘access to justice’, all the different pathways discussed leave gaps and have disadvantages. All require at least one individual consumer to take the initiative; some operate by recognising that this complainant is unlikely to have access to specialist legal advice, so attempt to make that missing input irrelevant. In the more complex case – a range of original construction defects across a hundred or more flats in a new block – there is no avoiding the need for experienced lawyers in 295 For a survey of the current possibilities for litigation funding in England & Wales, see Paccar Inc v Road Haulage Association Ltd [2021] EWCA Civ 299; and on a law firm taking a percentage of recoveries as its fee, see Zuberi v Lexlaw Ltd [2021] EWCA Civ 16. In Scotland, ‘no win, no fee’ agreements between client and lawyer have been possible since 1835, now regulated by the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 s 36 and the Rules of the Court of Session 1994 s 42. For the lawyer’s fee to be linked to the amount recovered remains in principle illegal and unenforceable: A&E Investments Inc v Levy & McRae Solicitors [2020] CSOH 14; but the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 came into force in 2020, permitting and regulating success fee agreements. In Persona Digital Telephony Ltd v Minister for Public Enterprise [2017] IESC 27, the Irish Supreme Court confirmed that third-party funding is prohibited under Irish law, save in specific exceptional circumstances. 296 Technology and Construction Court, Annual Report 2018–2019 [3.9]: 77% of cases listed for trial were completed within eight months of the issue of proceedings.

482  Pathways to Individual Redress the specific residential construction field; unhappy residents need easy and reliable ways of connecting with them and then acting effectively and economically as their clients. Managing such ‘group litigation’ (whatever label the jurisdiction puts on it) remains a procedural challenge of which all jurisdictions are aware; in relation to Ireland, as an EU Member State, the New Deal for Consumers initiative from Brussels could require easier methods by which breaches of EU measures protecting consumers (perhaps not only those protections) could be collectively asserted in court.297

297 On the Review of EU Consumer Law: New Deal for Consumers, see www.ec.europa.eu. See also Law Reform Commission (Ire), Report on Multi-Party Litigation (LRC 76–2005), which recommended a new form of ‘Multi-Party Action’, structured by means of a ‘lead’ case that would represent the interests of the litigants in the action, with provision for the court to certify proceedings as multi-party actions where the court was satisfied that such an action ‘would be an appropriate, fair and efficient procedure in the circumstances’ (at 41). This possibility might be particularly relevant to construction defects in multi-unit developments.

10 Time Limits for Taking Action Delay always breeds danger; and to protract a great design is often to ruin it. cervantes1

Whatever their formal position in relation to rights and possible remedies, any unhappy homeowner must act in time – or at least be aware how long they do have to act – in order to secure their position via one of the available pathways of redress. This chapter, therefore, considers time issues as they relate to each of the main possibilities, in their likely (or ideal) order – complaining to ‘the builder’ at section [10.1]; making a claim on insurance or a third-party warranty at section [10.2]; complaining to a regulator or official conciliator at section [10.3]; and finally starting legal action in a civil court or before a tribunal at section [10.4]ff, including Case Study 9 at section [10.6]. Of all these possibilities, the last has the best developed (and enforced) set of time limits: the law of limitation (or prescription). Later sections of the chapter therefore consider the key ideas behind this body of law, the parties’ powers to modify the limitation period, then the default statutory position in relation to actions about building defects in each of our subject jurisdictions. The chapter ends with the usual table-form summary and a final evaluation.

10.1  Complaining to ‘The Builder’ 10.1.1 Introduction There are no general legal rules about the timing of this process. However, a ‘builder’ approached with a problem may be less inclined to react positively if the homeowner seems to have delayed raising it with them, possibly making it worse or its solution more complex or expensive. This is especially true if the project is happening under the homeowner’s nose, like P the plumber installing a new shower for B1 in Scenario 3 (Table 1.2); or M2 building a new house for B2 in Scenario 6.



1 Miguel

de Cervantes Saavedra (1547–1616), Don Quixote (tr Peter Motteux and John Ozell) 1.4.2.

484  Time Limits for Taking Action

10.1.2  The Impact of a Construction Contract As we saw in chapter 4, most residential construction contracts in Australasia come under a statutory regime, requiring documentation and imposing some basic quality, time and payment obligations. However, these formal rules may say nothing about what B1, in Scenario 3 (Table 1.2), should or must do if they are unhappy with the work-inprogress. Nor do any of the statutory regimes impose time limits on complaining to plumber P after the job is done, though the law lays down far distant limitation periods which would apply if B1 was considering suing P. But to engage with the problem without delay, in line with advice at section [9.2], remains sensible, and some forms of official help require B1 first to take reasonable steps to resolve a dispute face-to-face. That could include B1 not letting time go by before attempting to negotiate with plumber P; if this does not reach a solution, it would be unwise to wait too long before taking the next step.2 Where the project is on a larger scale – in Scenario 6 (Table 1.2), to build a complete house – then the contractual arrangements ought to provide a framework for dealing with any issues the owner B2 has (while B2 still owns the plot) with the main contractor M2; and then (assuming that B2 assigns the benefit of the construction contract to the successor B3, or M2 agrees to novate the whole contract to B3) between the successor B3 and M2, including after practical completion. There could be a standard form contract in place that will do this job, even if it is a simplified one for use in a B2C context. Under the contract, the right of B2 to interfere in the project while it is under way may be limited. First of all, the principle at common law (often modified, as noted below, in the contract) is that the builder has at least until practical completion to get the job right: ‘temporary disconformity’ from what the contract requires is no reason for threatening to terminate the whole contract, let alone getting someone else in to ‘fix the problem’.3 Second, if there is a contract administrator (or equivalent) on the project who is not ‘the employer’ in person – in Scenario 6, this could be the architect A – then that is the best person to channel concerns to the builder and negotiate a solution. If the project is in England & Wales, the plain English RIBA Domestic ­Building Contract 2018 does allow work to be rejected which is not in accordance with the contract, the employer having in reserve the ‘nuclear option’ of terminating the contract.4 In addition, a Defects Fixing Period starts at practical completion (minimum three months, but the parties are to choose its length), when the contract administrator (who could be ‘the client’, exercising those functions under the contract) notifies

2 For example, in Australia approaching an official regulator or conciliator: see section [10.3.2]. If Scenario 3 took place in Victoria, the DBDRV could not become involved, as a project with a single tradesperson doing only plumbing work is not covered by the scheme. 3 For a summary in the English context, stemming from P&M Kaye Ltd v Hosier & Dickinson Ltd [1972] 1 WLR 146 (HL), see Ellis Baker and Anthony Lavers, ‘Temporary Disconformity Revisited’ (Society of Construction Law (UK) Paper 139, 2007). The issue was considered in relation to the Opal Tower project in Sydney in Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2020] NSWSC 178 [65] (Stevenson J). 4 On termination, see cl 12.1.4 (‘If the Contractor is in Material Breach of the Contract …’).

Complaining to ‘The Builder’  485 all defects needing rectification to the contractor, the final payment under the contract becoming due only when all these have been fixed.5 The RIBA contract lays down no maxima for these stages or procedures, also offering a range of choices for the resolution of disputes. This project belonging within the ‘residential occupier exemption’, statutory adjudication is not imposed, but there is nonetheless an adjudication clause in the main contract between B2 and M2.6 The FMB Domestic Building Contract is very similar, with the possibility of a six-month post-completion Defects Liability Period and a choice between methods of dispute resolution.7 Unlike some B2B standard forms, these two Domestic Building Contracts do not attempt to prevent the new home’s owner B3 from asserting breaches of contract after the contract’s own defects period has come to an end and M3 has left the site. Whatever the parties have selected by way of binding dispute resolution will therefore still apply, including any linked time limits they have agreed; for litigation, this may be no more than the standard default limitation period for a contract claim, in turn depending on whether the construction contract was executed as a deed or not.8 The Scottish Building Contract for a Homeowner/Occupier who has Appointed a Consultant to Oversee the Work combines both approaches, containing a post-completion three-month defects rectification period but also providing: ‘For at least 5 years after carrying out the work [the standard prescription period in contract in Scots law] the contractor will remain responsible for any faults in the work (other than fair wear and tear) which are caused by him’.9 Commonly used standard forms in Australia provide similarly in relation to defect rectification rights, though in the residential context (as defined) with the statutory overlays described in chapter 4. Another difference, especially amongst the more commercially-focused contracts (such as the ABIC MW suite of forms), is that they tend to be prescriptive about time frames for actions by both parties and may even bar actions if the relevant notices are not given in time.10

10.1.3  New Home Sales: Consumer Codes in the UK In the UK, most developers who offer their new home buyers a third-party warranty become subject to one of the current Consumer Codes.11 The obligations apply for Years 1–2 from practical completion or the start date on the home’s third-party warranty.

5 For the meaning of ‘practical completion’ at common law – ie, unless the contract itself defines the phrase, which is rare – see Mears Ltd v Costplan Services (South East) Ltd [2019] EWCA Civ 502, [2019] BLR 289, 183 Con LR 1. 6 On adjudication and the HGCRA, see section [9.7]. 7 See section [9.2.4]. 8 See section [10.5]; on the position in Scotland, see section [10.10]. 9 Condition 9 of the Building Contract for a Homeowner/Occupier who has Appointed a Consultant to Oversee the Work. 10 See, eg, Ian Bailey and Matthew Bell, Understanding Australian Construction Contracts (Sydney, Thomson Reuters, 2008) ch 28. 11 Consumer Codes are discussed at section [6.5]; third-party warranties in ch 7.

486  Time Limits for Taking Action This is the period in which, under warranty products with a ‘2+8’ structure, the developer keeps primary responsibility for responding to problems raised by the homeowner, the insurer acting only as a ‘second-resort’ safety net within the warranty’s scope.12 In Scenario 4 (Table 1.2), where the first buyer B1 notices cracks in the walls of the new-build home bought from developer X, two complete years have already passed. If these events are taking place in the UK, and if there is a third-party warranty in place which triggers one of the Consumer Codes, then the relevant Code offers its own dispute resolution scheme. But the Code expects the homeowner to attempt to get a solution from the developer first and only if still unhappy to trigger the Code (or warranty) machinery, as appropriate.13 However, in Scenario 4 it looks too late for B1 to rely on rights under the Code – and B1 would have to assert a breach of one of the Code principles, all of which look (only) to the sale, construction, handover and after-sales care processes. The developer X may similarly refuse to respond once the two years are over, unless (presumably) B1 can show that their claim relates to events or a situation that came into existence within the first two years, or was already in existence at the start. Or X may fail to respond altogether if – as Scenario 4 suggests – they are no longer trading. But X will usually retain liability for breaches of contract at common law despite the existence of the third-party warranty (usually only to B1, though in Scenario 5 B1 assigns the benefit of the purchase contract with X to B2, the home’s new owner). Here too insolvency will make a right to take X to court of no practical value. However, any protection the current homeowner enjoys under a third-party warranty will be unaffected by X’s insolvency.14 Apart from the two-year ‘cut-off ’ for after-sales remedies, none of the published Codes include rules about the speed with which the homeowner must act in order to expect a response from ‘the builder’, though self-interest must argue for minimum delay. In the opposite direction, the Consumer Code for New Homes does lay down a 30-day maximum within which a developer must respond to a complaint from a buyer, if the new home has a warranty committing the developer to this Code.15 The ‘non-mandatory guidance’ linked to the Consumer Code for Home Builders simply says that the developer ‘should deal with all complaints within an appropriate time’, advising the developer to tell the homeowner how long that is expected to be.16 The ICW Consumer Code goes into more detail, requiring the developer to acknowledge the complaint within 14 days and give a substantive response within 30.17

12 For cover in Years 1–2 under Buildmark, see section [7.2.5]; and for multi-unit developments, section [11.7]. For other UK warranty providers supporting this Code, see Table 7.1; and for HomeBond in Ireland, section [7.5.2]. 13 For more detail on the Consumer Codes, see section [6.5]. 14 For the warranty position under NHBC Buildmark in Scenarios 4 and 5, see section [7.2.6]. In many jurisdictions, time for starting legal action will usually expire before warranty cover, but in some it may not expire until well after warranty cover: for a Scottish example, see Hughes v Barratt Urban Construction (Scotland) Ltd at section [4.16.2]. 15 Consumer Code for New Homes s 7.1. 16 Consumer Code for Home Builders s 5.1. 17 ICW Consumer Code s 23.3.

Claiming on Insurance or Under a Third-Party Warranty  487

10.2  Claiming on Insurance or Under a Third-Party Warranty Insurance-based protections which provide cover against the insolvency of ‘the builder’ or failure to complete construction require the would-be buyer or homeowner to act in order to make a claim, as do the categories of cover looking to defects appearing after construction work is over. The policyholder always has the burden of showing that a claim fits within the policy’s provisions, not only as to substance and cost but also as to time. It is, therefore, always advisable to act quickly once there seems to be a problem; during construction, a danger sign would be no workers on site, with work obviously unfinished and the promised completion date approaching. Where the problem may be post-completion defects in the home or elsewhere in the development, it may be sensible to commit resources to professional help in order to diagnose what may have gone wrong and decide what to do next: the options are explained in chapters 8 and 9. There is a link between these preliminary investigatory stages and the time limits for legal action. Proceedings may have to be formally launched in court in order not to be caught by the limitation period, but English law expects a claimant to be in a position then to define the main elements of their claim and communicate these to the defendant(s). If the Particulars of Claim fail to include adequate ‘particulars of specific, identified defects, or their location and extent’, the Particulars may be struck out, or even ‘reverse’ summary judgment granted to the defendant(s).18 These procedural necessities can put heavy pressure on situations where identifying defects involves complex and invasive or off-site testing procedures – notably in relation to cladding and external insulation in tower blocks – before claimants can be ready to define the detail of their claim. The closer to the expiry of the limitation period defects are discovered or suspected, and the bigger the development in question, the greater the pressure.

10.2.1  The UK Unlike in litigation, there are no fixed rules about how much delay may lead to a third-party warranty claim being rejected. Echoing the common law, under which the damages the court awards may be reduced if the claimant could reasonably have ­mitigated their loss, the current Buildmark policy booklet says: When you become aware of something which would entitle you to seek our assistance or claim under this policy or something which is likely to give rise to a claim under this policy you shall as soon as reasonably possible: (a) Take all reasonable steps to prevent further loss (b) Where section 2 applies [cover in Years 1–2], ensure notice has been given to the builder (c) Give notice to us.19 18 Naylor v Roamquest Ltd [2021] EWHC 567 (TCC) [28]. O’Farrell J in fact gave the claimants extra time to correct their Particulars of Claim. 19 NHBC Buildmark, 2019 edn, s E1 (bold terms defined at the start of the booklet): www.nhbc.co.uk. On mitigation at common law, see section [4.12.2].

488  Time Limits for Taking Action The policy’s General Exclusions make clear that the insurer has no responsibility for ‘[a]dditional costs arising from unreasonable delays in reporting an issue either to us or the builder’.20 BLP’s Handbook for New Homeowners echoes this advice, adding extra requirements – as much in the policyholder’s interest as the insurer’s: a) b) c)

You must give written notice to the insurers as soon as possible, by writing to BLP You must take all reasonable precautions to prevent damage You must, within 60 days of the discovery of the defect or damage, submit in writing to the insurers such details of the claim as are then available d) You must supply, or to the extent this is not possible, assist in procuring all reports, certificates, plans, specifications, quantities, information and assistance as may reasonably be required by the insurers.21

10.2.2 Australasia All requirements under insurance policies in Australia, including notice-based limitations, must be read through the lens of the Insurance Contracts Act 1984 (Cth).22 Its provisions, oriented towards consumer protection, include section 54, which essentially restricts insurers’ ability to refuse a claim on the basis of acts or omissions (such as failure to comply with notice provisions) which do not prejudice the insurer’s interests. However, Australian insurance policies for residential construction work almost invariably include both notice provisions and time limits.23 The July 2017 version of the standard policy wording of VMIA in Victoria, for example, imposes a notification limit: 51. We will refuse any claim by you unless you notify us in writing that the builder or speculative builder has died, disappeared, become insolvent or failed to comply with a Tribunal or Court Order [each is a trigger event for a claim] within 180 days of you becoming aware of that event or happening or when you might reasonably be expected to have become aware of that event or happening (whichever is the earlier).24

However, the policy also generously defines what notification then achieves: 53. If you notify us of a structural defect or other defect, you are taken to have given notice of every defect to which the defect is directly or indirectly related, whether or not the claim in respect of the defect that was actually notified has been settled.

20 NHBC Buildmark (n 19) s E13(e). 21 BLP Handbook for New Homeowners: www.blpinsurance.com/resources. 22 See section [7.5.1]: note that the unfair contracts terms regime under the Australian Consumer Law applies to most insurance contracts from 2021. 23 For cover in Australia, see section [7.5]. 24 Policies issued on or after 1 July 2017: www.dbi.vmia.vic.gov.au. For the terms of this policy, see, further, sections [7.5.2]–[7.5.4].

Claiming on Insurance or Under a Third-Party Warranty  489 There are equivalent rules in Queensland for a claim under its (first-resort) Home Warranty Scheme. Notification is required within: • Three months from noticing the defect for claims for structural defects, or from termination of the contract where the claim is for non-completion (or 14 days where it arises from fire, storm or tempest). • Seven months from completion of the project for non-structural defects.25

10.2.3 Ireland The market leader for home warranty insurance in Ireland is HomeBond, discussed at section [7.6]. The policy appears to give no grace period after the end of each category of cover for notifying a claim. Section 1.2 of the policy document (Defects Insurance) provides: We will indemnify the Policyholder against all valid claims notified to Us during the Defects Insurance Period for the Cost of rectifying work to the Housing Unit [as a result of certain named, limited risks].

Section 1.3 (Structural Insurance) is in similar terms: We will indemnify the Policyholder in respect of all valid claims notified to Us during the Structural Insurance period for the Cost of complete or partial rebuilding or rectifying work to the Housing Unit [as a result of certain named, limited risks].

This suggests, but surely cannot actually mean, that a policyholder who acts fast on the occurrence or discovery of an ‘insured event’ at the very end of the relevant period of cover is nonetheless at risk of having their claim rejected. The law in Ireland newly intervenes in this situation via the Consumer Insurance Contracts Act 2019: Claims handling: duties of consumer and insurer 16. (1) The consumer shall cooperate with the insurer in the investigation of insured events, including by responding to reasonable requests for information in an honest and reasonably careful manner. (2) The consumer shall notify the insurer of the occurrence of an insured event within a reasonable time or in accordance with the terms of the contract, provided those terms comply with the requirements of section 20 [which ensures that such terms may be challenged as unfair or onerous]. (3) Where non-compliance by the consumer with a specified notification period does not prejudice the insurer, the insurer shall not be entitled to refuse liability under the claim on that ground alone.

25 QBCC Home Warranty Insurance Policy Conditions (8th edn, 1 July 2009) clauses 1.8, 3.3 and 4.5. The policy is available via www.qbcc.qld.gov.au.

490  Time Limits for Taking Action (4) Without prejudice to any other duties in this section and to an insurer’s right to make the final determination in relation to a claim, the insurer shall be under a duty to— (a) handle promptly and fairly any claim made in relation to the contract of insurance (a ‘claim’), (b) where it is not made by the consumer himself or herself, notify a consumer of a claim as soon as practicable after the insurer is informed of the claim, (c) engage with the consumer as regards a claim, and such engagement shall include providing an opportunity to the consumer to submit to the insurer relevant evidence which could inform the insurer’s determination as regards the claim, (d) where a claim has been settled or otherwise disposed of, inform the consumer of the amount for which it has been settled or otherwise disposed of and the reason or reasons for its being settled or so disposed of.26

10.3  Complaining to a Regulator or Official Conciliator 10.3.1  The UK As we saw in section [9.4], there is not yet one body or organisation which can deal with all home buyers’ or homeowners’ complaints against ‘builders’ in general, let alone the other professionals involved in the process of buying or building a new home, or doing work on an existing one. There are so many membership and regulatory or disciplinary schemes for construction and legal professionals that their rules on time limits for making a complaint are too varied to summarise. Some have no published time-limit rules at all; even here, an unhappy home buyer or homeowner should always act with reasonable speed in order for their complaint to be taken seriously and investigated, just as they should take advice on the possible ways forward and frame their complaint so that it fits within the scope of the particular scheme. Moving to the statutory regulator for insurance (hence all third-party warranties), the Financial Ombudsman Service (FOS), insurers are required by Financial Conduct Authority rules to give a ‘final response’ to a consumer within eight weeks, which is much longer than the NHBC’s published 10-day target. In the wings is the Insurance Act 2015 (UK), whose section 13A implies a term in every insurance contract with a consumer that the insurer has a reasonable time to investigate and assess the claim, then paying any sums due within a reasonable time.27 The time-limit rules for the FOS mimic some of the more generous statutory limitation rules for litigation, starting with a basic requirement that the claimant must start a complaint within six years. But this does not apply if the complainant was not aware that they had a reason to complain at the time, as long as they make the complaint

26 The 2019 Act implements the Law Reform Commission (Ire) report, Consumer Insurance Contracts (LRC 113–2015). All but sections 8, 9, 12 and s 14(1)–(5) of the Act came into force on 1 September 2020: Consumer Insurance Contracts Act 2019 (Commencement) Order 2020 (SI 329/2020) (Ire). 27 Section 13A(5) makes clear that damages for a breach of this term may be awarded in addition to payment of any sums due and/or interest; s 16A prohibits contracting out of this implied term in contracts with consumers.

Complaining to a Regulator or Official Conciliator  491 within three years of becoming aware (or when they should reasonably have become aware) that they had cause to complain. There is a further possible safety net of ‘exceptional circumstances’ accounting for the delay.28 Once the homeowner gets a final response from the warranty provider and is still unhappy, a six-month period starts running for the homeowner to file a complaint with the FOS – subject to the overall time limits above. The six-month period only starts to run where the business’s ‘final response’ tells the homeowner about their right to go to the FOS and the period they have in which to do so.29

10.3.2 Australasia As noted in chapter 9, the NT, Queensland, Victoria and WA have a variety of specific schemes established under legislation for state-based intervention into residential building disputes by way of combinations of site attendance and investigations, a form of mediation and orders to rectify. Each of these includes time limits for consumers seeking such intervention: • In the NT, dispute applications (to the Commissioner of Residential Building Disputes) in respect of a contravention of the ‘consumer guarantees’ (statutory warranties)30 cannot be made while there is an ongoing contractual relationship between the parties31 and must be made: • Where the contravention relates to the failure to start work, or cessation of work, within 90 days of the relevant date.32 • Where the contravention results in defective work, essentially within the defect periods of one year for non-structural defects and six years for structural defects.33 • In Queensland, the QBCC will investigate a complaint from a homeowner about building work only if the complaint is lodged within 12 months of the complainant becoming aware of the defect or consequential damage.34

28 The FOS website instances serious ill health or bereavement at the relevant time and contains case studies of ‘exceptional circumstances’: www.financial-ombudsman.org.uk. The details of the time limits which apply to complainants, businesses (‘respondents’) and the FOS are in DISP 1 of the Financial Conduct ­Authority Handbook 1.6 and 2.8: www.handbook.fca.org.uk. 29 On the powers and operation of the FOS, see section [9.4.1]. 30 These are set out in the Building Act 1993 (NT) s 54B(1): see section [4.13.2]. 31 Building Act 1993 (NT) s 54FC(2)(b); Building (Resolution of Residential Building Work Disputes) Regulations 2012 (NT) reg 18. The criteria for determining whether there is such a relationship are explained in the application form at www.consumeraffairs.nt.gov.au. 32 Building (Resolution of Residential Building Work Disputes) Regulations 2012 (NT) reg 7(2). 33 Building (Resolution of Residential Building Work Disputes) Regulations 2012 (NT) reg 7(3)–(7) (‘essentially’, because there are detailed provisions dealing with when time starts running and possible extensions if the homeowner becomes aware of the alleged defect within 30 days of the end of the relevant defect period). 34 See, generally, www.qbcc.qld.gov.au; also the Queensland Building and Construction Commission Act 1991 (Qld) s 71J(4). The time limits are different for claiming under the Qld Home Warranty Scheme: see the main text to n 25.

492  Time Limits for Taking Action • One of the eligibility criteria for referral of a dispute to Domestic Building Dispute Resolution Victoria (DBDRV) is that the applicant has taken reasonable steps to resolve the dispute; in addition, DBDRV states on its website that these steps must have been taken within the three months prior to the application.35 • In Western Australia, there is a general requirement that complaints about building services be made to that state’s Building Commissioner within six years of completion of the relevant work and that the person intending to make the complaint notifies the respondent at least 14 days before making the complaint.36 Limits shorter than the six years apply where the homeowner seeks to complain: • In response to a notice by the builder that it needed to carry out a variation because of unforeseen circumstances – within 10 working days of the homeowner receiving the builder’s statement as to those circumstances.37 • About breaches by the builder of the prescribed matters in respect of ‘home building work contracts’ – within three years of the cause of action arising.38 • About unconscionable conduct or contract provisions – three years after the later of the contract being entered into or the breach.39 State-based intervention is available in the other states and the ACT, via generally applicable consumer protection schemes administered by fair trading agencies.

10.3.3 Ireland The Central Bank of Ireland’s Consumer Protection Code, binding on all third-party warranty providers, requires each provider to have an internal procedure dealing with complaints ‘speedily, efficiently and fairly’, as defined.40 Consumers must first take up any complaint with the insurer concerned (no time limits for this being laid down). If the consumer is still unhappy with the outcome, the insurer must inform them about their right to complain about the insurer’s actions to the independent Financial Services and Pensions Ombudsman, established in 2018 to combine two separate consumerfocused Ombudsman services.41 Again with remarkable similarity to the position in the UK, the Financial Services and Pensions Ombudsman Act 2017 (Ire) now provides that any complaint about a 35 Domestic Building Contracts Act 1995 (Vic) s 45C(3)(d): www.dbdrv.vic.gov.au/tips-to-resolve-dispute. Also, s 45(3) in effect provides that the referral must be within the relevant limitation period under the ­Building Act 1993 (Vic) s 134. 36 Building Services (Complaint Resolution and Administration) Act 2011 (WA) s 6(1); Building Services (Complaint Resolution and Administration) Regulations 2011 (WA) reg 6(2). The processes are described in the consumer guide at www.commerce.wa.gov.au. 37 Home Building Contracts Act 1991 (WA) s 8(3); the Building Services (Complaint Resolution and Administration) Act 2011 (WA) s 6(3)(a). 38 Home Building Contracts Act 1991 (WA) s 17; the Building Services (Complaint Resolution and ­Administration) Act 2011 (WA) s 6(3)(b). The prescribed matters (as to the form and terms of contracts etc) are in pt 2 of the 1991 Act – see section [4.13.4]. 39 Home Building Contracts Act 1991 (WA) s 15; the Building Services (Complaint Resolution and ­Administration) Act 2011 (WA) s 6(3)(c). 40 Consumer Protection Code 2012 [2.8], [7.6]ff and [10.7]ff: www.centralbank.ie. 41 On the FSPO, see section [9.4.3].

Litigation: General  493 ‘long-term financial service’ – every 10-year new home warranty meets this definition – can be made not only within six years of the date of the conduct complained of, but also within three years of a ‘date of knowledge’, as defined by the Act.42 The Ombudsman also has a statutory discretion to extend time if there are reasonable grounds for allowing a longer period, where it would be just and equitable in all the circumstances to do so.

10.4  Litigation: General The longer the period since construction was completed, the greater the chance that a damages claim for defects, or request to a court or tribunal for an order of specific performance (or equivalent) of an obligation in a contract or a deed, will be ‘timed out’ (sometimes called ‘statute-barred’), even if the current claimant has an otherwise unchallengeable right to a remedy against at least one defendant. As in Scenario 2 (Table 1.1), the would-be claimant may be the first buyer of a home B1, who has had no active involvement during construction, completely run and managed by developer X. Unless B1 is able to inspect before completion, they will usually only become aware of defects after moving in, when some of the available time for starting legal action against an original construction party may already have passed.43 Similarly, unless statute intervenes to award extra time on a change of ownership of the building, there is a risk in Scenario 5 that B2, even if acquiring a right to sue (seldom certain – see chapters 4 and 5), will do so with little or no time left in which to mobilise towards action in court. In relation to civil litigation – whether before an ordinary court or a specialist ­tribunal – each jurisdiction has rules which, in the common law tradition, are usually called the law of limitation. They pose, then attempt to answer, two main questions: Q1 When does time start to run against a potential claimant? Q2 Once time has started to run, when does it expire, so that the defendant may then argue (as a complete defence) that legal action has been started too late?44

So it is important to know the answer to Q1, in order not to miss the relevant deadline in Q2. ‘Deadline’ is the right term: the possibility of claiming in court (or before a tribunal, if relevant) will be irretrievably lost, as well as its usual precursor of hoping to achieve a resolution by informal negotiation or ADR, with ‘going to law’ held in reserve (or as a credible threat). But to start litigation ahead of this deadline may not guarantee safety in time terms: some jurisdictions – notably Ireland – allow a defendant to challenge an in-time claim, based on unreasonable delay starting or progressing

42 Financial Services and Pensions Ombudsman Act 2017 (Ire) s 51. 43 On pre-completion inspections, see section [8.3]. 44 In English law, the expiry of the limitation period normally bars the remedy but not the underlying obligation or right. So the defendant’s failure to plead limitation will not give grounds for challenging a judgment in the claimant’s favour on appeal (nor will the defendant find it easy to raise such an issue newly on appeal). By contrast, in Scots law, the Prescription and Limitation (Scotland) Act 1973 s 6(1) extinguishes the underlying obligation: see section [10.10].

494  Time Limits for Taking Action proceedings, or its prejudicial impact on the defendant.45 Though apparently only procedural, how ­limitation rules work is of great practical importance: [O]n the one hand, it is desirable to have general and clear rules about limitation, even if they occasionally appear to produce a harsh result; on the other hand, it is sometimes appropriate to have specific exceptions to avoid too many unfairnesses.46

10.5  Litigation: English Law 10.5.1  When does Time Start to Run? (Q1) In answering this first question, the courts are usually expected to flesh out the bare bones of the relevant statutory test; most of these are contained in the Limitation Act 1980 (E&W), as amended.47 Unlike most Australasian jurisdictions, English law has no sector-specific limitation rules applicable to construction litigation, except under the Latent Damage Act 1986 (E&W) and (for dwellings only) the Defective Premises Act 1972 (E&W, NI).48 In the ordinary case, time starts to run when the relevant cause of action ‘accrues’. This means the moment when all its necessary ingredients are present (defined by case law): these would, if proved, lead a judge or court to find for the claimant against the defendant and award some form of substantive relief (eg, damages). The table summarises when time starts running in an ordinary construction case: Table 10.1  Litigation: When does Time Start to Run? PRINCIPLE For an action in contract, when the breach occurs (eg, a design miscalculation, or installing a non-compliant feature in the building).

COMMENTS For a construction contract this is so, even though the breach causes no immediate loss or other form of harm, doing so (if at all) only later – at worst, when the building collapses. For a third-party warranty or other insurance product, a breach occurs when an ‘insured event’ – as defined – takes place.49

For an action in tort (negligence), when the claimant suffers a recoverable form of harm resulting from the defendant’s breach of duty.

So a tort claim – if available – may be in time when a comparable contract claim is already too late (for example, cracking may occur – and need to be fixed, thereby causing loss – as a result of negligent work which occurred many years earlier).50 (continued)

45 See

section [9.11.4]. 46 Lord Neuberger in David T Morrison & Co Ltd (t/a Gael Home Interiors) v ICL Plastics Ltd [2014] UKSC 48, 2014 SLT 791 [54]; see also the main text to n 121. This chapter does not discuss the time limits which may apply to the next procedural stages, once a civil case has been successfully launched: see, eg, Boxwood Leisure Ltd v Gleeson Construction Services Ltd [2021] EWHC 947 (TCC). 47 In NI, see the Limitation (Northern Ireland) Order 1989 (SI 1989/1339, NI 11), which includes provisions equivalent to the Latent Damage Act 1986 (E&W) deriving from the Limitation (Amendment) (Northern Ireland) Order 1987 (SI 1987/1629, NI 17). 48 On Australasia, see section [10.8]. 49 On insurance products, see ch 7. 50 But a construction claimant rarely has a choice, at least in English law, between claiming in tort or contract: see sections [5.2.4]–[5.5].

Litigation: English Law  495 Table 10.1  (Continued) PRINCIPLE

COMMENTS

For an action based on breach of the Defective Premises Act 1972, when the relevant work on the dwelling was completed.

But how does this apply to a multi-unit development in which individual flats may be completed (and sold or leased) well before the whole development is complete, or some not completed until later?

A cause of action in contract, tort or under the DPA accrues without the existence of the breach (and/or harm) needing to be known to the claimant – or even reasonably discoverable – at the time when actionable damage was suffered: Pirelli v Oscar Faber.51

This operates particularly harshly in our field if the cause of action is complete before defects come to light, though statutory reform now mitigates the common law.

If time is already running when a defective building is sold, transferred or leased to a new occupant or owner, this does not normally stop, interrupt or extend the limitation period, nor reset the clock to zero.

A new occupant or owner may acquire the building with a reduced – perhaps already expired – limitation period, but the Latent Damage Act 1986 (E&W) may help such a claimant.52

In a recent development of 350 flats in a number of canal-side blocks in east Manchester (individual units let on long leases), the blocks’ management companies started postGrenfell legal action against the original developer, alleging life-threatening combustible cladding, installed when the blocks were built and claiming over £15m for the cladding alone, plus £840,000 for other defects. In Sportcity 4 Management Ltd v Countryside Properties (UK) Ltd, Judge Eyre QC in the TCC ruled out causes of action in tort at common law (as a result of Murphy v Brentwood DC) and under the leases, no relevant obligations resting on the developers.53 Only legal action based on the Defective Premises Act 1972 remained in the frame, the defects alleged sounding serious enough to fall within the DPA.54 But when does or did the limitation period start? The defendant developer relied on section 1(5) of the DPA, arguing that the key phrase ‘the time the dwelling was completed’ meant when the last flat was let (2007); the claimants said it meant when the development as a whole was complete (2010), but even this later date was more than six years before the start of the litigation. Here the claimants relied on the rest of section 1(5), which goes on: [B]ut if after that time the person who has done work for or in connection with the provision of the dwelling does further work to rectify the work he has already done, any such cause of action in respect of that further work shall be deemed to have accrued at the time that further work was finished. 51 In Pirelli General Cable Works Ltd v Oscar Faber and Partners [1983] 2 AC 1, the House of Lords treated the original installation of the non-compliant feature as damage occurring to the building, whether detectable or not, so as to start time running, in tort as well as contract, thus overruling the Court of Appeal’s more generous approach to the limitation issues in both Sparham-Souter v Town & Country Developments (Essex) Ltd [1976] QB 858 and Anns v Merton LBC [1976] QB 882, which considered reasonable discoverability as necessary before time could start to run. For reform proposals in English law, see the main text to nn 133–4. 52 For the legislative response to Pirelli, see section [10.5.4]. 53 Sportcity 4 Management Ltd v Countryside Properties (UK) Ltd [2020] EWHC 1591 (TCC), 192 Con LR 131. For Murphy v Brentwood DC, see section [5.8]. 54 On the scope of the DPA, see section [5.10.2]ff.

496  Time Limits for Taking Action This, the claimants argued, meant that the repair work done by the developers in 2014 and 2017 triggered the start of a fresh period, allowing a claim now in relation to the original construction. But Judge Eyre had authority on his side in holding that rectification work starts a fresh cause of action in relation to that work, but not in relation to any earlier work by the same original construction party.55 So the whole action was struck out and the developer was given summary judgment: leaving aside government assistance, the rectification cost of all the cladding – and the temporary costs of safety measures meanwhile – now looks to fall on the management companies themselves, which in effect must mean the long lessees. There is no mention anywhere of insurance cover, probably because, had traditional third-party warranties been available when each unit was completed, cover would probably now be at an end, or may not have included replacing non-compliant cladding.56

10.5.2  How Long is the Period? (Q2) For almost every category of claim, Parliament goes on to provide the answer to Q2 as well.57 The 1980 Act lays down a period from the start of time running for broad categories of case – in ‘simple contract’ and tort claims, the standard period is six years – originating in the Limitation Act 1623. A similarly fixed six-year period applies to actions for damages for defects under the Defective Premises Act 1972.58 The law provides more generously for a document executed as a deed: An action upon a specialty shall not be brought after the expiration of twelve years from the date on which the cause of action accrued.59

This double-length period for legal action applies to any deed, whatever its subjectmatter – a valuable feature for any claimant under an off-plan sale agreement or construction contract, if executed as a deed. Although most well-known B2B standard form construction contracts are intended to be executed as deeds, this is never a legal requirement and not always true of their B2C equivalents. The RIBA Domestic Building Contract 2018 and Domestic Professional Services Contract 2018: Architectural Services both offer a tick-box in the Contract Details section, offering the parties a choice between a ‘simple contract’ and a deed. Each contract’s Guidance Notes

55 Sportcity 4 Management v Countryside Properties (n 53) [30]ff, relying on Alderson v Beetham O ­ rganisation Ltd [2003] EWCA Civ 408, [2003] 1 WLR 1686. 56 For third-party warranties, see ch 7; for their impact on claims for defects in multi-unit developments, see sections [11.7]–[11.8]. 57 ‘Almost every’: a significant exception covers most equity-based claims – eg, for an injunction or an order of specific performance. Here the Limitation Act 1980 (E&W) s 36 leaves the courts free to apply instead of the old case law equitable doctrine of laches (essentially, delay or lack of diligence), but in appropriate cases to apply the 1980 Act by analogy: Companhia de Seguros Imperio v Heath (REBX) Ltd [2000] EWCA Civ 219, [2001] 1 WLR 112. Under the Law Commission’s proposals (n 63), the court would retain the power to deny an equity-based claim on the grounds of delay, even though the relevant limitation period had not expired. 58 DPA s 1(5), combined with the Limitation Act 1980 (E&W) ss 2 and 9. The position in NI is similar: n 47. 59 Limitation Act 1980 (E&W) s 8(1). ‘Specialty’ in relation to contract originally meant one under seal, but the sealing requirement, in order for a deed to be valid as such, was removed in most circumstances by the Law of Property (Miscellaneous Provisions) Act 1989 (E&W) s 1, as amended.

