Deaves v Sigma Group NSW Pty Limited [2023] NSWCATAP 94

The appellants, Rodney John Deaves and Danielle Simone Deaves, purchased a townhouse in a strata development at Emu Plains, Sydney. They brought claims against the developer (Sigma Group NSW Pty Limited) and builder (Cazo Constructions Pty Limited) for breaches of statutory warranties under section 18B of the Home Building Act 1989 (NSW) and for breach of duty of care under section 37 of the Design and Building Practitioners Act 2020 (NSW).

The NSW Civil and Administrative Tribunal (NCAT) dismissed most of their claims, finding that the statutory warranties did not apply because the homeowners had settled the purchase contract with notice or assumed knowledge of defects and had not exercised remedies under the conveyance contract.

The Appeal Panel allowed the appeal, finding the Tribunal made errors of law in its interpretation of sections 18B, 18C and 18D of the Home Building Act. The dismissed claims were remitted to a differently constituted Tribunal for redetermination according to law.

The Appeal Panel was required to determine whether the original Tribunal made errors of law in the following areas:

• Whether statutory warranties under sections 18B, 18C and 18D of the Home Building Act 1989 (NSW) apply to purchasers who settle with notice or assumed knowledge of building defects
• Whether conveyance contract terms providing remedies for defects can limit or exclude statutory warranty protections under the Home Building Act
• Whether the NSW Civil and Administrative Tribunal has jurisdiction to determine claims for breach of duty of care under section 37 of the Design and Building Practitioners Act 2020 (NSW)
• Whether the Tribunal erred by not examining whether the works complied with plans in the construction contract when determining breach of statutory warranties
• Application of the Allianz Australia Insurance Ltd v Waterbrooke at Yowie Bay Pty Ltd [2009] NSWCA 224 decision concerning purchaser knowledge of defects

Development and Construction Timeline

Development consent for the strata development of 15 two-storey townhouses was granted in January 2017. The consent required construction substantially in accordance with approved plans (drawings AO1 Revision B and A02 Revision A prepared by Pre Tech Pty Ltd, dated 30 September 2015). This consent requirement reflects standard Building Act compliance obligations ensuring construction matches council-approved specifications.

On 20 June 2017, the appellants entered into a contract to purchase Lot 2 in the proposed strata plan from the developer. This conveyance contract included standard terms from the 2016 edition Contract for Sale and Purchase of Land in NSW, plus additional clauses governing variations, strata plan changes, and construction amendments.

Between November 2017 and April 2019, the strata scheme was registered and the townhouse dwelling was constructed. The construction occurred under a written contract dated 21 May 2018 between the developer and builder, which included the development consent and approved plans as contract documents.

The appellants settled the purchase in May 2019, after Mr Deaves inspected the property on 6 and 8 May 2019.

Key Conveyance Contract Provisions

The conveyance contract contained several significant provisions relevant to the appeal:

• The developer was obliged to 'procure' construction of the dwelling in a proper and workmanlike manner, substantially as depicted in the Layout Plan (clause 37.1)
• The developer could make construction amendments without notice in various circumstances, including as desired by the developer acting reasonably (clause 37.2)
• The appellants could not object to differences between draft and registered strata plans unless variations were other than minor and detrimentally affected the property (clause 35.4)
• If such non-minor variations occurred, appellants could rescind within 7 days of receiving notice of registration; if not exercised, the contract remained binding (clauses 35.4(b) and (c))
• A minor alteration included area decreases of less than 5% (clause 35.5(e))
• Claims for compensation for errors or misdescriptions could only be made before completion, and did not apply if the appellants knew the true position (clauses 6 and 7)

Construction Contract Requirements

The construction contract between developer and builder required the builder to perform works in accordance with contract documents, which included:

• The development consent and accompanying conditions (attached as Appendix 3)
• Approved plans and specifications
• Statutory warranties implied under section 18B of the Home Building Act 1989 (NSW)

Section 18B(1)(a) warrants that work will be done with due care and skill and in accordance with plans and specifications set out in the contract. Section 18B(1)(c) warrants work will be done in accordance with and comply with the Home Building Act and any other law.

