Prov­ing Major Build­ing Defects Under the Home Build­ing Act

What qual­i­fies as a major defect in res­i­den­tial build­ings under NSW law? Defects can range from minor issues to seri­ous struc­tur­al prob­lems, but under­stand­ing the legal def­i­n­i­tion of a ​‘major defect’ under sec­tion 18E(4) of the Home Build­ing Act 1989 (NSW) is crit­i­cal before mak­ing a claim. This arti­cle explains the key cri­te­ria, recent case law, and why these dis­tinc­tions mat­ter for home­own­ers, builders, and developers.

Defects in res­i­den­tial build­ings can be clas­si­fied as minor or major defects depend­ing on the sever­i­ty of the defect and the effect of it on the hab­it­abil­i­ty and struc­ture of the build­ing or part of it. The term ​“major defect” is defined in sec­tion 18E(4) of the Home Build­ing Act 1989 (NSW) (HBA). While the def­i­n­i­tion is some­what tech­ni­cal, under­stand­ing what it means and how it applies is essen­tial before mak­ing a claim against a builder or developer. 

In the case of Steven­son v Ash­ton [2018] NSW­CATCD 25 (Steven­son), Senior Mem­ber Robert­son of the New South Wales Civ­il and Admin­is­tra­tive Tri­bunal sep­a­rat­ed the ele­ments of a ​‘major defect’ as defined in sec­tion 18E(4) of the HBA into three key cri­te­ria. First­ly, the defect has to be locat­ed ​“in a major ele­ment of the build­ing”. Note that the char­ac­ter­i­sa­tion of ​“major ele­ment” in sec­tion 18E(4) of the HBA means that for a defect to be ​‘major’ it must be in “(a) an inter­nal or exter­nal load-bear­ing com­po­nent of a build­ing…, or (b) a fire safe­ty sys­tem, or (c) water­proof­ing, or” in anoth­er ele­ment list­ed in the reg­u­la­tions. A claimant must also show that ​“the defect [is] attrib­ut­able to faulty design, defec­tive or faulty work­man­ship, defec­tive mate­ri­als, or a fail­ure to com­ply with the struc­tur­al per­for­mance require­ments of the Nation­al Con­struc­tion Code (or any com­bi­na­tion of these)”. In addi­tion to these two require­ments, the defect has to ​“cause or be like­ly to cause” the unin­hab­it­abil­i­ty or use of a build­ing or part of it ​“for its intend­ed pur­pose, or (ii) the destruc­tion of the build­ing or any part of the build­ing, or (iii) a threat of col­lapse of the build­ing or any part of the build­ing.” Steven­son sim­pli­fied these this last require­ment as ​“whether the defects are ​“like­ly to cause” the rel­e­vant consequences.” 

Recent case law like Steven­son has played a cru­cial role in clar­i­fy­ing the inter­pre­ta­tion of sec­tion 18E(4), par­tic­u­lar­ly regard­ing what it means for a defect to ​“cause or be like­ly to cause” the spec­i­fied con­se­quences. The courts have embraced a more expan­sive and flex­i­ble approach, mak­ing it clear­er for par­ties in build­ing dis­putes to estab­lish that a defect meets the thresh­old of a major defect.

Func­tion­al­i­ty and Habitability

The deci­sion of Pan­chal v Jones t/​as Oz Style Homes [2018] NSW­CATD 238 estab­lished that the build­ing or part of the build­ing does not need to be com­plete­ly unin­hab­it­able for a defect to be con­sid­ered ​‘major’. Instead, it must be shown that because of the defect the build­ing can­not be used for its intend­ed pur­pose. There has to be clear evi­dence demon­strat­ing the actu­al impact of the defect on the build­ings use or hab­it­abil­i­ty. For exam­ple, where there is a water leak (even if it does not make the build­ing unin­hab­it­able), if it could ren­der the build­ing unsuit­able for liv­ing or work­ing (even if it remains struc­tural­ly sound), an own­er needs evi­dence to show how the build­ing can­not be in habit­ed by rea­son of the defect. The sever­i­ty of the defect influ­ences its effect on the building’s func­tion­al­i­ty, and this must be shown to be seri­ous enough to sig­nif­i­cant­ly affect how the build­ing can be used.

Does the Impact of a Defect on Hab­it­abil­i­ty, Use or Sta­bil­i­ty Need to be Imminent

In Steven­son v Ash­ton [2019] NSWSC 1689, the New South Wales Supreme Court over­turned the New South Wales Civ­il and Admin­is­tra­tive Tri­bunals appeal panel’s deci­sion which found that a major defect must be either ​“immi­nent or prob­a­ble.” In the orig­i­nal deci­sion, the Appeal Pan­el erro­neous­ly imposed an urgency require­ment that was not sup­port­ed by the sec­tion 18E(4) of the HBA. Sub­se­quent­ly in the appeal, the Supreme Court found that the nar­row read­ing of the urgency require­ment con­strained the gov­ern­men­t’s inten­tion for intro­duc­ing the leg­is­la­tion. In lieu of the appeal pan­el’s deci­sion, the court held that a defect may be clas­si­fied as major if it presents a ​“rea­son­able pos­si­bil­i­ty” of future harm. 

