Tem­po­rary Dis­con­for­mi­ty in Build­ing Defects: Myth, Not Law

The ​“tem­po­rary dis­con­for­mi­ty” argu­ment in con­struc­tion dis­putes sug­gests that defec­tive work iden­ti­fied before prac­ti­cal com­ple­tion is not a breach while the builder retains a con­trac­tu­al right to rec­ti­fy. NSW courts have con­sis­tent­ly reject­ed this propo­si­tion, con­firm­ing that defec­tive work con­sti­tutes a breach at the time it is performed.

The notion of ​“tem­po­rary dis­con­for­mi­ty” is some­times advanced in build­ing dis­putes where defec­tive work is iden­ti­fied before prac­ti­cal com­ple­tion or han­dover. Builders will argue that because they retain a con­trac­tu­al right to rec­ti­fy defects, defec­tive work does not amount to a breach until that oppor­tu­ni­ty has passed. On this view, non‑conforming work is said to be mere­ly ​“tem­po­rary” and there­fore not action­able by the owner.

The ​“Tem­po­rary Dis­con­for­mi­ty” Argument

The con­cept traces back to the Eng­lish House of Lords deci­sion in P & M Kaye Ltd v Hosier & Dick­in­son Ltd [1972] All ER Rep 121 (HL). In that case, Lord Diplock sug­gest­ed that where a con­trac­tor puts defec­tive work right ​“timeous­ly”, the par­ties may not have intend­ed that any tem­po­rary non‑conformity would itself con­sti­tute a breach.

Builders argue that defects iden­ti­fied before com­ple­tion do not give rise to an imme­di­ate breach, par­tic­u­lar­ly where the con­tract includes rec­ti­fi­ca­tion mech­a­nisms or a defect lia­bil­i­ty period.

How­ev­er, NSW courts have deci­sive­ly reject­ed that approach.

Con­trac­tu­al Oblig­a­tions Are Not Deferred

Most stan­dard form con­struc­tion con­tracts, includ­ing AS 4000 and AS 4902, impose two dis­tinct oblig­a­tions on a builder:

1. to car­ry out the work in accor­dance with the con­tract, includ­ing prop­er and work­man­like per­for­mance; and
2. to com­plete the work in accor­dance with the contract.

The exis­tence of con­trac­tu­al régime allow­ing defects to be rec­ti­fied does not sus­pend or qual­i­fy the first oblig­a­tion. Rec­ti­fi­ca­tion pro­vi­sions oper­ate to man­age the con­se­quences of defec­tive work — not to deny that a breach has already occurred.

NSW Posi­tion: ​“There Is No Such Rule”

In Own­ers of Stra­ta Plan 80458 v TQM Design & Con­struct Pty Ltd [2018] NSWSC 1304, Jus­tice Ham­mer­schlag square­ly reject­ed the the­o­ry of tem­po­rary dis­con­for­mi­ty, stating:

“There is no such rule in this State.”

In this case the builder, TQM argued that defec­tive work could not con­sti­tute a breach while it still had the oppor­tu­ni­ty to rem­e­dy defect under the con­tract or dur­ing the defect lia­bil­i­ty peri­od. The Court disagreed.

Jus­tice Ham­mer­schlag held that where a con­tract requires work to be done in a prop­er and work­man­like man­ner, defec­tive work is a breach at the time it is per­formed, even if it is lat­er reme­died. While con­trac­tu­al mech­a­nisms may mit­i­gate loss or pro­vide an avenue for rec­ti­fi­ca­tion, they do not erase the ini­tial breach.

Accru­al of Dam­ages: When the Defect Is Done

The rejec­tion of tem­po­rary dis­con­for­mi­ty was rein­forced in Cohen v Zan­zoul [2020] NSWSC 592, where the Court con­firmed that an owner’s enti­tle­ment to dam­ages for defec­tive work accrues when the defec­tive work is car­ried out, not at some lat­er point when rec­ti­fi­ca­tion rights expire.

Per­for­mance Secu­ri­ty and Ongo­ing Works

The issue came into fur­ther focus in Icon Co (NSW) Pty Ltd v Aus­tralia Avenue Devel­op­ments Pty Ltd [2020] NSWSC 178, aris­ing from defects at the Opal Tow­er devel­op­ment in Syd­ney Olympic Park.

The prin­ci­pal sought to call on a $3.9 mil­lion per­for­mance bond, assert­ing that Icon had breached a mate­r­i­al con­trac­tu­al oblig­a­tion by fail­ing to exe­cute the works in a prop­er and work­man­like manner. 

Icon argued that any breach could only be assessed at final com­ple­tion, up until that time it was con­tin­u­ing to exe­cute the WUC by under­tak­ing rec­ti­fi­ca­tion works.

Jus­tice Steven­son reject­ed that argu­ment. His Hon­our held that the builder’s oblig­a­tions extend­ed to both:

• the work required to be car­ried out and com­plet­ed under the con­tract; and
• any reme­di­al work neces­si­tat­ed by ear­li­er defec­tive performance.

A fail­ure to per­form the works prop­er­ly can con­sti­tute a breach even where the builder remains oblig­ed to car­ry out rec­ti­fi­ca­tion that might be required by rea­son of short­com­ings in work done ear­li­er. The pres­ence of ongo­ing reme­di­al oblig­a­tions does not immu­nise the builder from breach and in this case did not pre­vent the prin­ci­pal hav­ing recourse to secu­ri­ty for the breach where the con­tract per­mits it.

Key Take­aways

• Defec­tive work is a breach when it is done
• Rec­ti­fi­ca­tion rights do not post­pone or negate that breach
• Dam­ages accrue at the time of defec­tive performance

The the­o­ry of ​“tem­po­rary dis­con­for­mi­ty” may still be raised in nego­ti­a­tions, but it has no mean­ing­ful legal foot­ing in NSW. Prin­ci­pals should not be deterred from assert­ing their rights, and builders should not assume that the con­trac­tu­al abil­i­ty to rec­ti­fy defects shields them from breach.