Litigation: English Law  497 ­ elpfully explain the significance of this choice for later legal action. On the other hand, h the FMB Domestic Building Contract makes no provision for being executed as a deed: few ­individual employers are likely to understand the significance of this omission. Whatever the limitation period, legal action must be started within it, by issuing proceedings against the defendant before a competent court or tribunal: merely ­threatening to do so does not count.60 The statutory deadline gives no scope for even one day’s grace – English courts have no general discretion to disapply or extend a statutory time limit, so will not be interested in why a deadline was missed: the reasons (even if apparently good ones) would be legally irrelevant. On the other hand, expiry of the period is delayed for some ADR possibilities; and some jurisdictions did so for the Covid-19 pandemic.61 There may also be special rules about adding a new claim, or adding or substituting a new party, after the limitation period has expired, where an action has already been started in time.62

10.5.3  Special Situations 1: Fraud and Concealment Part II of the 1980 Act postpones the start of the limitation period (Q1) in case of fraud and other exceptional situations, where the time of discovery (or what with reasonable diligence would have been the time of discovery) starts time running. One of these relates to deliberate concealment by the defendant of any fact relevant to the plaintiff ’s right of action.63 Unusual in a construction context, this was central in preliminary proceedings relating to a post-Grenfell claim. The freeholder of St Francis Tower, a 16-storey residential block in Ipswich, sought more than £3m in damages from the building contractor which had refurbished the block in 2006–09. The claim was for the cost of replacing non-compliant combustible external cladding, as well as rectifying other claimed defects. RG Securities (No 2) Ltd v Allianz Global Corporate and Specialty CE reached the TCC in June 2020 on an attempt by the defendant building contractor to obtain summary judgment in its favour.64 It was clear that litigation had been launched well after expiry of the usual fixed six-year limitation period. Could the claimant rely on the ‘deliberate concealment’ 60 But what if the claimant (or legal representative) offers a fee to the court too low for the claim made, the court nevertheless ‘issuing the proceedings’? See Dixon v Radley House Partnership [2016] EWHC 2511 (TCC), [2016] TCLR 10. And on the validity of service of a claim form by claims consultants, see Ndole Assets Ltd v Designer M&E Services UK Ltd [2018] EWCA Civ 2865, [2019] BLR 147. 61 On ADR, see n 85 and its main text. For exceptional extensions of limitation periods generally, see, eg, the Covid-19 Omnibus (Emergency Measures) (Criminal Proceedings and Other Matters) Regulations 2020 (Vic) reg 20. 62 Limitation Act 1980 (E&W) s 35: see Butters v Hayes [2021] EWCA Civ 252 and Libyan Investment Authority v King [2020] EWCA Civ 1690 (new claim); also CPR r 19.5: see The 52 Occupiers of the Ceramic Works v Bowmer & Kirkland Ltd [2021] EWHC 17 (TCC) (substituting new defendant). 63 Limitation Act 1980 (E&W) s 32(1)(b). For discussion of these provisions, see the Law Commission, Limitation of Actions (Law Com No 270, 2001) [2.84]ff, [3.134]ff and cl 26 of the attached Bill; also Goldtrail Travel Ltd v Grumbridge [2020] EWHC 1757 (Ch), Granville Technology Group Ltd v Infineon Technologies AG [2020] EWHC 415 (Comm), Canada Square Operations Ltd v Potter [2021] EWCA Civ 339 and OT Computers Ltd v Infineon Technologies AG [2021] EWCA Civ 501. 64 RG Securities (No 2) Ltd v Allianz Global Corporate and Specialty CE [2020] EWHC 1646 (TCC), 191 Con LR 1.

498  Time Limits for Taking Action provision in the Limitation Act 1980 – acquiring the building in 2015 and only after that becoming aware that the refurbishment work had no ‘building code’ completion certificate from a BCB? Did it make any difference that the claim was – as it had to be – under the Defective Premises Act 1972?65 Fraser J applied authority from a majority of the Law Lords in Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd: a new six-year period starts from discovery of the concealed facts, even if the usual six-year period has by then already expired.66 As a result, the claimants should not be deprived of their right to make out their claim (which on the evidence already before the court had ‘a realistic prospect of success’) that the building contractors – via their solicitors, on the sale of the block to the claimants by a wholly-owned subsidiary of theirs – had deliberately concealed the absence of a ‘building code’ certificate. So the building contractors could not have summary judgment, and the case could continue to the next stage, when we may learn more about what ‘deliberate concealment’ covers in our field. From the present judgment, it is also clear that, like a more traditional contract or tort action, an action based on the Defective Premises Act 1972 appears to benefit from the same possibilities of exceptional circumstances modifying the limitation regime. For a claim which includes damages for personal injuries – happily, unusual in a construction context, but Grenfell Tower may yet change this pattern – section 11 of the 1980 Act lays down a choice of start points (Q1): the accrual of the cause of action or (if later) the claimant’s ‘date of knowledge’ (as defined); with (Q2) a shorter three-year standard period. In such cases, but not generally, the court has a discretion to disregard the expiry of the limitation period.67 Special ‘knowledge’ rules also apply to wrongful death actions based on the Consumer Protection Act 1987 (caused by a defective product).68

10.5.4  Special Situations 2: Latent Defects in Buildings In 1986 the legislature took steps to reverse the effects of Pirelli by enacting proposals from the Law Reform Committee.69 The Latent Damage Act 1986 inserted sections 14A–B into the 1980 Act.70 These changes apply to actions in negligence (other than for personal injuries, and not under the Defective Premises Act 1972). The changes

65 ‘As it had to be’: the claimant freeholder had no contract with the building contractors, and in light of Murphy v Brentwood DC could not realistically assert that the defendants owed the claimant a duty of care in tort for the losses claimed: see section [5.8]. 66 Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd [1996] AC 102 (HL). The same principle may mean that litigation may be started even where the 15-year ‘longstop’ under the Limitation Act 1980 (E&W) ss 14A–B has already expired: Cave v Robinson Jarvis & Rolf [2002] UKHL 18, [2003] AC 384. The reverse is not true: Limitation Act 1980 s 32(5). 67 Limitation Act 1980 (E&W) s 33: see Adams v Bracknell Forest BC [2004] UKHL 29, [2005] 1 AC 76, Whiston v London Strategic Health Authority [2010] EWCA Civ 195, [2010] 1 WLR 1582, Chief Constable of Greater Manchester v Carroll [2017] EWCA Civ 1992, [2018] 4 WLR 32 and Gregory v HJ Haynes Ltd [2020] EWHC 911 (Ch). 68 Limitation Act 1980 s 14(1A). On the Consumer Protection Act 1987 (UK), see section [5.10.4]. 69 Law Reform Committee (chaired by Lord Scarman, later inaugural Chair of the Law Commission), 24th Report, Latent Damage (Cmnd 9390, 1984). For Pirelli, see n 51 and its main text. 70 Puzzlingly, s 3 of the 1986 Act remains freestanding in its original location, unintegrated into the 1980 Act.

Case Study 9: When the Roof in Docklands Blew Off  499 retain the existing fixed period (six years) but add a long list of factors related to the claimant’s knowledge (both actual and constructive) which, when present, start an extra three-year period running, curtailed by a 15-year longstop. The claimant then has the job of proving, if challenged, that legal action has been started within that additional period. This reform was expressly designed to facilitate claims by homeowners against ­original construction parties (and others too, if legally in the frame) in latent defect cases – when ‘damage’ to a building becomes known more than six years after the defect was definitively installed. There is copious case law on how to apply these provisions to different sets of facts.71 Section 3 of the 1986 Act similarly does this where a building’s original owner (B1) already has a right of action in negligence, but this party does not know ‘the material facts’ when selling the building on to a new owner B2.72 The existing right of action is treated as accruing when B2 acquires their interest in the building, the normal six-year period starting to run at that point, but an additional three-year period starts when B2 has the necessary degree of knowledge of those material facts. These post-Pirelli reforms have proved much less helpful for construction claimants than initially imagined, in part because of the complex drafting of the statutory changes. More fundamentally, in Murphy v Brentwood DC a few years later, the House of Lords narrowed the scope of the duty of care in tort of a ‘builder’ (and BCB), with the effect of excluding in most ordinary circumstances liability for ‘pure economic loss’.73 In Scenario 5 (Table 1.2), this could have been relevant if B1 had a right of action in tort against X or any other original construction party; but, as chapter 5 shows, in English law such a possibility is now exceptional in relation to a claim for the costs of rectification or drop in capital value of the building. If a claimant has no relevant ‘right of action’, to have extra time in which to launch this is no help.

10.6  Case Study 9: When the Roof in Docklands Blew Off 10.6.1 Background The limitation difficulties which homeowners can face in trying to obtain remedies against original construction parties with whom they have no contractual link are

71 For construction cases on s 14A, see Harris Springs Ltd v Howes [2007] EWHC 3271 (TCC), [2008] BLR 229, discussed in the first TCC judgment in Hunt v Optima [2013] EWHC 681 (TCC) [200] – see further Case Study 7 at section [5.9]; on aspects of the tests in the section, see also Haward v Fawcetts [2006] UKHL 9, [2006] 1 WLR 682; Gravgaard v Aldridge & Brownlee [2004] EWCA Civ 1529, [2005] PNLR 19; Jacobs v Sesame Ltd [2014] EWCA Civ 1410, [2015] PNLR 6; Gosden v Halliwell Landau [2020] EWCA Civ 42, [2020] EGLR 9; and Cole v Scion Ltd [2020] EWHC 1022 (Ch). The claimant in Robinson v Jones was relying on s 14A, but in the end had no right of action in tort: Case Study 5 at section [5.5]. 72 ‘Ownership’ by B2 is not necessary: it is sufficient under s 3(1)(b) that B2 ‘acquires an interest in that property’, eg, via a tenancy, long lease, mortgage or charge. 73 Murphy v Brentwood DC: see section [5.8].

500  Time Limits for Taking Action vividly illustrated by Broster v Galliard Docklands Ltd.74 Five of the current owners of a terrace of six recently built three-storey townhouses in London’s Docklands started legal action against East London Construction (M), employed in 1997 by developers Galliard (X) to design and build the development under the well-known JCT81 WCD form. Two of the claimants were first buyers (B1); the rest were successors to first buyers (B2). The homes’ continuous single roof lifted off in high winds (44 kts) in 2005; the homeowners’ aim was an award of damages for rectification and other consequential costs or losses (at least, those not covered by claims already accepted by the NHBC under each home’s Buildmark third-party warranty).75 They alleged that the D&B contractors had negligently failed to design and construct the roof properly (the roof not being adequately linked to the walls of each house), leaving it and the homes below vulnerable to the impact of an unexceptional storm; but this was damage to ‘the thing itself ’, for which M owed them no duty of care in tort at common law. They also claimed that section 3 of the Latent Damage Act 1986 applied, under which buying a townhouse from the developer Galliard transferred onwards to them Galliard’s right to sue the D&B contractor. As it appeared that no claimant had the necessary degree of knowledge until the storm happened in 2005, this event – they argued – started an extra three-year limitation period so that the legal action they launched in 2008 was not ‘timed out’.

10.6.2  In Court By the time the case came to the TCC, the D&B contractor M was the only active defendant.76 M argued for summary judgment in its favour, asserting that the claimants’ case as pleaded had ‘no realistic prospect of success’.77 Akenhead J pointed out the narrow scope of section 3(1) of the 1986 Act, which requires the original potential claimant to have a right of action ‘in respect of any negligence to which damage to any property in which he has an interest is attributable’. But while Galliard still owned the freehold of the site, its building had suffered no ‘damage’: it is the Latent Damage Act, not the Latent Defects Act. In line with 74 Broster v Galliard Docklands Ltd [2011] EWHC 1722 (TCC), [2011] BLR 569, 137 Con LR 26, applying Payne v John Setchell Ltd [2001] EWHC 457 (TCC), [2002] BLR 489, (2001) 3 TCLR 26. 75 The claimants appear not to have been claiming for damage to moveable property within their homes, which might have been possible by analogy with Bellefield Computer Services Ltd v E Turner & Sons Ltd: see section [5.7.3]. Instead, they in effect argued that the D&B contractors owed them a duty of care directly for the damage caused to the buildings by the roof being lifted off. However, Akenhead J relied on solid authority in refusing to treat the roof as separate from the rest of the building, rejecting the ‘complex structure theory’ mentioned by several Law Lords in Murphy v Brentwood DC: see section [5.8]. This approach has not taken hold in the law: in Linklaters Business Services Ltd v Sir Robert McAlpine Ltd [2010] EWHC 1145 (TCC), [2010] BLR 537, 130 Con LR 111 Akenhead J himself had said at [26]: ‘the builder’s duty of care, at least generally if not invariably, does not extend to damage to the building itself ’. Had the claimants succeeded on this basis, they would have faced no limitation problem, since their cause of action would have accrued only when the storm occurred. 76 Galliard had been liquidated but restored to the register of companies for the litigation, though took no part in the TCC proceedings. 77 Under CPR r 24.2(a)(i).

Case Study 9: When the Roof in Docklands Blew Off  501 ­ obinson v Jones (newly decided by the Court of Appeal when Broster v Galliard came R to court), all Galliard had suffered was ‘pure economic loss’ – at most, the cost of making good the contractor’s design failings by improving the fixing of the roof, or the drop in value caused by the absence of adequate fixings.78 This apart, relations between X and M involved no ‘assumption of responsibility’ to X by M, hence no wider duty of care in tort. The same design faults almost certainly put M in breach of its contract with X – but the 1986 Act does not apply to claims in contract, even when based on a failure to exercise reasonable skill and care; and the claimants had no contractual link with M to allow them to sue M in contract. So whatever the owners of the townhouses might have acquired under the 1986 Act could not assist them in an action in tort against the D&B contractors for the cost of rectifying the roof, an action which on ordinary principles was already ‘timed out’. So the TCC accepted the defendant contractor’s arguments, striking out the whole action.

10.6.3 Significance The outcome shows clearly the negative consequences, from a homeowner’s perspective, of failing to adopt an Australian-style transmissible contractual warranty approach to residential construction defects – and of the narrow scope of the Defective Premises Act 1972, which looks only to defects which compromise habitability. Under an Australianstyle approach, Galliard (X) would have the benefit of these statutory warranties (whatever their terms) against ECL (M) since the contract was to build homes; the ability to rely on those obligations would, in turn, have passed to the current claimants with ownership of their homes, permitting them to obtain damages for the cost of repairing the defects and the damage caused by the storm. This would also avoid any disparity in legal protection between any of the potential claimants, conferring an identical set of rights on each – especially valuable when a single dramatic event affects all ‘at a stroke’, or when the whole block may turn out to have defective foundations. However, an English-style standard six-year limitation period (if applicable) might still rule out legal action, as would the possibility of Galliard having no assets (or no adequate PI cover).79 With English law as it is, Akenhead J pointed out other options: Whilst one can of course have sympathy for owners of premises such as those who find themselves in the type of predicament these Claimants experienced, there are or were some types of protection available. It is clear from the Particulars of Claim that some or all of them had the ten-year protection of NHBC warranties. They could arguably have had, subject to limitation, some protection under the Defective Premises Act 1972.80 Each could have had

78 Robinson v Jones: Case Study 5 at section [5.5]. 79 On time limits for legal action in the jurisdictions of Australia, see section [10.8]. Note that mandatory insurance against such a defect in Australia might also have come to an end before the roof blew off: see Table 7.3. 80 [Author’s note] Potentially timed out before the storm by the DPA’s fixed six-year limitation period, assuming that such a defect gave rise to liability under the DPA: see section [5.10.2].

502  Time Limits for Taking Action a detailed structural survey which at least might have picked up the absence of strapping. Each could have had, and indeed may well have had, insurance against storm damage, into which category the damage to their premises might well have fallen. Given the policy of the law in this area, it is not obviously unjust or unreasonable that the scope of any duty of care is limited.81

The law report does not record whether all the claimants were insured and to what level; it does record that the NHBC had accepted a claim in relation only to about half the damages to which the claimants might have been entitled, had they been able successfully to sue M (or X) in tort (or contract) at common law or under the DPA. Buildings insurance apart, the claimants, therefore, had to absorb this shortfall, as well as their own and the defendant’s costs in the TCC.

10.7  Impact of the Parties’ Agreement The provisions of the parties’ own agreement, if there is one, may also impact limitation questions. The Court of Appeal has confirmed that, under English law, parties to a contract can, in principle, vary the relevant statutory period.82 Under most published standard form construction contracts, claims by the employer against the main contractor while the contract is still ‘live’ often have their own machinery, with time limits which can exclude the possibility of a claim for breach of contract way before the law’s normal six-year time limit would be reached – notably once practical completion has been attained or the construction employer (or contract supervisor) has served a ‘Notice of Completion of Making Good Defects’.83 Such additional complications will not usually affect an off-plan buyer of a new home from a developer, nor even a B2C employer in a small construction project. The parties’ freedom also permits them to agree to delay the starting-point of the limitation period or to extend the period, including stopping the clock temporarily with a ‘standstill’ agreement once a dispute has crystallised. This can give them time to negotiate informally or undertake a form of ADR.84 Exceptionally, in a B2C context, 81 Broster v Galliard (n 74) [19]. 82 For B2B situations, see Inframatrix Investments Ltd v Dean Construction Ltd [2012] EWCA Civ 64, 140 Con LR 59 (one-year limitation period), also Ener-G Holdings plc v Hormell [2012] EWCA Civ 1059, [2013] 1 All ER (Comm) 1162; Hunt v Optima (Cambridge) Ltd [2014] EWCA Civ 714, [2014] BLR 613 and BAM Glory Mill Ltd v Balicrest Ltd [2018] EWHC 3926 (TCC) (longstop date for collateral warranty). Where a contractual provision attempts to shorten the available period for a claim, a court is likely to resolve any ambiguity against the party seeking to argue that a claim is already out of time; it is also potentially open to challenge as unfair under UCTA 1977: Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1191 (TCC), 148 Con LR 127. For B2C situations, see n 129. Scots law gives the parties less freedom: see the main text to n 125. 83 See, eg, Swansea Stadium Management Co Ltd v City & County of Swansea [2019] EWHC 989 (TCC), 185 Con LR 21, following Swansea Stadium Management Co Ltd v City & County of Swansea [2018] EWHC 2192 (TCC), [2018] BLR 652; discussed by Philip Britton, ‘A Stadium and its Defects: Liberty, Loss and the ­Limitation Period’ (Society of Construction Law (UK) Paper 217, 2019). 84 For a construction dispute where a set of standstill agreements themselves led to litigation, see Russell v Stone (t/a PSP Consultants) [2017] EWHC 1555 (TCC), [2017] BLR 429 where Coulson J said at [8]: ‘this dispute has left me with an overwhelming feeling that [standstill agreements] are potentially just another ­self-inflicted complication. If limitation is an issue, and the claim needs further work, or the Pre-Action

Litigation: Australasia  503 a standstill may even be imposed by law: provisions inserted into the Limitation Act 1980 extend time where an ADR procedure is invoked to which the EU 2013 Directive on ADR for consumer disputes applies.85 A further EU measure, the Unfair Contract Terms in Consumer Contracts Directive of 1993, may have limitation implications: where a consumer wants to recover money paid under an unfair contract term. National law may be incompatible with this Directive if it imposes so short a fixed time limit on legal action that the consumer may lose the right to take legal action before knowing that the term may be unfair.86

10.8  Litigation: Australasia The law in Australasia initially appears slightly more generous – or less stingy – to B1 and B2 than English law, as noted above, whose current rules only exceptionally take account of the discoverability of a defect to delay the start of time running until that moment or extend time for an extra period. On the limitation issue raised by the defendant Invercargill City Council in Hamlin,87 a majority of the judges in the New Zealand Court of Appeal took the line that, under the statutory rules then in force, it was only once the defect became reasonably discoverable that the ‘cause of action’ in tort arose, which in turn started time running (Q1).88 So the date the foundations had originally been installed in the house – or the date the BCB had done or should have done the key inspections – was not determinative. The real question, therefore, became: had Mr Hamlin acted fast enough – no later than a reasonably prudent homeowner would – to discover the cause below ground of the cracks visible above? Putting the question in this way, the New Zealand courts were refusing, ultimately backed by the Privy Council, to follow the English law approach in Pirelli.89 The first instance judge thought that Mr Hamlin met the standard of conduct of the reasonably prudent householder; his claim was therefore not struck out on limitation grounds, and the Privy Council agreed (technically, did not disagree). There is a complex and not yet fully explored interaction between rights of action under Hamlin and the law of limitation: what happens where defects come to light only after the building has been sold by B1 to B2? It has been suggested in New Zealand – but not yet in ­ rotocol process has not been activated or completed, the TCC Guide is very clear: paragraph 2.3.2 states that P the claimant can commence proceedings and then seek a stay of, say, six months, to follow and complete the Protocol process’. 85 The Limitation Act 1980 s 33B was inserted by the Alternative Dispute Resolution for Consumer Disputes (Amendment) Regulations 2015 (SI 2015/1392, as amended by SI 2015/1972 and SI 2020/1139), extending time where Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes applies [2013] OJ L165/63. Under the same measures, equivalent extensions apply in Scotland and NI. On the post-Brexit relationship between EU and UK law, see section [1.11]; on the Directive, see section [9.2.3]. 86 See Joined Cases C-698/18 and C-699/18 Raiffeisen Bank SA v JB EU:C:2020:537, [2021] 1 CMLR 6; on the 1993 Directive in English law, see section [4.10]. 87 On Hamlin, see Case Study 1 at section [1.12] and section [5.8.2]. 88 Limitation Act 1950 (NZ), as interpreted in Askin v Knox [1989] 1 NZLR 248 (NZCA). 89 Pirelli General Cable Works Ltd v Oscar Faber and Partners: n 51.

504  Time Limits for Taking Action court – that time starts to run against the successor owner B2 only at the date of the successor’s purchase, even if it had already started to run against B1.90 Whatever the situation for claims against project parties, the current New Zealand statute imposes a fixed starting-point for actions against a public BCB (at present the only type): [I]n the case of civil proceedings that are brought against a territorial authority, a b ­ uilding consent authority, a regional authority, or the chief executive in relation to the issue of a building consent or a code compliance certificate under Part 2 or a determination under Part 3, [the starting date for time running is] the date of issue of the consent, certificate, or determination.91

As for the time period itself (Q2), the relevant general law on time limits in New Zealand now comes from the Limitation Act 2010 (NZ), which applies to acts or omissions occurring on or after 1 January 2011. It fixes the normal start for time to run in relation to a money claim at the date of the act or omission on which the claim is based (Q1), running six years forward. However, similar to English law, but applied to a much wider range of cases, section 14 goes on to define a ‘late knowledge date’, which starts an additional three-year time period running, subject to a 15-year longstop.92 Even this would not save a claim like Mr Hamlin’s today, launched more than 17 years after construction was complete. Pre-figuring this outcome, in 1991 – the year after Mr Hamlin had issued ­proceedings – New Zealand adopted a special fixed 10-year limitation period for all civil actions relating to building work (as defined), starting from ‘the date of the act or omission on which the proceedings are based’.93 This 10-year limitation follows the current approach of some Australian jurisdictions, the period tending to run from completion of the project (usually evidenced by the issue of an occupancy certificate or equivalent) rather than the time of the relevant act or omission.94 Here is an example from South Australia (along with the NT equivalent, one of the rare statutes actually to use the term ‘economic loss’): Limitation on time when action may be taken (1) Despite the Limitation of Actions Act 1936, or any other Act or law, no action for damages for economic loss or rectification costs resulting from defective building work (including an action for damages for breach of statutory duty) can be commenced more than 10 years after completion of the building work. (2) This section does not affect an action to recover damages for death or personal injury resulting from defective building work. (3) The period prescribed by subsection (1) cannot be extended.95 90 See Stephen Todd, ‘Leaky Buildings: Limitation Issues and Successive Owners’, ch 8 of LBC. 91 Building Act 2004 (NZ) s 393(3)(a). 92 This is close to the Law Commission’s unimplemented proposals for English law: see the main text to n 133. 93 Building Act 1991 (NZ) s 91. 94 Building Act 2004 (ACT) s 142; Environmental Planning and Assessment Act 1979 (NSW) s 6.20; ­Building Act 1993 (NT) ss 159–60; Development Act 1993 (SA) s 73; Building Act 2016 (Tas) s 327(7)(a) (for ‘permit work’ or ‘notifiable work’; a six-year period applies to ‘low-risk work’, all as defined); Building Act 1993 (Vic) s 134. There is no equivalent construction-specific limitation period in Qld or WA. 95 Development Act 1993 (SA) s 73.

Litigation: Australasia  505 Such provisions raise the issue of the interrelationship between: (a) The special ‘building actions’ limitation period; and (b) The general limitation period which would apply to comparable contract or tort actions; or (c) The fixed period applying to actions on a deed – in most jurisdictions much longer than for ordinary tort or contract actions.96 A 10-year rule could, in theory, extend what might otherwise be the available period, but here are the key words now used in New Zealand: [N]o relief may be granted in respect of civil proceedings relating to building work if those proceedings are brought against a person after 10 years or more from the date of the act or omission on which the proceedings are based.97

The better view is that this does not ever extend time and may shorten the available time in situations that would otherwise benefit from the knowledge-based extra time and its separate 15-year longstop.98 Either way, few ‘leaky home’ claims in New Zealand, deriving from construction in the 1990s or early 2000s, are likely still to be in time if legal proceedings have not already been launched. The special recovery rules under the Weathertight Homes Resolution Services Act 2006 (NZ) specify a similarly fixed 10-year maximum period from construction of a dwelling-house to the making of a claim.99 The Supreme Court in Wellington had to consider the scope of this special period in 2016 in Carter Holt Harvey v Minister of Education.100 It held that ‘building work’ did not include the supply of allegedly defective building materials, which had the normal

96 Limitation Act 1980 s 8(1) and Statute of Limitations 1957 (Ire) s 11(5)(a). The time limit in Victoria for ‘actions upon a bond or other specialty’ is 15 years from the accrual of the cause of action: Limitation of Actions Act 1958 (Vic) s 5(3). 97 Building Act 1991 (NZ) s 91(2), replaced by the Building Act 2004 (NZ) s 393(2) (unchanged by the 2012 Act). 98 The comparable special Victorian provisions, primarily the Building Act 1993 (Vic) s 134, for many years left the position unclear whether legal action could be ‘timed out’ under the relevant general limitation rules: see, eg, Thurston v Campbell [2007] VCAT 340 and Hardiman v Gory [2008] VCAT 267. In Brirek ­Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd [2014] VSCA 165, the judges took the view that all ­‘building actions’ as defined, at least in contract or tort, become statute-barred at the end of 10 years from the date of issue of the occupancy permit – but not before. The apparent certainty rendered by that decision remains subject to doubt at the margin, however. For example, in Sydney Capitol Hotels Pty Ltd v Bandelle Pty Ltd [2019] NSWSC 1825 [24], Hammerschlag J was prepared to find that the equivalent NSW provision (Environmental Planning and Assessment Act 1979 (NSW) s 6.20) did not bar a claim made more than 10 years after the relevant work was done where the defective work (here, on an exhaust duct system) caused the loss or damage (a fire in the building) suffered by the claimant (as a ‘mere’ occupant) only in an ‘accidental, incidental or indirect sense’. But, on appeal, the NSW Court of Appeal confirmed that s 6.20 applies as a ‘longstop’ to all claims for economic loss and damage arising from defective building work, regardless of whether a contract was in place between the claimant and ‘builder’ for the relevant work: Bandelle Pty Ltd v Sydney Capitol Hotels Pty Ltd [2020] NSWCA 303. 99 The interaction between the time limit for claims under s 14 of the 2006 Act and the general Building Act limitation period came before the Supreme Court in Osborne v Auckland Council [2014] NZSC 67, the Court concluding that a claim was eligible under the 2006 Act if made within the Building Act limitation period. On the special regime under the 2006 Act, as amended, see Tómas Kennedy-Grant, Kennedy-Grant on Construction Law, 2nd edn (Auckland, Lexis-Nexis, 2012) [7.53] and ch 29. 100 Carter Holt Harvey v Minister of Education [2016] NZSC 95, [2017] 1 NZLR 78.

506  Time Limits for Taking Action (in this case, longer) limitation period applicable to them. As a result, the defendant was potentially ‘the last person standing’: legal action against those project parties which had specified and installed the allegedly defective cladding would already have been barred under the special shorter construction-related 10-year limitation period. In some jurisdictions, the transmissible statutory warranties inserted into Domestic Building Contracts carry their own time limit, which may be shorter than the general time limit for actions in contract or tort deriving out of defective construction: • ACT, NSW and NT: statutory warranties end six years after completion of the relevant work for structural elements, two years for non-structural elements.101 • Queensland: proceedings for breach of statutory warranties must be started within six years after the work is done for structural elements, one year in any other case.102 • SA: proceedings for breach of statutory warranty must be commenced within five years after completion of the relevant work.103 • Tasmania: proceedings for a breach of statutory warranty must be commenced within six years after ‘practical completion’ of the relevant work.104 No such provisions apply in Victoria or WA. Is a claim based on the common law still possible once the limitation period has run out for a statutory warranty claim, or do the statutory warranties ‘exhaust the field’, replacing the common law for all purposes and for all time, within their particular scope? None of the Australasian statutes which impose warranties addresses this issue expressly. At least in NSW, the judicial view seems to be, following Woolcock Street,105 that the courts should be slow to recognise a common law right of action in tort in favour of a claimant who is – in principle – able to rely on the statutory warranties.106 A limitation issue in the form just suggested may, therefore, never arise. In any case, the potential for such gaps in coverage adds impetus to moves, as happened in mid-2020 in NSW, to introduce a statutory duty of care enabling negligence-style actions for pure economic loss arising from defective work.107 101 Building Act 2004 (ACT) s 88(4); Building (General) Regulation 2008 (ACT) s 38(1); Home Building Act 1989 (NSW) s 18E(1)(b) (expressly providing that proceedings must be brought within that time; amendments to this provision have complicated its application: see Vagg v Routledge [2020] NSWSC 88); Building Act 1993 (NT) s 54B(2), Building (Resolution of Building Work Disputes) Regulations 2012 (NT) reg 7. In 2020, the Victorian period was extended to 12 years in respect of ‘cladding building actions’, namely those ‘in connection with or otherwise related to, a product or material that is, or could be, a non-compliant or ­non-conforming wall cladding product’: Building Act 1993 (Vic) as amended by Cladding Safety Victoria Act 2020 (Vic) s 53 (applying only to actions which would otherwise have been statute-barred between 16 July 2019 and 12 months after commencement of that s 53). 102 Queensland Building and Construction Commission Act 1991 (Qld) sch 1 s 29: this includes provision for a six-month extension if the breach of statutory warranty becomes apparent during the last six months of the warranty period, and also where the relevant work was not completed. 103 Building Work Contractors Act 1995 (SA) s 32(5); s 32(6) provides expressly that that limitation period may not be extended. 104 Residential Building Work Contracts and Dispute Resolution Act 2016 (Tas) s 32(1). 105 Woolcock Street: section [5.12.1]. 106 Owners Corporation Strata Plan 72535 (‘Star of the Sea’) v Brookfield Multiplex Ltd [2012] NSWSC 712 [149] (McDougall J). 107 See section [5.12.4].

Litigation: Ireland  507

10.9  Litigation: Ireland Ireland follows the common law pattern in having limitation operate as a procedural defence to a civil action; most of its general limitation rules are in the Statute of Limitations 1957 (Ire), as amended. This derives from 19th-century legislation, itself linked back to older English statutes. Increasingly, though, other statutes containing liability rules also have their own special limitation provisions, making for a wide variety. Like the UK, Ireland has to respect individuals’ right of access to courts under Article 6 of the European Convention on Human Rights and Fundamental Freedoms; additionally, in Ireland, the right of access to the courts is an unenumerated personal right guaranteed by Article 40.3.1° of the Constitution. As Finlay CJ put it in Tuohy v Courtney, statutory limitation rules represent a balancing: [Of] the constitutional right of the plaintiff to litigate against two other contesting rights or duties, firstly, the constitutional right of the defendant in his property to be protected against unjust or burdensome claims and, secondly, the interest of the public constituting an interest or requirement of the common good which is involved in the avoidance of stale or delayed claims.108

Just as in England & Wales, the starting-point in the 1957 Statute is a series of fixed time periods (six years, in respect of most claims in contract and tort), each starting with ‘accrual of the cause of action’; doubled to 12 years for most actions ‘upon an instrument under seal’.109 For personal injury cases, this has been replaced with a short initial fixed period of two years from the date of accrual, coupled with discoverability based on a ‘date of knowledge’ (as defined), allowing action to be brought up to three years from that date.110 A significant problem is the residual traction of Pirelli in Ireland as a reference point for the accrual of actions in tort.111 The date of accrual of tort actions is arguably of greater significance under Irish law than under English law, as Irish courts continue to accept, in principle, the liability of builders for defects causing pure economic loss.112 The current position is set out in Brandley v Deane, where the Irish Supreme Court held that the date of accrual of the cause of action in tort (in that case, in respect of the liability of an engineer who had negligently certified the foundations of homes) was the date on which damage resulting from the negligence became manifest.113 The Court emphasised that the concept of damage becoming ‘manifest’ denoted not the date on which it in fact became manifest to the homeowner, but rather ‘the date on which the damage was capable of being discovered and capable of being proved, even if there was

108 Tuohy v Courtney [1994] 3 IR 1 (Supreme Ct) 47. 109 Statute of Limitations 1957 (Ire) s 11(5). 110 These changes, comparable to the Limitation Act 1980 s 11 in England & Wales, were implemented by the Statute of Limitations (Amendment) Act 1991 (Ire), giving effect to the Law Reform Commission (Ire), Report on The Statute of Limitations: Claims in Respect of Latent Personal Injuries (LRC 21–1987). Similar discoverability principles apply in Ireland to wrongful death and defective product actions. 111 On Pirelli, see n 51. 112 See section [5.14.2]. 113 Brandley v Deane [2017] IESC 83.

508  Time Limits for Taking Action no reasonable or realistic prospect of that being so’.114 The result is that it is virtually impossible to assign a precise starting-point to the limitation period for actions in tort arising from building defects. In a series of consultation papers and reports, most recently in 2011 (well after the Latent Damage Act 1986 had arrived in English law) the Irish Law Reform Commission proposed similar changes: discoverability as the start for time running should be extended to cases of claims for latent damage, whether in contract or tort.115 Such a reform would assist claimant homeowners in litigation based on late-appearing defects via a (perhaps wider) functional equivalent of the changes introduced in England & Wales. However, the proposals have not been implemented, so Ireland has not even an equivalent of the 1986 provisions relied on (unsuccessfully) in England in Case Study 9 at section [10.6].116 Long before that, the Irish Law Reform Commission had published a Report on Defective Premises, under which Ireland might have had its own equivalent of the English Defective Premises Act 1972.117 In the final version of these proposals, the new law would have had reasonable discoverability as the trigger for time starting to run (Q1) and a generous fixed 10-year limitation period, Australasian-style (Q2). But these proposals were never pursued into legislation. The only actual recent change to the legal framework for limitation is the implementation in Irish law of the 2013 EU Directive on ADR in consumer disputes.118

10.10  Litigation: Scotland Scotland’s statutory answer to Q1 (the starting-point for time running in civil cases) makes no distinction between contract and tort (quasi-delict), looking to the moment when the loss, injury or damage occurred – in effect, when the right of action arises. However, in relation to latent defects, time only starts to run when the person with the right to claim is aware (or could with reasonable diligence have become aware) that the loss, damage or injury had occurred.119 The period after which an obligation is normally extinguished (the Scottish version of Q2) is in all relevant cases five years, with a 20-year longstop.120

114 Brandley v Deane (n 113) [3]. 115 Law Reform Commission (Ire), Report on The Statutes of Limitations: Claims in Contract and Tort in Respect of Latent Damage (other than Personal Injury) (LRC 64–2001), and Report: Limitation of Actions (LRC 104–2011). 116 For the Law Reform Commission’s more recent proposals for more wholesale reform of the Irish ­limitation rules, see n 115. 117 Law Reform Commission (Ire), Report on Defective Premises (LRC 3–1982). See further section [5.14.3]. 118 European Union (Alternative Dispute Resolution for Consumer Disputes) Regulations 2015 (SI 343/2015) (Ire) reg 17; see also the European Union (Alternative Dispute Resolution for Consumer Disputes) (No 2) Regulations 2015 (SI 368/2015) (Ire). On the Directive, see section [9.2.3]. 119 Prescription and Limitation (Scotland) Act 1973 s 11(3); see also Case Study 4 at section [4.16.2]. 120 Prescription and Limitation (Scotland) Act 1973 s 6(1).

Litigation: Scotland  509 At present, there is uncertainty about what awareness is necessary (or sufficient) to start time running for a latent defect. Awareness of the fact of loss seems enough: a majority in the Supreme Court in David T Morrison & Co Ltd t/a Gael Home Interiors v ICL Plastics Ltd, held that there is no need also for the pursuer to be aware of the existence of a right of action against a person responsible for that loss.121 If this is the rule, what if the loss happens as expenditure on a construction project, long before it becomes obvious that something is wrong with the building? In Midlothian Council v Blyth & Blyth, the Outer House of the Court of Session (Lord Doherty) took the view that the decision to spend money on a project, in reliance on what proved to be unreliable recommendations from those responsible for ground investigations, started time running. This was even though the pursuer could not have been aware then that the money spent might later turn out to be wasted – a ‘loss’ – when the flats had to be demolished.122 The Scottish Law Commission devoted a whole chapter to this ‘discoverability’ issue in its 2017 report on prescription, recommending that, for time to start to run, awareness should be required of more than just the fact of loss.123 These proposals were enacted in the Prescription (Scotland) Act 2018; when brought into force, it will for the future require awareness (actual, or attainable by reasonable diligence): (a) that loss, injury or damage has occurred; (b) that the loss, injury or damage was caused by a person’s act or omission; and (c) the identity of that person.124

The text which follows makes it irrelevant whether the potential pursuer is aware that the act or omission that caused the loss, injury or damage is actionable in law. Note that Scots law has no concept of executing a legal instrument as a deed, which in all our other subject jurisdictions gives an extended limitation or prescription period; and the 2018 Act reformulates the restrictions in Scots law on parties agreeing to shorten – or even extend – the available period.125 Terms in contracts (‘missives’) for the sale of homes by developers to first buyers sometimes limit to two years the period from the buyer entering into occupation within which any claims must be taken to court. It may be unclear whether this applies to defects as well as to issues of title, but such a short period could perhaps be attacked as an unfair contract term, especially in a B2C context.126

121 David T Morrison & Co Ltd t/a Gael Home Interiors v ICL Plastics Ltd (n 46) (Lord Reed, with whom Lords Neuberger and Sumption agreed). 122 Midlothian Council v Blyth & Blyth [2019] CSOH 29, 2019 SLT 1327. For earlier litigation about the same public housing project on top of a former coal mine, see Midlothian Council v Bracewell Stirling Architects [2018] CSIH 21. Lord Doherty maintained his views from Midlothian Council v Blyth & Blyth in Loretto Housing Association Ltd v Cruden Building & Renewals Ltd [2019] CSOH 78. But in WPH Developments Ltd v Young & Gault LLP [2020] SC GLA 27, Sheriff Reid disagreed: an architect allegedly responsible for development encroaching on a neighbour’s land, not discovered for more than five years, could now be sued by the developer. 123 Scottish Law Commission, Report on Prescription (Scot Law Com No 247, 2017). 124 Prescription (Scotland) Act 2018 s 5(5). 125 Prescription (Scotland) Act 2018 s 13. 126 See section [4.10.2].