A Major Defect Claim Cust be Sup­port­ed by Appro­pri­ate Evidence

The New South Wales Civ­il and Admin­is­tra­tive Tri­bunal has also empha­sised that it is unac­cept­able to rely on guess­es or assump­tions that a defect meets the thresh­old of ​‘major defect’ in Vel­la v Mir [2019] NSW­CAT­AP 28. To sup­port the propo­si­tion that a defect is ​‘major’, the claimant must pro­vide the court with con­crete evi­dence of how the defect affects the build­ing. It is not enough to mere­ly spec­u­late about poten­tial future issues to the build­ing. If a claimant is advo­cat­ing that a defect is ​‘major’, it is rea­son­able that they should have to prove that the defect will or prob­a­bly have the pre­scribed consequence.

How to effec­tive­ly prove that a defect has met the require­ments of a major defect

The law clear­ly stip­u­lates that an own­er must pro­vide evi­dence of a gen­uine risk of seri­ous destruc­tion or col­lapse, not just minor wear and tear. To sup­port a claim of seri­ous issues caus­ing unin­hab­it­abil­i­ty, destruc­tion or col­lapse, there needs to be strong, reli­able evi­dence show­ing the defect’s actu­al or like­ly future impact on the build­ing or part of it. Small dam­age or spec­u­la­tive assess­ments are not enough; there must be proof of sig­nif­i­cant risks to the building’s integri­ty and habitability. 

Expert opin­ion, which often takes the form of expert reports, is a cru­cial type of evi­dence for major defect claims as it helps to estab­lish the poten­tial for destruc­tion or col­lapse which often requires spe­cialised knowl­edge. The impor­tance of clear expert tes­ti­mo­ny was high­light­ed in The Own­ers Stra­ta Plan 58020 v The Krafts­men Prop­er­ty Main­te­nance Pty Ltd [2023] NSW­CATCD 178 when the New South Wales Civ­il and Admin­is­tra­tive Tri­bunal explained that expert evi­dence which assess­es the like­li­hood of defects caus­ing one of the out­comes in s 18E(4) of the HBA must be clear, ratio­nal, and under­stand­able. The expert should pro­vide the cri­te­ria that the expert has relied on to come to their con­clu­sions to enable the fact find­er to eval­u­ate the valid­i­ty of the expert’s conclusions.

The deter­mi­na­tion of the mat­ters out­lined in sec­tion 18E(4)(a)(i)-(ii) of the HBA (i.e. unin­hab­it­abil­i­ty, destruc­tion and col­lapse) are fac­tu­al ques­tions, mean­ing they require a con­clu­sion based on spe­cif­ic, ver­i­fi­able evi­dence rather than on the inter­pre­ta­tion of legal prin­ci­ples or rules. Expert evi­dence is sig­nif­i­cant in arriv­ing at these deter­mi­na­tions as they pro­vide ver­i­fi­able evi­dence as to why a build­ing or part of a build­ing in unin­hab­it­able, destroyed or is threat­ened by col­lapse. The role of an ​“expert” in mak­ing these deter­mi­na­tions is to assess, in light of the defects observed, whether, in their pro­fes­sion­al opin­ion, those defects are like­ly to have the future con­se­quences men­tioned above. In com­ing its con­clu­sions, experts must con­sid­er fac­tors such as the design life, mate­ri­als used, and oth­er rel­e­vant tech­no­log­i­cal aspects in eval­u­at­ing the poten­tial future effects. Ulti­mate­ly, the expert’s evi­dence must estab­lish that the defects are like­ly to lead to the spec­i­fied out­come of unin­hab­it­abil­i­ty, destruc­tion or threat of col­lapse. Expert evi­dence is also rel­e­vant and help­ful in prov­ing a major defect as it pro­vides an under­stand­ing of the cause and sever­i­ty of a defect. 

It is fur­ther not­ed that lay evi­dence which is fac­tu­al tes­ti­mo­ny by indi­vid­u­als that are not experts, such as from occu­pants of a build­ing, can be giv­en to estab­lish the seri­ous­ness of a defect. This is par­tic­u­lar­ly in rela­tion to the abil­i­ty to use the build­ing or a part of it for its intend­ed pur­pose. This is sup­port­ed by the case of Steven­son v Ash­ton [2020] where the court stat­ed that lay evi­dence, includ­ing obser­va­tions and pho­tographs, may also be used to deter­mine whether a ​‘defect’ is major or minor.

Final­ly, in rela­tion to the plead­ing of major defects in lit­i­ga­tion mat­ters, it is essen­tial that such defects are prop­er­ly iden­ti­fied and par­tic­u­larised. The deci­sion in The Own­ers – Stra­ta Plan No. 93357 v Bloc (ACT) Pty Ltd [2024] NSWSC 239 serves as a clear illus­tra­tion of this require­ment. In that case, Steven­son J held that it was ​“unhelp­ful” to sim­ply assert that ​“each of the defects is a major defect as defined pur­suant to s 18E(4) of the Home Build­ing Act” with­out explain­ing why each alleged defect met that statu­to­ry def­i­n­i­tion ([26] – [27]).

His Hon­our observed that the Amend­ed Tech­nol­o­gy and Con­struc­tion List State­ment list­ed 32 alleged defects but did not pro­vide any expla­na­tion as to how they sat­is­fied the cri­te­ria for a ​“major defect.” The Court not­ed that, to com­ply with the evi­den­tiary stan­dard, it is nec­es­sary to plead why each indi­vid­ual defect con­sti­tutes a ​‘major defect’ with­in the mean­ing of s 18E(4), for exam­ple, by iden­ti­fy­ing how the defect affects a ​“major ele­ment” of the build­ing or its struc­tur­al sta­bil­i­ty ([30]).

Accord­ing­ly, when plead­ing major defects, par­ties must go beyond gen­er­alised asser­tions and specif­i­cal­ly explain, for each defect, the basis upon which it is said to fall with­in the statu­to­ry definition