Section 18B: Statutory Warranties

Section 18B of the Home Building Act 1989 (NSW) implies warranties in every contract to do residential building work. The relevant warranties in this case were:

• Section 18B(1)(a): A warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract
• Section 18B(1)(c): A warranty that the work will be done in accordance with, and will comply with, the Home Building Act or any other law

These warranties cannot be excluded or limited by contract terms. Section 18G provides that any provision of an agreement purporting to restrict or remove rights in respect of statutory warranties is void. This consumer protection framework prevents developers and builders from using unfair contract terms to avoid warranty obligations.

Section 18C: Warranties for Successors in Title

Section 18C(1) provides that a person who is the immediate successor in title to a developer who has done residential building work is entitled to the benefit of statutory warranties 'as if' the developer were required to hold a contractor licence and had done the work under a contract with that successor in title.

Section 18C(2) provides that residential building work done on behalf of a developer is taken to have been done by the developer.

This creates a 'deemed' or notional contract between the purchaser and the developer, giving the purchaser direct statutory warranty rights against the developer. As an immediate successor in title, the first purchaser from a developer gains the strongest statutory warranty protections under NSW building law.

Section 18D: Extension to Remote Successors

Section 18D(1) provides that a person who is a successor in title to a person entitled to the benefit of a statutory warranty is entitled to the same rights as their predecessor in title in respect of the statutory warranty.

This extends warranty protections to subsequent purchasers, not just the immediate purchaser from the developer. Combined with section 18C, it gives successors in title direct rights against both the developer and the builder for breach of statutory warranties.

Tribunal's Orders

The Tribunal made the following orders on 2 June 2022:

• Order 1: Upheld claims for minor defects (cracked plasterboard, cracked tiles, hot water heater, shower grout) and ordered both respondents to repair these defects
• Order 2: Dismissed all other claims concerning internal floor space, attic storage, water tank location, and rear courtyard decking

Tribunal's Key Findings

The Tribunal found that while the appellants were entitled as successors in title to enforce statutory warranties against both the developer and builder under sections 18C and 18D, the dismissed claims did not fall 'within the ambit' of the statutory warranty provisions.

The Tribunal reasoned that:

• The conveyance contract made specific provisions regarding internal floor space and provided flexibility for variations, with legal remedies if final outcomes varied from contract provisions
• The appellants must be assumed to have had notice of the deficiencies prior to settlement, having received the final registered strata plan from their solicitors and having conducted final inspections
• The appellants chose to complete the conveyance contract without exercising contractual remedies such as claims for compensation or rescission
• The legislature could not have intended statutory warranty protection to extend where homeowners 'willingly came to be title holders under a conveyance contract that provided for flexibility' and 'settled on that contract having been alerted to matters of which they must be assumed to have been on notice'
• Providing deemed statutory warranty contracts would be 'an after the event option' not intended by the legislature where contractual redress was available but not pursued
• Settlement with knowledge of defects does not automatically extinguish statutory warranty rights where defects arose post-contract during construction.

Tribunal's Application of Allianz Principle

The respondents argued before the Tribunal that the appellants' case was defeated by the principle in Allianz Australia Insurance Ltd v Waterbrooke at Yowie Bay Pty Ltd [2009] NSWCA 224.

In Allianz, the Court of Appeal held that a successor in title who acquires a building in full knowledge of its defects suffers no loss from those defects, because any adverse financial impact results from the successor knowingly paying more than the building was worth, not from the builder's breach of warranty.

Whilst the Tribunal did not explicitly cite Allianz, its reasoning concerning the appellants' notice or assumed knowledge of defects and decision to settle without pursuing contractual remedies reflected similar principles about purchaser knowledge negating statutory warranty claims.

Appellants' Grounds of Appeal

The appellants raised 14 grounds of appeal in their further amended grounds lodged on 11 October 2022. The principal grounds relevant to the Appeal Panel's decision were:

• The Tribunal erred in law by concluding the legislature did not intend statutory warranties to apply where the conveyance contract gave remedies and the appellants had notice or assumed knowledge of defects before completion
• The Tribunal erred in law by effectively allowing conveyance contract terms to restrict or remove statutory warranty rights contrary to section 18G of the Home Building Act
• The Tribunal erred in law by failing to examine whether the works complied with plans in the construction contract when determining breach of statutory warranties under sections 18B, 18C and 18D
• The Tribunal erred in law by finding it lacked jurisdiction to determine claims under section 37 of the Design and Building Practitioners Act 2020 (NSW)
• The Tribunal asked itself the wrong legal question and took into account irrelevant considerations (the conveyance contract) when determining the scope of statutory warranty protections

