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Residential Focus: A – Limiting liability in NSW residential building contracts – what are the limits? – Construction & Planning

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Limiting liability in NSW residential building contracts
– what are the limits?

Including a contractual limitation on liability is a tempting
proposition to manage risk. A recent
considered whether such a term unwittingly restricted
or removed an owner’s rights under the Home Building Act 1989
(NSW) (Act) and serves as a reminder that if
contractual terms restrict or remove the rights of the owners, they
may be read down or held to be void.


The application to the Tribunal involved allegations defective
work including in roof decking, which resulted in water

The contract relevantly provided, at clause 36.2:

The builder is not responsible for:

(a) loss or damage to the owner’s property or property for
which the owner is responsible that is left on the site

(b) subject to Clause 36.2(c) any defect, structural deficiency,
settlement or deterioration in the existing building except to the
extent that it is caused by the builder failing to take reasonable
care in carrying out the works

(c) damage to ceilings in the existing building except to the
extent that it is caused by the builder failing to take reasonable
care in carrying out the building works, but then only to the
extent of repairing and excluding any repainting

(d) damage to paths, gardens, driveways, trees, lawns and other

(e) the restoration of areas affected by the building works to
their original condition.

In making an order for damages, including in relation to the
cost of rectification or replacement of damaged floors and
furniture, the Tribunal below found that:

  • defective work in respect of the roof decking was a cause of
    internal damage

  • inadequate sealing of the flue caused damage to the
    plasterboard ceiling

  • clauses 36.2(c) and (e) of the contract were to be read down by
    reference to s 18G of the Act.

Section 18G of the Act provides that a provision of a contract
that purports to restrict or remove rights of a person in respect
of the operation of the statutory warranties under section 18B, is


The Builder appealed on the following grounds:

  • the Tribunal erred on a question of law by reading down the
    term of clause 36.2(c) and (e) be reference to section 18G of the

  • the Tribunal erred (on a question of law) in a process of
    reasoning regarding causation

  • in the alternative, the findings made were against the weight
    of the evidence

  • the Tribunal erred on a question of law, by awarding damages in
    respect of water damage to the floor when the relevant claim had
    been abandoned.

The focus of our article will be the first ground, the s. 18G

Application of s 18G of the Act

The Builder argued that the Tribunal erred in determining that
the effect of clause 36.2 was to restrict the rights of the owner
to damages for breach of the statutory warranties under s. 18B(1)
and that the clause had a legitimate basis in freedom of

The Appeal Panel held that the Tribunal below correctly found
that clause 36.2(c) and (e) did restrict the operation of the
statutory warranties under s. 18B(1) of the Act.

The restriction in clause 36.2(c) was found to operate in three

  • to confine liability to a failure to take reasonable care (also
    the reason given for clause 36.2(b) operating as a restriction),
    which is not a requirement of the statutory warranties

  • to confine any order to repair, which disentitles

  • by excluding repainting.

The restriction in clause 36.2(e) appeared to restrict a right
under s. 18B(1) of the Act in circumstances where replacement
rather than repair is considered appropriate.

The contract allowed clause 36.2 (b), (c) and (e) to be read
down to the extent they are impermissible, however clause 36.2(a)
could restrict or remove the right provided by a statutory warranty
and may thus be rendered void by s. 18G of the Act.


Section 18G is powerful in its protection of the statutory
warranties under the Act, which cannot be ‘undone’ in
contract, regardless of whether relevant contractual terms are
agreed in ‘freedom of contract’.

Builders should consider whether standard terms and in
particular, their favourite special conditions, operate to restrict
or remove the rights of owners under s.18B(1).

Given that offending terms will be either read down or rendered
void, builders should consider pricing in the risks they are
seeking to exclude, so that their bargain reflects the deal they
may be held to have made, if their contract is reviewed by the
courts or the Tribunal.

This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a substitute
for legal or other advice that may be relevant to the reader’s
specific circumstances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your circumstances please contact one of the named
individuals listed.

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