510  Time Limits for Taking Action

10.11  Chapter Summary Table 10.2  Time Limits for Taking Action FORMAL COMPLAINT TO ‘BUILDER’ BY HOMEOWNER

No defined time limits, except that the ‘builder’ may be in the frame in Years 1–2 in the UK under a Consumer Code or third-party warranty, if the claimant has no separate right of action against anyone.

CLAIM UNDER INSURANCE POLICY (‘THIRD-PARTY WARRANTY’)

The claim may be rejected if apparently out of time (relates to a category of cover which has already expired) or if the claimant has failed to act with reasonable speed (may instead reduce payout). Some jurisdictions impose statutory control on insurers’ reliance on time limits to refuse claims, especially by consumers.

COMPLAINT TO REGULATOR

Time limits, but relatively generous.

LITIGATION

Statutory time limits apply (usually giving a defendant a complete defence, but may extinguish the obligation), usually a fixed period often running from ‘the accrual of the cause of action’ or the happening of an event (seldom requiring the claimant to know of a possible right of action). Some statutory modifications deal with injustice or impose a fixed time limit on all building claims as such, but seldom give any flexibility for theoretical lateness. Even where litigation has been started in time, courts’ case management powers may impose time limits for steps in the proceedings, such that non-compliance by a claimant may risk the whole action being struck out, or summary judgment against the party at fault. Most civil courts also have an inherent power to strike out proceedings or steps in proceedings, which amount to an abuse of the court’s process: delay is a possible trigger for the exercise of such powers.127

10.12 Evaluation It would be hard to argue that time limits, in general, are unfair: each protects the person or entity claimed against from having to deal with evidence which is old and thus often unreliable or less than complete, as well as incentivising the claimant not to delay in protecting their own interests. The certainty provided by liabilities not being openended as to time also assists in making those liabilities insurable at economic rates, at the time a project is planned and undertaken.



127 CPR

pt 3 (E&W) preserve such inherent powers; for their use in Ireland, see section [9.11.4].

Evaluation  511 In relation to litigation, limitation (or prescription) rules not only protect the potential defendant but indirectly the court too. As McHugh J suggested in the High Court of Australia: [The limitation regime] represents the legislature’s judgment that the welfare of society is best served by causes of action being litigated within the limitation period, notwithstanding that the enactment of that period may often result in a good cause of action being defeated.128

When the period is as long as 12 years, as at present for deeds under English and Irish law, to miss the last chance to start legal proceedings often means that someone has been careless. Where our potential claimant has engaged a legal professional, this adviser ought, in most cases, to know the deadline for starting a claim but may nonetheless fail to act in time. Where there is doubt about the starting-point for a limitation or applicable period, the adviser ought to adopt a worst-case approach; if not, may be responsible for missing the last chance to go to court. Such conduct will often amount to actionable negligence, enabling a claim for damages against the solicitor or barrister.129 In most situations this will be, in effect, against the lawyer’s PI insurer.130 Even an adviser who is not legally qualified but claims to be ‘an experienced legal professional’ (or equivalent) may owe a duty of care if the claimant reasonably relies on them and suffers loss by, for example, missing the chance to sue.131 The current English law of limitation has a negative impact on the position of every would-be claimant – not just homeowners, though they are especially affected – most obviously by treating the fact of a breach of contract as starting time running and only exceptionally taking into account a potential claimant’s knowledge of the defect and 128 Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 (HCA), quoted approvingly by Lewison LJ (with whom Rafferty LJ concurred) in Catholic Child Welfare Society (Diocese of Middlesbrough) v CD [2018] EWCA Civ 2342 [34], [2019] ELR 1. 129 See, eg, Fletcher & Son v Jubb Booth & Helliwell [1920] 1 KB 275 (CA): a firm of solicitors was liable in negligence for failing to warn the client on whose behalf it was negotiating with a potential defendant that the statutory time limit for starting civil proceedings was about to run out (the claim then being lost). Moore-Bick LJ summarised the principles in Mount v Barker Austin [1998] EWCA Civ 277 (case references omitted): ‘When a person sues his former solicitors for negligence in the conduct of proceedings which has led to his action being struck out his loss is normally measured by reference to his prospects of success in the primary litigation: see Kitchen v RAF Association. However, in order to recover for the loss of that kind, the court must be satisfied that the plaintiff had at least a “real” or “substantial” chance that he would have succeeded in the primary action, not merely a speculative one: see Allied Maples Group v Simmons & Simmons (Stuart-Smith LJ). If his prospects of success fall short of that, the court will ascribe no value to them, but provided the court can see that there were real prospects of success it will evaluate them notwithstanding the difficulties that may involve. The need to evaluate the prospects of success in that way usually arises because of uncertainty as to the final shape of the evidence which would have been before the court trying the primary action. In some cases, however, the outcome of the primary action is not in doubt, for example, if it can be seen that the claim is bad in law and could never have succeeded’. 130 Solicitors’ insurance in England & Wales takes place under the SRA Indemnity Insurance Rules 2013: www.sra.org.uk. Barristers’ similar obligations come from the Bar Standards Board: www.barstandardsboard.org.uk. Solicitors in private practice in Scotland are required to be insured under a Master Policy held by the Law Society of Scotland; practising advocates have similar obligations imposed by the Faculty of Advocates. 131 Jonathan Ames and Catherine Baksi, ‘Legal Aide who Gave Bad Advice to Pay £260,000’, The Times (18 March 2019). The Law Society Gazette of the same date reports the outcome as £263,759 in damages, plus £73,200 costs against the defendant; he and his firm may not be insured against this liability.

512  Time Limits for Taking Action the possibility of a claim. But the current law may impact even more severely on an ­individual consumer whose home has construction defects than on a c­ommercial employer, either because the contract (off-plan purchase or construction) is not executed as a deed and therefore has only a six-year period, or because it specifies only six years.132 For these and other reasons, the 2001 Law Commission report on the whole topic reached a critical conclusion overall: ‘the balance struck under the present law does not give sufficient recognition to the interests of the claimant’.133 That report proposed a new ‘core regime’; under it, the default test for answering Q1 (the starting-point for time running) would be ‘the date of knowledge of the relevant facts’, and this would include ‘constructive knowledge’, which the claimant would acquire, for example, if they unreasonably failed to consult an expert. For Q2 (the period within which proceedings must be started), all actions for damages in contract or tort would have a three-year basic period from this newly defined start date, with a 10-year longstop from the date the cause of action accrued and some closely defined exceptions and extensions. The default double-length period for contracts executed as deeds would end, but the law would expressly allow any statutory period to be varied by agreement, subject to a test of fairness and reasonableness.134 Shifting to a knowledge-based starting-point would significantly improve the position of many would-be claimants (whether original buyers of homes or their successors) in relation to late-appearing construction defects – this is already the law in Scotland and proposed in Ireland. The ‘core regime’ proposed for England & Wales would widen the scope of the 1986 post-Pirelli reforms and override the six-year fixed period under the Defective Premises Act 1972. However, if the standard time and longstop were both as proposed by the Law Commission, original construction parties would have to take the initiative themselves if they wished to retain a period as long as 12 years for contract claims for construction defects. Conversely, if the Australasian experience is any guide (note the similarity between these reform proposals and the law already in place there), main contractors and their insurers would welcome the certainty provided by the shorter default 10-year longstop. This intentionally pays homage to the decennial liability and insurance regime in the French Code civil, applying to construction work in general. However, while decennial liability imposes responsibility on ‘the builder’, potentially giving rise to a right of action for homeowners, the limitation longstop does not create such rights, acting only to curtail rights of action which have otherwise arisen.135

132 For example, Condition 9 of the JCT Building Contract for a Home Owner/Occupier (HO/B 2005, as revised). It would be uphill to argue that such a period is an unfair contract term, but a period shorter than the statutory default could become unenforceable by falling under item 20 of the ‘Grey List’ in the Consumer Rights Act 2015 sch 2, pt 1: ‘A term which has the object or effect of excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy’. See further section [4.10]. 133 Law Commission (n 63) [1.6]. 134 Law Commission (n 63) [3.170]ff. Case law since the 2001 report has confirmed parties’ existing power to vary the limitation period: see n 82 and its main text. 135 Code civil art 1792: the loi Spinetta of 4 January 1978. See European Society of Construction Law, S­ tudies in European Construction Law (2015) on France (section 12: Insurance). That the Australian model ­Building Acts intentionally copied the 10-year period at the heart of decennial liability has been confirmed by one of their framers: Kim Lovegrove, ‘The Model Building Act in Australia – the Regulatory Template that Overhauled Liability Regimes not Limited to Joint and Several Liability in the Early 1990s’ (10 May 2018: www.lclawyers.com.au). A more general adoption of decennial liability has recently been suggested as part of

Evaluation  513 Government has no legal obligation to respond in a timely way to a Law Commission report, let alone implement each, so the proposals on limitation, including a draft Bill, sat in Whitehall’s in-tray for eight years. In 2009 Rt Hon Jack Straw MP, Lord Chancellor under Gordon Brown, announced that the government had decided not to include the text of the Commission’s draft Bill in planned law reform legislation. No moves to revive these proposals appear to have taken place. Any limitation rules which impose a fixed period from the accruing of a cause of action or the completion of construction work – now the pattern in Australasia – have to be seen as limiting the duration of the exposure of ‘builders’ (and their insurers) to post-completion litigation. This impacts negatively on potential claimants, but also makes possible the assessment, pricing and managing of this risk for potential defendants. From the homeowner’s point of view, if there has to be a fixed period, 10 years is obviously better than six. In combustible cladding litigation, there were, in fact, no limitation issues in Victoria about the fire at the Lacrosse tower in Melbourne (head contract finalised in 2010; occupancy permit issued in 2012; fire in 2014; legal action started in 2018).136 But in England, Sportcity 4 Management v Countryside Properties showed that legal action could be timed out for the rectification costs of cladding on a Manchester estate of 350 flats in blocks (completed in 2010; litigation started in 2019).137 Many more such post-Grenfell cases must be expected, testing the limitation regime to its limits and further illustrating situations where it impacts negatively, and unfairly, on claimants.

Australia’s ongoing regulatory reforms: see, eg, Jeanette Barbaro, ‘Decennial Liability’ (Society of ­Construction Law Australia National Conference, Perth, August 2019) and Jessica Rippon, ‘Closing the Gap: Decennial Liability Insurance – the Solution to the Strata Living Crisis in New South Wales’ (2020) 35 Building and Construction Law 338. 136 Owners Corporation No 1 of PS613436T v LU Simon Builders Pty Ltd [2019] VCAT 286 and Tanah Merah Vic Pty Ltd v Owners’ Corporation No 1 of PS631436T [2021] VSCA 72; the liability issues are discussed at sections [4.13.2] and [9.5.3]. 137 Sportcity 4 Management Ltd v Countryside Properties (UK) Ltd: n 53.

11 Multi-Unit Developments: Blocks of Flats It is a real concern that homeowners who have entered into a lease are captive consumers with very little influence over the costs incurred by landlords or their managing agents that will in due course be passed on to them. competition and markets authority1

11.1 Introduction Earlier chapters have explained how individual homeowners often face significant ­obstacles, both substantive and procedural, if they wish to seek redress – at law, or by some other route – for defective, non-compliant or dangerous aspects of the construction of their homes: against those actually responsible, or those whose role (via insurance) is to protect against the occurrence of such risks. Whoever the defendant, a claimant’s central aim is usually to have those defects rectified; or to gain (as compensation or damages) the cost of organising this work or offsetting the resulting drop in the capital value of the home, plus linked incidental expenses or losses, which may include damage to or destruction of personal property. In the very worst case, damages may also be claimed for the injury or death of residents or visitors. These difficulties can be multiplied – and, it seems, the chances of construction problems increased – where a home is a unit within a larger development including other similar units.2 So much so, that construction defects in blocks of flats, with attempts to pin liability on one or other original construction party, already feature regularly in other chapters; the Grenfell Tower catastrophe exemplifies perhaps the worst imaginable version of such problems.3 The concerns occupiers have – whatever their technical 1 Competition and Markets Authority, Leasehold Housing: Update Report (CMA115, 2020) [9]. 2 Parts of this chapter are taken from Philip Britton, ‘Judicial Remedies for Construction Defects: Common Law, Equity or Statute?’ (Society of Construction Law (UK) Paper 200, 2016); and ‘Make the Developer Get the Job Right: Remedies for Defects in Residential Construction’ (Society of Construction Law (UK) Paper D154, 2013). 3 In England, see Jubilee Mansions in Peterborough at section [5.9]; Concord Street in Leeds at section [5.10.2]ff; Herons Court in Radlett at section [5.11]; Sportcity 4 in Manchester at section [10.5.1]; and St Francis Tower in Ipswich at section [10.5.3]. In Ireland, Priory Hall at section [3.9.2]; in Australia, the Lacrosse tower at section [2.6]; and in NZ, Sunset Terraces/Byron Avenue and Spencer on Byron on Auckland’s North Shore at section [5.13.2].

Introduction  515 legal status – are magnified by the fact that few fully understand the workings of the ownership and management structures, especially in a private sector development organised on a leasehold basis, and thus fewer still opt to be involved actively, where such possibilities exist.4 By ‘a multi-unit development’, we mean including more than one dwelling (a ‘unit’) and containing shared spaces or facilities, like an integral car park or even a health club. In English legal terminology, these are usually called ‘the common parts’; in other jurisdictions, ‘the common property’ or ‘the common areas’. A multi-storey block of flats, with more than one unit on each floor, remains the ‘ideal type’ of such a development: it is the central focus of this chapter. Its surrounding garden or car park, stairways, passages, lifts and the supply of services to and from each flat are shared, communal aspects of the development; in addition, an individual flat-owner does not usually directly own the structure and exterior of their flat. A simplified example starts Scenario 7 (Table 1.3): first buyer B1 takes a long lease of a first-floor flat (above shops on the ground floor below) in a new block recently completed by the integrated developer/ main contractor Y.5 In multi-unit developments, the range of legal structures used to ‘make a home’ – from a short-term tenancy at one end of the spectrum to absolute freehold ownership at the other – impact directly on issues of responsibility for defects; the legal situation also reflects the physical position of the home and its interconnectedness with other units and with the development of which they are all part. The problems tend to be at their most intractable where defects are located in the structure or ‘the common parts’, or straddle the boundary between either of these and individually owned or occupied units, as section [11.2] explains.6 Many of the complications flow from the fact that the structure and ‘common parts’ are necessarily in different ownership (or at least management) from any individual flat, so residents who seek remedies for defects may be looking to a part of the development in which, in England & Wales at least, they usually have not even an indirect proprietary interest. Some of the difficulties also stem from the fact of it being a block – its height may pose special problems of access, relevant to emergency rescue via ‘the common parts’ in

4 Northern Ireland Law Commission, Report on Apartments (NILC 17, 2013) [1.5]. At [4.13]ff, the report emphasises improving buyers’ understanding of the management structures in a block of flats at the point of sale, noting that the Consumer Codes and the regulation of managing agents, as well as the duties on the buyer’s solicitor under the NI Law Society’s Home Charter Scheme, could be extended in this direction: on the UK Codes, see section [6.5]. 5 In practice, a single development may, of course, comprise more than one block or a mixture of flats and individual houses. 6 Versions of such problems also occur between owners of adjacent terraced or semi-detached houses, each of which will share structure (but not necessarily separate spaces) with its neighbour. ‘Party wall’ or equivalent regimes regulate mutual rights of support and deal with the possibility that one owner may do work that negatively affects the neighbour; they may be under an obligation to keep their side of the structure in repair. Though often giving rise to lively disputes, these issues of vertical separation lie outside the scope of this book. In English law, see Stephen Bickford-Smith, David Nicholls and Andrew Smith, Party Walls, 4th edn (London, Lexis-Nexis, 2017); in Scots law, see William M Gordon and Scott Wortley, Scottish Land Law, 3rd edn (London, Thomson Reuters, 2009) [15-01]–[15-45] and, generally (including perspectives from Australia) Randy K Lippert and Stefan Treffers (eds), Condominium Governance and Law in Global Urban Context (London, Routledge, 2021).

516  Multi-Unit Developments: Blocks of Flats case of fire.7 Some derive from the legal situation, which offers a more elaborate version of the ‘right of action’ issues already discussed, so sections [11.3]–[11.5] consider what protection occupiers have in law against defects and dangers within the building or their unit, depending on the form of ‘tenure’ which links them to ‘home’. For homeowners (including long leaseholders) within a multi-unit development, it is important to know how far insurance offers cover for rectifying defects in the structure and ‘the common parts’, as well as in individual units, discussed in section [11.7]. Among our subject jurisdictions, England & Wales does least well from the point of view of residents’ rights, largely because private sector developments have until now almost always used long leasehold structures – often inadequate in providing judicial remedies for construction defects, as well as giving flat-owners limited powers of management and control over their development. However, reform is in the air, beyond the reaction to the Grenfell Tower fire, so section [11.6] looks at structural changes which could improve the whole picture, inching England & Wales closer to what has been the norm elsewhere for decades. A case study of widespread defects in a new development of flats in Manchester, with litigation up to the door of the Supreme Court, forms section [11.8]. The chapter ends with contrasts from our other subject jurisdictions at [11.9]–[11.12], followed by a table-form summary and final evaluation.

11.2  Typical Construction Problems 11.2.1  Services in the Building: Fire-Stopping In blocks of flats, defects frequently concern inadequate or completely non-existent firestopping: this may come from the pipes, conduits or other installations within which services (water, sewerage, power, data and perhaps communally provided heating) run to and from individual units up, down and/or through ducts in ‘the common parts’ – stairwells, lift-shafts or corridors.8 In Scenario 7 (Table 1.3), first-floor flat-owner B1 has reasons for anxiety that such problems may exist in their block – specially concerning,

7 The ‘rescue’ issues at Grenfell Tower, though beyond the scope of this book, are movingly recorded in evidence to Phase 1 of the Inquiry. Ahmed Elgwahry reported that his sister refused to leave the flat because she was not confident that their mother, who was disabled, would be able to evacuate through the lobby and down the stairs: Grenfell Tower Inquiry, Transcript of Proceedings (18 October 2018) 170. His sister and mother perished in the fire. Samuel Daniels’s father suffered from dementia; Daniels could not convince him to leave the flat: (10 October 2018) 55). 8 No reliable figures are available nationally for the frequency of particular types of defect in different types of housing, but BLP, the UK home warranty provider, confirms that inadequate fire-stopping is one of the most frequent defects in relation to which claims are made under its policies (communication to the author). See also NHBC Building Control Services Ltd v Sandwell BC (1990) 50 BLR 101 (DC) at section [3.6.7]. In the Housing Forum report Stopping Building Failures (2018), Case Study 13 concerns a Housing Association new-build project whose defects were so major and varied (including inadequate compartmentation) that the whole development had to be pulled down, the cost exceeding the ceiling on its warranty cover: www.housingforum.org.uk. And the 2019 review by Stephanie Barwise QC, assessing the effectiveness of the volume developer Persimmon’s quality control procedures, focusses specifically on multiple failures of fire-stopping in cavities: www.persimmonhomes.com/corporate. See also the widespread fire-stopping issues in Edinburgh’s schools at section [3.10.3].

Typical Construction Problems  517 if they make the short-term tenants now occupying the flat at risk of danger from fire. The risk may equally come from missing or inadequate cavity barriers in the gaps inside the exterior walls: this allowed 23 flats in a timber-framed block in south London to be irretrievably damaged within minutes of a fire taking hold in September 2019, though all the residents survived.9 As a guide from the BRE puts it: The fire protection of concealed spaces is of prime importance because any deficiencies in installation and materials are not readily apparent and may quickly be covered over. Any inadequacies in such fire protection cannot be observed by the building users and, unlike other engineering provisions within the building, will not be directly apparent by its impact on every-day life. Any inadequacies in the fire protection of concealed spaces will only become apparent during the very time that their effectiveness is required – during a fire.10

In England, as in many other jurisdictions, the principle is that each pipe or conduit passing through a floor, ceiling or vertical partition in ‘the common parts’, or into or out of an individual unit, should have an intumescent collar with no gap around it.11 If there are no such collars or there are gaps around pipes, then the whole block is non-compliant with ‘the building code’ – specifically, Part B (Fire Safety) of the Building Regulations 2010 (E&W).12 Further, the safety of all occupants requires each unit to be effectively ‘compartmented’ (the term used by the Approved Document accompanying Part B) – separated physically from every other flat and from ‘the common parts’ by a fire-resisting form of construction. Done properly, this form of passive protection, which includes requiring the outer doors to each unit to have appropriate fire resistance, will buy time if a fire breaks out elsewhere in the block. The aim is for residents to be safe in their units for what B3 calls ‘a reasonable period’ – long enough, in other words, for emergency services arriving reasonably quickly to rescue everyone, even those on floors above the reach of external turntable ladders.13 As the BRE Guide points out, situations which fail to meet these requirements are commonly invisible because they are enclosed during construction; but residents may get valuable aural or olfactory warnings of inadequate 9 Martina Lees, ‘Building Boss Apologised for Worcester Park Fire that Engulfed Flats’ Sunday Times (15 November 2020): the Berkeley Group, parent of St James which developed the Hampton, denied l­iability but paid each resident £3,000+. The block was then demolished, and the London Fire Brigade served ­enforcement notices to fix 23 other blocks in the 650-home development. 10 BRE, Best Practice Guide to Fire-Stopping (2015) quoted in the Report of the Independent Inquiry into the Construction of Edinburgh Schools (2017) [6.2.27]. Dame Judith Hackitt wrote the foreword to the new ­Firestopping of Service Penetrations: Best Practice Design and Installation Guide (2020): www.asfp.org.uk. 11 An intumescent collar operates automatically to close a gap around a pipe or conduit when a specific, abnormally high temperature is present for a defined period; it may even be designed to collapse the pipe or conduit it surrounds, if this is liable to soften and deform under heat. 12 The Building Regulations 2010 (England & Wales) (SI 2010/2214), much amended, most recently (for England alone) in the Building (Amendment) Regulations 2018 (SI 2018/1230), following the Grenfell Tower fire and the Hackitt Final Report: Ministry of Housing, Communities and Local Government, Building a Safer Future – Independent Review of Building Regulations and Fire Safety: Final Report (Cm 9607, 2018). These redefine what materials may be attached to the outside walls of new residential (and some other classes of) buildings more than 18m in height. The Approved Document supporting Part B for England was also redrafted and reissued post-Grenfell, taking effect on 30 August 2019: www.gov.uk/government/publications/ fire-safety-approved-document-b. 13 For further discussion on means of escape and ‘the building code’ (E&W), see section [3.4.3].

518  Multi-Unit Developments: Blocks of Flats separation (‘we can clearly hear TV from the flat below and smell what they are having for supper’). However, only when one or more residents commission and pay for technical investigations to explore what happens as the pipes pass through floors or partitions may hard evidence emerge of non-compliance with ‘the building code’. At the same time this may reveal – if relevant – a breach of contract by the developer (even if in fact committed by the developer’s main contractor M or one of its subcontractors S1) – or perhaps negligence (or worse) by the relevant BCB or insurer. At this stage (which may be close to the expiry of the relevant limitation period or any third-party warranty cover), such a report following an initial survey can do no more than suggest a pattern of defects which may be repeated throughout the whole development; and may not yet be in a form to be used as the start of expert evidence in future litigation, if it comes to that.14 But to learn that some units have less than the required minimum protection, reasonably encouraging residents of the whole development to start talking to each other about what to do next, will inevitably make everyone worry about their survivability if there was a fire; about the impact on their home and contents insurance; and about the position of short-term subtenants, if some units have been rented out. Any homeowner who ‘wants out’ by selling a unit might find that potential buyers get cold feet (or could not get mortgage funding) or expect a discount on the purchase price, once they know that there are construction problems. If these evolve into an ongoing dispute with the developer, warranty provider or anyone else, this will have to be disclosed to would-be buyers.

11.2.2  Danger from the Building’s Exterior As we now know from the Grenfell Tower Inquiry, the exterior of the building can itself create a fire risk, if the materials of its external cladding and/or insulation – legally speaking, usually not part of any individual flat – fail, in themselves or in the way they are installed, to meet Requirement B4(1) of Schedule 1 to the Building Regulations 2010 (E&W), or the local equivalent. In English terms, this means that they do not ‘adequately resist the spread of fire having regard to the height, use and position of the building’. As Sir Martin Moore-Bick recorded in 2019 in the report at the end of Phase 1 of the Inquiry, the external walls of the Tower actively promoted the spread of fire and ‘effective compartmentation was lost at an early stage’.15 As a result, the ‘stay put’ strategy of which fire-stopping is normally an integral part became, in Sir Martin’s words, ‘untenable’.16

14 On such investigations, see ch 8. 15 Grenfell Tower Inquiry: Phase 1 Report: Report of the Public Inquiry into the Fire at Grenfell Tower on 14 June 2017 (HC 2019, 49) [2.14]. 16 Grenfell Tower Inquiry: Phase 1 Report (n 15) [2.17]. The emergency services’ response to such a fire, discussed in volume 4 of the Report, lies beyond the scope of this book.

The Legal Context: Social Housing  519

11.3  The Legal Context: Social Housing Not-for-profit social housing in England & Wales has top-level requirements applying to the whole sector (private and public), administered by the Regulator of Social Housing.17 As in many other jurisdictions, a block of flats used for social housing often has a public body as its freehold owner, acting as landlord of the units within it. The block’s owner may be a local authority – at Grenfell Tower, the Royal Borough of Kensington and Chelsea – or a different kind of ‘social landlord’ from the ‘third sector’, like a Housing Association. The Ministry of Housing, Communities and Local ­Government estimates that in 2018 local councils provided housing for 1.6m ­households, Housing Associations offering homes for a further 2.4m.18 Not all such dwellings may be in a purpose-built block, like Grenfell Tower; but when they are, the landlord retains ownership, and hence responsibility for managing and maintaining, ‘the common parts’ of a block (meaning the structure, roof, stairwells, lift-shafts, passageways and the services which they contain), but may subcontract this activity to a private sector manager; or residents may exercise statutory powers to set up a ‘Tenant Management Organisation’ (TMO), intended to represent their interests.19 A TMO will have a management agreement with the public sector landlord for service delivery. At Grenfell Tower, a single TMO ran the whole of Kensington and Chelsea’s housing (almost 10,000 dwellings), but after the fire withdrew from managing the estate containing the Tower; the Council terminated the rest of its ongoing contract in 2017, regaining direct responsibility for all its housing stock. Each unit is home to one or more individuals, some of whom may be technically no more than licensees – family members or visitors, not formally tenants and having no proprietary rights in the unit – of the legal occupier/s. At Grenfell Tower on the night of the fire, 14 residents were long leaseholders (having exercised a statutorily discounted ‘right to buy’ from the Council), but the majority were sole or joint periodic tenants, their right to occupy linked to a monthly rent payment.20 Their right to open-ended occupation (which may give family members living with them a ‘right of succession’ on their death) and the rent payable are both controlled, directly or indirectly, by statute. So contract plays a limited role in their situation: Many tenants and their families become attached to their home, even if it is rented from someone else. They do not want to move even if economically equivalent housing is provided elsewhere. They prefer to stay where they are. They are attached to their home just as some 17 The RSH operates under the Housing and Regeneration Act 2008 pt 2, as amended. Its equivalent in ­Scotland is the Scottish Housing Regulator. In NI, the Department for Communities regulates Registered Housing Associations; the Northern Ireland Housing Executive runs publicly owned social housing (more than 85,000 homes). 18 MHCLG, The Charter for Social Housing Residents: Social Housing White Paper (2020) 8. The White Paper, strongly influenced by the experience of Grenfell Tower residents, proposes to strengthen the powers of the Regulator of Social Housing, give tenants new rights in relation to the management activities of their landlord and link improved safety measures for social housing residents to the building safety reforms outlined in section [3.6.8]. Many of these changes will require legislation. 19 Under the Housing Act 1985 s 27AB, also the Housing (Right to Manage) (England) Regulations 2012 (SI 2012/1821). 20 Under the current law in England & Wales, long leaseholders from a local authority do not qualify to be part of an RTM company, although they can take part in a TMO; those from a housing association do. See the main text to n 56.

520  Multi-Unit Developments: Blocks of Flats employees are attached to their employer or their job. These tenants have a primary interest in security of tenure. For them rent control is only an adjunct. This is because, if the rent were put up beyond a certain figure – the maximum they could afford – they would have to quit. Their claim to security is like that which supports the long leaseholder’s claim to leasehold enfranchisement, and the council house tenant’s claim to buy the council house.21

Periodic tenants have no capital stake in their unit which could support legal action for diminution in its value, but they could have a right to damages for diminution in amenity (distress and inconvenience) if that were a consequence of failure (‘breach of covenant’) by or on behalf of the landlord.22 At the limit, they might get a mandatory injunction or order for specific performance to force the landlord to carry out its legal duties, just as a long leaseholder could; in urgent cases, an injunction may be available immediately on an interim basis.23

11.4  Case Study 10: Lifts, Lighting and Rubbish Chutes 11.4.1 Background In Liverpool City Council v Irwin, a group of local authority periodic tenants from a 15-storey tower block in Everton went on a rent strike in the 1970s, protesting against the conditions in their building. Their main complaints were about lifts out of order, rubbish chutes blocked and internal stairways and passages unlit – all features of ‘the common parts’ of the block.24 The local authority landlord relied on the tenants’ failure to pay rent to start possession actions against them; the tenants counterclaimed for damages and an injunction. They could point to no document imposing any duties at all on the landlord, as the Council’s printed so-called ‘Conditions of Tenancy’ listed only tenants’ obligations. Since residential tenants in England had (then, as now) no right to a tenancy agreement on paper, the content of which might be prescribed by law, and since there were at that time no statutory obligations on local authority landlords looking to these aspects of a block of flats, the House of Lords could hold that Liverpool’s printed terms were obviously incomplete.25 The design of the block itself, the judges thought, must impose some duties on the landlord in relation to ‘the common parts’: applying ‘contract thinking’, it was necessary – not just reasonable – to imply terms into each tenancy to make it 21 Tony Honoré, The Quest for Security: Employees, Wives, Tenants (Hamlyn Lectures 1982) (London, Stevens, 1982) 36. On the wider meaning of ‘security’ in relation to ‘home’, and how tenants enjoy a much lesser sense of it, like ‘control’ of their home, than freeholders, see Samuel Tyrer, ‘Home in Australia: Meaning, Values and Law’ (2020) 43(1) UNSW Law Journal 340. 22 As could have been part of the remedy in Liverpool City Council v Irwin (n 24), if the tenants could have made good their claim of breach of covenant by the landlord in relation to ‘the common parts’. 23 The Landlord and Tenant Act 1985 (E&W) s 17 provides for orders of specific performance in favour of a tenant of a dwelling against a landlord for failure to perform a repairing covenant. For the broader ­background, see Jan Luba, Catherine O’Donnell and Giles Peaker, Housing Conditions: Tenants’ Rights, 6th edn (London, Legal Action Group, 2019). 24 Liverpool City Council v Irwin [1977] AC 239 (HL). 25 A written statement will be required in Wales when the Renting Homes (Wales) Act 2016 s 31 is brought into force; see also the Housing (Wales) Act 2014 and Jarvis v Evans [2020] EWCA Civ 854. It already is in Scotland under the Private Housing (Tenancies) Scotland Act 2016 pt 3.

Case Study 10: Lifts, Lighting and Rubbish Chutes  521 work. The fact that the common law imposed few obligations on landlords of residential tenancies as such was no obstacle to doing so.26

11.4.2  In the House of Lords The Law Lords did not impose absolute (‘end-result’) obligations on the Council: they phrased the duties instead as requiring reasonable care in relation to the tenants’ means of access and facilities in ‘the common parts’ – including stairwell lighting and the availability of rubbish chutes. As Lord Wilberforce (with whose speech all other Law Lords concurred) said: An obligation to take reasonable care to keep in reasonable repair and usability is what fits the requirements of the case. Such a definition involves – and I think rightly – recognition that the tenants themselves have their responsibilities. What it is reasonable to expect of a landlord has a clear relation to what a reasonable set of tenants should do for themselves.27

It was a Pyrrhic victory for the claimants, arguing that the Council’s duties were ­absolute. They brought no adequate evidence of the Council’s negligence (failure to take reasonable care), so left the court almost empty-handed, with damages of only £5 for the malfunctioning toilet cisterns inside their flats, which were breaches of the ­landlord’s statutory duty ‘to keep in repair and proper working order the installations in the dwelling-house’.28

11.4.3  The Current Situation Most public sector landlords do a better job these days of expressly undertaking ­responsibility for the shared aspects of a tenanted block than Liverpool did in Irwin. The MHCLG website – not binding in law, but representing the government view of ‘best practice’ for local authority landlords – now goes some steps beyond Irwin: Your council is responsible for making sure: • the structure of your property is kept in good condition – this includes the walls, ceiling, roof and windows • gas and electricity appliances work safely • shared parts of a building or housing estate are kept in good condition.29

But as Lord Hoffmann said in the House of Lords in London Borough of Southwark v Mills (two conjoined appeals): Keeping in repair means remedying disrepair. The landlord is obliged only to restore the house to its previous good condition. He does not have to make it a better house than it originally was …30 26 On implied terms in contracts, see sections [4.8]–[4.10]. 27 Liverpool City Council v Irwin (n 24) 240. On the distinction between ‘end-result’ and ‘process’ obligations in contract, see section [5.2.2]. 28 Housing Act 1961 s 32(1)(b). 29 See www.gov.uk/council-housing. 30 London Borough of Southwark v Mills and Baxter v London Borough of Camden (n 63) 8. On the landlord’s absence of liability to a residential tenant for design defects as such, see also Lee v Leeds CC [2002] EWCA Civ 6, [2002] 1 WLR 1488.

522  Multi-Unit Developments: Blocks of Flats So this obligation does not look to the state of the building when new; nor does it take into account higher construction standards now in force or the consequences of later work on the building, remembering that the ACM cladding and external insulation at Grenfell Tower were added long after it was originally built. Had the dangers represented by these modifications been properly recognised ahead of the 2017 fire, the Fire Service could have forced the local authority to empty the building, ‘decanting’ all the residents into alternative accommodation until rectification work was complete (albeit that would have compounded the sense of displacement for many of those residents who had recently experienced the Tower’s refurbishment), or at least requiring intensive round-the-clock ‘waking watch’ protection.31 There could then have been a question of government contributing towards the cost of rectification (as happened for public sector tower blocks, following the actual fire); but rent control (and the realities of diplomacy) would mean that no-one would suggest that any of this cost should fall on the block’s tenants or residents.32 Dealing in advance with a future potential Grenfell Tower situation in England – hoping that nothing comparably catastrophic ever recurs, or at least is caught before a disaster happens – could now be more straightforward, as could solving the problems which brought the tenants into court in Irwin.33 In the private or public rented sector (a periodic tenancy or one with a fixed term of less than seven years), the Homes (Fitness for Human Habitation) Act 2018 (E&W) came into force on 20 March 2019.34 Deriving from a Private Member’s Bill (Karen Buck MP) first proposed in 2015 and supported by landlord organisations, it inserts a new section into the Landlord and Tenant Act 1985. This now imposes a duty on every relevant residential landlord, taking effect as a covenant within the tenancy: [T]hat the dwelling— (a) is fit for human habitation at the time the lease is granted or otherwise created or, if later, at the beginning of the term of the lease, and (b) will remain fit for human habitation during the term of the lease.’35

‘Dwelling’ here expressly includes ‘the common parts’ of a building.36 It is easy to see how dangers to tenants’ health or life could now be treated as going to fitness for ­habitation 31 The MHCLG reports (October 2020) that the median monthly Waking Watch cost per dwelling is £137. In December 2020, a £30m Waking Watch Relief Fund was announced by the MHCLG to pay for fire alarms in affected buildings and eliminate the need for ‘waking watch’ protection. 32 Former local authority tenants who exercise a right to buy (via long leaseholds) have protection under the Landlord and Tenant Act 1985 s 20 (as amended), capping their landlords’ ability to impose on them all maintenance and repair costs of their development as service charges for the first five years, but this appears limited to work funded by central government: see Archie Bland, ‘“Devastating”: Haringey Residents get Notice of Repair Bills up to £118k’ The Guardian (5 October 2020). 33 Liverpool City Council v Irwin: n 24 and its main text. 34 There are comparable provisions in the Renting Homes (Wales) Act 2016, which derives from two Law Commission reports: Renting Homes (Law Com No 284, 2003) and Renting Homes in Wales (Law Com No 337, 2013). 35 Landlord and Tenant Act 1985 s 9A; for specific new rules about electrical safety, see The Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020 (SI 2020/312). 36 Landlord and Tenant Act 1985 s 9A(6). This turns aspects of the Decent Homes Standard into ­enforceable rights against social landlords: see DCLG, A Decent Home: Definition and Guidance for Implementation (2006). The 2020 White Paper (n 18) proposed a review of the Standard, now (2021) under way.

Case Study 10: Lifts, Lighting and Rubbish Chutes  523 under the 1985 Act. The original definition of such factors now has ‘prescribed hazards’ added to it.37 These come from the risk-based Housing, Health and Safety Rating System (HHSRS), adopted under Part 1 of the Housing Act 2004 (E&W) and clarified by the Fire Safety Act 2021. The HHSRS identifies 29 kinds of hazard, all of which come within the new provisions; they include ‘fire and fire safety’.38 The new section 9A of the 1985 Act specifically provides that if a landlord is in breach, the court may order specific performance of the obligation, regardless of any equitable rule restricting the scope of that remedy.39 Local authorities have the power to enforce the new provisions too, although this is unlikely to help their own tenants. There are also specific obligations on landlords about gas appliances; these also look to safety – and failure to comply creates a bar to evicting an assured shorthold tenant.40 After the Grenfell Tower fire, there is now also the question of a landlord’s liability for injury or death caused by dangerous aspects of a flat or the building of which it forms part.41 The Occupiers’ Liability Act 1957 (E&W) replaced the rules of common law, specifically imposing a duty of care on a landlord, derived from their duty to maintain or repair under the tenancy, in relation to dangers to those lawfully on the premises arising from failure to carry out those obligations.42 The Defective Premises Act 1972 (E&W) restated this duty on a landlord more widely, deriving from either the landlord’s duty to maintain or repair or their power to enter to maintain or repair, combined with knowledge (actual or constructive) of the defect in question. The duty, sounding in damages but with the possibility also of an injunction, is now owed: [T]o all persons [ie not only those in the tenanted premises] who might reasonably be expected to be affected by defects in the state of the premises a duty to take such care as is reasonable in all the circumstances to see that they are reasonably safe from personal injury or from damage to their property caused by a relevant defect.43

Also relevant is the landlord’s continuing occupation, as a matter of law, of every part of a tenanted (or long leasehold) block of flats, other than individual flats, unless delegated to a TMO or managing agent; this, in turn, places on the person who is the occupier ‘the

37 Landlord and Tenant Act 1985 s 10. 38 For a summary, see MHCLG, Guide for Tenants: Homes (Fitness for Human Habitation) Act 2018 (2019): www.gov.uk. In July 2019, the government opted for changes to the HHSRS system – not yet implemented: see MHCLG policy paper: Outcomes of Report on Housing Health and Safety Rating System (HHSRS) Scoping Review: www.gov.uk. 39 Landlord and Tenant Act 1985 s 9A(5). On the procedures for enforcing these and similar rights, see section [9.1.1]. 40 This is the combined effect of the Housing Act 1988 ss 21–21B, the Assured Shorthold Tenancy Notices and Prescribed Requirements (England) Regulations 2015 (SI 2015/1646), as now amended by SI 2015/1725, and the Gas Safety (Installation and Use) Regulations (SI 1998/2451), as now amended by SI 2018/139: see Trecarrell House Ltd v Rouncefield [2020] EWCA Civ 760. 41 See also the EU-derived principles of liability for injury or death, under the Consumer Protection Act 1987 (UK), discussed at section [5.10.4]. 42 Occupiers’ Liability Act 1957 (E&W) s 4; for Scotland, see the Occupiers’ Liability (Scotland) Act 1960 s 3; for Northern Ireland the Occupiers’ Liability Act (Northern Ireland) 1957 s 4. 43 Defective Premises Act 1972 s 4(1). For injunctions under the DPA s 4, see Barrett v Lounova (1982) Ltd [1988] EWCA Civ 9, [1990] 1 QB 348. The law in NI is now identical, under the Defective Premises (Landlord’s Liability) Act (Northern Ireland) 2001 ss 1–2, as recommended by a report (apparently unavailable online) from the now defunct Law Reform Advisory Committee (NI).