Appellants' Key Submissions

The appellants submitted that:

• Having found standing and jurisdiction, the Tribunal was required to determine whether there were breaches of statutory warranties and whether loss was suffered - not to create an anterior question about whether claims fell 'within the ambit' of warranties
• The Tribunal wrongly examined the conveyance contract rather than the construction contract when determining breach of statutory warranties
• Sections 18C and 18D create new stand-alone statutory rights that cannot be limited by conveyance contract terms
• The Allianz decision did not apply because the appellants did not enter the conveyance contract with full knowledge of defects - the dwelling was yet to be constructed
• The Tribunal made no findings that the appellants had actual knowledge of deficiencies, only assumed knowledge
• A claim for economic loss under section 37 of the Design and Building Practitioners Act falls within the definition of 'building claim' under section 48K of the Home Building Act, giving the Tribunal jurisdiction
• Building dispute resolution under the Home Building Act prioritises statutory consumer protections over restrictive conveyance contract terms.

Respondents' Defence of Tribunal Decision

The respondents submitted that:

• The Tribunal's decision was a correct application of the orthodox principle in Allianz - that purchasers with knowledge of defects suffer no loss
• The appellants knew the as-built dimensions and condition of the property prior to settlement, having received the final registered strata plan and conducted pre-settlement inspections
• The conveyance contract specifically provided remedies (clauses 6, 7, 35, 37) which the appellants chose not to exercise
• Claims for misdescription were prohibited after settlement under the conveyance contract
• The construction contract was capable of variation, and there was no breach of warranty where works were performed in accordance with contract including variations

Errors in Tribunal's Statutory Warranty Analysis

The Appeal Panel found the Tribunal made fundamental errors of law in its analysis of sections 18B, 18C and 18D of the Home Building Act:

• The Tribunal applied a limitation to the scope of statutory warranties that was not founded upon legislative provisions or case authority
• The Tribunal failed to apply the effect of statutory warranty provisions which create new stand-alone rights for successors in title
• The Tribunal examined the wrong contract (conveyance contract) rather than the construction contract when determining whether statutory warranties were breached
• The Tribunal made no findings about whether what was built conformed with plans in the construction contract
• The Tribunal made no findings about whether any valid variations to the construction contract had occurred

The Appeal Panel emphasised that sections 18C and 18D create a 'deemed' or 'notional' contractual relationship between purchaser and developer, and give purchasers the same rights against the builder as if they had directly contracted with the builder.

As confirmed in MJA Group and Baron Corporation, these provisions create new stand-alone statutory rights - they do not merely assign or vest existing contractual rights.

Rejection of 'Within the Ambit' Test

The Appeal Panel rejected the Tribunal's framing of an anterior question about whether claims fell 'within the ambit' of statutory warranties.

The Panel held that having found the appellants had standing as successors in title and the Tribunal had jurisdiction, the only relevant questions were:

• Were there breaches of the relevant statutory warranties?
• If so, was recoverable loss sustained and in what amount?

The Tribunal's approach of examining conveyance contract terms and the appellants' assumed knowledge to determine whether statutory warranties applied at all was legally incorrect. This approach effectively allowed contract terms to restrict or remove statutory warranty rights contrary to section 18G of the Home Building Act.

Allianz Distinguished

The Appeal Panel distinguished the Allianz decision on multiple grounds:

• The Tribunal did not analyse the matter by reference to any causation principle or cite Allianz
• Unlike Allianz, there were no patent defects in existence when the appellants signed the purchase contract - the dwelling was yet to be constructed
• The consumer protection policy concerns in Allianz did not apply - it could not be said that knowledge of defects would have been reflected in the purchase price
• The Tribunal did not apply a test of 'full knowledge' of defects as required by Allianz, but instead applied a test of 'notice or assumed knowledge'
• The Tribunal made no findings that the appellants had actual knowledge of deficiencies before settlement

The Appeal Panel noted that in Allianz, Ipp JA (majority) held that a successor in title who acquires a building in 'full knowledge' of its defects suffers no loss, because any adverse impact results from knowingly paying more than the building was worth, not from the builder's breach.

However, this principle requires actual knowledge of defects and their significance at the time of contract formation - not assumed knowledge at settlement of defects that arose during post-contract construction.

