Major Projects & Construction 5 Minute Fix 127: defect rectification, Infrastructure NSW, contract formation

Court confirms personal liability for defect rectification costs

In Kazzi v KR Properties Global Pty Ltd t/as AK Properties Group [2024] NSWCA 143, the NSW Court of Appeal found the sole director of a building company personally liable for defect rectification costs via s 37 of the Design and Building Practitioners Act 2020 (NSW) in relation to a residential building project. The Court considered the various defects in detail and concluded that the director "breached his statutory duty of care, as the nominated supervisor of works, by making decisions as to the progress and manner of the works that gave rise to the defects on which the Owners relied”. This conclusion provides important confirmation, at Court of Appeal level, of the wide potential for personal liability under the Act's statutory duty.

Role of Infrastructure NSW expanded to deliver infrastructure in Western Sydney

The NSW Government recently expanded the role of Infrastructure NSW (INSW) and its Infrastructure Co-ordinator General (and CEO), to improve the coordination and delivery of infrastructure projects in Western Sydney.

In an announcement made on 12 June, the NSW Government outlined changes that will see INSW, led by the Infrastructure Co-ordinator General, prioritise three immediate areas of work:

• Employment: there will be a "focus on freight logistics and employment-related development in Western Sydney and the Aerotropolis";
• Housing: support for housing development; and
• Energy: continued coordination of infrastructure that will support the NSW Government's "Electricity Infrastructure Roadmap", being its 20-year plan to transition the electricity network.

Noting that a "streamlined approach" is required to achieve project delivery timeframes, INSW will support collaboration between delivery agencies and will be able to exercise "step in" powers where necessary to manage roadblocks, including disagreements between agencies.

Did you intend to be bound? Contract formation revisited

Sinclair v Balanian [2024] NSWCA 144 considers the issue of contract formation in the context of a settlement agreement and provides a useful reminder of the principles relating to the crucial element of whether the parties intended to be bound by their agreement.

In issue was whether the settlement agreement, referred to as a "Deed", was binding on the signatories in their personal capacities despite the fact it was not executed as a deed. Having commented that the settlement agreement displayed a "casual or haphazard approach to drafting", the NSW Court of Appeal held that the evidence, including of surrounding circumstances, supported a finding that the parties intended to immediately be bound by their agreement contractually. Relevantly, the Court of Appeal noted:

• whether or not parties intend to create binding legal relations "is a question assessed objectively" having regard to what was said or done and the "circumstances in which those statements and actions happened";
• reference to the document as a deed did not "of itself establish a further, negative intention" that it could not "otherwise take effect as an agreement"; and
• the execution blocks made no provision for the plaintiffs to sign in their personal capacities in a manner consistent with execution as a formal deed.

"Knock-down and rebuild" damages disproportionate to benefit

The NSW Supreme Court recently considered the proper measure of damages for building defects and whether it was "reasonable", in the circumstances of the case in issue, to award damages on a rectification or reliance basis.

In Metricon Homes Pty Ltd as trustee for Metricon Homes Unit Trust v Lipari [2024] NSWSC 566, the Court upheld a homeowner's claim for defects in her house including, significantly, the full cost of a concrete slab that had not been built in accordance with AS2870 (assessed on a reliance, not rectification basis).

While the Court accepted that the homeowner intended demolishing and rebuilding her house, it found that it would be disproportionate to the benefit to be obtained to allow full rectification damages on a “knock-down and rebuild” basis (amounting to $815,000) because:

"the evidence does not establish that the limited defects which have been established present a real risk of damage, or a real risk that the slab will fail, particularly given the nature of those defects and the lack of any sign or symptom to indicate that those defects have compromised the performance, strength or capacity of the slab."

Rather, the Court held that a "more appropriate" measure of damages was the homeowner's reliance loss which, in this instance, was the amount paid for the slab (being $55,020.40).

NSW's Energy Security Corporation established

The Energy Security Corporation Act 2024 (NSW) came into effect on 24 June and, consequently, the NSW Energy Security Corporation has also now been established.

The objects of the Energy Security Corporation, as set out in s 6 of the Act, are:

• to accelerate private sector investments in clean energy projects in NSW that improve the reliability, security and sustainability of electricity supply;
• to support NSW to achieve the emissions reduction targets under the Climate Change (Net Zero Future) Act 2023 (NSW);
• to complement other Government initiatives relating to clean energy technologies and partner with the private sector to finance clean energy technologies; and
• to achieve a Government-mandated rate of return through a portfolio approach.

The Act provides that the Corporation may invest in "clean energy technologies", being "technologies, including energy storage and enabling technologies, that contribute to the reliability, security or sustainability of electricity supply".

The Corporation must not, however, invest in "prohibited technologies", ie. technology for carbon capture and storage, nuclear technology, nuclear power and any other technologies prescribed by the regulations.