524  Multi-Unit Developments: Blocks of Flats common duty of care’, owed to all lawful visitors – all those in ‘the common parts’ of a block of flats who are not trespassers. The duty specifically requires the occupier to take ‘such care as in all the circumstances of the case is reasonable to see that the visitor will be reasonably safe in using the premises for the purposes for which [they are] invited or permitted by the occupier to be there’.44 Highly relevant in the Grenfell Tower context, the statutory obligation provides specifically for the impact of construction work organised by the block’s owner: [W]here damage is caused to a visitor by a danger due to the faulty execution of any work of construction, maintenance or repair by an independent contractor employed by the occupier, the occupier is not to be treated without more as answerable for the danger if in all the circumstances [they] had acted reasonably in entrusting the work to an independent contractor and had taken such steps (if any) as [they] reasonably ought in order to satisfy [themselves] that the contractor was competent and that the work had been properly done.45

11.5  The Legal Context: Private Sector Blocks of Flats 11.5.1  Leasehold: Introduction A private sector development of homes ‘for sale’ in England & Wales, in a block of flats or with significant shared facilities, will at present almost certainly use leasehold devices; the same is true in Northern Ireland.46 These successfully achieve one key practical aim that conventional freehold equivalents cannot easily do: imposing enforceable positive (as well as negative) obligations on each flat-owner for the time being into the distant future.47 As in Scenario 7 (Table 1.3), developer Y will grant a long lease (usually between 99 and 999 years) of an individual unit to each ‘buyer’. Y will usually commit to do this off-plan, ahead of the completion of construction, thus funding part of the project from – often non-refundable – reservation fees, as well as deposits from committed buyers. Y starts as the overall freeholder, owning the whole development outright and acting as landlord, collecting annual ground rents, as well as benefitting from any capital value

44 Occupiers’ Liability Act 1957 (E&W) s 2(2) (‘he is’ replaced by ‘they are’); for Scotland, see the Occupiers’ Liability (Scotland) Act 1960 ss 1–2; for Northern Ireland the Occupiers’ Liability Act (NI) 1957 s 2; and for Ireland the Occupiers’ Liability Act 1995 (Ire) s 2. Liability to trespassers is regulated by the Occupiers’ Liability Act 1984 (E&W); in Scotland by the 1960 Act (n 42); and in Ireland by the 1995 Act s 4. For a useful discussion of the different duties in English law and the impact of contributory negligence, see The White Lion Hotel v James [2021] EWCA Civ 31. 45 Occupiers’ Liability Act 1957 (E&W) s 2(4)(b) (‘he’, ‘him’ etc in the original replaced here by ‘they’ etc). 46 Northern Ireland Law Commission, Report on Apartments (n 4) ch 5. The Property (Northern Ireland) Order 1997 SR 1997/1179) prohibited the creation of new long leases of dwelling houses for terms of over 50 years, with effect from 10 January 2000; but under art 30(5)(e) flats are exempt from this restriction. Ireland continues to use leasehold devices, but the landlord interest is shared among the unit owners: see section [11.11]. 47 As an alternative, commonhold achieves this aim for the developments to which it applies: see section [11.6]. But implementation of the Law Commission’s proposals on land obligations would do so more widely: Making Land Work: Easements, Covenants and Profits à Prendre (Law Com No 327, 2011).

The Legal Context: Private Sector Blocks of Flats  525 uplift in the development; this will be enhanced if ground rents go up automatically over time under an ‘escalator’ clause, or are index-linked.48 Y is free to sell the freehold of the whole development on to a new landlord, Z, whose main activity may be managing a large portfolio of ground rents and other income from leaseholders.49 The MHCLG estimates that in 2018–19 there were 2.5 m long leasehold dwellings in England (mostly flats).50 Figure 11.1  Scenarios 7 and 8 in England & Wales

Looking back to Scenarios 7 and 8 (Table 1.3), Figure 11.1 illustrates their main features. Developer Y will, of course, have made a contract in order to sell a first-floor flat to first buyer B1 (in our example, a long leaseholder). It is theoretically possible that in this contract Y undertakes obligations about the build quality of both the flat and the block of which it forms part; if so, B1 certainly can enforce them. This is unlikely since B1 has not bought off-plan – the flat has been complete and empty for a while. Y, almost certain

48 At the initiative of the MHCLG, a long list of significant housebuilders and freeholders of long leasehold homes (flats and individual houses) signed up to a ‘Public Pledge for Leaseholders’ (June 2019), committing to vary (and in future not to adopt) ‘escalator’ clauses which would more than double the ground rent payable every 20 years; a group of major housebuilders also did this in Wales as part of its House Builder Engagement Programme: see Welsh Government, Residential Leasehold Reform: A Task and Finish Group Report (2019). In parallel, the Competition and Markets Authority has investigated such clauses: see section [6.2.2]. An escalator ground rent clause for holiday chalets in Wales was the background to Arnold v Britton: ch 4, n 63. 49 See, eg, www.groundrentfund.co.uk. Major ground rent owners in E&W include Long Harbour (160,000 leasehold properties) and the Tchenguiz group, and there are solicitors’ firms specialising in collecting ground rents and service charges, eg, JB Leitch Ltd in Liverpool. Part 1 of the Landlord & Tenant Act 1987 (E&W) gives ‘qualifying tenants’ a right of first refusal where the current private sector landlord intends to dispose of an interest (as defined): the law is very complex, and the MHCLG regards it as having loopholes which should be closed: see the Law Commission 2020 report on leasehold enfranchisement (n 96) [1.96] and [2.54]. 50 MHCLG, Estimating the Number of Leasehold Dwellings in England 2018–19: n 18.

526  Multi-Unit Developments: Blocks of Flats to be able to call the shots on the terms of the contract, will instead rely on caveat emptor (‘let the buyer beware’) to make B1 carry all such construction risks, which means taking the initiative to satisfy themselves about build quality.51 This could include B1 commissioning a construction professional to do a formal inspection;52 or asking Y for paperwork to meet the ‘need to know’ – like the completion or final certificate from the BCB or a ‘sign-off ’ from the fire authorities. Contractually, B1 may therefore have no real recourse against Y for construction defects, save indirectly under a third-party warranty in Years 1–2, if the warranty follows the Buildmark model, supported by one of the Consumer Codes.53 B1 may have a statutory right of action (but not in Scotland) against Y and any other original construction party under the Defective Premises Act 1972, but only for defects which compromise habitability – a much narrower category than failure to do work that meets the common law’s implied ‘good and workmanlike’ term.54 The result of this is that the terms of the lease – in key respects likely to be identical to those of all other flat-owners in the development – are often crucial.55 As Figure 11.1 illustrates, Y may set up a management company (MCo) even before the development is complete; this company may be a party to the lease between Y and each first buyer. However, MCo will not benefit from being able to enforce the construction obligations undertaken by Y in each sale contract with an off-plan first buyer, nor from any third-party warranties benefitting Y. It may be run by elected representatives of the residents (unit owners), who are its shareholders (but the developer may keep a ‘golden share’ until the last unit is sold), often assisted by commercial managing agents. Unit owners may have statutory powers to create their own equivalent, imposing it on the landlord under right-to-manage legislation (usually called an RTM company).56 The primary function of such a management body is usually to provide whatever services the landlord is obliged to offer under the leases, including repair and maintenance to ‘the common parts’, ensuring that the development is adequately insured and undertaking such improvements as seem necessary. However, an obligation resting ultimately on the landlord does not necessarily carry with it the duty to fund any work required: this most usually often comes back to all the flat-owners via a variable service charge, run by MCo. The existence or creation of MCo does not affect the landlord’s property rights: MCo does not own ‘the common parts’ or any other part of the development, so has no proprietorial rights which could empower it to sue in its own name to vindicate such rights – assuming it had any – against Y, Z or anyone else. So its ability to act as a 51 For an example of the difference in legal position between off-plan and later buyers, though all the ­claimants were first buyers, see Hunt v Optima at section [5.9.3]. 52 On pre-completion inspections, see section [8.4]. 53 On cover under Buildmark, see section [7.2]. On Consumer Codes in the UK, see section [6.6]. 54 On the DPA, see section [5.12.2]ff; on implied terms of quality, see section [4.7.2]. 55 See Sarah Blandy, ‘Narratives of Property and the Limits of Legal Reform in the English Leasehold System and its Counterparts in other Jurisdictions’, ch 1 of Kippert and Treffers (n 6). 56 RTM powers were introduced by pt 2 ch 1 of the Commonhold and Leasehold Reform Act 2002 (E&W); there are criteria for the type of buildings and leaseholders qualifying to make a claim. For the Law ­Commission proposals, see n 100 and its main text.

The Legal Context: Private Sector Blocks of Flats  527 representative of the residents as a whole in relation to defects may be limited. Its right to take legal action against the landlord, even if multiple defects giving rise to individual rights of action in the residents can be identified, is often unclear from its Articles of Association, though less so if it is an RTM company.57 At best, such a company may be able to act as the agent or representative of those residents who expressly delegate to it their own powers in relation to a specific claim or dispute. As Figure 11.1 shows, when in Scenario 8 (Table 1.3), B1 sells the first-floor flat, the successor B2 takes on the physical premises (as they find them) and the original lease from developer Y to B1 with all its provisions. In fact, B1 is assigning (transferring) their interest in the lease (minus the period it has already run) to B2. From a land law point of view, B2 steps into the shoes of B1 (rights and obligations) – which means acquiring no better right under the lease to sue Y for construction defects than B1 had. The best that B2 may hope for is to acquire (by assignment or otherwise) any right B1 had to sue the developer Y for breaches of the initial sale contract (unlikely to be valuable in this scenario, as it was not an off-plan sale).58 The only senses in which it may comfort B2 to be in the same position as B1 is in order to: 1

Rely on the Defective Premises Act 1972 (within its limited scope) against Y and possibly other original construction parties;59 and 2 Claim on a third-party warranty (or another form of defects insurance), if available – subject of course to its scope, duration and to conditions which may limit the potential payment.60

11.5.2  Construction Obligations in Leases Books of precedents offer established forms of words for such long leases of flats (or other residential units in a development), and large-scale developers will have their own versions of the documentation, which they and their lawyers like to use repetitively. Neither the common law nor statute prescribes any mandatory core provisions, save two overlapping obligations implied at common law, if not expressed: a ‘quiet enjoyment’ covenant, which primarily protects the occupation of the tenant or leaseholder against activities by or on behalf of the landlord which could disturb that occupation (paradoxically, not including noise from other units – see below); and one prohibiting 57 For RTM companies, their prescribed Articles of Association include at 5(o) ‘to commence, defend, participate in or pursue any application to, or other proceeding before, any court or tribunal of any description’; but this only makes sense where the RTM company is asserting legal rights properly belonging to it. For England, see the RTM Companies (Model Articles) (England) Regulations (SI 2009/2767), and for Wales, the RTM Companies (Model Articles) (Wales) Regulations (SI 2011/2680). Their content, including the ­numbering of the provisions, is identical. The Law Commission’s 2020 report (n 100) proposes no change in the Model Articles. 58 On how B2 may acquire enforceable rights under a contract to which they were not originally a party, see section [5.3]. 59 On the DPA, see section [5.10.2]ff. 60 On third-party warranties and multi-unit developments, see section [11.7] and Case Study 11 at section [11.8].

528  Multi-Unit Developments: Blocks of Flats the landlord from derogating from the tenancy granted.61 Neither is relevant to liability for original construction defects, in commercial or in residential premises. Just as the common law does not require the landlord to make any legally enforceable promise about the build quality of the block or the safety of a unit’s occupants, no model set of rules determines what responsibility, if any, the original or current freeholder/landlord retains for original construction defects, whether in individual units, ‘the common parts’ or any other aspect of the development. All, therefore, hinges on the words used (or not used) and how clearly they cover the eventuality which has arisen. Interpreting the terms of a lease overlaps closely with the process of interpreting a contract and the courts’ approaches to that task; similar principles as in an ‘ordinary’ breach of contract case also apply to decide what remedy is appropriate (and the measure and quantification of damages) if there is a ‘breach of covenant’ in a lease.62 In 1999, in London Borough of Southwark v Mills (two conjoined appeals), the House of Lords looked afresh at a version of this issue: what are a landlord’s basic obligations under the English (common) law, if a specific situation has no clause in the lease clearly dealing with it?63 Council tenants in two different buildings wanted to complain about noise transmission between other flats and their own. The problem was the design of the two buildings, though each met all relevant mandatory standards at the time of construction or conversion. The claimants would have no right of action directly against their neighbours in nuisance if, as the judges agreed, the neighbouring tenants were behaving reasonably. But could they look for redress to the local authority, their landlord – forcing the Council to install soundproofing? The Law Lords in Mills decided against the tenants: a landlord (whatever the duration of the lease or tenancy) undertakes no implied obligation (or ‘covenant’) to provide premises, at the start of the tenancy or lease, which are fit for their intended use, though may of course – exceptionally – do so expressly.64 It follows that a landlord is under no obligation implied by the common law to improve the standard of the property let in order to meet what would now be required, if the building was new.65 Dwellings are no exception to this general common law rule, but, as section [11.4.3] explains, statute may intervene to add extra protection for specific categories of tenant or tenancy via implied or overriding terms.66

61 See, further, Philip Britton, ‘Quiet Enjoyment Revisited: A Landlord’s Liability to a Tenant for Disruption Caused by Construction’ (Society of Construction Law (UK) Paper 205, 2017). 62 On interpretation of contracts, see section [4.5.1] and on remedies, section [4.12]ff. 63 London Borough of Southwark v Mills and Baxter v London Borough of Camden [2001] 1 AC 1 (HL), [1999] 4 All ER 449, (2000) 32 HLR 148. 64 London Borough of Southwark v Mills and Baxter v London Borough of Camden (n 63) 8D. 65 In a close parallel with Mills, where a Scottish housing association tenant complained of noise transmission from neighbours in the flat below, the Sheriff held that the flat, in a former council house built in the 1930s, met all building standards at the time the tenancy started in 2003. The landlord was not in breach of its statutory obligations (n 205), nor did it owe any obligation now to improve noise insulation: Reay v Dumfries and Galloway Housing Partnership [2020] SC DUM 19. 66 On residential tenancies in England, see the Homes (Fitness for Human Habitation) Act 2018 (E&W) (n 34 and its main text), modifying the Landlord and Tenant Act 1985 s 8.

The Legal Context: Private Sector Blocks of Flats  529 In a long leasehold situation, landlord and tenant (lessor and lessee) are usually entirely ‘free’ to allocate the risk of construction defects present at the start of the tenancy or lease (and the cost of remedying them) as they choose, just as they are in relation to the need for ‘repair’ or ‘maintenance’ during the tenancy and how this is to be funded and managed. Creating a management company (MCo in Figure 11.1) as a party to all the long leases is a common way to achieve this, where the landlord undertakes some form of ongoing responsibility for the condition of the development’s structure and ‘common parts’; in return, each lessee accepts obligations, which the landlord usually undertakes to impose uniformly on all leaseholders and then to enforce.67 But the imbalance of power between developer Y and would-be first leaseholder (B1), together with the practical necessity (in most cases) for all leases for a single development to be in essentially common form, usually means that they will be drafted by or on behalf of Y: B1 can exercise no part of their theoretical freedom to negotiate better terms than Y is offering. It is, therefore, another example of the imbalance of power in our field, just as often applies between the developer of a detached house and its wouldbe first freehold buyer.

11.5.3  Obligations – or Rights – for Leaseholders? In a situation like that in Scenario 7 (Table 1.3), the developer Y (as initial freeholder/ landlord) may not undertake any clear liability in the leases for any category of original construction defects in a dwelling (flat) or in the block or development of which it forms part. Standard leases often look instead only to maintenance and ‘repair’. This leaves would-be claimants to scrabble around for a legal basis on which to mount a claim against the landlord, original developer, MCo or perhaps someone else – at risk, if they fail, of retaining responsibility themselves for the cost of rectifying such defects, or suffering the resulting drop in capital value. As English private sector tower blocks with combustible cladding or insulation demonstrate, flat owners are in double jeopardy if their position depends only on private law: they face overwhelming and unforeseeable demands for additional payments for temporary ‘waking watch’ patrols and for a share of the costs of rectification, but their flats even when rectified will suffer a longterm drop in value from the ‘stigma’ of being in a tower linked to the Grenfell Tower disaster.68 With, in many cases, no obvious rights of action against anyone, it is unsurprising that residents look to government for financial support. However, there are examples where the lease does impose liability on the landlord. In Blue Manchester Ltd v North West Ground Rents Ltd, the 999-year lease to a hotel operator (B1) of the lower 23 floors of a 47-floor tower in Manchester put an obligation on the landlord ‘to keep in good and substantial repair and when necessary as part of repair to reinstate replace and renew where appropriate the Retained Property and the Common Parts’. (The hotel floors had initially been ‘sold’ for £60m in 2003, with annual

67 See Duval v 11–13 Randolph Crescent Ltd [2020] UKSC 18, [2020] AC 845. 68 For damages for ‘stigma’, see section [4.12.3] – assuming that residents suffering such a loss have a usable right of action against anyone. On ‘waking watch’ patrols, see also n 31.

530  Multi-Unit Developments: Blocks of Flats ground rent at £20,000.) When problems appeared with the fixings for the external glass panels forming the façade (included within ‘the Common Parts’), about eight years after construction, the freehold had been sold on to Z (the current defendant) and the hotel lease assigned to B2 (the current claimant); by the time the case got into court, the main contractor (Carillion), which had started to investigate the problem and installed temporary solutions (including hoardings around the base of the tower, in case any panels fell out), was insolvent. Judge Stephen Davies in the TCC held that the solution already adopted for each panel, under which about 16 ‘stitch plates’ secured each to its frame, constituted ‘disrepair’ and a breach of covenant – it was not a solution which could reliably last for the building’s design life. It changed the façade’s appearance from an uninterrupted glass wall to one visually broken up around every panel. The lease imposed on Z as landlord the cost of remedying this situation, another provision preventing Z from recharging this cost to the hotel’s long leaseholder, as the defects were ‘inherent’ from the block’s construction.69 Looking first at the traditional default remedy – an award of damages – the Court quickly held that this would be inadequate, since rectification was a reasonable goal for the claimant; after all, only the landlord had access to the façade of the whole block to organise the necessary work. The landlord Z did not argue against an order for specific performance (technically the exceptional and discretionary equitable alternative remedy), as long as what was required was clear enough.70 So the Court compelled the landlord to devise and install a permanent solution within 18 months, restoring the whole façade to its original ‘uninterrupted glass wall’ appearance, aesthetic considerations being properly relevant.71 This ruled out at least one of the technical options presented to the Court. The resulting order specifically authorised landlord Z to ask the Court to vary its terms if it turned out that compliance was ‘not reasonably practicable other than at disproportionate cost’ – an echo of Ruxley v Forsyth and the general law of damages for breach of contract/breach of covenant.72 This brought the parties back before Judge Stephen Davies in September 2020, the landlord asking the TCC to agree a solution involving visible plates along the whole of both vertical edges of each panel, for which it already had planning permission and the support of the residents’ association representing the tower’s top floors.73 The Court was not persuaded, from the expert evidence available, that compliance with the terms of the original order was impractical in itself, or disproportionately expensive (in rough numbers, at least £6m); and the alternative scheme now proposed could have been advanced at the original trial, but the d ­ efendants

69 Blue Manchester Ltd v North West Ground Rents Ltd [2019] EWHC 142 (TCC), 182 Con LR 59. None of the other potential parties was in court – Carillion’s insurers, the specialist façade subcontractors or the project’s architects. Nor was the position of the residential apartment ‘owners’ in the top floors of the block addressed. At [39], Judge Stephen Davies specifically relied on the comparable covenant in Hunt v Optima and its interpretation by Akenhead J: see Case Study 7 at section [5.9]. The other issues in the case (the hoardings etc) are not discussed here. 70 Blue Manchester (n 69) [107]. 71 Blue Manchester (n 69) [103]. 72 On Ruxley v Forsyth, see section [4.12.3]. 73 Blue Manchester Ltd v North West Ground Rents Ltd [2020] EWHC 2777 (TCC).

The Legal Context: Private Sector Blocks of Flats  531 had not done so. It would also fail to restore the tower’s original appearance, which it remained reasonable for B2 to seek. As a result, the Court refused the defendant’s application but – with the claimant’s consent – gave an extra two years for completing the work.74 It is commonplace that rectification work is almost always more expensive than the equivalent when newly built. In Case Study 11 at section [11.8], the repairs necessary to make New Lawrence House in Manchester conform with ‘the building code’, about 10 years after it was first occupied, were in 2019 estimated to cost at least the original purchase price of all the flats in the development added together. In a residential rather than commercial context, the only situation in which Y is certain to commit to build quality is in the original off-plan sale contracts with first-time buyers. However, each buyer ‘owns’ only their own unit, whose perimeters the lease will define, so if defects appear in the structure or ‘the common parts’, do such buyers have any usable rights of action against Y for the cost of rectification in those parts of the development which they do not own? Where the sale contract between Y and each first buyer specifically imposes build quality obligations on Y in relation to the whole development, as well as to the flat now being bought, these should lead in court – if a breach of contract or the landlord’s repairing covenant can be proved – to an effective remedy, even for defects in ‘the common parts’ and even where not all unit owners are claimants: Long leaseholders, to whom a developer landlord owes duties to build the whole development properly in the first place as well as then to repair and renew as necessary during the period of the lease, must be entitled to sue for the cost of putting right defects attributable to the original development work being constructed in breach of the building obligation and, unless specific performance is ordered, to recover damages in lieu thereof. Common sense and logic suggest that, where for instance a roof is so badly constructed that rainwater directly leaks into leaseholders’ flats or where a sewerage system is so badly constructed that it represents a health and safety risk to occupants, the leaseholders must be entitled to damages to enable the requisite remedial or renewal works to be carried out or to obtain relief at the very least which ensures that such work is done.75

However, it makes sense to start by attempting to persuade Y to come back to do the necessary repairs at its own expense – which may mean Y getting one of its subcontractors back.76 If by then Y is no longer in business or legal action would be too late, the next alternative may be to claim on a third-party warranty. When Y sells on the

74 The judgment (n 73) notes at [94] and [101] that the defendant Z would in fact only be able to finance the work if put in funds to do so by its parent company, which appeared willing to do so only to give effect to the TCC’s order and to the extent that the liability of other parties could be established. By insisting on a more expensive scheme – though in law entitled to do so – the claimant B2 may have made the goal of getting the work done harder to attain. 75 Hunt v Optima (Cambridge) Ltd [2013] EWHC 681 (TCC), 148 Con LR 27 [243] (Akenhead J); see, further, Case Study 7 at section [5.9]. Akenhead J added that the landlord or management company could claim a proportionate share of the damages now awarded – via the variable service charge – from those unit owners who were not parties to the litigation. In a claim under the DPA, a minority of unit owners may in court gain damages to rectify all the ‘common parts’ defects: see Rendlesham Estates plc v Barr Ltd [2014] EWHC 3968 (TCC), [2015] 1 WLR 3663, discussed at section [5.10.3]. 76 On getting – or forcing – the developer back, see section [4.12.2].

532  Multi-Unit Developments: Blocks of Flats freehold to Z as new overall owner and landlord, Z does not step into Y’s shoes for this contractual liability – so far as it exists – and can have no greater (but no lesser) liability as landlord than Y did in relation to original defects in the block whose ownership Z has now taken on. Under the terms of the purchase, Z may be able to look to Y (if still in business) to indemnify it against any such liability for ‘breach of covenant’. In an early forerunner of a whole chapter of post-Grenfell litigation, in 2018 a group of long leaseholders attempted before the First-Tier Tribunal to challenge the reasonableness of service charges in relation to rectification of ACM cladding and temporary precautionary costs (two fire marshals together costing £263,000 a year) for 95 flats at Citiscape in Croydon. Barratt Homes built the two blocks in about 2001, later selling the freehold to a well-known ground rent company. Under the leases, the landlord undertook only the standard ‘quiet enjoyment’ covenants, but a separate company as manager – in which the leaseholders had no stake – was a party to what were original tripartite leases. Under these, the manager did owe a duty to rectify ‘any inherent structural defects’ – which could properly include replacing the combustible cladding. The need to do this could also be seen as part of the manager’s obligation to keep the buildings in ‘good and substantial repair and condition’ (or equivalent). Additional fire precautions had been triggered by a direction to the manager by the London Fire Brigade, which had done inspections post-Grenfell: to comply with these was also a lease obligation. But who was to bear the cost of all these operations? In First Port Property Services Ltd v The Various Long Leaseholders of Citiscape, the Tribunal noted: [I]n these leases both the manager’s obligation to maintain and the tenants’ obligation to contribute are defined by the Sixth Schedule: that is, identical wording defines both the manager’s obligation to maintain and the tenants’ obligation to contribute. It seems to us that the inevitable conclusion is that if the manager is obliged to do work or provide a service the tenants are obliged to contribute to the cost although they remain entitled to dispute the reasonableness of the cost.77 By granting 999 year leases the original freeholder was effectively relinquishing any capital interest in the flats.78 There is no prospect of the freeholder receiving other than nominal premiums either on enfranchisement or on individual lease renewals under the Leasehold Reform, Housing and Urban Development Act 1993. In such circumstances it is reasonable to conclude that the parties would have intended that all future costs associated with the blocks would be the responsibility of the tenants.79

By 2018, it was almost certainly already too late for any of these leaseholders to start legal action against Barratt or any other party responsible for specifying, manufacturing or installing ACM cladding when Citiscape was originally designed and built; or perhaps against the BCB involved for culpably failing to notice that the cladding was

77 First Port Property Services Ltd v The Various Long Leaseholders of Citiscape [2018] UKFTT RP/LON/00AH/LSC/2017/0435 [44]. For another example of long leaseholder liability for the cost of repairing original construction defects, see The Mayor and Commonalty and Citizens of the City of London v Various Leaseholders of Great Arthur House [2021] EWCA Civ 431. 78 [Author’s note] But not, of course, the right to income from leaseholders via ground rents and other fees. 79 First Port Property Services (n 77) [62]. For a similar judicial analysis in Case Study 11, see the main text to n 131.

Reform: England & Wales  533 non-compliant with ‘the building code’. All of that optimistically assumes that they had any reliable ‘rights of action’ against any of these potential targets in the first place.80 Similarly unhelpfully, any third-party warranties offering 10- or even 12-year cover for structural defects, starting when the development was new, would have run out long before any lay person had even heard of ACM cladding.81 In the Citiscape case, Barratts undertook to pay for the remedial work, but apparently unconnected structural issues about its reinforced concrete frame were then revealed, and the residents had to be evacuated.82 Uncertainties of this sort and leases organised the same way form the background to the shockingly slow and uncertain steps taken, post-Grenfell, towards identifying, removing and replacing non-compliant cladding in private sector blocks of flats, the same regime initially applying even to blocks without cladding.83 Without substantial government funding, which may translate into an equity stake in the landlord’s ownership interest, some if not most of the cost – including temporary safety ­measures – will fall on long leaseholders, as it could have done in Croydon. Such residents are already panicked by their homes’ temporary unmarketability and potentially catastrophic loss of capital value, together with steep increases in insurance premiums which do not necessarily reflect the actual risk posed by the cladding or the temporary measures already taken to reduce the risk of fire.84

11.6  Reform: England & Wales 11.6.1  Commonhold and Leasehold ‘Commonhold’ is a recently invented form of tenure in England & Wales which could – in many opinions should – supplant long leaseholds for the ownership and 80 On rights of action in tort for ‘pure economic loss’, see section [5.8]ff. On time limits for litigation in England & Wales, see section [10.5]. Had the leaseholders qualified for an extra three-year knowledgetriggered period for starting litigation under the Limitation Act 1980 s 14A, this would still have run out 15 years after their original ‘right of action’ accrued when the development was new – ahead even of the fire at Grenfell Tower. 81 On third-party warranty cover for multi-unit developments, see section [11.7]. 82 Alex Ralph, ‘Barratt’s Cladding Removal Reveals New Problems in Croydon’, The Times (7 July 2020). 83 PA Media, ‘Post-Grenfell Safety Checks Lifted for Homes Without Cladding’ The Guardian (21 November 2020). 84 Robert Booth and Jessica Elgot, ‘Fire Chiefs Step into Row over Soaring Insurance Costs for H ­ igh-Rise Flats’, The Guardian (6 October 2020). For progress on testing and rectification, see the MHCLG’s monthly Building Safety Programme data releases: www.gov.uk/government/publications/building-safety-programmemonthly-data-release-[month]-[year]. On the emotional and psychological impact on residents, see UK Cladding Action Group, Cladding and Internal Fire Safety: Mental Health Report 2020, via www.leaseholdknowledge.com. The RICS, the BSA and UK Finance agreed an industry-wide process – to be used by valuers, lenders, building owners and fire safety experts – in the valuation of high-rise properties: the External Wall Fire Review process requires a fire safety assessment to be conducted by a suitably qualified and c­ ompetent professional and confirmed using the EWS1 Form. Only one assessment is needed for each building, valid for five years. In parallel, the MHCLG has commissioned the British Standards Institution to draft a Code of Practice for assessing external walls (2021). Monitoring responses to the cladding crisis in England is the House of Commons Housing, Communities and Local Government Committee, which in April 2021 published Cladding Remediation: Follow-up (HC 1249).

534  Multi-Unit Developments: Blocks of Flats management of multi-unit developments.85 It is conceptually and functionally identical to the standard (but not universal) systems in Australasia and more widely for such developments: strata title, unit title, condominium or their equivalents.86 Available since 2004 and the coming into force of Part 1 of the Commonhold and Leasehold Reform Act 2002 (E&W), commonhold is little known even as a name and has had negligible impact (up to 2020, only 20 schemes in total, it seems, covering about 150 flats).87 On Lord Chancellor Derry Irvine’s working party as the legislation was being developed, Shula Rich recalls that the whole initiative nearly stalled when the British Property Forum (BPF), representing landlords, refused to support the proposals if they were applied retrospectively to existing long leases.88 In 2017, the Law Commission started a project exploring the reasons for such low uptake. The absence from day one of any incentives – let alone compulsion – to use commonhold, even for new developments, is obviously key, but so is the continued attachment by developers and their lawyers to the traditions of leasehold structures, called in another context ‘the sticky residue of ancient convention’.89 Beyond its legal effectiveness and familiarity, the leasehold universe is sustained by the landlord interest (well represented by lobby organisations like the BPF), for whom capital growth and income from ground rents form a profitable asset class. Landlords have additional, less obvious, income streams from leaseholders: charging a fee for consent to alter a flat or to transfer the remainder of a lease to a successor; or gaining from aspects of the services paid for by leaseholders in service charges (eg, a discount from the development’s insurer, or profiting from management or cleaning services provided by a company associated with the landlord). All these features would also disappear under commonhold.

11.6.2  Better Management of Multi-Unit Developments Reviving commonhold was part only of the Law Commission’s strategy. More generally, it hoped to find ways in which multi-unit residential and mixed developments could be better managed. In this, to encourage unit owners to own collectively the block of which their unit is part – the key idea behind commonhold – would give them greater autonomy and responsibility, moving away from the adversarial ‘them-and-us’ inevitable in landlord and tenant structures.90 More modest steps down the same road 85 See the Commonhold Regulations 2004 (SI 2004/1829, as amended by SI 2009/2363), also Guy ­Fetherstonhaugh, Mark Sefton and Edward Peters, Commonhold (Oxford, Oxford University Press, 2003). There are separate Regulations for the land registration aspects of this form of tenure. 86 For Australian strata title systems, see section [11.9]. In 2013 the Northern Ireland Law Commission (n 4) recommended against introducing a strata title system in NI. 87 Law Commission (n 100) [1.37]. 88 Shula Rich, ‘Here’s Commonhold, But it won’t be Mandatory’ (speech to the Westminster Legal Policy Forum conference, 12 March 2020): www.leaseholdknowledge.com. 89 Editorial, ‘MPs Must Find New Methods of Scrutiny During this Crisis’, The Guardian (9 April 2020). 90 Blandy (n 55) considers that the Law Commission’s advocacy of commonhold underestimates the general experience in other jurisdictions, where many residents are dissatisfied with the shared management

Reform: England & Wales  535 would make it easier and cheaper for unit owners to exercise their existing statutory rights. Of these, the highest profile one is to buy out the landlord’s freehold interest via leasehold enfranchisement – perhaps then transitioning to commonhold.91 There is scope too for reforming the law and procedure when leaseholders extend their leases, when the current lease term comes towards its end and the unit gradually becomes an unmarketable and unmortgageable ‘wasting asset’; to make it easier for unit owners (even if still leaseholders) to challenge service charges levied by landlords or management companies; and – more generally – to have a greater role in managing their own developments. The recommendations contained in the Commission’s three lengthy but readable 2020 reports, intended to apply in both England & Wales, are evolutionary rather than revolutionary.92 However, at a policy level they reflect the increasingly prevalent view that leasehold is an inherently unfair and inappropriate set of legal structures for longterm home ownership: ‘The balance of power in existing leases, legislation and public policy is too heavily weighted against leaseholders, and this must change’.93 The government has already accepted this argument for newly built detached houses in future.94 Only 4.2 per cent of new houses were sold leasehold in 2018 (down from 13.3 per cent in 2017), but with striking regional variations.95 On leasehold enfranchisement and lease extensions in multi-unit developments, the Commission’s proposals openly favour leaseholders over landlords;96 an earlier report on valuation laid out options for reducing what leaseholders have to pay to acquire the freehold.97 Over time, this approach would be helped by the government aspects of such a form of tenure and do not experience the ‘community’ which self-government is supposed to bring. 91 Leasehold enfranchisement does not exist in NI, but many titles to land are encumbered by ground rent obligations, which can be ‘redeemed’ by compensating the person entitled to the rent, leading to an unencumbered freehold title. This process is regulated (and in some situations made compulsory) by the Ground Rents Act (Northern Ireland) 2001. The Northern Ireland Law Commission made proposals to reform the 2001 Act in its Report on Land Law (NILC 8, 2010) ch 13. 92 Each report records some uncertainty about the correct legislative procedure for implementing reforms in Wales, but the Welsh government is clearly supportive of the Law Commission’s work in the area and can be expected to legislate if necessary. 93 Housing, Communities and Local Government Committee, Leasehold Reform (HC 2017–19, 1468) [25]. 94 ‘The Government will ensure that if a new home can be sold as freehold, then it will be. We will get rid of unnecessary ground rents on new leases and give new rights to homeowners to challenge unfair charges. The Government will also close legal loopholes to prevent unfair evictions and make it faster and cheaper to sell a leasehold home.’ Queen’s Speech, December 2019: Background Briefing Notes 49: www.gov.uk. For the CMA investigation (2020) into past leasehold sales of new homes by developers, see www.gov.uk/cma-cases/ leasehold. 95 Office for National Statistics, Leasehold and Freehold Residential Property Transactions in England and Wales 2018: www.ons.gov.uk. 96 Law Commission, Leasehold Home Ownership: Buying Your Freehold or Extending Your Lease (Law Com No 392, 2020) [2.50]–[2.53] (summary of proposals); the sequel to the Consultation Paper with the same title (Law Com No 238, 2018). For examples of the complexity and technicality of the present law, see Aldford House Freehold Ltd v Grosvenor (Mayfair) Estate [2019] EWCA Civ 1848, [2020] 2 WLR 116; LM Homes Ltd v Queen Court Freehold Co Ltd [2020] EWCA Civ 371, [2020] 2 WLR 1135 and GR Property Management Ltd v Safdar [2020] EWCA Civ 1441. 97 Law Commission, Leasehold Home Ownership: Buying Your Freehold or Extending Your Lease – Report on Options to Reduce the Price Payable (Law Com No 387, 2020).

536  Multi-Unit Developments: Blocks of Flats plan to restrict ground rents to zero on all future leasehold sales of new homes. In January 2021, Housing Secretary Rt Hon Robert Jenrick MP announced plans to legislate to give effect to all these changes.98 On the right to manage, the changes proposed would make this ‘more accessible, less confusing, and more certain’.99 So far as possible, all these reformed rules would apply equally to leasehold houses as well as to flats, to the extent that any future sales of new houses may still use the leasehold form; for the impact of the proposals on mixed use developments, see section [11.13].

11.6.3  Moving Away from Leasehold For this book, the most significant aspect of these changes is that the government tasked the Law Commission with ‘reinvigorating’ the commonhold regime as a workable alternative to leasehold for most multi-unit residential (or mixed use) developments, present and future.100 Adopting (or transitioning to) commonhold has the symbolic importance of freeing unit owners from control and intervention by a landlord, since they own their units open-endedly as freeholders. Equally importantly, the ‘commonhold association’ (each unit owner is a member of this association – the equivalent of the ‘body corporate’ or ‘owners corporation’ elsewhere) owns and manages the whole development, minus the individual units.101 It has the power to hire and fire professional managers, as well as a property interest in ‘the common parts’ enough to support legal action for defects in those aspects of the development (often unclear today), assuming that there are one or more original construction parties worth suing against whom a claim could be mounted – in contract, tort or under statute. Relations between individual unit owners and between them and the ‘commonhold association’, which articulates and manages their shared interests, are regulated by a Commonhold Community Statement. The CCS operates as the constitution of each development; its key default rules come from secondary legislation, but these give wide scope for tailoring it to the particular needs and priorities of the specific development. Far more easily than the fixed text of the common-form leases in a leasehold development, it can be modified from time to time to respond to challenges unforeseen when the development was created; and a mixed use development can be divided between residential and commercial sections, though within the same commonhold development.