Construction Contract as Relevant Contract

The Appeal Panel emphasised that when determining whether statutory warranties under section 18B were breached, the relevant contract is the construction contract between developer and builder, not the conveyance contract between developer and purchaser.

Section 18B(1)(a) refers to work being done 'in accordance with the plans and specifications set out in the contract' - meaning the contract under which the residential building work was performed.

Furthermore, the construction contract included as contract documents:

• The development consent and accompanying conditions
• The approved plans referenced in the development consent
• Statutory provisions requiring plans to form part of the contract

The Tribunal's failure to examine whether the works complied with these construction contract plans, and whether any valid variations had occurred under the construction contract variation provisions, was a material error of law. Valid contract variations require written documentation and mutual agreement under Home Building Act requirements, not unilateral developer decisions.

Section 37 Duty of Care

Section 37 of the Design and Building Practitioners Act 2020 (NSW) provides:

(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.

(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.

The appellants claimed both the developer and builder carried out construction work within the meaning of section 37(1), owed them a duty of care, and breached that duty causing loss.

Tribunal's Jurisdiction Finding

The original Tribunal found it lacked jurisdiction to determine the claim under section 37 of the Design and Building Practitioners Act. The Tribunal stated it was a legislative creature that could only operate within powers specifically extended to it, and the appellants had shown no satisfactory link to establish jurisdiction under the Design and Building Practitioners Act.

Appeal Panel's Jurisdictional Analysis

The Appeal Panel held the Tribunal erred in finding it lacked jurisdiction. The Panel found that claims under section 37 of the Design and Building Practitioners Act fall within the Tribunal's jurisdiction to determine 'building claims' under section 48K of the Home Building Act.

Section 48K(1) provides: 'The Tribunal has jurisdiction to hear and determine any building claim brought before it in accordance with this Part in which the amount claimed does not exceed $500,000.'

Section 48A defines 'building claim' to include a claim for payment of a specified sum of money that 'arises from a supply of building goods or services whether under a contract or not'.

The appellants' claim for economic loss under section 37 was for a specified sum of money (stated as exceeding $38,946.78) arising from the supply of building goods or services. This satisfied the definition of 'building claim' and fell within the Tribunal's jurisdiction under section 48K.

The Appeal Panel's conclusion was supported by the earlier Appeal Panel decision in Binah Constructions [2021] NSWCATAP 68, which held that claims for economic loss under the Design and Building Practitioners Act fall within the Tribunal's building claims jurisdiction.

Orders Made

On 31 March 2023, the Appeal Panel made the following orders:

• The appeal is allowed
• Order 2 of the orders made by the Tribunal on 2 June 2022 is set aside (this was the order dismissing the major defects claims)
• The claims the subject of Order 2 are remitted to the Tribunal, differently constituted, for redetermination according to law
• The appellants' costs of the appeal are to be paid by the respondents
• The costs order made by the Tribunal on 15 September 2022 is set aside
• The question of what costs order should be made in substitution for the 15 September 2022 costs order is remitted to the Tribunal, differently constituted, for redetermination
• Liberty to apply within 14 days to vary the costs orders with written submissions

Reasons for Remittal to Different Member

The appellants sought remittal to a differently constituted Tribunal, which the respondents did not oppose.

The Appeal Panel considered such an order was in the interests of justice, applying the approach in Chapman v Nicolosi (No 2) [2023] NSWCATAP 73.

The Panel noted that:

• The Tribunal had expressed an adverse view about the appellants' expert evidence concerning internal floor space (at paragraph [48] of the reasons)
• The Tribunal had formed a firm and general adverse view about the merits of the appellants' case in concluding they were not entitled to statutory warranty protections (at paragraphs [50], [72] and [73])
• These views were expressed without proper legal foundation

Remittal to a differently constituted Tribunal would ensure the appearance of justice and avoid any perception that the Tribunal member had predetermined views adverse to the appellants.

