November 2020

Temporary disconformity in building defects: fact or fiction?

If the builder’s work was defective, but it was rectified before completion or handover of the works, was the builder ever in breach of the contract?

The theory of ‘temporary disconformity is often raised in disputes about defective work that is identified before the work reaches completion or handover.

Builders often argue that because the builder still has the opportunity to rectify, it follows that the builder is not in breach of the contract.

Put another way, until the opportunity provided for in the contract to rectify defective work has passed, the defective work should be regarded as only a ‘temporary disconformity’ with the contract and not a breach of the contract entitling the owner to damages.

The theory of ‘temporary disconformity’ arises from a 1972 English decision in which Lord Diplock suggested that: "Provided that the Contractor puts it right timeously I do not think that the parties intended that any temporary disconformity should of itself amount to a breach of contract by the Contractor." 

Owners reject this view, particularly where the contract expressly requires the builder to ‘carry out and complete’ the work in accordance with the contract - for example in the Australian Standard contracts AS 4000 and AS 4902.

It is argued that the contract creates two separate obligations – one to carry out the work in accordance with the requirements of the contract and a second to complete the work, also in accordance with the requirements of the contract.

The law in NSW

There is no such rule in this State” said Justice Hammerschlag of the NSW Supreme Court in Owners of Strata Plan 80458 v TQM Design & Construct Pty Ltd.

In this case the builder (TQM) argued that if it does defective work, but it still has the opportunity to remedy it (which the builder can do at any time before it is to handover the works or during any defects liability period), the builder is not in breach of the building contract until after the opportunity to remedy has passed.

TQM was engaged under an AS 4902 design and construct contract.

AS 4902, as do most building contracts, provides that if the Superintendent becomes aware of work done by the builder that does not comply with the requirements of the contract, the builder can be directed to rectify the defects, failing which the Principal can have the work rectified by others at the cost of the builder.

Clause 35 provides a further opportunity for the builder to rectify defective work identified during the defect liability period.

TQM unsuccessfully argued that it was denied the opportunity to remedy any defects because the developer took the work out of its hands unlawfully. TQM submitted that applying the temporary disconformity theory, any defects were merely temporary and, therefore, not a breach of the contract for which the developer could sue.

Justice Hammeschlag rejected this submission stating:

If a contract requires work to be done in a proper and workmanlike fashion and the builder does defective work, it is difficult to understand why, even if the work is later remedied, there was no initial breach. The contract might provide a mechanism to assuage the breach and avoid loss which might otherwise be suffered if the breach were not remedied, but the initial breach still occurred.

The concept of ‘temporary disconformity’ was again rejected by the NSW Supreme Court in Cohen v Zanzoul, where the court found that the owner's entitlement to damages for defective work “accrued when the defective work was done”.

Although the judgment did not make specific reference to the concept of temporary disconformity, the finding was that an entitlement to damages starts accruing from the moment when the defective work is performed, which conflicts with the premise of the concept.

Of course, if the defective work is rectified before completion, there may be no loss suffered by the owner unless the time taken to remedy the defective work delayed the project, in which case the owner’s loss may be measured in terms of the agreed rate payable for liquidated damages.  

Recent matter acting for a home owner against a builder which sought to rely on ‘temporary disconformity’

Bartier Perry was recently engaged by an owner undertaking a residential project to advise in relation to a dispute that had arisen with his builder over a significant number of defects. The owner wished to terminate the contract and have the project completed by others.

A review of the building contract identified that the owners only avenue for termination (in relation to breach) was where the builder was in “substantial breach of the contract”.

Despite there being no definition of ‘substantial breach’, Bartier Perry issued a notice of substantial breach to the builder, asserting that the collective effect of the identified breaches (some of which were minor in nature) resulted in a substantial breach of the contract.

This notice of substantial breach, resulted in numerous exchanges with the builder and their legal representatives, who sought amongst other things to argue that whilst ever the work was still in progress and had not reached completion, any defects were temporary in their nature and did not constitute a breach giving rise to a right to damages or indeed termination.

The owner rejected this argument of ‘temporary disconformity’ citing Justice Hammerschlag in the TQM case referred to above, and ultimately a favourable settlement was achieved.   

Takeaway

The theory of ‘temporary disconformity’ has been discredited in NSW, so that work not done in accordance with the contract is a breach of the contract, even if the work is later remedied.

However rectification of the work may reduce the principal’s entitlement to damages.

If you encounter issues with defective (or allegedly defective) building work in your construction project, Bartier Perry’s team of experienced building and construction lawyers can help.

Authors: Mark Glynn, David Creais & Jack Williams