98 ‘Government Reforms Make It Easier and Cheaper for Leaseholders to Buy their Homes’ (7 January 2021): www.gov.uk. 99 Law Commission, Leasehold Home Ownership: Exercising the Right to Manage (Law Com No 393, 2020) [1.56]; the sequel to the Consultation Paper with the same title (CP243, 2019): www.lawcom.gov.uk. 100 Law Commission, Reinvigorating Commonhold: The Alternative to Leasehold Ownership (Law Com No 394, 2020); the sequel to the Consultation Paper with the same title (CP241, 2018): www.lawcom.gov.uk. 101 As English law now stands, a ‘commonhold association’ would not be ‘a consumer’, so for existing contracts, the terms could not be challenged (eg, for the supply of gas or electricity) under the Consumer Rights Act 2015 (UK), but would have to rely on UCTA 1977: see section [4.10]. The European Court of Justice has confirmed that national provisions may validly extend the protection of the 1993 Directive to legal persons which are not ‘natural persons’, eg, a ‘commonhold association’ for a block of flats: Case C-329/19 Condominio di Milano, via Meda v Eurothermo SpA EU:C:2020:263.

Reform: England & Wales  537 How could commonhold be newly promoted or encouraged? What about the many thousands of existing developments currently using leasehold structures? The most radical and comprehensive strategy for reform in England would: (a) Require all new multi-unit residential developments (to be defined) to use the commonhold regime; but also (b) Impose the same regime retrospectively (compensating landlords for their loss) on all existing 2.5m leasehold dwellings in such developments.102 It is not yet certain that the present government, whose Lord Greenhalgh at the start of 2021 had ministerial responsibility for leasehold reform, will adopt even strategy (a); and unlikely that any government would do both (a) and (b).103 This is ultimately a political choice, so the Law Commission does not advocate a specific way forward. Instead, it offers ways of improving commonhold (121 recommendations, some needing changes to the 2002 Act) to make it a more obvious choice, including easier routes for leaseholds to convert into commonhold. As the report says, if strategy (a) is not adopted, commonhold will only take off if its attractiveness to developers is so enhanced – which could be by inventing new financial inducements – to overtake the lure of leasehold as an asset class to developers and investors. On the other hand, existing leaseholders and potential future homeowners in multi-unit developments, whose voices until now have had little impact, would overwhelmingly prefer commonhold to leasehold – even leasehold as improved by all the Law Commission’s proposals. The present government has not yet charted the way forward in relation to commonhold, instead first establishing a Commonhold Council to consider the Law Commission’s proposals further.104 Two limiting aspects of these proposals should be noted: 1

2

Almost all attempts to empower unit owners within multi-unit residential developments look to corporate structures, though these do not always work well in this context – less well, the larger the development and the more that owners are buyto-let investors and may be resident overseas (but the Law Commission’s proposals try to balance democracy with protection against unfairness); and Original construction defects and how better to deal with them figured nowhere in the Law Commission’s brief, so commonhold of itself does not and would not bridge the ‘contractual gap’ between developer and commonhold association, nor would it enhance or extend rights of action against the developer (or anyone else) for such defects. However, an association’s ownership rights would put it in a better position than most management companies at present; and other jurisdictions’ disclosure requirements could be copied, ensuring that developers give key aspects of build information to first buyers and the association at the start.105

102 See the main text to n 50. No reliable recent figures seem available for Wales. 103 Under strategy (b), it is likely that landlords statutorily expropriated would have to be compensated under Article 1 of the First Protocol (‘A1P1’) to the European Convention on Human Rights: ‘Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law’. 104 See Rt Hon Robert Jenrick, Written Ministerial Statement, HC Hansard col 687 (11 January 2021). 105 See the Unit Titles Act 2010 (NZ) sub-pt 14, these provisions being subject to reform under the Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Bill (2021).

538  Multi-Unit Developments: Blocks of Flats

11.7  Multi-Unit Developments and Defects Insurance 11.7.1  The UK and Ireland Most insurance arrangements looking at original construction defects start from ­individual units. Each new home buyer (usually a long leaseholder) has their own policy, its cover then extending – under conditions – to the rectification of defects in the structure and ‘common parts’. The basic approach of the UK market leader, NHBC Buildmark, is described in section [7.2]. It starts with an initial ‘builder warranty’ period, during which the Consumer Code for New Homes applies and the NHBC’s Resolution Service is available for disputes with the developer.106 A period of ‘pure’ insurance follows for the rest of the duration of the policy. How Buildmark covers pre-completion developer insolvency, what it means by ‘insurable risk’ and ‘defect’, what items it will (not) pay for, the insurer’s option to do the work rather than payout and a policyholder’s ability to challenge the refusal of a claim: all apply equally to claims related to multiunit developments.107 Thus in pre-2019 developments where the NHBC’s subsidiary BCS Ltd was not responsible for building control, there may be no cover for the cost of replacing non-compliant cladding, even though its presence obviously creates a risk of injury or death to occupants.108 However, cover is structured slightly differently for multi-unit developments: the ‘builder warranty period’ is Years 1–3, and in relation to ‘the common parts’ may start when the first unit is completed – long before the last unit is sold and occupied; the main insurance cover therefore runs for Years 4–10 from this start date for each unit owner. Specific aspects of the policy document concern what it calls ‘a continuous structure’ (eg, a newly built block of flats or row of terraced houses containing more than one residential unit); further, its definition of ‘the home’ includes its ‘shared parts’ – its structure, plus other aspects of the development for which each unit owner shares legal responsibility for repair from the start. So the scope of each long leaseholder’s liability to contribute towards the cost of work included in their variable service charge commitment under the lease also defines the scope of Buildmark protection in relation to those parts of the development which are not an individual flat.109 As a result, where the service charge provisions applying to the flats do not require a unit owner to contribute to the cost of remedying construction defects, the NHBC may decide that it too is not liable. A claim by one policyholder relating to the ‘shared parts’ may reflect that liability, but not automatically (defined terms in bold): [O]ur liability for all claims relating to [shared parts] (subject to the limit referred to on your policy schedule) will be limited to that portion of the total cost of doing all the work that has 106 On the Consumer Code for New Homes, see section [6.5]; on the Resolution Service, see section [7.2.5]. 107 As in section [7.2], this section describes and quotes from the 2019 AU version of the main Buildmark policy booklet, applicable to homes registered from 1 October 2019: www.nhbc.co.uk. On challenging an insurer before a regulator, see section [9.4]. 108 For this aspect of cover (available under historic Zurich policies, but no longer available within Buildmark), see section [7.2.7]. 109 The definitions in the 2019 Buildmark policy documentation (n 107) extend the meaning of ‘shared parts’, eg, to include drainage, garages and the external hard landscaping done by the developer, but also restrict it, eg, to exclude shared heating or energy systems.

Multi-Unit Developments and Defects Insurance  539 to be done in connection with those shared parts that we decide is reasonable to attribute to your home.110

Assuming a valid claim relating to a new-build block of flats in Years 4–10 under section 3.1 of the policy, the NHBC may therefore pay out to an individual unit owner only what that policyholder would have to pay towards their share of work to the ‘shared parts’ (as defined) now necessary. So the NHBC may ask other unit owners to claim – or treat them as if they had – in order to justify paying out in full or organising the work. As for the financial limits applicable to claims, a policy linked to a home that is part of a continuous structure has a specified minimum claim value (not an excess);111 and an overall claim limit for the whole 10-year period, derived from totalling the financial limits applicable at the start to all possible claims by policyholders in that development. Under this system, claims relating to an individual unit alone also count towards that global limit, as do all past claims. If one unit has already reached its own individual limit, then the ‘pool’ available for other claims reduces proportionally. The limits applicable go up by five per cent on each policy anniversary. However, there are now no general public statements of any financial limits: instead, individual policy schedules provide these details. Other third-party warranty policies current in the UK take one of two tactics: either following in broad terms the Buildmark approach, which the majority do; or looking to the whole development as insured (the BLP approach), without the early ‘builder warranty period’ or a need to allocate and apportion a claim relating to ‘the common parts’ or structure to individual unit owners. In Ireland, HomeBond provides defects insurance for five years from the date stated in the certificate of insurance, subject to a limit of €500,000 in respect of a ­‘continuous structure’ such as an apartment block, and provides structural insurance for 10 years subject to a cap of €2,000,000 in respect of structural defects to a ‘continuous structure’.112 Given that the Society of Chartered Surveyors Ireland estimates Irish apartment construction costs as between €293,000 and €578,000 per two-bedroom unit, the upper limit seems manifestly inadequate to provide cover for even smallscale apartment development schemes.113 Previous iterations of HomeBond, prior to its being underwritten by commercial insurers, were even more restrictive in their terms.114

110 2019 Buildmark policy documentation (n 107) s E4. 111 But if the work covered under a collection of policies costs more than 10 times the minimum claim value of one, the NHBC may still pay out or take responsibility for having the work done. 112 For the main discussion of HomeBond, see section [7.6]. 113 Society of Chartered Surveyors Ireland, The Real Costs of New Apartment Delivery: Analysis of­ Affordability and Viability (2017): www.scsi.ie. 114 In Farrell v Arborlane Ltd [2015] IEHC 535, a claim for significant water ingress and cracking in a South Dublin apartment development from the early 2000s, Barratt J noted at [3] that the warranty provider, the CIF’s Guarantee Scheme, ‘inspected the development at some point during this period [within which remediation was attempted] and decided that the defects arising were non-structural and thus did not come within the scope of the cover it provides’.

540  Multi-Unit Developments: Blocks of Flats Premier Guarantee (consisting of a number of Lloyds’ syndicates) also offered defects cover in Ireland for a period, before withdrawing from the market in the context of significant claims. In Liberty Syndicate Management Ltd v Campagna Ltd, ­Edwards-Stuart J held that a technical auditor appointed by Premier Guarantee in respect of an Irish apartment development was not liable for failure to detect defects in balconies, unconnected ventilation outlets and a leaking roof that had led to a call on the insurance policy by the homeowner in question.115

11.7.2 Australasia As section [7.5] notes, all Australian states and territories except Tasmania impose insurance by law on new residential construction work, defining precisely and narrowly the conditions under which insurance is mandatory (including the minimum project cost) and the scope and duration of cover. Table 7.2 summarises the key features of each of these schemes. In relation to multi-unit residential developments, most statutory schemes do not require cover for a project four or more storeys high, nor necessarily for any mixed use developments. Cover for the cost of rectifying original construction defects may be available on the open market for situations outside the scope of the relevant statutory scheme – including in Tasmania; similarly in New Zealand, which at present imposes no insurance requirement – but it is impossible to generalise about their a­ vailability and affordability, or the scale of take-up.

11.8  Case Study 11: Original Defects, Warranty Limits and Deceit 11.8.1 Background In the early 2000s, New Lawrence House was being built in Hulme, west of the centre of Manchester: two blocks containing 104 flats. Off-plan sales started in about 2007; each contract promised the buyer the benefit of a Standard 10 third-party warranty from insurer Zurich.116 The arrival of a cover note from Zurich was the trigger for completing first sales: identical tripartite long leases (125 years) between developer, a newly created management company and each individual buyer. The development was marketed as an ‘outstanding investment opportunity’: most first buyers were buy-to-let investors (some from overseas, some acquiring more than one flat).117

115 Liberty Syndicate Management Ltd v Campagna Ltd [2011] EWHC 209 (TCC), (2011) 27 Const LJ 275. 116 The text of the Zurich warranty is an Appendix to the Court of Appeal judgment (n 151); at [115], ­Coulson LJ describes the Standard 10 policy as an ‘indirect descendant’ of the NHBC Buildmark. 117 These ‘buy-to-let’ investors were not ‘consumers’ in their purchase contracts with the developer or third-party warranties with Zurich, so they could not rely on statutory controls on unfair terms in Businessto-Consumer contracts, now in the Consumer Rights Act 2015 (UK) pt 2.

Case Study 11: Original Defects, Warranty Limits and Deceit   541 To qualify for third-party warranties from Zurich required the developer/freeholder to become ­registered with the insurer as an approved builder, then to build in accordance with Zurich’s technical requirements. In turn, Zurich’s own Approved Inspector (AI) subsidiary, Zurich Building Control Services (ZBC), performed building control for the project.118 Early in 2009, Zurich was already planning to exit the home warranty market, producing for its staff what Judge Stephen Davies described in the TCC as ‘an increase in workload and a negative effect on morale’.119 The decision became public later that year, Zurich avoiding ‘run-off ’ mode for the next decade by ‘selling on’ its liabilities under each live new home policy to another insurer, East West.120 When the first buyers acquired their flats, ‘the common parts’ were still incomplete: lift-shafts but no lifts, windows unglazed, external render unfinished; and some upper floor flats had no balconies to protect residents from falling out via the French windows.121 There were also complaints about exposed steelwork and concerns about the means of escape, including incomplete stair cores and communal corridors, with unguarded stairs, as well as holes in fire-resistant floors with no visible sign of fire-stopping.122 Manchester’s own building control department warned ZBC that the development had been partially occupied for some months without a Building Regulations final certificate. After British bank Northern Rock collapsed in 2007, the wider global financial crisis meant fewer than 40 sales were completed between 2009 and 2010. A limited liability partnership bought the unsold flats; its prime movers were connected with the original developer X. Some of them also bought flats as individuals. After Grenfell Tower (though New Lawrence House has no cladding issues), the Fire Service required all residents to move out for their own safety, so the buy-to-let flatowners lost all rental income, as well as any immediate possibility of disposing of a flat at a reasonable price.123 The blocks remain empty, with no rectification work started; the whole site may be sold for demolition and redevelopment.

118 This, in turn, added a vital extra element of cover under the Zurich policy, looking to ‘the cost of­ rectifying a present or imminent danger to the physical health and safety of the occupants caused by failure of the developer to comply with the Bldg Regs in respect of the following: structure, fire safety’ [and other details], just as using the NHBC’s Building Control Services Ltd would have done until the 2019 version of Buildmark came into force. For Judge Stephen Davies’ discussion of the meaning of these words, see Zagora Management v Zurich Insurance (n 119) [7.6]. 119 Zagora Management Ltd v Zurich Insurance plc [2019] EWHC 140 (TCC), 182 Con LR 180 [4.6]. 120 The precise relationship between Zurich and East West is not clear in any of the judgments, as both are on the record as defendants, but this appears to have no effect on any of the liability issues. 121 Zagora Management v Zurich Insurance (n 119) [3.25] and [4.34]. 122 Zagora Management v Zurich Insurance (n 119) [4.40]. Further fire-related aspects were noted as ­inadequate by the Fire and Rescue Service as early as 2010 when the all-in-one developer, main contractor and original freeholder JCS Homes commissioned Arup to prepare a fire safety and management strategy document: this recorded aspects of non-compliance with Part B of the Building Regulations, but no action was taken, even under further pressure from the fire authorities. 123 The ‘buy-to-let’ claimants argued that they were entitled to an equivalent of compensation for loss of rental income, under the Zurich warranty’s cover for the reasonable cost of alternative accommodation; Judge Stephen Davies disagreed, holding that such costs fell under a general exclusion of costs consequential on the occurrence of an insured risk: Zagora Management v Zurich Insurance (n 119) [7.17].

542  Multi-Unit Developments: Blocks of Flats Figure 11.2  New Lawrence House

All the legal issues derived, directly or indirectly, from the alleged defects in (or failure to complete) the original construction. Figure 11.2 illustrates the key parties and claims in the main action. The hearing of evidence occupied 16 days in the TCC and led to a judgment from Judge Stephen Davies of more than 180 pages in Zagora Management Ltd v Zurich Insurance plc.124 The claims by flat-owners were for damages, on two different bases: 1 In contract against Zurich/East West under the third-party warranty, for the cost of rectification and consequential costs or losses; and 2 In tort (deceit – ie fraudulent misrepresentation) against ZBC as AI, for diminution in the value of each flat.125 The tort claim took this form – more demanding to prove than negligence – because, following Murphy v Brentwood DC, Zurich’s AI arguably owed no duty of care to a current building or flat-owner in relation to the cost of remedying defects or the drop

124 Zagora Management Ltd v Zurich Insurance plc: n 119. The linked earlier litigation – not discussed here – includes a case about the right to manage the development under the leases: in Lawrence House Management v Zagora Management Ltd (TCC, 6 August 2014), Judge Raynor QC held that MCo – dissolved in 2011 but reinstated in 2013 – remained responsible; the story is of chaotic and inadequate administration of every aspect of the development in its early years, with no supply of mains electricity for a period. There was also a dispute about the voting rights of the LLP in MCo: Sugarman v CJS Investments LLP [2014] EWCA Civ 1239, [2015] 1 BCLC 1. 125 By law, ZBC had to have PI insurance cover, so legal action against it would, in effect, be a claim against its insurer: see section [3.5.2].

Case Study 11: Original Defects, Warranty Limits and Deceit   543 in value of the building or an individual flat within it.126 In the first court stages, only 30 owners were claimants, some relying on 1 alone. Each owner could certainly claim under 1 in relation to defects in their own flat; but also, the judge held, in relation to all ‘insured perils’ in the rest of the development, separate from any other individual flat (ie ‘the common parts’, ‘the structural parts’ and ‘the retained parts’, as defined in the leases).127 In 2013 X sold New Lawrence House (the right to receive ground rents etc) – via an intervening company – to Zagora, which bought the freehold without having its own survey. Zagora believed that, as landlord, it would be acquiring no repair or maintenance obligations and that the Building Regulations final certificates were evidence of proper construction. It soon realised from the state of the development that it could be worth claiming against Zurich and ZBC.128

11.8.2  Liability for Completing Work the Developer Failed to Do We concentrate here on the main judgment on liability from Judge Stephen Davies.129 He first had to consider the leases’ allocation of responsibility between landlord, management company and long leaseholders to pay for the rectification work now necessary: construction work, never done at the start, to make the development comply with ‘the building code’ and Zurich’s technical requirements; and disrepair caused by a failure to construct to that standard.130 This would be important in case the claims failed against Zurich/East West or ZBC, or though successful did not produce sufficient cash for the work now necessary. The analysis which resulted was typical for such a private sector residential block under English law: Under the lease the tenants are only responsible for internal parts and the landlord has no obligation at all for any of the parts. If the management company had no responsibility for the common or structural or services installations or retained parts then no-one could be 126 On Murphy v Brentwood DC, see section [5.8]. Adding a new claim in deceit after original claims against the AI in negligence alone had been ‘timed out’ (six years from the claimed acts or omissions which led to the defects in the development) was not fatal: because the flat-owners were alleging fraud, they could establish a delayed starting-point for the limitation period under the Limitation Act 1980 s 32(1)(a): see section [10.5.3]. Although all such claims, in fact, failed, Judge Stephen Davies would have held one fraud claimant as out of time: Zagora Management v Zurich Insurance (n 119) [11.61]. 127 Zagora Management v Zurich Insurance (n 119) [7.3]. The LLP and related individuals took no part in the litigation, being disqualified from claiming under the third-party warranty because of their closeness to the original developer. 128 Zagora Management v Zurich Insurance (n 119) [5.24]. 129 The linked earlier litigation includes a case about the right to manage the development under the leases: in Lawrence House Management v Zagora Management Ltd (TCC, 6 August 2014), Judge Raynor QC held that the management company – dissolved in 2011 but reinstated in 2013 – remained responsible; the story is of chaotic and inadequate administration of every aspect of the development in its early years, with no supply of mains electricity for a period. There was also a dispute about voting rights in the management company: Sugarman v CJS Investments LLP [2014] EWCA Civ 1239, [2015] 1 BCLC 1. 130 Zagora Management v Zurich Insurance (n 119) [6.21].

544  Multi-Unit Developments: Blocks of Flats compelled to ensure that they were and remained in a fit standard. That is a result which could scarcely have been intended in the context of a 125 year lease where in the absence of such an obligation no-one could be compelled to undertake what might be the most serious and urgent of works. The cost to the management company in such a scenario is divided equitably as between all of the tenants [via the variable service charge] … [O]n this hypothesis the landlord does not have any obligation to contribute. However, there is nothing objectionable about this as such, since the landlord only collects a modest ground rent each year from the tenant which could scarcely be supposed to furnish it with enough to fund substantial works.131

This mirrors the situation in relation to private sector blocks with combustible cladding: as we saw from First Port, this cost will often – absent financial support from government or obligations newly imposed on the current or original landlord – fall on all the current long leaseholders.132 Two scenarios may modify that outcome: 1

2

There is a developer still in existence against whom at least some residents have possible claims – in contract, for breach of the obligations it undertook in each sale contract, or under statute (the Defective Premises Act 1972), the limitation period for such actions not yet having expired; or Flat-owners have the benefit of a still ‘live’ third-party warranty whose cover includes (at least in principle) the cost of remedying original construction defects.

At New Lawrence House, Scenario 1 became unavailable when X, the developer, went into liquidation in 2012, some of those claims by then, in all likelihood, becoming timed out before flat-owners could mobilise towards litigation; the focus necessarily shifted to Scenario 2.

11.8.3  Claiming under the Zurich Warranty The freehold landlord of a block of flats in England & Wales is not – or not usually – protected by a third-party warranty taken out when the development is new; they do not normally need such protection, as their exposure to liability for the cost of rectifying original construction defects is normally limited, even non-existent. It is usually each buyer of a flat who acquires their own warranty, this to an extent (subject to the policy’s precise terms) covering defects not just in that particular flat but also in ‘the common parts’ of the development. In a block of flats, this means those aspects usually remaining in the freeholder’s possession but often managed by a management company (MCo). Like the freeholder, MCo is not ‘an insured’ either, under any of the standard third-party new home warranties. The warranty situation was complicated at New Lawrence House because Zagora, the newly arrived freeholder, had meetings and exchanges with Zurich, M ­ anchester’s ­Housing Department, the Fire Service and Arup, attempting to agree urgent ­rectification work and who would pay for it. Zagora asserted that Zurich had agreed a figure or



131 Zagora 132 First

Management v Zurich Insurance (n 119) [6.23]. On the legal background, see section [11.5.3]. Port: the main text to n 77.

Case Study 11: Original Defects, Warranty Limits and Deceit   545 a percentage – beyond the strict limitations of the policy, so potentially avoiding all arguments about the policy’s terms – towards rectifying the defects. In Zagora Management Ltd v Zurich Insurance plc, Judge Stephen Davies in the TCC concluded that no adequately clear enforceable ‘deal’ had been reached. In addition, Zagora, as overall freeholder, had no rights enforceable against Zurich/East West under the warranty itself.133 In the TCC, the judge had to establish the extent to which the defects were ones against which the Standard 10 policy agreed to ‘indemnify’ each flat-owner; and how the financial limits on cover (as well as an excess) applied to claims for defects in the structure and common parts of a residential development comprising many individual units (and policies). This was a key part of a larger process: examining how far the policy document’s long list of exceptions or limitations (17 items) applied to the claims now asserted.134 Each third-party warranty provider can draft its own policies, subject only to the possible impact of the legal controls on unfair contract terms and general insurance law; the discussion below highlights only those terms which were contentious in applying Zurich’s policy to what happened at New Lawrence House. Many are found in closely similar terms in current UK policies, notably the market leader NHBC Buildmark.135 In interpreting the Standard 10 terms, the judge first laid out what he considered the right approach for an insurance policy of this type: The starting point is the natural and ordinary meaning of the words used, which cannot be overridden by an argument that they should be construed in accordance with what the assured may reasonably have believed was being provided. However, where the words used leave reasonable room for doubt as to what was intended, a construction which would unreasonably limit the scope of the cover which it was the clear purpose of the policy to provide is to be avoided.136

The judge next dealt with issues about defining the frontier between ‘the common parts’ and individual flats, relating to the fire resistance of the external doors to each flat, aspects of the partitions between the public corridor and each flat and inadequate insulation above ceilings or where services passed through the floors of flats. He concluded that where these led to non-compliance with external mandatory standards, rectification work was within each policy, including making good any consequent damage within each flat. This head of claim was valid for the whole development, even in relation to those flats whose owners were not claimants; the same applied to those flats which had (or should have had) balconies.137 133 Zagora Management v Zurich Insurance (n 119) [8]–[9]. 134 As the judge said at [7.1.37], it might be vital to distinguish, as insurance law does, between uninsured perils and excluded perils, for if loss had been caused concurrently by an insured and uninsured peril, the policyholder could still claim; not so, for a loss caused concurrently by an insured and excluded peril. The Zurich policy used the phrase ‘what we will not pay’ at the head of its long list – not clearly either ‘uninsured’ or ‘excluded’. It is highly unlikely that any individual policyholder would already know about this distinction or understand its implications; in the end, it played no significant role in the case. 135 On Buildmark, see sections [11.7] and [7.2]. 136 Zagora Management v Zurich Insurance (n 119) [7.1.35]. For confirmation by the UK Supreme Court that the principles of interpretation of insurance contracts are the same as for contracts in general, see Burnett v International Insurance Co of Hanover Ltd [2021] UKSC 12 [29] (Lord Hamblen giving the judgment of the Court). 137 Zagora Management v Zurich Insurance (n 119) [7.2.4] and [7.14].

546  Multi-Unit Developments: Blocks of Flats He then considered an argument evoking discussions in chapter 4 about the basis for quantifying damages for breach of contract in a construction context: that the claimant’s intention to rectify may go to the reasonableness of awarding them damages.138 The starting-point in the warranty (like many others) is that the insurer owes ‘the reasonable cost’ (of reinstatement). But Zurich/East West argued that, whatever its ultimate liability, this was cancelled out if the claimants, however eager to do the necessary rectification work, could be shown on the balance of probabilities never to be able to do the work.139 This argument failed on the policy wording: ‘reasonable cost’ is ‘neutral as to whether it is a cost already incurred or a cost to be incurred or indeed a cost which may never be incurred’, held the judge.140 Further, such an interpretation could not be reconciled with the insurer having an option to organise reinstatement itself (as also in Buildmark), its liability by then necessarily having crystallised. So there was no need to explore the claimants’ financial position: but it was no secret that, even if they won on all fronts, they still might not be able to have the necessary work done.141 Next came arguments on quantum. For ‘major physical damage’ claims, the policy limited the insurer’s liability by reference to the share of such costs which each relevant flat-owner would otherwise have to contribute under the variable service charge. With only a minority of flat-owners on board as claimants, this would dramatically reduce what the insurer would owe. By contrast, the ‘present or imminent danger’ section of the policy carried only one £1,000 excess; if a policyholder could choose which section of the policy to claim under, they must be free to opt for the more advantageous, said the judge.142 But Zurich/East West argued – successfully – that the policy’s Maximum Liability Cap (MLC) applied, looking to the original purchase price of those flats whose owners were now claimants. This imposed a ceiling of just over £3.6m – about a third of the total in damages the insurers otherwise owed.143 But the judge also held that the insurer could not further reduce its liability by invoking the possibility that the claimants could require the landlord Zagora or the management company MCo (and, indirectly, the original developers, now in administration) to undertake rectification work. Under the policy, the claimants would have to give credit for any money actually recovered towards the work for which they were claiming under the policy, from whatever other source (eg, claiming against ZBC), but that was all. In any event, Zurich (now East West) had express subrogation rights authorising it to take legal action in the claimants’ names against third parties.144 138 See sections [4.12.3] (general discussion) and [4.13.5] (Australia). On appeal, this argument became one that the claimants had to rectify first, before making a claim, which Coulson LJ rejected: see Table 11.1. 139 Zagora Management v Zurich Insurance (n 119) [7.7], considering Great Lakes Reinsurance (UK) SE v Western Trading Ltd [2016] EWCA Civ 1003, [2016] 2 CLC 478 (Christopher Clarke LJ) and Hodgson v NHBC [2018] EWHC 2226 (TCC), [2018] BLR 663 (Jefford J). 140 Zagora Management v Zurich Insurance (n 119) [7.7.10]. 141 This issue is further explored in Zagora Management v Zurich Insurance (n 120) [10.12]. 142 Zagora Management v Zurich Insurance (n 119) [7.10] and [7.16]. 143 Zagora Management v Zurich Insurance (n 119) [7.11]. For additional judgments in the TCC, see Zagora Management Ltd v Zurich Insurance plc [2019] EWHC 205 (TCC), 182 Con LR 240 (interest) and Zagora Management Ltd v Zurich Insurance plc [2019] EWHC 257 (TCC) (costs). 144 Zagora Management v Zurich Insurance (n 119) [7.12]. On subrogation, see section [7.2.10].

Case Study 11: Original Defects, Warranty Limits and Deceit   547 The final sections of this part of the TCC judgment analysed in detail the different categories of alleged defect, resulting in an overall assessment of those elements of rectification which would be the responsibility of Zurich/East West under the warranty (£9.7m in total), were it not for the MLC, subdivided between the individual flatowners.145 Ancillary judgments on interest and costs followed.146

11.8.4  The Tort Liability of ZBC, the Approved Inspector Some flat-owner claimants, like the new freeholder Zagora, were also claiming damages against ZBC in the tort of deceit. They had to discharge the burden of proof of five elements in relation to Mr Mather, ZBC’s key official, during the construction of New Lawrence House: 1. 2. 3. 4. 5.

Mr Mather … made misrepresentations to them. [He] intended them to rely on those misrepresentations. [He] knew the representations were false or was reckless as to whether they were true. They relied on those misrepresentations. They have suffered loss as a result.147

Element 1 was unproblematic: ZBC accepted – as the detailed evidence (including expert evidence) summarised by the TCC judge clearly showed – that the final certificates Mr Mather issued were false representations that it had fulfilled its statutory duty under the Building (Approved Inspectors etc) Regulations 2000: to ‘take such steps as are reasonable to enable him to be satisfied within the limits of professional skill that … (a) regulations 4 and 6 of the Principal Regulations are complied with …’.148 Element 2 was also satisfied, but not in relation to a later acquirer of the freehold (Zagora); element 3 was present too, but all claims failed in relation to elements 4 and 5. Each first buyer had gone ahead with their purchases without seeing (and hence could not be relying on) the final certificates from ZBC: they could not show a c­ ausative

145 Detailed arguments about the undercroft car park, the balconies on some upper floor flats and condensation in the roof are not discussed here, though they resurfaced on appeal (n 151) in the judgment of Coulson LJ. 146 Zagora Management Ltd v Zurich Insurance plc [2019] EWHC 205 (TCC), 182 Con LR 240 (interest) and Zagora Management Ltd v Zurich Insurance plc [2019] EWHC 257 (TCC) (costs). In the costs judgment,­ Judge Stephen Davies held that the individual claimants who lost in their deceit action against ZBC did not have to contribute towards ZBC’s costs, except for those incurred after the last date in 2018 for acceptance of an offer from ZBC of £250,000. In the claim against Zurich/East West, the claimants were not penalised for failing to consider an offer of £3.8m (close to what they were awarded in court, but far short of what they claimed), whose terms the judge said the claimants were not acting unreasonably to refuse, but in the end, the amount they won lost them only 20% of the costs they could claim against Zurich/ East West. 147 Zagora Management v Zurich Insurance (n 119) [11.1]. For a restatement of the principles, see Jacobs J in Tuke v Derek Hood [2020] EWHC 2843 (Comm) [138]ff. 148 The Building (Approved Inspectors etc) Regulations 2000 (SI 2000/2215) reg 11, referring to reg 4 of ‘the Principal Regulations’ (SI 2000/2214), brings in sch 1, which contains all the requirements of the Building Regulations. On AIs, see also section [3.6.7] and Case Study 8 at section [5.11].

548  Multi-Unit Developments: Blocks of Flats link between the misrepresentations and their losses.149 Judge Stephen Davies did not find this surprising: [A]ny sensible purchaser and his conveyancing solicitor would be far more interested in the fact that [the developer] was able to offer a [Zurich] building warranty as part of the sale package, since that was a policy which was directly enforceable by the purchaser against a blue-chip insurer in accordance with its terms in the event of any breach of [the Building Regulations] whereas … no claim could be made against the building control inspector even on proof of negligence, since only proof of fraud would suffice.150

11.8.5  In the Court of Appeal The individual claimants below appealed only in relation to their action against Zurich/ East West and the TCC judge’s interpretation of the effect of the MLC; Zagora did not appeal. Some of those who were also claimants against ZBC in tort and lost at first instance attempted to gain permission to appeal; when this was refused, those claims were in effect abandoned. Zurich/East West cross-appealed against seven aspects of the findings of the judge below which had been adverse to them, as well as on the award against them of interest, in addition to damages. Now called Manchikalapati v Zurich Insurance plc, the appeal came before two judges of unequalled construction experience, Coulson LJ and (no longer a member of the Court, since retiring in March 2018) Sir Rupert Jackson, joined by McCombe LJ.151 Sir Rupert considered the MLC issue; Coulson LJ the cross-appeal; McCombe LJ considered the question of interest.152 But all three judges concurred with each other. In his approach to interpretation, Sir Rupert applied the policyholder-friendly views of Lindley LJ in Cornish v Accident Insurance Co Ltd: [I]n a case of real doubt, the policy ought to be construed most strongly against the insurers; they frame the policy and insert the exceptions. But this principle ought only to be applied for the purpose of removing a doubt, not for the purpose of creating a doubt, or magnifying an ambiguity, when the circumstances of the case raise no real difficulty.153

On the MLC, there was real ambiguity in the policy’s terms: in relation to a claim based on the danger to occupants’ health and safety, did the cap refer to the total original price of the flats only of those owners who were now claimants, or of all flats? Sir Rupert pointed out that it would be easy for a claim in relation to such danger to outstrip the sale price of any individual flat, so the commercial purpose of protecting against such risks argued for the second interpretation. He contrasted the words used with the financial cap provisions clearly – and differently – imposed on claims

149 Zagora Management v Zurich Insurance (n 119) [11]. For a comparable case where claimants failed because they could not show reliance on a certificate about build quality, see Case Study 7 at section [5.9]. 150 Zagora Management v Zurich Insurance (n 119) [11.42]. 151 Manchikalapati v Zurich Insurance plc [2019] EWCA Civ 2163, [2020] BLR 1. 152 This became a non-issue in the light of the Court’s finding on the MLC, but McCombe LJ would have supported the TCC judge’s decision on interest. 153 Cornish v Accident Insurance Co Ltd (1889) 23 QBD 453 (CA), 456.

Case Study 11: Original Defects, Warranty Limits and Deceit   549 for ‘major physical damage’.154 In the end, he disagreed with Judge Stephen Davies: the amount of the MLC was the total purchase price of all the flats, thus more than £10.8m. This allowed the claimants to gain from Zurich the full figures defined below for defects and ­rectification work. On the cross-appeal by Zurich/East West, Coulson LJ started by saying how strange an outcome it would be (he might have said ‘Kafkaesque’), if the insurers bore no liability for any of the damage and defects in the building found to exist by the TCC judge, as they alleged: ‘that may indicate that the interpretation being urged on the court is not in accordance with the natural language [of the policy]’.155 Where the TCC judge’s conclusions were challenged, Coulson LJ supported each and found for the claimants (appellants) on issues newly raised on appeal: Table 11.1  Zagora in the Court of Appeal ISSUE

RESPONSE (COULSON LJ)

Did rectification costs need to have already been incurred, in order to form the basis of the claim in fact made?

No.156

Was it wrong that the claimants’ funding arrangements gave their funders and lawyers first claim on any damages received?

No – they had to enter into such arrangements only because Zurich refused to accept liability earlier on; to penalise them for doing so would limit access to justice for future similar claimants.157

Did the claimants have to litigate first against others potentially in the frame – the developer X, management company MCo, new landlord Zagora, original architects – as a condition for claiming under the Zurich policy?

No – this was not contemplated by the policy wording, and in any event would have had to pass a test of reasonableness to have any impact on Zurich’s liability.158

Were individual flats’ balconies included in ‘the common parts’ under the policy?

Yes.159

Did claims by several flat-owners under the ‘present or imminent danger’ section of the policy together carry only one £1,000 excess?

Yes.160

Unsurprisingly, given the amount at stake and its now tripled liability, Zurich/East West asked the UK Supreme Court for permission to make a second and final appeal.

154 Manchikalapati v Zurich Insurance (n 151) [62]–[69]. 155 Manchikalapati v Zurich Insurance (n 151) [77]–[79]. 156 See n 140 and its main text. 157 Manchikalapati v Zurich Insurance (n 151) [114]–[116]. This ground was, in effect, a challenge to the Jackson reforms of costs and related issues, with Sir Rupert himself on the bench. 158 Manchikalapati v Zurich Insurance (n 151) [132]–[133]. 159 Manchikalapati v Zurich Insurance (n 151) [159]–[164]. 160 Manchikalapati v Zurich Insurance (n 151) [195]–[196].

550  Multi-Unit Developments: Blocks of Flats This the Court refused in 2020.161 The outcomes reached on the issues already litigated between all those parties thus became definitive, tipping East West into administration in October 2020. The statutory Financial Services Compensation Scheme will pick up all the insurer’s unfunded liabilities to former Zurich policyholders, including the individual claimants in Zagora.162

11.8.6  Case Study 11: Significance • The immense detail and complexity of a dispute like those in Zagora – bearing in mind that the issues and evidence before the TCC had already been sifted through the Court’s pre-trial processes – tells a story about multi-dwelling residential construction projects which could have the overall title ‘An Awful Warning’. The judgments also illuminate a number of issues with resonance throughout such projects and the disputes arising from them, applying not just to multi-unit developments. • Certification: the case shows how unreliable (to put it at its lowest) reports of inspections can be, from either a third-party warranty provider (cover notes) or its AI subsidiary (final certificates). Each should have been applying objective criteria – to an extent overlapping – and should have certified compliance only if the criteria were met. Their failure to carry out this role properly defined the point in the story at which the law’s function of prevention was never going to be attained: the only hope (far distant, as it turned out) was cure. To the extent that they failed, this jeopardised the buyers’ solicitors’ role: the lawyers or conveyancers (again, probably reasonably) thought the paper trail complete. None of them thought it essential to see a final certificate from ZBC before finalising a purchase (nor, Judge Stephen Davies found, was one promised).163 If one had been offered at that pre-completion moment, the state of the building would have been no better, but their tort claim against ZBC might have been successful. Instead (yet again, probably reasonably, as the TCC judge suggested), at the key moment the buyers were satisfied with a cover note from Zurich.164 Such a catastrophic sequence of events could equally happen in relation to an off-plan purchase of a detached house from a developer. • ‘Caveant emptores?’: the key events triggering this long-running sequence of disputes were that the building and its flats were incomplete and, in many respects, non-compliant with ‘the building code’ when the developer required the first offplan buyers to complete on their purchases (‘settlement’, in Australian terminology). That title to any flats could be transferred in such circumstances came from several 161 ‘The application does not raise an arguable point of law of general public importance which ought to be considered at this time, bearing in mind that the case has already been the subject of judicial decision and reviewed on appeal’ (23 June 2020). 162 See www.ey.com/en_uk/eastwestinsurance. 163 Zagora Management v Zurich Insurance (n 119) [3.7]–[3.9]. 164 See the main text to n 150.