Matters for Redetermination

On remittal, the Tribunal will need to determine:

• Whether the works as constructed complied with the plans and specifications in the construction contract between developer and builder
• Whether any valid variations to the construction contract plans occurred in accordance with statutory and contractual variation requirements
• Whether the deficiencies alleged by the appellants constituted breaches of statutory warranties under section 18B(1)(a) (due care and skill, accordance with plans) and section 18B(1)(c) (accordance with law)
• Whether the developer and/or builder are liable for any established breaches under sections 18C and 18D
• Whether recoverable loss was sustained by the appellants and in what amount
• Whether the developer and/or builder breached the duty of care under section 37 of the Design and Building Practitioners Act
• What costs orders should be made for the first instance hearing

Statutory Warranty Protections Are Enforceable

This decision confirms that homeowners purchasing newly constructed properties have enforceable statutory warranty rights under the Home Building Act, even if:

• The conveyance contract contains terms allowing variations or limiting remedies
• The homeowner becomes aware of defects before settlement
• The homeowner chooses to settle rather than rescind or pursue contractual remedies
• The conveyance contract provides alternative remedies that were not exercised
• Building defects claims remain valid regardless of conveyance contract clauses attempting to waive or limit statutory warranty protections.

Statutory warranty protections exist independently of and cannot be restricted by conveyance contract terms. Homeowners retain the right to pursue warranty claims even if they settle with knowledge of issues.

Pre-Settlement Knowledge Does Not Defeat Claims

The decision clarifies that homeowners' knowledge of defects before settlement does not automatically defeat statutory warranty claims. The Allianz principle requiring 'full knowledge' of defects applies only where:

• Patent defects exist at the time the purchase contract is signed
• The purchaser has actual knowledge of the defects and their significance
• The purchase price reflects the defective condition

Mere notice, assumed knowledge, or awareness of issues that arise during construction after the purchase contract is signed does not preclude warranty claims. This protects homeowners who discover problems during pre-settlement inspections but proceed to settlement.

Enforcement Rights Against Developers and Builders

Homeowners have direct statutory rights against both developers and builders for breach of warranties:

• Against developers under section 18C (as if the developer had contracted directly with the homeowner to perform the work)
• Against builders under section 18D (same rights as the developer had against the builder)

This dual pathway provides homeowners with enforcement options even if one party becomes insolvent or difficult to pursue.

Additional Rights Under Design and Building Practitioners Act

Homeowners can pursue claims for breach of duty of care under section 37 of the Design and Building Practitioners Act 2020 through NCAT. This provides an additional avenue for recovering economic loss caused by building defects, with a potentially broader scope than statutory warranty claims.

The Design and Building Practitioners Act duty applies to any person who 'carries out construction work' and extends to subsequent owners of the land.

Importance of Construction Contract Compliance

The decision emphasises that compliance with approved plans and specifications in the construction contract (including development consent plans and construction certificate plans) is required to satisfy statutory warranties.

Homeowners should obtain and review:

• Development approval plans and conditions
• Construction certificate plans
• Construction contract documents (if accessible)
• Registered strata plans

Discrepancies between what was approved and what was built may constitute breaches of statutory warranties, regardless of conveyance contract terms permitting variations. Development approval compliance is mandatory and cannot be circumvented through purchase contract flexibility clauses or assumed buyer consent.

If you discover building defects or non-compliance with approved plans in your newly purchased strata townhouse, take these immediate steps to protect your statutory warranty rights:

Step 1: Document Everything Comprehensively - Photograph all defects, variations from approved plans, and non-compliant work immediately upon discovery. Obtain copies of development consent, construction certificate plans, registered strata plans, and your conveyance contract. This evidence establishes the factual foundation for warranty breach claims under sections 18B(1)(a) and 18B(1)(c).

Step 2: Obtain Specialist Construction Law Advice - Consult a construction defects lawyer experienced in Home Building Act statutory warranty claims before taking any action. Early legal advice clarifies your rights against both developers and builders under sections 18C and 18D, prevents procedural mistakes, and ensures you understand how the Deaves decision protects your position even if you settled with knowledge of defects.

Step 3: Preserve Your Legal Rights Formally - Send formal notice of defects to both developer and builder within statutory timeframes. Do not sign any documents waiving rights, accepting variations, or acknowledging that settlement defeats warranty claims. Your lawyer should draft these notices to preserve all enforcement pathways under both the Home Building Act and Design and Building Practitioners Act.

Step 4: Understand Your Enforcement Options - You have direct statutory rights against both the developer (under section 18C) and the builder (under section 18D) for the same defects. Additionally, claims under section 37 of the Design and Building Practitioners Act provide alternative pathways for recovering economic loss. NCAT has jurisdiction for both warranty claims and DBPA duty of care claims, offering accessible dispute resolution without immediate court litigation costs.