Case Study 11: Original Defects, Warranty Limits and Deceit   551 factors operating together. None of the intending buyers (or their lenders) appears to have inspected at the last moment before paying the balance on the purchase. Buy-to-let investors may have had no interest in seeing the building (not perceiving the risk in failing to do so). However, those buying for themselves or their children, seeing lift-shafts with no lifts, windows unglazed and so on, might have raised the alarm. But they were, probably reasonably, relying on the professionals involved to ensure adequate protection, some using a solicitors’ firm recommended by the same agency which marketed the flats and undertook to find short-term tenants. • Pathways to rectification: when the build quality disaster became clear, the buyers had what may have looked like two near-certainties and one additional possibility. The first near-certainty was to sue the seller-developer for breach of contract, since there were adequately clear build quality obligations in each sale contract, applying to both individual flats and ‘the common parts’.165 If that route became unavailable – as when the developer went under in 2012, English law imposing no legal requirement on a developer for PI insurance cover – there would always be the ‘peace of mind’ safety-net of the Zurich third-party warranty. The extra possibility could be rights under each long lease against the development’s management company, but this might be at each flat-owner’s cost. There was, in fact, no effective management company for some years.166 • Claiming under the Zurich third-party warranty: this, therefore, became the main route the first group of buyers took, coupled with a fraud claim in tort against ZBC. Chapter 7 suggests how few home buyers have a realistic idea of the limited nature of the cover such an insurance product provides: they are inclined to rely on it as a universal solution to defects of all levels of seriousness. No claimant in the New Lawrence House litigation will make that mistake again, given the ingenuity of the arguments tenaciously deployed by Zurich/East West to deny liability or (as a fallback) to reduce what had to be paid out. • The importance of the documentation: the wider applicability of this case study is reduced by the centrality of Zurich’s detailed documentation in court and the fact that, at the key time, Zurich was already preparing to leave the ‘new home warranty’ market. So much so, that some of the problems of certification may have come from individual Zurich employees under unfair pressure and without the motivation to do a proper job. In court, the claimants won the war, but it was perhaps only ‘the last war’. For the next New Lawrence House – which may, of course, be long leasehold versions of Grenfell Tower itself – the parties and legal issues may in effect be the same, but the documentation will be different.167 While the courts’ interpretation of 165 For the contractual build quality obligations, see Zagora Management v Zurich Insurance (n 119) [3.11]. There may have been the possibility of a claim under the Defective Premises Act 1972 against anyone who ‘took on work’ in relation to the construction if that led to the building not being fit for habitation, but such claims may have been ‘timed out’ before the present main action could be mounted. On the DPA, see section [5.10.2]ff. 166 See the main text to n 131. 167 For early post-Grenfell examples, see First Port: the main text to n 77; also Sportcity 4 in Manchester at section [10.5.1]; and RG Securities (No 2) in Ipswich at section [10.5.3].

552  Multi-Unit Developments: Blocks of Flats individual clauses and phrases in the Standard 10 policy do ‘make law’, the last policies in this precise form must be coming to an end. Other players in the field do not necessarily use precisely the same terminology or may have learnt from the litigation what phrases to avoid or categories of cover to stop offering. • ‘Present or imminent danger’: The key part of the policy on which the claimants won (also avoiding what Zurich asserted was an overall cap of about a third of the cost of the necessary rectification work) was to do with ‘the cost of rectifying a present or imminent danger to the physical health and safety of the occupants caused by failure of the developer to comply with the Building Regulations …’. This head of claim was available to its fullest extent, even though not all the flat-owners were or could be claimants; this would not have been so if the claims were for ‘major physical damage’. Note, therefore, that the market leader NHBC dropped the equivalent ‘present or imminent danger’ coverage from Buildmark in its 2019 policy wording; it had been there for many years, conditional (as under the Zurich policy) on using the insurer’s own AI subsidiary for building control. Nonetheless, there is long-lasting value in Judge Stephen Davies and the Court of Appeal showing how the interpretative techniques available to make sense of this special sort of contract recognise that the insurer calls the shots and should not be helped out by the court, if it fails to limit its exposure to claims. • Lessons for future projects: it is worth reading the detailed account in the main TCC judgment of the ‘regime’ (an overstatement) of inspections for both warranty and building control – failing not only the future buyers but also Zurich itself and its successor East West (and any reinsurers ‘up the line’).168 Anyone responsible for managing a residential construction project might now hesitate before choosing the AI route for building control (preferring a public sector BCB), or at least might prefer a truly independent AI over one corporately tied to a particular third-party warranty provider – which might mean a different warranty provider altogether. Anecdotal evidence suggests that such independent AIs can come under pressure to supply their reports to the project’s warranty provider, even though there should, in theory, be two sets of inspections, each with its own purpose.169 Corner-cutting, as happened at New Lawrence House, is unprofessional, yet – shockingly – seems unlikely under the present regulatory regime to lead to any negative consequences

168 Zagora Management v Zurich Insurance (n 119) [4]; but at [2.7]ff, the judge notes the unavailability of key pieces of evidence from Zurich and ZBC. 169 See eg, John Miles (Assent Building Control) on LinkedIn: ‘We do not subsidise the inspection service, responsibilities and professional obligations of the warranty provider in order to reduce client costs. This falls short of the RICS Rules of Conduct: specifically, clauses 3, 4 and 5 for businesses … If at any point during our appointment we become aware that this [use of a building control report by a warranty provider] is the intended outcome, our first responsibility is to our building control teams, our licence and our clients, and in order to protect them we will not hesitate to take action which could result in us withdrawing Building Control services.’ At New Lawrence House, the reliance was, if anything, in the other direction, the building control surveyor relying on the warranty inspectors: Zagora Management v Zurich Insurance (n 119) [11.23]. On inspections, see also ch 8.

Case Study 11: Original Defects, Warranty Limits and Deceit   553 for those involved.170 Provisions in the draft Building Safety Bill (2020) offer the possibility of a more rigorous regulatory regime for building control, removing the AI possibility from high-rise residential developments altogether.171 • ‘Better a defendant than a claimant be’: the procedural and financial obstacles which the claimants in Zagora had to overcome to pursue the first claim to success, at the price of mounting an appeal and defending a cross-appeal brought by the defendant insurers, illustrate how hard it is for any civil claimant – even a group acting together – to assert their rights in the face of a well-resourced and determined defendant. Such a defendant, if an insurer, starts by refusing every aspect of a claim under the policy; when litigation follows, it takes every possible procedural point, requires expensively-gathered detailed expert evidence of every defect in every part of the development (more than £1m in experts’ fees in the first part of Zagora) and offers amounts in settlement far below what a court might award, knowing that the claimants may not get all their costs back at trial even if they win (and that the claimants know this). All of these tactics are perfectly legitimate under present versions of civil procedure almost everywhere. The impact of these structural disparities between claimant and developer (or insurer) is magnified when the size of the claim, or the number of claimants, is smaller. • Next stages: when the Supreme Court refused Zurich/East West’s request for permission to appeal further, in the action which had already been to the Court of Appeal, that might have seemed the absolute end of the litigation; but in April 2019, owners of 22 flats started a new claim. This was in deceit and conspiracy against the insurer Zurich (not its building control subsidiary ZBC, exonerated in the main action) for issuing cover notes under the Standard 10 policy despite knowing that ZBC had not yet issued final certificates in relation to those flats.172 Zurich (and derivatively East West) opposed this possibility, arguing that these claims should have been included in the main action, already litigated. Those wishing to start this second action said that only when they heard the detailed evidence at the trial before the TCC about what happened during construction of New Lawrence House did they appreciate that they might have grounds for a separate and new claim against Zurich; nor, it seems, did the legal team in the main action even consider such a possibility during pre-trial. Judge Stephen Davies considered the case law on raising a claim which could (the real test was whether it should) have been raised in earlier proceedings.173 On the evidence necessary to support a 170 That ZBC was successful in defending itself against a claim for damages in deceit would not protect it against being prosecuted under the Building Act 1984 (E&W) s 57 for recklessly giving a final certificate containing a false statement, though a conviction would require a body ready and willing to launch criminal proceedings and evidence satisfying the criminal standard of proof – ‘beyond all reasonable doubt’. 171 On the Building Safety Bill, see section [3.6.8]; on the existing Building Control Performance Standards, see section [3.6.6]. 172 Because this action was based on fraud, it benefitted from the statutory ‘late start date’ for the limitation period, as had the earlier claim in deceit against ZBC: see n 126. 173 In particular Playboy Club London Ltd v Banca Nazionale del Lavoro SpA [2018] EWCA Civ 2025, [2019] LLR 90 and Takhar v Gracefield Developments Ltd [2019] UKSC 13, [2020] AC 450.

554  Multi-Unit Developments: Blocks of Flats claim of deceit – remembering that the key ZBC inspector had already been found guilty of deceit – the Court agreed in February 2020 that this new action should be allowed to proceed.174

11.9  Contrasts: Australia In short-term rental situations (fixed term or periodic), where the tenant has no stake in the capital value of their home, Australian jurisdictions have intervened by statute to protect the tenant against an irresponsible or uncaring landlord. A feature of these interventions is to impose obligations on the landlord (often taking effect as mandatory terms of the tenancy) in relation to the quality and safety of the tenanted premises and any facilities or parts of a development shared with occupiers of other units or with the landlord. The details of these protections vary widely between the states and territories, as do the public sector bodies empowered to implement or enforce these protections and the judicial institutions deciding disputes related to residential tenancies.175 Where home is a capital investment for its resident(s), as well as a place to live, two features absent in England & Wales (the first absent in the rest of the UK and Ireland as well) are part of the legal treatment of multi-unit developments in Australia: 1

2

A statutory residential construction contracts regime, giving the owner for the time being of a building or part of a building (whether first or later acquirer) enforceable rights in contract against ‘the builder’, to claim damages or other remedies for breaches of the statutory warranties of build quality;176 and The almost universal use of strata title or equivalent legal structures for multi-unit developments, in which each flat-owner has the freehold of their flat and an interest in the freehold of the rest of the development as a shareholder in a ‘body corporate’ (or equivalent) which owns the whole development minus the individual flats. This entity has responsibility for managing, maintaining and repairing all these parts of the development and as their owner has the right to make claims at law against any defendant (including, most importantly, under 1 above) for relevant construction defects, in some cases also able to act as the agent of individual unit owners.177

174 Goldman v Zurich Insurance plc [2020] EWHC 192 (TCC), [2020] BLR 236. 175 See, eg, Residential Tenancies Act 1997 (ACT), Residential Tenancies Act 2010 (NSW), Residential Tenancies Act 1999 (NT), Residential Tenancies and Rooming Accommodation Act 2008 (Qld), Residential Tenancies Act 1995 (SA), Residential Tenancy Act 1987 (Tas), Residential Tenancies Act 1997 (Vic) – now modified by the Residential Tenancies Amendment Act 2018, in effect from March 2021, with the Residential Tenancies Regulations 2021 – and Residential Tenancies Act 1987 (WA). 176 For the Australian residential construction contract regimes, see section [4.13.2]. 177 The main legislative regimes are the Unit Titles (Management) Act 2011 (ACT); Strata Schemes Development Act 2015 and Strata Schemes Management Act 2015 (NSW); Unit Titles Act 1975 and Unit Titles Schemes Act 2009 (NT); Building Units and Group Titles Act 1980 and Body Corporate and Community Management Act 1997 (Qld); Strata Titles Act 1988 and Community Titles Act 1996 (SA); Strata Titles Act 1998 (Tas); Subdivision Act 1998 and Owners Corporations Act 2006 (Vic); and Strata Titles Act 1985 (WA). Summarising recent changes and proposals, see Nicole Johnstone, ‘Law reform challenges: An evaluation of Australia’s strata law trends and implications’, ch 11 of Lippert and Treffers (n 6).

Contrasts: Australia  555 Figure 11.3  Australian Statutory Regime

The details of both features 1 and 2 above vary significantly between different states and territories, as does the terminology for each, but the result is broadly as illustrated in Figure 11.3. Together, they cleverly bridge what would otherwise be a contractual gap between the ‘body corporate’ or ‘owners corporation’ – which only comes into existence when the project is complete, or virtually complete – and all those involved in construction: the right to sue derives from real property (land) ownership. What happens when a completed project appears to have serious defects in ‘the common parts’, latent when the building was handed over to its new owners, but fails to qualify for protection under 1? This happened in a tower block north of Sydney, some floors having units sold to investors off-plan as individual ‘lots’ (units) within a planned strata title scheme but obligatorily let to a manager and marketed as a hotel. The main construction contract for this part of the development failed to qualify under the NSW statutory regime for ‘residential building work’, as this applies only to one or more ‘dwellings’, as defined.178 In Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288, the High Court noted that statutory protection was limited in scope: By enacting the scheme of statutory warranties, the legislature adopted a policy of consumer protection for those who acquire buildings as dwellings. To observe that the Home Building

178 Home Building Act 1989 (NSW) sch 1, cl 2 (residential building work) and 3 (dwelling). In fact, the development also included several floors of traditional apartments sold off-plan, which had their own strata title scheme and owners corporation, which also claimed against Brookfield, relying on the Home Building Act (but this claim settled, and is therefore not reported further).

556  Multi-Unit Developments: Blocks of Flats Act [NSW] does not cover claims by purchasers of serviced apartments is not to assert that the Act contains an implied denial of the duty [of care] propounded by the respondent. Rather, it is to recognise that the legislature has made a policy choice to differentiate between ­consumers and investors in favour of the former.179

There was, therefore, no way in which the owners corporation or individual unit owners had a (statutory) right of action in contract against the design-and-build main contractor. The fact that the relevant part of the resulting development used a strata title form did not help. It was a claim in tort or nothing (a possible claim in contract against the developer was a non-starter, as it was already in administration). In Brookfield, the High Court refused to recognise a common law duty of care from main contractor to body corporate and individual unit owners in relation to original construction defects.180 As McDougall J said at first instance: ‘in this case, the Owners Corporation is inviting the courts to go where the legislature did not’.181 Therefore, those unit owners must have had to fund part of the rectification work affecting their floors of the tower, unless some part of that may have been covered by insurance. Where the situation is more straightforwardly residential, the liability of ‘the builder’ under the NSW statutory warranties will avoid the complexities of having to establish a duty of care in tort, it being likely that new buyers of flats in a tower block are not separately protected by mandatory insurance against structural defects. All the residential inhabitants of the new 37-storey Opal Tower in Sydney’s west had to be evacuated on Christmas Eve 2018, the year the tower was first occupied, when major cracks occurred in the structure. The design-and-build main contractor Icon paid out more than A$31m in rectification costs, plus A$8.5m in alternative accommodation costs, to the residents, some of whom also took aim at the Sydney Olympic Park Authority, the original landowner, under the Home Building Act 1989 (NSW); the Authority in turn brought in Icon and the developer Ecove as third-party defendants. The liability issues appear to have been resolved relatively easily – thanks to the Home Building Act regime; providentially, Icon was still in existence and able to satisfy the residents’ claims against it. The real legal problem was between Icon and the two insurers with which it understood it had – via brokers – taken out policies for its primary liability to third parties in relation to Opal Tower, linked to recurrent annual insurance of this type. Icon ­challenged the insurers’ refusal of indemnity before the Federal Court (Lee J) in May 2020 as Icon Co (NSW) Pty Ltd v Liberty Mutual Insurance Company.182 As usual for such a project – in the UK and Australasia – Icon was required under its main (head) design-andbuild contract with the developer Ecove to maintain insurance against its liability to third parties for the full period up to the final certificate (in this case, potentially

179 Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36, (2014) 254 CLR 185 [134] (Crennan, Bell and Keane JJ). Brookfield concerned the legislative predecessors of the Strata Schemes Development Act 2015 (NSW). 180 On Brookfield, see section [5.12.3]. 181 Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 [94]. 182 Icon Co (NSW) Pty Ltd v Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets [2020] FCA 1493.

Contrasts: New Zealand  557 28 days after the end of the 12-month defects liability period). This was so even though, as we know, Icon’s potential liability to homeowners and an owners corporation under the Home Building Act would continue for the full limitation period for claims under that Act.183 But what difference – if any – did it make to the scope of cover from the first insurer Liberty that the problems surfaced after practical completion, during the project’s contractual 12-month defects liability period? The long judgment shows that insurance questions between a major construction company and its insurer can be as complex as they were between an individual homeowner and a third-party warranty provider in Case Study 11 above. Lee J had to analyse the documentation in detail (some of the wording labelled as ambiguous, so requiring interpretation and allowing in additional evidence of what the parties intended) and the communications between Icon, its broker and insurer Liberty. He also had to assess the impact of the Insurance Contracts Act 1984 (Cth) and consider the possibility of rectifying the documents the parties had used. The key finding the Court made, assisted by oral evidence, was that all relevant parties had a common intention that cover from Liberty at Opal Tower would run to the end of the defects liability period, but the documentation did not reflect this. In the end, Icon succeeded against Liberty on this rectification ground; and against its second insurer, QBE, on the meaning of the wording of the policy as including its liability for defects at Opal Tower.184

11.10  Contrasts: New Zealand In relation to rented residential accommodation, New Zealand follows the pattern of statutory intervention in the market familiar from our other subject jurisdictions. The current text of the Residential Tenancies Act 1986 (NZ) imposes – as mandatory terms – a series of obligations about the quality of the accommodation.185 These include that each relevant landlord (private or public) shall: (b) provide and maintain the premises in a reasonable state of repair having regard to the age and character of the premises and the period during which the premises are likely to remain habitable and available for residential purposes; (bb) comply with the healthy homes standards; and (c) comply with all requirements in respect of buildings, health, and safety under any enactment so far as they apply to the premises.186

Obligations on both parties can be enforced via a ‘work order’ from the Tenancy Tribunal.

183 On limitation periods for claims under statutory warranties, see sections [10.3.2] and [10.8]. 184 On the same risk being covered by two insurers, see section [7.7]. 185 For the mandatory nature of the Residential Tenancies Act’s provisions, see s 11. ‘Accommodation’ includes both ‘premises’ and any linked ‘facilities’. 186 Residential Tenancies Act 1986 (NZ) s 45(1); for ‘the healthy homes standards’, see www.tenancy.govt.nz/ healthy-homes.

558  Multi-Unit Developments: Blocks of Flats For homes ‘owned’ and occupied by a private sector buyer, New Zealand follows the Australian pattern, though not in exactly the same way, by having: 1 A relatively recent statutory regime for residential construction contracts, but making the ‘on-seller’ of a residential building or unit in such a building – rather than ‘the builder’ – owe the first buyer and later owner a set of statutory warranties;187 and 2 A statutory ‘unit titles’ regime, operating with a body corporate responsible for the whole of a multi-unit residential development except for the individual units, which are owned freehold. When the ‘leaky buildings crisis’ broke in the early 2000s, the Unit Titles Act 1972 (NZ) was in force, under which ‘the common property’ in a multi-unit development was not owned by the body corporate, but by the unit owners as tenants in common. Did this mean that the body corporate had no standing to sue a local council in tort for defects in ‘the common property’, itself having suffered no ‘economic loss’? The NZ Supreme Court made clear in Byron Avenue that the statute clearly gave the body corporate power to ‘sue for and in respect of damage or injury to the common property caused by any person, whether that person is a unit proprietor or not’.188 So the judges agreed with the lower courts, holding that the body corporate could pursue a claim in respect of the common property and recover damages on behalf of unit owners who were not themselves parties – subject to all defences available against the unit owners themselves.189 The Unit Titles Act 2010 (NZ) puts the matter beyond doubt, now providing that the common property is owned by the body corporate.190 The key feature distinguishing the legal situation in New Zealand from that in Australia is the possibility of suing original project parties (including BCBs) in tort (negligence) for the cost of rectifying construction defects or the drop in capital value caused by those defects. The scope of a ‘duty of care’ in New Zealand law is wider than in all our other subject jurisdictions, so it is not fatal not to have a claim in contract (assisted by statutory warranties, where necessary).191 This to an extent mitigates the effect of New Zealand law, like the law in the whole of the British Isles, not requiring insurance against defects in newly constructed dwellings (or any other type of building).

11.11  Contrasts: Ireland As in all our subject jurisdictions, Ireland has substantial statutory regulation of shortterm rented accommodation, filling gaps left by the common law and transforming what starts as a contractual right to occupy into something closer to a proprietary

187 For the NZ statutory regime, see section [4.14]. 188 Unit Titles Act 1972 (NZ) s 13(2). 189 North Shore City Council v Body Corporate 188529 (Sunset Terraces) and Body Corporate 189855 (Byron Avenue) [2010] NZSC 158, [2011] 2 NZLR 289 [55]ff (Tipping J, also on behalf of Blanchard, McGrath and Anderson J). On the liability aspects of the case, see section [5.13.2]. 190 Unit Titles Act 2010 (NZ) s 54. 191 On duties of care in NZ law, see Case Study 1 at section [1.12], also section [5.13.2].

Contrasts: Ireland  559 status in the home itself.192 There is a significant regulatory distinction between private rented accommodation and homes rented from local authorities. The Housing Act 1966 (Ireland) section 58(1) (as amended) imposes a general responsibility on local authorities for management and maintenance of their housing stock, but local authority housing is otherwise excluded from the regulatory regime that provides for minimum standards in private rented accommodation.193 Multi-unit developments of new homes available for sale are relatively recent in Ireland but increasingly common, notably in Dublin and its region.194 Where an individual invests capital in a new home, as owner or buy-to-let landlord of a unit in a multi-unit development, the legal structures that Ireland inherited from English land law impose the same obstacles to enforcing positive obligations linked to freehold land. For its early multi-unit developments – modest in number – Ireland too looked to leasehold structures. A significant step in facilitating multi-unit developments and ensuring the continued enforceability of unit owners’ obligations to pay service charges came with the Land and Conveyancing Reform Act 2009 (Ire). This wide-ranging reforming statute abolished the last remnants of feudal tenure (‘insofar as it survives’);195 it also repealed the old common law rule (shared with English law and avoided – but not removed – by commonhold) that positive obligations (‘covenants’) linked to freehold land do not run with the freehold and therefore cannot reliably be enforced against the original covenantor’s successor in title.196 In modern times, blocks of flats (providing ground rent and other income from long leaseholders) have not played the investment role they have in England, so a private sector developer’s profit usually comes entirely from first sales of flats or other units. There are the same governance and management issues in Ireland which all private sector multi-unit developments can throw up; in particular, there were once difficulties in getting the management company (known as an Owners’ Management Company (OMC)) set up and the freehold transferred to it when a development was completed.197 The Law Reform Commission considered all the issues in 2008; this

192 Most short-term residential tenancies in the private sector are regulated by the Residential Tenancies Act 2004 (Ire), which contains basic obligations on the landlord in s 12; the 2004 Act was in most respects extended to housing associations and other (non-profit) approved housing bodies by the Residential ­Tenancies (Amendment) Act 2015 (Ire). 193 The most recent regulation is the Housing (Standards for Rented Houses) Regulations 2019 (SI 137/2019) (Ire), which provides at reg 3(1) that the Regulations do not apply to a house that it let by, or available for letting by, a housing authority. 194 Of almost 80,000 housing units completed in Ireland in 2007, over 18,500 (24.1%) were in apartment complexes, with more than 11,000 in the Dublin area: Law Reform Commission (Ire), Report on Multi-Unit Developments (LRC 90–2008) 2. 195 Land and Conveyancing Reform Act 2009 (Ire) s 9(2). 196 Land and Conveyancing Reform Act 2009 (Ire) s 49. This gives effect to recommendations in the Law Reform Commission (Ire), Report on Land Law and Conveyancing Law (7): Positive Covenants over Freehold Land and Other Proposals (LRC 70–2003). 197 There seem to have been similar problems in NI: see the Northern Ireland Law Commission Report on Apartments (n 4) [5.13]ff and [13.51]ff. Under the Multi-Unit Developments Act 2011 (Ire), developments comprising more than two but fewer than five residential units do not have to adopt a management company structure and can be run by an informal co-ownership arrangement, but under s 2 and sch 1 of the Act, some of its provisions still apply.

560  Multi-Unit Developments: Blocks of Flats led to the Multi-Unit Developments Act 2011 (Ireland) and a series of implementing regulations.198 The 2011 Act provides a statutory obligation to pay service charges;199 it also establishes a compulsory mechanism for OMCs to manage multi-unit developments, removing the need for leaseholders to enforce covenants against other unit owners. This puts Ireland for the future on the same legal map as Australasia and Scotland for multi-unit developments, though it does not prevent apartments still being sold as long leasehold, the freehold now being owned by the OMC.200 However, the OMC is typically not a party to the original building contract under which the development was built. It is unlikely to have assigned to it any collateral warranties benefitting the original ­developer or the benefit of that main construction contract. The developer and builder may be essentially one and the same, albeit established as separate limited companies. The OMC, in the first instance, is incorporated by the developer – who has no incentive to facilitate claims deriving from defects and remains in control pending appointment of directors from among the unit owners, once enough apartments are sold. It will fall to the OMC to retain professional advice in relation to defects in the ­apartment block, investigate and report on the defects themselves, and advise on the options with regard to legal proceedings. The plaintiffs in any proceedings against the original builder/developer, however, will be the individual unit owners rather than the OMC. An issue that has arisen frequently in Ireland is whether a receiver appointed by a lender in respect of the developer’s interest in a multi-unit development (often consisting of common areas, commercial units and unsold apartments) can be required to carry out remedial works to the development (including completing incomplete parts). In the High Court in Lee Towers Management Co Ltd v Lance Investments Ltd, Baker J acknowledged that a management company could not be required to take transfer of common areas with significant defects ‘without demur’; but held that an order made under the Multi-Unit Developments Act 2011 requiring such work could not be enforced against a company in liquidation, as this would displace the order of priority of creditors.201 The High Court confirmed this in Paddy Burke (Builders) Ltd v Tullyvaraga Management Co Ltd. McDonald J held that the Lee Towers judgment: [M]akes crystal clear that the 2011 Act did not go so far as to confer any priority status on a claim by a management company of a multi-unit development or on an order made by the Circuit Court under s 24(5) [of the 2011 Act].202

198 Law Reform Commission, Report on Multi-Unit Developments: n 195. 199 Multi-Unit Developments Act 2011 (Ire) s 18; this was a particularly important measure in light of the considerable number of partially sold apartment developments throughout Ireland, for which developers had no obligation to pay service charges. The problem was dealt with by s 18(11), obliging all unit owners, ­including original builders and developers, to pay service charges, whether or not leaseholds had been created in respect of those units via a first sale: ss 18(10) and 18(11)). 200 See Paul Mooney, Owners’ Management Companies: Sustainable Apartment Living for Ireland (Housing Agency and Clúid Housing, Dublin, 2019). 201 Lee Towers Management Co Ltd v Lance Investments Ltd [2018] IEHC 444. 202 Paddy Burke (Builders) Ltd v Tullyvaraga Management Co Ltd [2020] IEHC 170 [55]. For the background, see ‘The Dark Side of the Boom for Homeowners’ Irish Examiner (10 February 2018).

Contrasts: Scotland  561 If a development uses freehold structures, it is only in the sale contracts to new owners that the developer’s obligations about build quality can be found (express or implied, including by statute for the supply of services), but with caveat emptor (‘let the buyer beware’) also potentially relevant, in all counties of Ireland as in England & Wales.203 So it is in actions for breach of contract against the developer that remedies for defects will lie, modestly backed up by a third-party warranty (if there is one) and the more distant possibility of a claim in tort against a negligent original construction party.204

11.12  Contrasts: Scotland In relation to short-term residential tenancies, the level of overall regulation in Scotland is as intense and ever-evolving as it is in England & Wales; Scottish statute law imposes similar obligations on all landlords about the quality of the accommodation.205 In the private sector, the Housing (Scotland) Act 2014 imposes new obligations on landlords in relation to ‘the repairing standard’;206 and Part 2 of the Private Housing (Tenancies) (Scotland) Act 2016 gives Scottish Ministers power to impose obligations on landlords as statutory terms of the tenancy. Where a resident has a long-term capital interest in their home, the law north of the border has been through fundamental statutory reforms, based on a sequence of reports from the Scottish Law Commission: these have transformed the legal landscape relevant to our field.207 In 1974, the Land Tenure Reform (Scotland) Act stopped the creation of new feudal duties linked to land; the Abolition of Feudal Tenure etc (Scotland) Act 2000 completed this process (comparable to the English statutory land law reforms of 1925), converting almost all land into what in Scotland is now called allodial – what in England would be called freehold – the nearest the law allows to unrestricted and open-ended ownership.208 This brought with it a restriction on the maximum length of leases to

203 For a builder’s obligations in Ireland, see section [4.15]. 204 On tort liability in Ireland in the residential construction field, see section [5.14.2]. 205 The Housing (Scotland) Act 2001 s 27 and sch 4 para 1 require a Scottish secure tenancy to be ‘wind and watertight and in all other respects reasonably fit for human habitation’; the same and further detailed standards apply mandatorily to other types of residential tenancy in Scotland under ch 4 of the Housing (Scotland) Act 2006, as extended by the Housing (Scotland) Act 2006 (Modification of the Repairing Standard) Regulations 2019 (SSI 2019/61). See Cowan v Lanarkshire Housing Association Ltd [2020] CSIH 26 (Lord Carloway) for an attempt by tenants to rely on the 2001 Act and an implied term in their leases at common law to get remedies against their landlord for the alleged injuries caused by moving into a house built on an inadequately remediated former brownfield site: the pursuers alleged from the start that the house had chemical solvents permeating into it from the ground below. This is the same Watling Street site in Motherwell that led to a failed attempt to sue one of the consultants involved in the remediation: McManus v Scott Wilson Scotland Ltd [2020] CSOH 47, discussed in section [5.7.1]. 206 Housing (Scotland) Act 2014 ss 22–27. 207 Scottish Law Commission, Report on the Law of the Tenement (Scot Law Com No 162, 1998); Report on Abolition of the Feudal System (Scot Law Com No 168, 1999); Report on Real Burdens (Scot Law Com No 181, 2000); and Report on Conversion of Long Leases (Scot Law Com No 204, 2006). 208 It appears from the Registers of Scotland Manuals that the Norse law formerly applicable in Orkney and Shetland meant that land there was always allodial – owing no potential or actual feudal dues to the Crown: www.rosdev.atlassian.net. And title could be acquired without written proof, but modern Scottish legislation superseded that possibility except for acquisitions before the Requirements of Writing (Scotland) Act 1995

562  Multi-Unit Developments: Blocks of Flats 175 years in order to prevent rent obligations reintroducing feudal dues by the back door; residential leases are further restricted to 20 years maximum. The Long Leases (Scotland) Act 2012 implemented this process further, converting the tenant interest in ‘qualifying leases’ (granted for more than 175 years, with an ­unexpired term of – for a dwelling house – more than 100 years and an annual rent of less than £100) into full ownership, compensating the landlord accordingly and converting some obligations deriving from these leases into ‘real burdens’ linked to the land.209 Since all these changes took effect, private sector housing developments in Scotland newly ‘sold’ to first buyers for a capital payment do not, and cannot, use long leasehold structures; so unit holders are owners. Scots law long had its own principles regulating the mutual rights and duties (including duties of repair) of those in a ‘tenement’ – a building containing more than one self-contained living unit, each sharing spaces, facilities or structures with other units and divided horizontally. Although the title to a tenement – which could now be a modern block of flats – could regulate all these issues via a linked ‘Deed of Condition’, much as lease structures traditionally do in England & Wales, Scots law now has a default statutory regime under the Tenements (Scotland) Act 2004. In most ordinary situations, this replaces the common law for existing tenements. The statute defines in detail the boundaries of each tenement in a building, depending on the shape of the building and how it is subdivided; what would be called ‘the common parts’ in English law are in common ownership in Scotland – in equal shares; where some, but not all units, have the use of such ‘parts’, the owners of those units alone have the right of common property in relation to those aspects of the tenement (in equal shares, again). Schedule 1 of the 2004 Act contains a Tenement Management Scheme which applies, in the absence of specific alternative rules, to ‘scheme property’ within the tenement. This refers to its foundations, external walls, roof and other structural elements, plus those aspects that are the common property of two or more units, required to be maintained by two or more units, or to whose maintenance two or more units must contribute. Functionally, this is a simpler gap-filling, equivalent to the structures for the management of commonhold: it provides for decision-making by unit owners (and emergency work where there is no time to consult) and the allocation of ‘scheme costs’ between owners, in general equally again. In addition, the 2004 Act replaces (restates, rather) the old non-statutory rules imposing on each unit owner a positive obligation – enforceable by other unit owners – to maintain its unit so as to provide ‘support and shelter’ to the rest of the building comprised in the tenement.210 came into force in the Northern Isles: Katharine Anderson, ‘Written Title to Land in Orkney and Shetland’ [2016] Juridical Review 191. The Land Registration (Scotland) Act 2012 was the most recent stage in this process. 209 Picturesquely, under the Long Leases (Scotland) Act 2012 s 70, the ‘appointed day’ on which long leaseholds are converted into freehold is ‘the first Martinmas occurring on or after the day 2 years after the day on which this section comes into force’. 210 Tenements (Scotland) Act 2004 s 8(1): ‘the owner of any part of a tenement building, being a part that provides, or is intended to provide, support or shelter to any other part, shall maintain the supporting or ­sheltering part so as to ensure that it provides support or shelter’. For a failed attempt to rely on s 8, see ‘Flat Owner Fails to Establish Statutory Repair Duty for Downstairs Neighbours’ Scottish Legal News (23 ­September 2020): www.scottishlegal.com.

Special Situation: Mixed Use Developments  563 There are alternative legal structures available in Scotland – none relying on the leasehold ideas which under English law guarantee enforceability of positive obligations – allowing the management of facilities shared between several owners of homes to be organised and their costs reliably paid for into the future. One of these relies on ‘real burdens’ expressly contained in a legal instrument affecting four or more unit owners, newly legislated as ‘community burdens’ under Part 2 of the Title Conditions (Scotland) Act 2003. The same Act’s Part 6 also provides for a more elaborate Development Management Scheme, copying many of the ideas in the legislation on tenements. This offers (but does not impose) a model scheme, allowing a developer to set up an owners’ association in a development with statutory backing (and a corporate form, so able to own property and start legal action in its own name, including a manager statutorily entitled to enforce the rules of the scheme against unit owners), looking to responsibility for management, repairs and maintenance of the shared parts or facilities. It is an intentionally slimmed-down version of ‘body corporate’ structures from strata title and equivalent legislation elsewhere in the world.211 As this summary shows, Scots law makes a variety of legal structures available in order to allocate responsibility for repair and maintenance of those aspects of a development which are beyond the individually owned domestic units, in most cases helpfully taking landlords and ‘their’ management companies out of this equation. However, like English law, it fails to address issues of liability specifically for original construction defects, at best regulated by the specific terms (express or implied) of the ‘missives’ which constitute sale contracts and the distant possibility of liability in tort (quasidelict) – but without the Defective Premises Act 1972 in reserve. As in England, if none of these routes of redress is available and there is no responsive third-party warranty, current unit owners are likely to have to foot the bill for rectifying original defects; however, the Scottish Government proposes to intervene post-Grenfell by organising a national Building Assessment programme for multi-unit developments (not limited to high rise) and then offering financial help for rectification.212

11.13  Special Situation: Mixed Use Developments Where, as in Scenarios 7 and 8 (Table 1.3), the development has retail units on its ground floor, with flats on all floors above, how is the legal situation potentially altered? • There may be complications if different insurance arrangements are in force for different parts of the development: a new home third-party warranty like Buildmark

211 The background is the Scottish Law Commission report on Real Burdens (n 207), legislated as the Title Conditions (Scotland) Act 2003 pts 2 and 6, as amended; the Development Management Scheme detail is in the Title Conditions (Scotland) Act 2003 (Development Management Scheme) Order 2009 (SI 2009/729). It is uncertain how far the new Scheme has been used in practice; it seems that bespoke Deeds of Condition are still widely preferred. 212 Scottish Government, Ministerial Working Group on Mortgage Lending and Cladding: Report (March 2021).

564  Multi-Unit Developments: Blocks of Flats may protect the residential floors and the whole structure, but a differently organised policy from a different insurer may be in force for the retail units below. If these differ in their start or end dates and scope of cover (excesses, minimum claim value, maximum claim limit), in relation to rectifying original construction defects, some difficult negotiations with and between insurers may be necessary if a problem arises affecting both parts of the development. • In English law, long leaseholders of private sector flats in a self-contained building (or part of a building) can exercise their right to appoint their own RTM company provided they satisfy the statutory criteria, even though the same development also contains commercial units, as long as the non-residential part of the development is not more than 25 per cent of the total internal floor area. However, a residents’ RTM company cannot acquire responsibility for managing the commercial units, which remain subject to the landlord – but in practice, there could be a single managing agent shared between RTM company and landlord. In effect, the residential leases may put financial responsibility for upkeep of the whole development on the residential owners, whose service charges thus subsidise the commercial units’ maintenance.213 • Similar restrictions apply in England & Wales to long leaseholders exercising ­statutory rights to acquire the landlord’s freehold interest (leasehold enfranchisement): only residential long leaseholders qualify (so, after enfranchisement, the existing landlord in our mixed use development in Scenarios 7 and 8 (Table 1.3) would remain landlord of the retail units on the ground floor); but as with RTM powers, if the total internal floor area of the retail units exceeds 25 per cent of the development as a whole, enfranchisement will not be possible.214 • The Law Commission wants commonhold tenure to be capable of being applied to mixed use developments in England & Wales – nearly impossible under the present law. It proposes to allow different uses within a single development to constitute separate sections of the same commonhold title, where there is a good reason for doing so. These would be set up either at the start by the developer, on conversion from leasehold to commonhold, or later by the commonhold association.215 In Scenarios 7 and 8 (Table 1.3), only those in the retail units on the ground floor would have the right to vote on issues concerning the management of that section of the development (notably its ‘common parts’); vice versa for those owning flats on the floors above. Efficient decision-making would still be possible on issues affecting both sections, and shared costs would be fairly allocated between them.216

213 Law Commission, Leasehold Home Ownership: Exercising the Right to Manage (Consultation Paper 243, 2019) ch 2 and [3.74]ff; the final report (Law Com No 393, 2020) [3.94]ff recommended raising the non-residential ceiling for an RTM company to 50% but no further significant changes. 214 In line with n 213, the Law Commission recommends, amongst many other changes, raising the non-residential ceiling to 50% for future collective freehold acquisitions: Leasehold Home Ownership: Buying Your Freehold or Extending Your Lease (Law Com No 392, 2020) [6.317]ff. 215 See section [11.6]. 216 Law Commission, Reinvigorating Commonhold: The Alternative to Leasehold Ownership (n 100) ch 8.

Special Situation: Mixed Use Developments  565 • In Australasian versions of strata or unit title systems, different uses for aspects of the same development are reflected in separate titles: hence, for example, there could be separate owners corporations (or equivalent) for the retail ground floor units, the mid-level serviced apartments and the top section containing individual flats; but, as in the Lacrosse tower in Melbourne, the owners corporations may be linked together, so that one or more are subsidiaries of another within the same building or development.217 • In New Zealand, an aspect of the ‘leaky buildings crisis’ concerned the legal treatment of mixed use buildings, where residential units were above commercial premises (for example, a hotel). Those defending claims for damages for rectification argued that the scope of the duty of care in tort, following Hamlin, protected (only) owner-occupiers of dwellings, excluding buy-to-let investors or those who, as in Brookfield in Australia, had bought individual apartments with an obligation to lease them to a serviced hotel chain.218 This approach made the allocation of liability difficult where a building had ‘regular’ apartments on its top floors, individually owned but ‘leased back’ apartments on the middle floors and a hotel below: did none of the necessary repairs qualify, or all, or was this liability reduced by the proportion of the building which failed to qualify as residentially owned or occupied? In Spencer on Byron, a majority of the NZ Supreme Court sidestepped all these questions by redefining the scope of the duty of care: it protects all building owners, whatever the intended or actual use of the building, against an original project party or BCB whose negligence has foreseeably caused pure economic loss.219 • The limited legal possibilities in Scotland for long residential leases mean that in a situation like Scenarios 7 and 8, the retail units on the ground floor could be intended to generate long-term income and capital growth for the developer as a commercial landlord, but the flats above would normally be sold immediately, fragmenting ownership of the development. But the initial set-up could include a fair division of regular costs (maintenance and security) between the two types of unit, imposing burdens on each individual unit which would survive changes in ownership; a Development Management Scheme could be adopted, which would generate tailor-made rules for the development, including creating a corporate owners’ association, able to employ a manager.220

217 Owners Corporation No 1 of PS613436T v LU Simon Builders Pty Ltd [2019] VCAT 286 [4]. On the Lacrosse litigation, see also section [2.6]. 218 On Brookfield, see the main text to n 179, also section [5.12.3]. 219 Body Corporate 207624 v North Shore City Council (Spencer on Byron) [2012] NZSC 83, [2013] 2 NZLR 297 (William Young J dissenting). For the earlier stages, see North Shore City Council v Body Corporate 207624 (Spencer on Byron) [2011] NZCA 164, [2011] 2 NZLR 744. On tort liability for construction defects in NZ, see section [5.13.2]. 220 Scottish Government Directorate for the Built Environment, Barriers to Delivering Mixed Use Development (Scottish Government Social Research, 2009) ch 6. For the limitations on long residential leases and Development Management Schemes, see section [11.12].

566  Multi-Unit Developments: Blocks of Flats

11.14  Chapter Summary Table 11.2  Multi-Unit Developments LEGAL STRUCTURE

RESPONSIBILITY FOR CONSTRUCTION DEFECTS

PUBLIC OR ‘THIRD SECTOR’ OWNER/ LANDLORD: WEEKLY OR MONTHLY TENANTS (SOCIAL HOUSING)

The landlord may owe (statutory) ongoing fitness-for-occupation obligations: a duty to repair the structure, make the ‘common parts’ safe and usable and guarantee essential services (more modest obligations at common law): enforceable as terms of the tenancy (civil remedies).

LONG LEASEHOLD: UNITS ‘SOLD’ TO OWNERS; FREEHOLD RETAINED BY LANDLORD (rare in Aus/NZ)

Aus, NZ: a statutory regime for residential construction contracts (as defined) imposes build quality obligations (‘statutory warranties’) – whether an off-plan purchase or not – enforceable by the current owner of a unit and the development’s ‘body corporate’ or equivalent. Defects insurance is of marginal significance: often not required or unavailable. Every first-time buyer anywhere has remedies against the seller of a unit if defects are a breach of contract (most obviously if it is an off-plan sale and contains express and clear build quality obligations – including about ‘the common parts’ and structure): no help if the seller is insolvent and uninsured. E&W: The landlord may owe duties relating to build quality in each lease, as well as repair and maintenance, but the cost of fulfilling those duties is often passed on to leaseholders via management company MCo, running the variable service charge system. It is often unclear how far these obligations apply to rectifying original construction defects – notably non-compliance with ‘the building code’.

The landlord may be liable for damage to property, as well as injury or death, caused by a failure to carry out their duties as a landlord or as occupier of ‘the common parts’.

COMMENTS A post-Grenfell Tower rethink is under way (E&W) on responsibility for protecting residents and visitors against damage and injury, especially from fire – including potential duties on occupiers to take reasonable protection for themselves and to be indirectly responsible for safety management within a block: Fire Safety Act 2021 and Building Safety Bill (2020). UK, Ire: claiming on insurance (a third-party warranty) may be the best hope to remedy original defects, but its usefulness is limited by restrictions on duration, scope of cover, the financial limits on recovery and insurers’ determination to resist claims (Zagora). A New Homes Ombudsman (UK) may impose clearer build quality obligations on developers – and have the teeth to enforce them – but only within the limited scope of the scheme.221

(continued)

221 On

the New Homes Ombudsman, see section [9.8].

Evaluation  567 Table 11.2  (Continued) LEGAL STRUCTURE OWNERSHIP, STRATA TITLE OR COMMONHOLD UNITS OWNED FREEHOLD; REST OF DEVELOPMENT OWNED BY CORPORATE BODY WITH UNIT OWNERS AS SHAREHOLDERS (the norm in Aus/ NZ and Scotland; now the norm in Ireland but with leasehold unit ownership; rare in E&W)

RESPONSIBILITY FOR CONSTRUCTION DEFECTS Such a legal framework operates well in those jurisdictions where it is the standard structure for multi-unit developments, especially if combined with transferable statutory warranties. It has not caught on yet in E&W because it eliminates the landlord interest: landlords are investors in an often profitable and secure asset class, and lawyers and lenders are reluctant to adopt new legal structures.

COMMENTS Strong encouragement from the Law Commission for replacing long leasehold by commonhold in E&W for almost all sales of new houses and of residential units in all multi-unit developments. Moves beyond ‘them-and-us’ management, but resolving the acute liability issues for original construction defects is not part of these reforms. Simplified ownership structures might lead to better insurance products for defects.

11.15 Evaluation The particular problems, both practical and legal, which arise in relation to build quality, rectification and maintenance in multi-unit developments make blocks of flats a test-case of how well our systems work to design, construct and manage buildings. The limiting case for ‘how well’ is in relation to safety: here, Grenfell Tower shows how systems may fail and how the reasons for that failure can be as complex as the human, corporate and institutional interactions that lead to those outcomes. As the wider combustible cladding problem shows, even prevention – of the risk to life which a comparable blaze elsewhere could pose – can be a very difficult issue to resolve, despite governments seeing it as an urgent policy goal. But in the less dramatic scenario – defects that do not threaten injury or death – we seem to manage prevention no better and no more reliably. We do at least have legal principles and institutions which are available to offer – under conditions – forms of cure. What seems evident is that the sanctions against bad practice or inadequate work, which our after-the-event remedies represent, do not operate powerfully enough to discourage corner-cutting in our field – let alone incentivise or reward ‘best practice’. The negligent certification at the root of Case Study 11 at section [11.8] could, in theory, happen anywhere – though some other jurisdictions (notably in Australia) may claim with justification that their tighter regulatory systems reduce such a risk to the

568  Multi-Unit Developments: Blocks of Flats minimum. In NSW, the pre-completion inspection powers, backed by the possibility of ordering rectification, of the new NSW Building Commissioner ought to limit the risk of a New Lawrence House occurring in Sydney.222 The insolvency of a developer or builder is another risk that will have negative consequences for the remedies available to first buyers almost everywhere, especially if separate insurance cover against defects is not mandatory. However, in any Australian jurisdiction except WA, the residents of a block like New Lawrence House would have rights of action under statutorily implied warranties against ‘the builder’, which may not be the same entity as the developer.223 In New Zealand, they would have similar rights against the seller of their unit;224 but could also sue the BCB in tort for negligence.225 Such claimants could be within reach of a remedy in damages without needing to go the very substantial extra mile in order to allege and prove deceit, as the claimants attempted to do in the first action in Zagora; one group is still pursuing this course.226 However, unlike the de facto requirement for a private sector third-party warranty in England & Wales, in neither Australia nor New Zealand would there necessarily be insurance in place against significant defects in a high-rise block of flats.227 On the other hand, it is almost certain that the legal structures used for such a development in Australasia (as in Edinburgh) would not look to long leaseholds and a management company as a party to each lease. The complexities which were part of the early history at New Lawrence House would be avoided by a strata (or unit) title structure, with no ground rents and no profit-taking landlord and the whole of the development (apart from the individual units) owned by a body corporate having all the unit owners as its shareholders and responsible for its management. This is the very device which, as commonhold, the Law Commission and the present UK government advocated in 2020 for such developments in England & Wales.228



222 On

the NSW Commissioner, see section [3.7.7]. section [4.13.2]. 224 See section [4.14.3]. 225 See Case Study 1 at section [1.12], also section [5.13]. 226 See section [11.8.4]. 227 See section [11.7]. 228 See section [11.6]. 223 See

12 Conclusions Anyone who has ever watched builders at work, studying the formal, slow decency of their movements, knows that they are ritualists. They perform a solemn, magic dance, as a result of which their curious heaps of old things, rusty pipes and planks and derelict-looking, upsidedown baths, are transformed into new houses. paul jennings1

12.1 Introduction The most acute of this book’s concerns is to understand how catastrophes like the ­Grenfell Tower fire can arise out of construction work. More widely, we have asked: how is it that millions of people across our subject jurisdictions live with defects like leaking shower bases or shifting foundations, or are otherwise dissatisfied with the construction quality of their homes? In chapter 1, we gave ourselves two purposes, looking to both prevention and cure of defects, treating defects as ‘the problem’ – the opposite of the desired aim of ‘quality’. The cure aspect will be the immediate reason why many people read this book: faced with a defect or other disappointing outcome, what legal or other pathways are available to have a problem rectified or gain compensation for it? However, other readers will look for help in avoiding defects in the first place; they may be homeowners (or their advisers) embarking on a project, industry professionals looking to navigate potential legal exposures, or policymakers alive to the possibilities of holistic reform and willing to be inspired by how other jurisdictions manage identical issues. The book has sought to illustrate the broad sweep of these issues in principle, as well as their detailed complexities in practice. As shown by the eight scenarios in Tables 1.1–1.3, these complexities are bound up in the ‘real world’ exigencies of construction (examined in chapter 2) and the many-stranded nature of legal regulation, explored in chapter 3. Thus, residential construction regulation encompasses not just the traditionally recognised sources of legal norms: judge-made law (especially contract, tort and property law) and legislation – the focus of chapters 4–6; but also forms of insurance (chapter 7) and quality control through inspection and similar regimes (chapter 8).



1 Paul

Jennings, The Jenguin Pennings (Harmondsworth, Penguin Books, 1963) 167 (emphasis in original).

570  Conclusions These complexities are heightened by the differences between our subject jurisdictions, though each seeks to address very similar problems. Later chapters reflect this variety, dealing with remedial pathways (chapter 9), time limits for taking action ­(chapter 10) and the special challenges posed by multi-unit developments (chapter 11). In the ‘evaluation’ sections of those chapters which cover substantive legal topics, we offer a comparative critique of these approaches, seeking to draw out the most effective aspects from the smorgasbord offered across our subject jurisdictions.2 All this means that addressing ‘the problems’ of residential construction – whether faced on a particular project where a defect has arisen or across an entire regulatory system – poses an immense and dynamic challenge. This book is a snapshot at a moment in time, but the drivers for these problems and their prevention and cure lie in human behaviours. Hence we have sought to illuminate the experiences and motivations of people caught up in problematic construction projects. In the course of writing, we have encountered dozens: unhappy homeowners like the Softleys (defective waffle slab in Melbourne), or Noel Hamlin (shallow foundations in Invercargill, NZ); disgruntled contractors like Brookfield Multiplex Ltd (one of Australia’s largest builders, resisting a duty of care to flat-owners in Sydney with whom they had no contract); Basia Lejonvarn (managing a fraught landscaping project for her former friends the Burgesses in north London); or – more happily, but with few budgetary constraints – Jeremy Irons renovating Kilcoe Castle in County Cork.3 Each of these (except Irons, already an actor) is unlikely to have been a willing member of the large cast of players who have passed across the stage of this book. It is fair to assume that no-one enters a construction project hoping (or even fearing) that it will result in poor outcomes, let alone becoming names known to construction lawyers as one of the parties to legal proceedings reported as case law.

12.2  Human Nature and Construction Disputes The unhappy stories and outcomes analysed in this book speak to a wider truth: the drivers for effective (and poor) project outcomes reflect inherent human characteristics, around as long as humans have been building dwellings. The causes and cures of residential construction disputes reflect the same tensions, between twinned vices and virtues, as the Roman poet Prudentius described in Psychomachia, his fifth-century CE allegory:4 • Greed, cured by liberality: we opened chapter 1 by noting that a UK housebuilder had paid its chief executive a £75m bonus but offered a homeowner a mere 2 See sections [3.12], [4.18], [5.17], [6.8], [7.9], [9.13], [10.12] and [11.15]. 3 See, respectively, Case Study 2 at section [2.9], Case Study 1 at section [1.12], section [5.12.3], Case Study 6 at section [5.6] and section [2.1]. 4 Aurelius Clemens Prudentius (348–after 405), a Christian poet, worked as an administrator and official, but towards the end of his life, in the province of Tarraconensis (now northern Spain), retreated from public service and devoted himself to composing verse. Psychomachia (‘the struggle for the soul’) remained a bestseller in the Middle Ages and may have inspired John Bunyan’s Pilgrim’s Progress (1678). Prudentius’s epic also talks of gluttony, cured by abstinence, and lust, by chastity: these could also be relevant to aspects of residential construction but are not mainstream concerns of this book.

Human Nature and Construction Disputes  571 £250 voucher as compensation for multiple defects. In that extreme case, the most effective form of regulation was public outrage, channelled via the media. However, getting the balance right between industry parties receiving a fair return and homeowners receiving safety, as well as value for money, remains a fundamental challenge in residential construction: after all, overwhelmingly it is the private sector that designs and builds dwellings.5 And private sector profit (plus public sector costsaving, in the case of the employer, the Royal Borough of Kensington and Chelsea) appears to have been the driver for what happened at Grenfell Tower: The three firms involved in the Grenfell cladding have all denied responsibility for the disaster: Celotex emphasises that it had no design responsibility, and that compliance was a matter for the professionals who refurbished the tower … Kingspan says it did not pursue the Grenfell Tower job, knew nothing of the specific design … Arconic says that its cladding should not have been used on the tower in the way it was … But there are 72 grieving families who will want further answers from all those involved.6

• Sloth, cured by diligence: as discussed in chapter 2, bringing a construction project to a successful conclusion in the face of human, technical, commercial and environmental exigencies requires a range of skills and aptitudes.7 Competence is, therefore, fundamental to regulatory interventions in construction; as we saw in chapter 3, however, it is a fraught exercise to define what ‘competence’ might mean, then to select the most effective regulatory ‘levers’ – registration/licensing, continuing education, oversight by inspectors, disciplinary measures, civil or criminal liability and more – and to decide how those levers should be set in combination.8 • Envy, cured by kindness: as also discussed in chapter 2, there is an almost inevitable disparity of expectations and knowledge between ‘the builder’ and their homeowner client, which can lead to a lack of empathy and trust between them.9 Open communication – including clarity on all parties’ hoped-for outcomes, with early warning of issues which may adversely impact the project – is therefore vital.10 In the interests of the broader community, clear and appropriately-framed industry-wide standards (which generically we call ‘the building code’) must form the foundation of agreed project outcomes, supported by appropriately drafted (comprehensive, as well as comprehensible) contract documents and default legal principles to fill any gaps.11 • Wrath, cured by patience: chapter 9 provides a roadmap of pathways for avoiding, and resolving, disputes in the residential construction context. They vary considerably

5 For a discussion of the pressures placed on the supply chain for residential construction, see, especially, section [2.6]. 6 Peter Apps, ‘The Grenfell Tower Inquiry is Uncovering a Major Corporate Scandal’ The Spectator (6 December 2020); see also Steve Tombs, ‘Home as a Site of State-Corporate Violence: Grenfell Tower, ­Aetiologies and Aftermaths’ (2020) 59(2) Howard Journal 120. 7 See, especially, section [2.5]. 8 See, especially, the discussion of the highly interventionist Australian approach in section [3.7.4]. 9 See, eg, the gap in quality expectations in the cases discussed in section [2.2.3]. 10 See section [4.5] for the need for certainty in expressing these matters contractually and how Australasian statutes step in to reduce parties’ contracting autonomy in the hope of reducing exploitation. 11 See section [3.4].

572  Conclusions in time, cost, and formality. But each seeks to ‘take the heat out’ of parties’ visceral reactions and grievances by putting their dispute – to some degree – in the hands of an independent ‘third party’. However, where these processes demand too much time and money (or have the reputation of doing so, like all litigation), they may increase parties’ levels of angst and intransigence without delivering an appropriate form of ‘justice’. • Pride, cured by humility: simply put, respectful collaboration is more likely to lead to ‘win-win’ outcomes than the hubris-driven ‘your loss is my gain’ approaches which so often characterise residential procurement, fuelling disputes. Ultimately, therefore, legal regulatory structures, no matter how they are framed, are only likely to be effective in avoiding negative outcomes to the extent that they promote Prudentius’s virtues, at the same time suppressing what he considered vices.

12.3  Looking Ahead In the last days of 2020, as this book was being finalised, these human tendencies – for good and for ill – continued to be manifest in our subject jurisdictions. Millions of residents were confined to their homes for weeks (in some cases, for months and repeatedly) as part of their communities’ efforts to combat the Covid-19 pandemic. For some, this experience opened up opportunities for home improvement, by way of renovations or repairs, or for self-improvement via cooking, webinars and virtual marathons. For thousands living in apartment buildings clad in combustible ACM, their confinement exacerbated the anxieties of living in the shadow of the Grenfell fire. Residents of the upper storeys of a Sheffield apartment block were ordered to evacuate two weeks before Christmas, after their ACM-clad building failed a fire safety test; they then learnt that each flat would have to contribute towards a daily £2,000 bill for ‘waking watch’ fire patrols.12 In parallel, the evidence presented to the Grenfell Tower Inquiry itself (suspended for a second time due to Covid-19 in early December 2020) continued to paint a depressing picture: behaviours close to many of the Prudentius’s vices seem inevitable and endemic in the commercial environment in which dwelling construction is procured. The quotation from Peter Apps above shows that the Inquiry’s construction participants have, with few exceptions, failed to heed the exhortation given more than 30 months earlier by its counsel, Richard Millett QC: ‘resist the temptation to indulge in a merry-go-round of buck passing’.13

12 Jack Simpson, ‘Leaseholders in Sheffield Block Made to Pay £2,000-a-Day Waking Watch Bill After Evacuation’ Inside Housing (15 December 2020). In the same week, the UK government announced a £30m ‘waking watch relief fund’ for fire alarms and an extension to deadlines to register for the government’s £1b building safety fund to facilitate removal of unsafe cladding: www.gov.uk/government/news/new30-million-waking-watch-relief-fund-announced. For general discussion of reform programmes under way at that time, see sections [3.6.8] (E&W), [3.7.5]ff (Australia), [3.8.3] (NZ), [3.9.3] (Ireland), [3.10.3] (­ Scotland); see also section [9.8] on the proposal for a New Homes Ombudsman for the UK. 13 Grenfell Tower Inquiry, Transcript of Proceedings (4 June 2018) 106. Exchanges between Millett and witnesses may be found at sections [2.6.3], [3.4.3] and [3.6.6].

Looking Ahead  573 However, the construction industry and its people have clearly reflected on the need for meaningful reform in the shadow of Grenfell. At a panel discussion organised by Building magazine in 2018, Colm Lacey, the chief executive of a UK developer, observed that ‘we are doing things exactly the same way as we were doing them the day before Grenfell, and I think the industry is waiting to be told what to do’.14 By contrast, Steve Watson, from commercial and residential contractor Willmott Dixon, said: [The industry has] created a monster and people don’t trust us – they think that we will take every opportunity to make a little bit more money … It’s about us delivering on what we say we are going to do to start building that trust.15

The scale of rethought regulation which has already emerged at government level is striking in most of our subject jurisdictions, though few of the reforms are yet solidly in place enough to evaluate: it is a fast-moving target. In the UK, the Fire Safety Act 2021 is now adopted, but the Building Safety Bill will continue its passage through Parliament as this book goes to print; responses to the plight of those in combustible clad tower blocks will evolve too, with notable differences between Scottish and English approaches; and at industry level there will be further fundamental changes – some mentioned in chapter 3. In December 2020, the UK Government published version 1.0 of its Construction ­Playbook, laying out guidance for public works including building and construction projects and programmes. The Playbook was developed with extensive private sector consultation, reflected by several dozen heads of contractors and other industry leaders as its signatories. It recognises that ‘the industry needs to change to become more productive and more predictable’.16 In the context of residential construction reform, the Playbook identifies building safety as one of its three ‘cross-cutting priorities’, expressly referring to the Grenfell tragedy and Dame Judith Hackitt’s Building a Safer Future review.17 Its 14 key policies are overwhelmingly directed towards prevention rather than cure, through project planning and implementation directed towards many of the ‘virtues’ outlined above: • Early supply chain involvement, to promote appropriate project scoping. • Digitisation, to ensure effective information sharing during the whole-life of the project. • Greater certainty in ‘pipelines’ of projects, to alleviate the pressures placed on the market by cycles of ‘feast and famine’. • Risk allocation which ensures that risks are ‘owned or jointly owned by the party or parties best able to manage and bear them’.18

14 Jonathan Owen, ‘Hackitt Review and Regaining Trust: “The Industry Has Created a Monster”’ Building (6 December 2018). 15 Owen (n 14). 16 HM Government, The Construction Playbook: Government Guidance on Sourcing and Contracting Public Works Projects and Programmes (2020) 6. 17 The Construction Playbook (n 16) 4. The Hackitt review is first mentioned in section [1.8], then referred to throughout this book. 18 The Construction Playbook (n 16) 48.

574  Conclusions Considerations like this, wrapped in a holistic package such as the Playbook, represent a form of industry-collaborative regulation which an extensive literature considers likely to succeed in addressing many of the ‘ills’ which, we think, led to the need for this book.19 But how reliably will such reforms from ‘the top’ trickle down to where most residential construction work is done: sole traders and small businesses? For them, regulation must be precise in its intent and ambit to be effective, especially when directed to building safety.20 And reform must also directly support individual consumers of construction, whose needs for accessible, timely and effective forms of cure, when prevention fails, are still not reliably met, though initiatives like the UK’s proposed New Homes Ombudsman and Domestic Building Dispute Resolution Victoria clearly have the right intention.21 In the UK, a quick fix in terms of consumers’ legal rights, enforceable in court, would expand the scope of the Defective Premises Act 1972 section 1 into a set of comprehensive obligations about build quality; apply this statutory scheme to Scotland for the first time; and extend the fixed six-year limitation period which currently applies to claims under the 1972 Act.22 Those in Ireland would be happy to see equivalent statutory reforms installed there too.23 In all our subject jurisdictions, but more urgently in the UK and Ireland than in Australasia, measures would be valuable which ensure the continued existence and solvency (or ongoing and adequate PI insurance cover) of those who are potential defendants in litigation about residential construction defects, better guaranteeing the availability in practice of whatever remedies the law makes available in theory. At its heart, this book has sought to show why it is a complex legal challenge to avoid residential construction problems and for any individual to navigate the pathways to remedies when defects occur. We should reflect on an observation by Queen Elizabeth II, head of state in all our subject jurisdictions except Ireland, obliquely referring to Grenfell Tower at the end of 2017: ‘[w]e expect our homes to be a place of safety; sanctuary even’.24 This expresses a worthy, apparently self-evident, yet everelusive goal for our communities and their legal systems. We hope that this book has contributed towards achievement of this goal: avoiding needless conflict and distress in the construction and occupation of the dwellings in which we live.

19 See the sources in ch 2, n 98, especially David Mosey, Early Contractor Involvement in Building Procurement (Oxford, Wiley Blackwell, 2009). 20 On residential construction contractors, see section [2.6]. 21 On the New Homes Ombudsman, section [9.8]; on DBDRV, see section [9.9.3]. 22 On the present scope of the DPA, see section [5.10.2]ff; on time limits for litigation, see ch 10. Lord Greenhalgh, Minister for Building Safety, suggested in a debate on the Fire Safety Bill that reform of the limitation period under the DPA would now be considered: HL Hansard (27 April 2021) cols 2220–2221. 23 See further sections [5.14.3] and [10.9]. 24 ‘The Queen’s Christmas Message, 2017’ (25 December 2017).

GLOSSARY This book uses the following terms in the sense(s) indicated (not necessarily the same as in dictionaries, encyclopaedias, statutes or legal documents). All terms used to ­identify possible parties refer equally to individuals and legal entities, unless the context ­otherwise specifies. Ad hoc

Latin: ‘to this’, meaning ‘[a solution developed specially for] this situation’; so an ad hoc arbitration is one agreed by the parties when a dispute arises (without an arbitration clause already in place in their contract).

Adjudication 

A form of speedy, relatively cheap and provisionally enforceable dispute resolution, not initially involving a court or tribunal, imposed by statute on most construction contracts in the UK, Ireland and Australasia, though with many differences of scope and detail.

‘A fortiori’

Latin: eg a fortiori argumento, meaning ‘by a stronger argument’; in its short form also meaning ‘and there is an even stronger argument for [whatever follows]’.

Apex court

The court in a jurisdiction which is at the summit of its court hierarchy and in most cases its final court of appeal – in civil cases in the UK the Supreme Court, in 2009 replacing the Appellate Committee of the House of Lords; in Ireland and NZ the Supreme Court; and in Australia the HCA. Where a jurisdiction is subject to a supranational court whose judgments it is bound to respect – eg the Court of Justice of the European Union in relation to all Member States – then to that extent the national apex court is no longer supreme.

Appellant

The party who has initiated an appeal against a judgment or other order by a judge, court or tribunal in a civil case; the opposing party, often seeking to uphold what has already been decided or ordered, is usually a respondent.

Applicant

See Claimant.

Assignation

See Assignment.

576  Glossary Assignment

The process by which one party to a contract (the assignor) transfers the benefit of it (including the right to sue on it: a chose in action) to a third party (the assignee); in Scots law called assignation. Also the process by which a party to a tenancy or lease disposes of their interest in the rest of the term of the tenancy or lease to a new landlord or tenant (as the case may be): see Privity (of estate).

Australasia

Australia and New Zealand, taken together.

Bespoke (contract)

Of a written contract, drafted for the specific project or transaction; the opposite of a standard form contract.

British Isles

The United Kingdom and Ireland, taken together (but not including the Isle of Man or the Channel Isles)

‘Builder’

Meant in a generic sense, potentially applying to any person or body who undertakes construction work or supplies constructionrelated services; therefore includes an architect or other designer, as well as a developer building homes to buy or lease, whose sales may be off-plan.

‘Building code’

Generic term for a body of mandatory and externally imposed minimum construction standards, often with a source in statute, but sometimes in municipally adopted bye-laws. They are administered by BCBs: those persons or entities legally responsible for implementing ‘the building code’ on individual projects, qualified with the word public or private as necessary. There may be separate and additional mandatory standards for protection against fire.

Buyer

We call the first buyer (purchaser) of a new home B1 (treated as singular, whether there is in fact only one buyer or more than one acting together). Where B1 sells or transfers the home to a new owner – assuming that B1 has the power to do so – we call this person, usually its current owner, B2 (in some Scenarios in Tables 1.1–1.3, there have been two transfers onwards, so the current owner is B3). Covers both freehold and long leasehold: see Owner. For the abbreviations used for other parties in typical transactions, see the Table of Generic Construction Parties.

Bye-law

A legal rule or rules adopted by a municipality or other local authority under statutory powers, regulating construction in its area: see Building code (Australasia – bylaws or by-laws).

Caveat emptor (plural: Caveant emptores)

Latin: ‘let the buyer beware’: the principle that a buyer of land (including a home) has responsibility for inspecting the property before committing to buy and for making any other investigations that they think necessary. Aside from disclosures required by law on the seller’s side, all risks in relation to the property itself are therefore on the buyer; but the principle cannot and does not apply for an off-plan purchase (unless purported to be imposed by the contract of sale etc); where the thing being sold does not yet exist (or is incomplete), the risks of its build quality cannot normally pass to the buyer.

Glossary  577 Chancery

See Common law.

Chose in action

Old Law-French: ‘property only attainable by going to court’. The form of intangible personal property in English law which consists of a right enforceable against someone, which in a contractual context includes the right to take legal action for breach: see Assignment.

Claimant

The now current English term for any person who starts, or may start, civil proceedings – the exact equivalent of its predecessor plaintiff, still in use elsewhere, including Australasia and Ireland (pursuer in Scotland); direct quotations from any jurisdiction which use plaintiff(s) have not been altered and plaintiff is still used in the text where it refers to jurisdictions retaining the term. In NZ, the party who refers a construction dispute to adjudication is a claimant. The equivalent before a tribunal may be applicant.

Collateral warranty

A contractual obligation undertaken by a party responsible for design or construction work to a party with whom they are not otherwise in contract, giving the party benefitting a right of action against the party giving the warranty in case of breach; often made via a deed and requiring the party giving the warranty to maintain insurance cover against their possible liability. The benefit of a collateral warranty is a chose in action, in principle capable of assignment.

Commonhold

See Owner.

Common law

In line with usage generally, this book uses common law in three different senses, expecting the precise meaning to be clear from the context: 1 The whole body of case law (sometimes also called ‘judge-made law’) which is binding in the relevant jurisdiction. It is often used in contrast to statutory law – whose origin is primary legislation (meaning actually adopted by a Parliament), but may also include secondary legislation, adopted by Ministers or other public bodies under powers given by primary legislation or by the constitution.1 2 In the phrase common law legal system(s) or common law jurisdiction(s) it refers to membership of a family of legal systems which have shared characteristics, derived originally from English law. It is often contrasted with civil law legal systems or legal systems of the civil law tradition (centrally, continental Europe and its former colonies, and to an extent Scotland). Most members of this second group, like the eastern European jurisdictions once classified as members of the Socialist legal family, have codes of private and of other categories of law.

1 Acts or other legal measures referred to in footnotes have, where necessary, text added in brackets to identify their jurisdiction of origin, ie (ACT), (E&W), (Ire), (NI), (NSW), (NT), (NZ), (SA), (Sth Africa), (Scotland), (Singapore), (Tas), (Vic) and (WA).

578  Glossary 3 A final, narrower, sense of common law refers to individual doctrines, rules or remedies within a specific common law legal system, as contrasted with equity or equitable. This dichotomy directly reflects the particular (indeed, peculiar) history of the development of courts and procedures in England. Over many centuries E&W gradually acquired a separate set of Chancery courts, with their own distinct areas of activity, principles of law and procedures. By the 19th century, the courts of Chancery had become slow, over-obsessed with procedural niceties and cared little for justice or finality.2 In part as a result, substantial reform followed: the Chancery courts’ autonomous status and areas of exclusive jurisdiction were largely ended in the last quarter of the nineteenth century. However, the Supreme Court of Judicature of E&W, created under the Judicature Acts of 1873 and 1875 (now renamed Senior Courts), still contains a Chancery Division within the High Court. Comparable Equity Divisions (or Chancery Lists, as in Ireland) exist in many other court systems, but all now adopt the same approach, giving most civil courts the power to use principles from both common law and equity (where necessary, equity taking priority) and to award remedies similarly.3 Students, practitioners and judges continue to label as equitable the doctrines, principles and remedies which derive from the work of those Chancery courts – in our field, injunctions, orders for specific performance and rectification of a contract or deed. Complainant

Name used for the party starting proceedings before some statutory regulators (eg the FOS in the UK); the party against whom the claim is brought is the respondent.

Completion

Final payment and transfer of title of a home (the legal rights as owner) to its buyer B1 (E&W, Ireland); Australasian equivalent: settlement. Contrast Practical completion.

Consideration

The common law doctrine which requires an exchange of some sort between the two parties for a contract to be binding and enforceable; but is not concerned about the adequacy of the exchange (see also peppercorn).

2 In his novel Bleak House (1852–53), Charles Dickens powerfully satirised every aspect of the Chancery courts by inventing Jarndyce v Jarndyce, a piece of endless litigation about inheritance, the whole estate in the end being eaten up by costs: ‘hard by Temple Bar, in Lincoln’s Inn Hall, at the very heart of the fog, sits the Lord High Chancellor in his High Court of Chancery.’ Dickens had worked at the law office of Ellis and Blackmore, attorneys, of Holborn Court, Gray’s Inn, as a junior clerk (May 1827–November 1828). 3 Eg Senior Courts Act 1981 (E&W) s 49(2); Supreme Court of Judicature Act (Ireland) 1877 s 27; Supreme Court Act 1986 (Vic) s 29(2); Supreme Court Act 1970 (NSW) ss 57–60 and Law Reform (Law and Equity) Act 1972 (NSW) s 6; Civil Proceedings Act 2011 (Qld) s 7; and Supreme Court Act 1935 (SA) ss 20–27. The Common Law Procedure Act 1854 s 79 empowered the common law courts to award injunctions, but ­apparently the judges made little use of this; it was abolished on the creation of the single High Court.

Glossary  579 Contempt of court

Failure to comply with an order of a court or tribunal, potentially quasi-criminal, so resulting in a fine and/or imprisonment. See also Injunction, Order for specific performance.

Contribution

1 In a civil case, the defendant’s ability to bring a third party into the litigation, in order to claim from that other party some or all of any damages the court awards against them, at common law or under statute (Scotland: ‘right of relief ’). 2 In insurance, the ability of one insurer to claim from another insurer a share of the claim successfully made against it by a policyholder whose loss is covered by policies from both insurers.

Contributory negligence

A defence to an action in negligence, and to some actions for breach of contract – in most jurisdictions now regulated by statute – in which the defendant may reduce their liability (usually by a percentage, but potentially to zero) by showing that the claimant failed to take adequate and reasonable precautions to protect their own interests, this contributing to the harm suffered.

Costs

In common law jurisdictions, the fees to lawyers and others (eg, experts) and the expenses incurred (‘disbursements’) by a litigant, part or all of which may be claimed from the other side at the end of a civil case, depending on the outcome and the court’s own rules. Such civil courts have the general rule that ‘costs follow the event’ (the winner gets their reasonable costs paid by the loser); but many tribunals (eg VCAT) have a general rule (with exceptions) that each side bears its own costs, win or lose.

Court of Session

See Scots law.

Damage (singular)

A negative physical impact on someone’s tangible property (including its total destruction), which if caused by another party may lead to a claim against that party for damages. Damage is a form of harm, like causing physical injury or death to a person. In a tort context, a wrongful act or omission by a defendant which causes an asset’s value to drop or requires money to be spent, eg on rectification of a building, is often termed pure economic loss (‘pure’, because not consequent on damage – a negative physical impact on the building or on personal injury); this form of harm is only exceptionally recoverable in negligence in many common law jurisdictions.

Damages (plural)

The remedy in which a civil court (or tribunal) orders a party (usually the defendant) to pay a quantified sum of money to another party, as compensation for having infringed that party’s rights or as a result of a successful restitutionary claim. See also Liquidated damages.

580  Glossary Deceit

The tort of fraudulent misrepresentation: where someone knowingly or recklessly makes a false statement to another, intending it to be acted on. It is actionable by the party to which the representation was made if reliance on it has caused loss, recoverable as damages.

Decision

See Judgment.

Decree

See Judgment.

Deed

A document signed by the parties and executed as a deed (traditionally including the equivalent of a wax seal, but in some jurisdictions the words ‘executed as a deed’ or similar are now sufficient); obligations contained in a deed usually have a longer limitation period than those in other forms.

De facto

Latin: ‘in fact’ (often contrasted with de jure).

Defect or defective

An aspect of construction which is non-compliant, in that specific sense, and/or which fails to meet the builder’s contractual or statutory quality obligations.

Defects liability period

In many standard form construction contracts, a period after practical completion in which the builder has responsibility for remedying defects, on terms set out in the contract (which may, for example, include or exclude defects arising or discovered during that period).

Defendant

Party against whom civil legal action is directed (defender in Scots law); in a tribunal, may be respondent.

Defender

See Defendant.

De jure

Latin: ‘in law’ (often contrasted with de facto).

Delict

In Scots law, the principles imposing an obligation to make reparation (ie civil liability) for wrongful conduct: the functional equivalent of the law of tort in English and other common law jurisdictions. The label quasi-delict is often applied in Scots law to claims for damages for negligence.

Developer’s project team

Under the conventional English terminology, the developer X is the employer or client (Australasia: more commonly, principal); unless it has its own in-house construction capability, X usually engages consultants C1, C2 etc; and lets a contract to a main contractor (M) (Australasia: head contractor), who in turn may engage subcontractors S1, S2 etc. These are all also project parties. Any or all of these construction contracts may be on a D&B (Australasia: D&C) basis. An individual who already owns a site and makes a contract with a builder to construct a house can be called an owner-builder, but is for these purposes also an employer; the builder is similarly a main contractor.

Glossary  581 Directive (EU)

An EU legislative measure, imposing a duty on Member States to transpose it into national law, usually by a specific date, but giving them a discretion as to how.

Duty of care

See Negligence.

Employer

See Developer’s project team.

English law

Unless the context indicates otherwise, the law of both England and Wales.

Entire agreement Clause in a written contract proving that the document constitutes clause the whole contract – intending to exclude all reliance on any pre-contractual representations and perhaps also to exclude any terms that otherwise would be implied into the contract; often also providing that the contract may be varied only in writing signed by both parties. Equity

See Common law.

Escrow

A method of payment in which the debtor transfers money to a trusted and independent third party, who is to hold the money and release it to the creditor only when defined conditions are fulfilled (usually completion of performance by the creditor of their part of a contract).

Express (term)

(In relation to a contract) a term of the contract recorded in a document; the opposite of implied – which covers terms implied by the courts or by statute. See also Transmissible statutory warranty.

Ex officio

Latin: ‘by reason of their office’: a duty (often on a judge) to undertake some task or consider a matter without a party needing to ask.

Ex tempore

Latin: ‘with no time’: a judgment or judicial ruling given immediately at the end of a court hearing, delivered orally and without preparing a text first, usually then transcribed and corrected for publication.

Fault

Assessing the defendant’s conduct against what a reasonable person in the defendant’s position would or should have done (an objective test, laid down by the court). It is the basis for liability in negligence; sometimes also in contract (‘reasonable skill and care’), though this may instead be based on failure to achieve a specified result (a more demanding obligation of Strict liability).

First-resort (insurance)

Allowing the policyholder to claim against the insurer, whenever a risk occurs covered by the policy; compare Last-resort.

Force majeure

A category of unforeseeable event beyond the control of either of the contract parties whose impact on the progress of a construction project is so fundamental that (at common law) the contract may be frustrated, unless it already provides for such events and their impact on the parties’ rights and obligations.

582  Glossary Grey List

In EU law, the ‘indicative but non-exhaustive’ list of contract terms which may be regarded as unfair: contained in the Annex to the 1993 Directive on unfair terms in consumer contracts, now part of the law of the UK and Ireland via national implementing measures.

Harm

See Damage.

Head contractor

See Developer’s project team.

Implied (term)

See Express.

Injunction

In common law jurisdictions, an order made by a court or tribunal under powers derived from the old Chancery Courts (ie the principles of equity – see Common law) or from statute, requiring a party to do something (a mandatory injunction) or not to do something (a prohibitory injunction). The Scottish equivalent is an interdict. If the party named in the order fails to comply, they will be guilty of contempt of court. See also Order for specific performance.

Injury

See Damage.

Ireland

The state often referred to as ‘the Republic of Ireland’, although its official name, according to the Irish Constitution article 4, is ‘Éire, or, in the English language, Ireland’ (‘Éire is ainm don stát nó, sa sacs-Bhéarla, Ireland’; Northern Ireland is a devolved part of the UK with its own law in many areas.

Joint and several liability

The default system under the common law (as in E&W, Ire, NZ and in delict in Scots law): in a situation where several parties are responsible in law for the same harm, the claimant/plaintiff/pursuer may take action against only one party, who carries the whole of the liability, subject to a right to look to the others (who may not be worth suing) by way of contribution for their own share. Compare Proportionate liability (Aus).

Judgment

The result of proceedings in a civil court, enforceable against the losing party (in Scots law, a decree); in a tribunal, usually called a decision.

Jurisdiction

This book uses jurisdiction in two senses (which is intended should be clear from the context): 1 A defined territory with its own legal system, in whole or in part: so each of the states and mainland territories of Australia is an individual jurisdiction within the Commonwealth of Australia; and Scotland is a jurisdiction within the UK. Ireland is both a jurisdiction and a (unitary) state, also a Member State of the EU. See also Subject jurisdictions. 2 Legal power given to a court, tribunal, adjudicator or arbitrator to decide a category of case, as in ‘the High Court has unlimited jurisdiction in all civil cases where the claim is for more than £100,000’.

Glossary  583 Jus quaesitum tertio

Latin: ‘the third party has acquired a right’; the doctrine in most civil law systems (and Scots law) permitting a third party, under conditions, to acquire enforceable rights under a contract entered into by two other parties. See privity (of contract).

Last person standing

Of a range of possible defendants against whom a claim might be made, the only one still in existence and solvent (or insured), all the others having ceased trading, become formally insolvent or considered unlikely to satisfy a judgment against them.

Last-resort (insurance)

Requiring the policyholder to attempt to claim first against the person responsible at law for their loss; able to claim against the insurer only if the person who would be legally liable cannot in practice respond to such a claim (eg because they have died, disappeared or are insolvent).

Leasehold

See Owner.

Leasehold enfranchisement

Exercise by one or more long residential leaseholders of a statutory power to acquire the landlord’s interest in their home or in the development of which their home forms part, on condition of paying compensation to the landlord.

Legislation

See Statute.

Limitation period

The period within which civil legal action must be started; if the limitation period has expired, legal action is ‘timed out’ or ‘statute-barred’. In Scots law, some obligations are extinguished by prescription after a defined period.

Liquidated damages

A provision in a contract which specifies what a party will pay as damages if they are in breach of an obligation (typically, to complete a construction project, or a defined section of a construction project, by a specific date). In principle enforceable, replacing the possibility of claiming damages for the actual loss caused by the breach; contrast a contractual regime imposing a penalty, unenforceable at common law.

Main contractor  See Developer’s project team. Mortgage

Finance from a lender (mortgagee) for the purchase of a home, under which repayment of the loan and interest to the lender is secured on the home bought, giving the lender the ultimate right to repossess the home from the borrower (mortgagor) in case of default (foreclosure). The same principles apply to raising additional money against an existing home: re-mortgaging.

‘Natural person’

An individual human being – contrasted with a ‘legal person’ (a ‘legal entity’ like a company or partnership, which can hold assets and undertake economic activities, as well as sue and be sued in its own name).

584  Glossary Negligence

The tort of failing to observe the required standard of care (fault, judged by an objective standard) in relation to a person to whom the defendant owes a duty of care in relation to a reasonably foreseeable form of harm; damages will be available if such harm eventuates.

Net contribution clause

See Proportionate liability.

New Zealand

The state of NZ itself (North and South Islands and linked offshore islands); not including Tokelau (a dependent territory), the Cook Islands or Niue (self-governing states in free association with NZ, both retaining a right of final appeal to the Privy Council), nor the Ross Dependency, NZ’s territorial claim in Antarctica.4

Non-compliant

A construction situation which fails – in its design, specifications or on the ground – to meet one or more of the standards in the building code.

Northern Ireland Part of the United Kingdom, with a devolved Assembly and administration. Novation

Substituting a new party in a contract for an existing one: in construction, designers often start work directly for the employer, then (with the employer’s agreement) are novated to the main contractor to continue their work on a project. It is in effect a new contract, as one of the parties has changed, though the terms of the new contract are often substantially the same as in the original.

Obiter (dictum)

Part of a judgment which addresses an issue not central to deciding the outcome of the case before the court – as a result, typically not binding on a court of equivalent or higher rank in a future case, but often an important indication of the court’s views, especially if at Apex court level.5 Plural: obiter dicta.

Off-plan

See Builder.

Off-the-plan

See Builder.

Order for specific In common law jurisdictions, an order made by a court or tribunal, performance under powers derived from the old Chancery courts (ie the principles of equity – see Common law), or from statute, requiring a party to carry out an obligation in a contract or deed. They will be guilty of contempt of court if they fail to do what the court orders. It is functionally identical to a mandatory injunction. The equivalent in Scotland – available under different conditions – is an ‘order for specific implement’. 4 On final appeals to London, see ch 1, n 75. 5 An exception is the High Court of Australia’s assertion that lower courts are bound by ‘seriously considered dicta’ of the Court: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22, (2007) 230 CLR 89 [134], [158] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ).

Glossary  585 Owner and occupier

In a non-technical sense, referring to both freehold and long leasehold forms of tenure of land, in which both sorts of ‘owner’ have a stake in the capital value of the dwelling or development. Freehold is open-ended as to time; leasehold is time-limited, so the capital value starts to reduce as the end of the lease comes closer, with a landlord and some form of rent payable (sometimes called ‘ground rent’). See also Leasehold enfranchisement. Owner also refers to the special status of a unit holder within a multi-unit residential development subject to a ‘strata title’ or equivalent statutory regime (including the Scottish regime under the Tenements (Scotland) Act 2004), as well as to the relationship between the development’s body corporate (if there is one, whatever its title) and ‘the common parts’ (Australasia: ‘the common property’; Scotland: ‘the close’ and ‘scheme property’). Within English law, such developments normally use long leasehold structures, the alternative commonhold being so far neglected. Those occupying a home on a periodic tenancy (from month to month or equivalent), like most of those renting from social landlords, have no stake in the capital value of their home, but may nonetheless have a document which constitutes a lease and forms of legal protection: they are more often called tenants.

Penalty

See Liquidated damages.

Peppercorn

Something of negligible intrinsic value but enough, when given by one party to another (eg as ‘rent’) to satisfy the law’s requirement for something certain being transferred by that party to the other, in return for the other’s promise(s) or actions; relevant to the doctrine of consideration.

Plaintiff

See Claimant.

Practical completion

In a construction contract, a stage when the building is (under the terms of the contract) complete enough to be taken over and occupied by the employer; typically, this is when the Defects liability period (or equivalent) starts.

Prescription

See Limitation period.

Principal

See Developer’s project team.

Privity (of contract)

The common law doctrine that, if A and B make a contract which benefits C, C cannot enforce the contract, since C is a ‘third party’; the doctrine is now modified by statute in many jurisdictions.

Privity (of estate) The doctrine of land law with effect that, when the identity of a landlord or tenant in a tenancy changes (usually by assignment), the new landlord or tenant steps into the shoes of the former, so that the tenancy terms continue unchanged between them.

586  Glossary Privy Council

In our context, the Judicial Committee of the Privy Council: the appeal court for those overseas jurisdictions still permitting a final appeal to London, which previously included Australia and NZ. Judicial membership overlaps with that of the UK Supreme Court, hearings now taking place in the same building in Parliament Square.

Project parties

See Developer’s project team.

Proportionate liability

A situation in which the liability of one party, where several parties are responsible in law for the same harm, is limited to that party’s own share (proportion) of responsibility – the position in Australia by statute in each state and territory, replacing joint and several liability; but also possible in a contractual setting (sometimes called a Net contribution clause).

Purchaser

See Buyer.

Pure economic loss

See Damage.

Pursuer

See Claimant.

Quantum

Latin: ‘how much’: the amount in money of damages or other compensation to which a claimant is, or may be, entitled. See also Liquidated damages.

‘Quantum meruit’

Latin: ‘how much [the work] is worth’: a restitutionary claim based in unjust enrichment, essentially for ‘reasonable’ compensation in the circumstances for work done from which the defendant has received a benefit; it typically arises in situations where there is no applicable contractual machinery for valuing the work (eg there is no valid contract in place; the contract does not provide an enforceable means of valuing the work; or the contract has been terminated by repudiation).

Quasi-delict

See Delict.

Rectification

1 The physical work of making a building which has defects conform to its specification, the plans or to external standards; could also be called reinstatement or repairs. 2 Asking a court to modify the words of a contract or other legal document which fails to reflect the shared intention of the parties.

Regulation (EU)

A legislative measure adopted by the EU, effective in the legal systems of all Member States without the need for national implementing measures.

Reinstatement

Often the key term in the cover provided by a third-party warranty; see also Rectification.

Glossary  587 Remedy

Generally: action by a party which adequately responds to the demands of a Claimant or anyone with a complaint. In law: the range of possible outcomes which a civil court or tribunal may award to a successful claimant, eg damages, injunction, order for specific performance. In a contractual context: action an innocent party may have power to take when the other party is in breach, eg treating the whole contract as at an end: see Repudiatory breach.

Repairs

See Rectification.

Repudiatory Action or words by a contract party in breach which indicate to breach (contract) the other party that they no longer intend to be bound by their primary performance obligations under the contract: gives the innocent party an option: (a) to ‘accept’ this repudiation, terminating performance of the contract for the future and claiming damages for the breach; or (b) to ‘affirm’ the contract, still retaining the right to claim damages for the breach.6 Rescind/ rescission (contract)

1 Where an innocent contract party exercises the right to accept repudiation of the contract by the other party, thus terminating performance of the contract for the future but retaining a right to damages for breaches already committed. 2 Where misrepresentation by one contract party to the other gives the other party the right to bring the contract to an end (‘unwinding’), both for the past and the future (Scots law: reduction).

Res judicata

Latin: ‘the matter which has [already] been judged’: the doctrine which prevents a party from re-litigating, in later court or other judicial proceedings (other than a normal appeal), an issue which has already been determined in earlier proceedings.

Respondent

Name in some tribunals and regulators (and in adjudication in NZ) for the party against whom legal action or a claim has been started (cf Defendant); or the defending party in a civil appeal.

Restitutionary (claim)

A category of legal claims focusing on recovery of gains from the other party (as opposed to compensation claims, which are loss-based). See also ‘Quantum meruit’.

6 As noted in section [4.12.5], the availability of this right of election in Australia is complicated by the HCA decision in Mann v Paterson Constructions Pty Ltd [2019] HCA 32, (2019) 267 CLR 560.

588  Glossary Retention

A provision in a contract authorising a construction employer to retain a proportion (often 5%) of any sum owed to ‘the builder’, against the cost of rectifying defects if ‘the builder’ fails to do so, or of completing incomplete work; may also apply between main contractor and sub-contractor and so on down the contractual chain.

Scheme (the)

One of the UK’s statutory schemes on security of payment and adjudication under the HGCRA, or under the Construction Contracts (Northern Ireland) Order 1997, as amended.

Scots law

The law in force in the mainland of Scotland and its islands (including Orkney and Shetland); the Court of Session is the highest civil and appeal court, with a final appeal in civil cases to the UK Supreme Court, which includes one or more Justices with a Scots law background. The Act of Union 1707 preserved the separate identity of Scots law – influenced by Roman law, continental legal theory and ‘institutional’ writers (eg Stair, Erskine, Bell), but never codified. The power to legislate for Scotland is shared between the Scottish Parliament in Edinburgh (which has exclusive power in ‘devolved’ areas) and the Parliament at Westminster.

Scott Schedule

Originally developed by surveyor and Official Referee George Alexander Scott for construction claims: a landscape format table with inputs from both claimant and defendant for the various items of the claim and quantum claimed or challenged; routinely used in many specialist construction courts and tribunals, including the TCC and VCAT.

Settlement

See Completion.

Special Purpose Vehicle (SPV)

A company formed, usually as a subsidiary of a larger developer or of a consortium of corporate entities, to carry out a specific development and therefore the nominal seller of units to buyers; may have few or no assets and may be wound up once the development is complete and all units sold.

Specific performance

See Order for specific performance.

Standard form contract

A published contract for aspects of construction work (B2B or B2C): widely used in practice, though always capable of being modified for a specific project. Significant publishers of such contracts include (in the UK) the JCT, NEC, RIBA and SBCC; (internationally) FIDIC; and (in Australia) Australian Standard (AS) and ABIC contracts. The opposite is a bespoke contract.

Statute

Primary legislation (ie adopted by the legislature of a jurisdiction) – often entitled XXX Act [year] (jurisdiction).

Glossary  589 ‘Statute-barred’

See Limitation period.

Statutory Instrument

Secondary (or delegated) legislation, where a Minister or other public body exercises power, usually coming from a statute, to adopt rules having legal force – often entitled XXX Regulations [year] (jurisdiction); in the UK, identified as SI/SSI/SR [year]/ [number] (jurisdiction).

Strata title

See Owner.

Strict liability

Liability for breach of contract (and some forms of tort also, but not the law of negligence) without the need to show fault, so it will be no defence for the defendant to show that they took all reasonable care; some criminal offences, especially modern regulatory offences created by statute, also involve strict liability (no need to prove a ‘mental element’ like intention or recklessness).

Subcontractor

See Developer’s project team.

‘Subject jurisdictions’

In this book, the UK (England, Wales, Scotland and NI); Ireland; each state and mainland territory of Australia; and NZ.

Tenant

See Owner.

Tenure

See Owner.

Term (of a contract)

A provision imposing an obligation and/or conferring a right, or setting out conditions under which obligations or rights arise or may be exercised: see also Express (term), Unfair contract term and Warranty.

Third party

See Assignment, also Privity (of contract).

Third-party warranty

See Warranty.

Tort

In English and other common law systems, a civil wrong (which may at the same time be a breach of contract and/or a criminal offence) which gives rise to legal action for damages as compensation for harm suffered; in our field, most often the tort of negligence. See also Deceit and Delict.

Transmissible statutory warranty

(Australasia) A term or terms implied by statute in a defined category of residential construction contract, imposing obligations on the builder (as defined) and giving rights to the other party; its benefit is transmitted with the home so can be relied on by the current owner (subject to any applicable limitation periods).

Tribunal

A judicial body with a specialised jurisdiction and (often) specialist judges (tribunal members); procedure usually quicker and less formal than a court and lower fees to start a case; almost always created by statute.

590  Glossary Unfair contract term

A term in a contract which under statutory rules (or equivalent) can be challenged as unfair, notably in a B2C contract if unfair to the consumer, with the usual result that that term cannot be enforced but the rest of the contract normally remains valid.

United Kingdom

The United Kingdom of Great Britain (ie England, Scotland and Wales) and Northern Ireland.

Verifier

See Warrant.

Wales

Divergences between the legal or regulatory position in Wales and that in England are noted where relevant, but in all other situations see English law. The power to legislate for Wales is shared between the Senedd in Cardiff (which has exclusive power in some areas) and the Parliament at Westminster.

Warrant

As in ‘building warrant’ (Scotland): under the Building Regulations, consent by a verifier (a Scottish local authority as public sector BCB) for planned construction.

Warranty

Generally: a legally enforceable promise or obligation, usually in a contract. Specifically: 1 A term of a contract – in our field, most relevantly in relation to design and build quality, fitness for purpose, price payable, completion date and dispute resolution (see also Transmissible statutory warranty); or 2 As in third-party warranty (UK, Ire): a policy from an insurer offering cover against the cost of remedying defined categories of building defects (and/or damage caused by those defects) for a fixed period, sometimes also against the cost of completing construction of a new (or newly converted) home where the builder/developer fails to do so, eg because of insolvency.

PUBLISHER’S NOTE The epigraph to chapter 9 is from David Byrne, ‘The Future of Litigation of Construction Disputes’ (2007) 23 Building and Construction Law 398, 399. Byrne was formerly Judge in Charge of the Technology, Engineering and Construction List of the Supreme Court of Victoria. Reproduced with permission of Thomson Reuters (Professional) Australia Limited, legal.thomsonreuters.com.au. This article was first published by Thomson Reuters in Building and Construction Law and should be cited as above. For all subscription inquiries please phone, from Australia: 1300 304 195, from Overseas: +61 2 8587 7980 or online at legal.thomsonreuters.com.au/search. The official PDF version of this article can also be purchased separately from Thomson Reuters. This publication is copyright. Other than for the purposes of and subject to the conditions prescribed under the Copyright Act 1968 (Cth), no part of it may in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or transmitted without prior written permission. Enquiries should be addressed to Thomson Reuters (Professional) Australia Limited, PO Box 3502, Rozelle NSW 2039, Australia. legal.thomsonreuters.com.au. While every care has been taken to establish and acknowledge copyright, and to contact the copyright owners, the publishers apologise for any accidental infringement and would be pleased to come to a suitable agreement with the rightful copyright owners in each case.

592

INDEX ACCC (Australian Competition and Consumer Commission)  335–6 ACL (Australian Consumer Law)  335–9 ACM (aluminium composite material)  20, 56–8, 63–4, 532–3 adjudication see statutory adjudication ADR (alternative dispute resolution)  25, 424–5, 428–9, 475–6, 481 All Party Parliamentary Group for Excellence in the Built Environment (UK)  10, 14, 87–8, 408, 458–9, 460–2 alternative dispute resolution (ADR)  25, 424–5, 428–9, 475–6, 481 aluminium composite material (ACM)  20, 56–8, 63–4, 532–3 APPG (All Party Parliamentary Group for Excellence in the Built Environment (UK))  10, 14, 87–8, 408, 458–9, 460–2 Australia see also New South Wales; Queensland; Victoria assignment of contractual rights to third parties  303 breach of contract, remedies for  211–13 building regulations  111–25 consumer protection  335–9 contract law in residential construction  201–13 defects rights in tort  304–6 rights under statute  306–7 dispute resolution  462–71 duty of care  306–7 extra-contractual rights of action  302–7 Heavy Vehicle National Law (HVNL)  124 litigation, time limits  506 mandatory insurance  385–8 misleading and deceptive conduct  336–7 mixed use developments  565 multi-unit developments  540, 554–7 regulators, complaints to  436–7, 491–2 statutory warranties  202–5, 246 third-party warranties  392–6, 488–9 tort, rights in  304–6 unconscionable conduct  338–9

unfair contract terms  205–6 unfair practices  339 Australian Competition and Consumer Commission (ACCC)  335–6 Australian Consumer Law (ACL)  335–9 B2C (business-to-consumer) contracts  4 see also residential construction contracts consumer protection  334, 340 consumer rights  25 regulation of  18 for the supply of services  175 unfairness in  176–8, 180–1, 185, 220, 224 BCBs (building control bodies)  3 building codes  87–111 duty of care  278–9 financial exposure  30–1 liability of  30, 314 BIM (Building Information Modelling)  100–1, 123 blocks of flats  514–68 case studies  520–4, 540–4 construction problems  516–18 private sector  524–33 social housing  519–20 BLP (Building LifePlans Ltd)  385 breach of contract, remedies for  185–201, 211–13, 222–3, 225–6, 231–2 build quality  168–9 obligations  256, 387, 525, 531, 561, 574 builders complaints to  426–31 time limits  483–6 counterclaims by  198–201 liability of  240–4 ‘building,’ definition  9 Building a Safer Future – Independent Review of Building Regulations and Fire Safety: Interim Report  20, 84, 94, 96, 105, 109–10 building codes  78–140 aims of  81–3, 97–8 Australia  111–25

594  Index compliance  172–4 England & Wales  90–111 implementation private sector  88–90, 104–8 public sector  87–8, 101–4 Ireland  128–33 liability under  290–1 New Zealand  125–8 Scotland  133–8 standards  83–6 standard-setting  79–81, 90–4, 114–15 Building Confidence (Shergold and Weir)  47, 54, 121, 122, 123 building control bodies see BCBs Building Information Modelling (BIM)  100–1, 123 building safety  65–7 Building Safety Bill (2020) (UK)  xi, 110, 461–2, 553, 573 Buildmark  369–81, 383, 392–5, 538–9 business-to-consumer contracts see B2C (business-to-consumer) contracts case studies blocks of flats  520–4, 540–54 common law  26–31 concurrent duties in tort  252–8 contract law in residential construction  147–53, 229–31 contractual relationships  258–66 defects  59–62 liability for  297–302 duty of care  258–66 Professional Consultant’s Certificates  279–90 time limits for taking action  499–502 cash retentions  11 caveat emptor  150, 280, 526, 561 CCHB (Consumer Code for Home Builders)  342–6 CCNH (Consumer Code for New Homes)  342–6 Checkatrade  352–3, 356 CIRI (Construction Industry Register Ireland)  129, 353–4, 357 cladding  18, 20, 21, 56–8, 63–4, 518 codes of conduct  428 collateral warranties  4, 278 commonhold tenure  21, 533–7, 564 Scenario 8  7, 12, 18, 462, 527 competence  46–8, 77, 110–11, 117–20, 351, 571 Competent Person (CP) schemes  108 complaints management systems  427 concealment  497–8 concurrent duties in tort  251–8

conferring rights under a contract on third parties  249–51 consideration, doctrine of  160–1 construction contracts see residential construction contracts construction defects see defects Construction Industry Register Ireland (CIRI)  129, 353–4, 357 construction law  23–6 see also contract law in residential construction construction phase of projects  62–4 Construction Playbook (UK)  573 Consumer Code for Home Builders (CCHB)  342–6 Consumer Code for New Homes (CCNH)  342–6 consumer codes  15, 342–6, 369, 428, 485–6 consumer dissatisfaction  39–42 consumer protection  328–61 Australia  335–9 European Union  329–35, 358–9 Ireland  346–7 New Zealand  339–41 United Kingdom  341–6, 347–51 consumer rights  177, 574 Consumer Rights Directive 2011 (EU)  329–30 contract claims  30, 239–46, 501 contract law in residential construction  141–237 access to information  145–7 assignment of contractual rights to third parties  246–9, 303 Australia  201–13 bargaining power  145–6 breach of contract, remedies for  185–201, 211–13, 222–3, 225–6, 231–2 build quality  168–9 builders recovery against homeowners  198–201 building code compliance  172–4 case studies  147–53, 229–31 completion and progress obligations  165–7 concurrent duties in tort  251–2 conferring rights under a contract on third parties  249–51 consumer protection  145–6 damages for defective work  191–4 exchange  160–3 implied terms  169–74 Ireland  223–6 liquidated damages  194–8 misrepresentation  146–7 case study  147–53 New Zealand  213–23 permissions  170–2

Index  595 pitfalls  154–7 planning permissions  170–2 principles of  144–6 progress obligations  165–7 quality obligations  164–5 regulatory interventions  183–5, 206–11, 221–2 residential construction contracts  22–3, 214–16 Scotland  227–32 statutory requirements  169–74 terms implied by statute  174–6 terms implied by the courts  163–9 third parties  246–51 uncertainty avoidance  157–60 unfair contract terms  176–83, 205–6, 220–1, 224–5 contract rights  10–13, 303, 307–8, 315–17, 319–21, 323–4 Covid-19 pandemic  572 CP (Competent Person) schemes  108 criminal law  19, 76 customer satisfaction surveys  40–2 DBDRV (Domestic Building Dispute Resolution Victoria)  465–8, 474, 492 deeds  160 defect, impacts on occupants  64–5 defects  32–67 avoidance of  43–8 case study  59–62 and conflicting interests  55–6 customer dissatisfaction  39–42 damages for  191–4 definitions  34–9 disagreements on  36 examples  34–9 incidence of  42–3 latent  498–9 liability for case study  297–302 damage to property  271–3, 304–6 injury or death caused by construction  269–71, 304–6 pure economic loss  273–9 statutory intervention  290–7 multi-unit developments  537–40 and negligence  274–6 occupant impacts  64–5 statute, rights under  306–7, 318–19, 322 tort, rights in  304–6, 308–14, 317–18, 321, 324–7 delict see tort disadvantaged consumers  13–16 dispute resolution  24–5 see also alternative dispute resolution (ADR); statutory adjudication

distance contracts  348 diversity of occupants  55–6, 64–5 doctrine of consideration  160–1 Domestic Building Dispute Resolution Victoria (DBDRV)  465–8, 474, 492 double insurance  401–2 duty of care  251–8, 267–9, 275–6, 306–7 see also negligence; tort case study  258–66 dwellings, special regime for  291–2 England & Wales see also United Kingdom Approved Inspectors (AIs)  104–8 building regulations  90–111 aims  97–8 application  94–5 compliance  96 implementation private sector  104–8 public sector  101–4 record-keeping  98–101 reform of  108–11 standard-setting  90–4 Building Safety Regulator (BSR)  110 Defective Premises Act 1972 (DPA)  291–302, 574 litigation, time limits  494–9 mixed use developments  564 envy  571 equity loan schemes  21–2 European Union alternative dispute resolution (ADR)  428–9, 475–6 construction law  25–6 consumer protection  329–35, 358–9 Consumer Rights Directive 2011  329–30 European Directive on Product Liability  296–7 Unfair Commercial Practices Directive 2005  330–5 Federation of Master Builders (UK)  10, 351–2, 356 Financial Ombudsman Service (UK)  435–6 fire safety  99–100, 572–3 see also cladding FMB (Federation of Master Builders (UK))  10, 351–2, 356 FOS (Financial Ombudsman Service (UK))  435–6 fraud  497–8 freedom of contract  144–5, 160–1, 164 freehold tenure  21, 535, 554, 559–61 gifts  160 ‘good faith and fair dealing’  144–7 Grand Designs  32–3 Great Fire of London  79

596  Index greed  570–1 Grenfell Tower fire  20–1, 109, 274 Inquiry  49, 57–8, 64, 70, 572 Interim Report  20, 84, 94, 96, 105, 109–10 Guild of Master Craftsmen (UK)  352 Hackitt, Dame Judith  70 Hackitt Interim Report (on the Grenfell Tower fire)  20, 84, 94, 96, 105, 109–10 Hamlin v Invercargill  26–31 help to buy schemes  22 home and contents insurance  401–2 HomeBond  396–9 homeowner subdividing a plot and commissioning a new house to be built next door (Scenario 6)  6, 10, 15, 33, 160, 241, 243, 246, 247, 249 home-ownership  16–18 housing shortages  21–2 human nature  570–2 implied warranties  216, 308, 568 information asymmetry  14, 15–16, 39–40 inspections in residential construction  409–22 before work starts  410–11 existing homes on sale  421–2 failure to inspect  417–19 new homes under construction  411–16 just completed  416–17 obligation to inspect  417–18 recently built homes  419–21 insurance  31, 79, 184, 363–4, 401–2 see also third-party warranties claims on  431–4 time limits  487–90 double  401–2 home and contents  401–2 mandatory  184, 314, 385–8, 408 multi-unit developments  537–40 Invercargill City Council v Hamlin  26–31 Ireland alternative dispute resolution (ADR)  475–6 breach of contract, remedies for  225–6 building code  128–33 Construction Industry Register Ireland (CIRI)  129, 353–4, 357 construction law  25–6 consumer protection  346–7 contract law in residential construction  223–6 contract rights, extension of  315–17 defects rights in tort  317–18 rights under statute  318–19

dispute resolution  473–6 HomeBond  397–9 litigation  476–8, 507–8 multi-unit developments  537–9, 558–61 privity of contract  315 regulators, complaints to  437, 492–3 statutory adjudication  474–5 statutory warranties  223–4 third-party warranties  396–400 claims on  489–90 tort, rights in  317–18 trusted trader schemes  353–4 unfair contract terms  224–5 judgment devices  13 judicial machinery  19 ‘justice according to law’  19 Lacrosse tower fire, Melbourne  49, 54, 57, 65–6, 204, 470 latent defects  325, 355, 498–9, 508–9 LDs (liquidated damages)  194–8 leasehold tenure  21, 524–33 letting of a construction contract to build an estate of new houses (Scenario 1)  3, 10, 160 liability BCBs (building control bodies)  30, 314 builders  240–4 under building codes  290–1 for damage to property  271–3, 304–6 for defects case study  297–302 pure economic loss  273–9 statutory intervention  290–7 for injury or death caused by construction  269–71, 304–6 in tort for damage to property  271–3, 304–6 for injury or death caused by construction  269–71, 304–6 separate from contract  267–73 limitation, law of  29, 245, 440, 511 liquidated damages (LDs)  194–8 litigation  25, 438–42 Australia  506 England & Wales  494–9 Ireland  476–8, 507–8 New Zealand  503–6 risk  442–4 Scotland  508–9 time limits  493–9, 503–9 United Kingdom  442–4, 494–9 London, Great Fire of  79

Index  597 mains electrical cabling  63 mandatory insurance  184, 314, 385–8, 408 misrepresentation  146–53 mitigation  186–8 mixed use developments  563–5 mortgage lenders  4–5 multiple occupation   8n9 multi-unit developments  514–68 see also blocks of flats Australia  554–7 defects insurance  537–40 Ireland  558–61 New Zealand  557–8 Scenario 7  6–7, 33, 99, 142, 146, 244, 420, 515, 516, 524, 529 Scotland  561–3 Murphy v Brentwood DC  27, 29, 31, 230, 276–8, 325, 499 MyBuilder  353, 356 National House-Building Council (UK)  369–71 National New Home Customer Satisfaction Survey  40–1 negligence see duty of care; tort New Homes Ombudsman (UK)  458–62 New Homes Review  41 New House Owners’ Satisfaction Survey  41–2 New South Wales see also Australia apartment building audits  124–5 building industry digitisation  123 duty of care  20 statutory duty of care  306–7 New Zealand adjudication  24–5 BCBs (building control bodies), liability  314 breach of contract, remedies for  222–3 building code  125–8 consumer protection  339–41 contract law in residential construction  213–23 contract rights, extension of  307–8 defects, rights in tort  308–14 dispute resolution  471–3 duty of care  31 Fair Trading Act 1986 (FTA)  339–41 Hamlin v Invercargill  26–31 implied warranties  216, 308 litigation, time limits  503–6 mandatory insurance  386–7 misrepresentation in contracts  147–53 mixed use developments  565 multi-unit developments  540, 557–8 Privy Council  214, 309, 326, 503 regulators, complaints to  436–7 regulatory interventions  221–2

residential construction contracts  214–16 statutory adjudication  472–3 statutory warranties  216–20, 308 tort, rights in  308–14 uncertainty avoidance in contracts  157–60 unfair contract terms  220–1 unfair trading  339–41 NHBC (National House-Building Council (UK))  369–71 Standards  38–9 off-plan sales of new homes  14, 15 Scenario 2  3, 33, 160, 246–7 off-premises contracts  329–30, 340, 348 outcomes-based standards  83–6 parking fines  197–8 party autonomy in contracts  144–5, 154 PCC (Professional Consultant’s Certificate)  279–82 performance requirements for residential buildings  43–4 performance-based standards  83–6 periodic tenancies  21 Persimmon  1 planning of projects  56–9 pride  572 private law devices, in B2B projects  11–12, 363 privity of contract  12–13, 216, 246, 303, 315, 323–4 Privy Council Invercargill City Council v Hamlin  26–31 New Zealand  214, 309, 326, 503 product liability  296–7 Professional Consultant’s Certificates (PCCs)  279–82 project construction  62–4 project parties  48–56 consultants  54–5 consumers  51–3 contractors  53–4 developers  50–1 project planning  56–9 protective regimes  22–3 quality  35 quality control  45–6 Quality Mark  349 quality standards  37–9 quasi-delict see tort quasi-judicial machinery  19 Queensland Building and Construction Legislation  123–4 see also Australia third-party warranties  387–8

598  Index Ratedpeople.com  355 reality TV  32–3 rectification work  186–91 redundancy, levels of  59 regulation of construction  22–3 regulators, complaints to  434–7, 490–3 regulatory interventions  18–23 ‘residential,’ definition  7–8 residential construction see also residential construction contracts conflicting aims and objectives  48–56 contract law in see contract law in residential construction defects  32–67 disadvantaged consumers  13–16 insurance  31 regulation of  69–138 definition  72–8 external  72–6 non-statutory  77–8 scenarios and Issues  2–7 standards  83–6 technology-based solutions  123 residential construction contracts  10–12, 214–16 builders, complaints to, time limits  484–5 dispute resolution  429–31 letting of, Scenario 1  3, 10, 160, 363, 544 regulatory interventions  183–5, 206–11, 221–2 standard form  10–11 terms implied by statute  174–6 terms implied by the courts  163–9 United Kingdom  22–3 Victoria  22 residential construction industry  21 ‘residential owner or occupier,’ definition  7–8 restitutionary principles  18 retirement villages  8n9 Review of Building Regulations and Fire Safety (Department of Communities and Local Government)  70 RIBA Domestic Building Contract 2018  10 sanctity of contracts  141, 145, 154, 161 Scenarios 1 (residential construction contracts, letting of)  3, 10, 160, 363, 544 2 (off-plan sales of new homes)  3, 33, 99, 142, 160, 175, 246–7, 249, 250, 292, 315, 332, 363, 372, 397, 418, 429, 493, 544 3 (shower replacement)  5, 11, 33, 118, 142, 146, 158, 160, 163, 175, 330, 332, 348, 363, 409, 410, 427, 451, 456, 462, 474, 483, 484 4 (latent defects)  4, 5, 377, 392, 399, 486

5 (assignment of contractual rights)  5, 12, 99, 247, 248–9, 292, 363, 378, 381, 392, 400, 486, 493, 499 6 (new house to be built on adjoining subdivided plot)  6, 10, 15, 33, 51, 142, 146, 158, 160, 169, 202, 241, 242, 243, 244, 245, 246, 247, 249, 250, 278, 397, 412, 449, 457, 458, 483, 484 7 (multi-unit development)  6–7, 33, 99, 142, 146, 244, 420, 515, 516, 524, 529 8 (commonhold tenure)  7, 12, 18, 462, 527 Scotland breach of contract, remedies for  231–2 building code  133–8 contract law in residential construction  227–32 contract rights, extension of  319–21 defects rights in tort  321 rights under statute  322 latent defects  508–9 litigation, time limits  508–9 mixed use developments  565 multi-unit developments  561–3 promises, enforceability of  160 quasi-delict  321 regulation of construction  22n60 tort, rights in  321 Shergold-Weir report see Building Confidence (Shergold and Weir) shower replacement (Scenario 3)  5, 33, 160 signalling  15 slab heave  59–62 sloth  571 snags  35, 39, 187, 347 social housing  519–20 social media  40 statutory adjudication  24–5, 444–58 Ireland  474–5 New Zealand  472–3 residential occupier exception  447–54 unfairness in law  455–6 statutory warranties  183, 202–5, 216–20, 223–4, 246, 308 supply chains  62–3 third parties assignment of contractual rights  246–9, 303 conferring rights under a contract on  249–51 contract rights of  246–51 third-party warranties  4–5, 362–408 Australia  385–8, 392–6 BLP (Building LifePlans Ltd)  385 Buildmark  369–81, 383, 392–6 claims on  431–4

Index  599 time limits  487–90 definition  364 Ireland  396–400 key principles  364–9 new home sales  15 New Zealand  386–7 United Kingdom  23, 369–85 time limits for taking action  483–513 builders, complaints to  483–6 case study  499–502 parties’ own agreements  502–3 tort claims  245–6 concurrent duties in  251–2 liability for damage to property  271–3, 304–6 for injury or death caused by construction  269–71, 304–6 separate from contract  267–73 of negligence  245–6, 267–8, 274–6 rights in  324–7 Australia  304–6 defects  304–6, 308–14, 317–18, 321, 324–7 Ireland  317–18 New Zealand  308–14 Scotland  321 trusted trader schemes  347–59 TrustMark  348–51, 356 Trustpilot  15, 348, 358 under-design  59–62 Unfair Commercial Practices Directive 2005 (EU)  330–5 unfair contract terms  25, 161, 176–83, 205–6, 220–1, 224–5 United Kingdom see also England & Wales; Scotland BLP (Building LifePlans Ltd)  385 Building Safety Bill (2020)  110, 461–2, 553, 573 Buildmark  369–81, 383, 392–6 Checkatrade  352–3, 356 construction law  25–6 consumer codes  341–6, 369, 428, 485–6 Consumer Rights Act 2015  152, 175, 257 dispute resolution  444–58 Federation of Master Builders  351–2, 356 Financial Ombudsman Service  435–6 Guild of Master Craftsmen  352 help to buy schemes  22 litigation

risk  442–4 time limits  494–9 multi-unit developments, defects insurance  537–9 Murphy v Brentwood DC  27, 29, 31, 230, 276–8, 325, 499 MyBuilder  353, 356 National House-Building Council  369–71 Standards  38–9 New Homes Ombudsman  458–62 Ratedpeople.com  355 regulation of construction  22–3 regulators, complaints to  434–6, 490–1 statutory adjudication  444–58 residential occupier exception  447–54 third-party warranties  369–85 claims on  487–8 trusted trader schemes  347–53 TrustMark  348–51, 356 used cars  14, 15 VBA (Victorian Building Authority), Guide to Standards and Tolerances  38 VCAT (Victorian Civil and Administrative Tribunal)  463–5, 468–71 Victoria see also Australia building code  114–25 competence regime  117–20 inspectors  115–17 reform  120–3 registration  117–20 regulators  115–17 standard-setting  114–15 courts  463–5 dispute resolution  24–5, 463–71 Domestic Building Contracts Act 1995 (DBCA)  206–11 Domestic Building Dispute Resolution  465–8, 474, 492 regulators, complaints to  491–2 residential construction contracts  22 third-party warranties  385–396 tribunals  463–5 Victorian Building Authority (VBA), Guide to Standards and Tolerances  38 Victorian Civil and Administrative Tribunal (VCAT)  463–5, 468–71 workmanship, reasonable standard of  37–8 wrath  571–2

600