Case Note: Owners Corporation 1 Plan No PS630504G v J & GKnowles and Associates Pty Ltd [2025] VCAT 967

The 2025 VCAT decision in Owners Corporation 1 Plan No PS630504G v J & G Knowles and Associates Pty Ltd [2025] VCAT 967 provided essential clarification on the application of statutory building warranties to a contract of sale of real estate and the Tribunal's method for assessing defective works and rectification costs. Of the claimed $2,616,805.73, the Tribunal ultimately awarded the Owners Corporation damages in the amount of $209,945.67

Background

The dispute concerned a multi-unit development which comprised of 72 units and common property over 4 multilevel buildings. The main respondent, J & G Knowles and Associates Pty Ltd (J & G Knowles) entered into agreements with various individuals and entities for the sale of residential units (to be constructed) in Sydenham in Melbourne’s West. The Owners Corporation 1 Plan No PS630504G (OC) and the individual lot owners issued proceedings seeking damages for defective or non-compliant work against the vendor, J & G Knowles (who was also determined to be the builder). The key legal issues revolved around whether statutory warranties under the Domestic Building Contracts Act 1995 (DBCA) or the Owner-Builder provisions of the Building Act 1993 (Building Act) applied to protect the purchasers and subsequent owners.

1.Were the contracts of sale domestic building contracts under the DBCA?“First Report” Insurance

Determining whether the contracts of sale were domestic building contracts was the main legal gateway through which the OC and lot owners had to pass to establish liability on the part of J & G Knowles.

The Tribunal considered the Supreme Court of Appeal decision Shaw v Yarranova Pty Ltd [2006] VSCA 291where it held that contracts of sale for ‘off the plan’ properties are not domestic building contracts unless the vendor promises to carry out ‘the practical activities involved in the work of constructing a building’.

However, that case was decided before the introduction of section 3(4) of the DBCA which provides that a contract for the sale of land on which a home is to be constructed prior to settlement (i.e. off the plan) is not a domestic building contract if the home is being or will be constructed under a separate major domestic building contract.

The Tribunal found that the contracts of sale in the case of J&G Knowles are domestic building contracts for the following reasons:

J & G Knowles was the builder of the apartment complex. This was admitted and established in the form of building permits and domestic building warranty insurance which all refer to the vendor as the builder.

The contracts of sale contemplated that the building work would be carried out by the vendor (and not a thirdparty contractor).

The contracts defined ‘plans and specifications’ for the construction of the buildings and attached them to the contracts of sale. The warranty insurance certificate was also attached to the contract of sale.

The vendor assumed responsibility for the control and construction of the building works by agreeing to ‘do everything that is reasonably possible for the builder to do to ensure that the construction of the Property Buildings will commence as soon as possible’.

Case Note: Owners Corporation 1 Plan No PS630504G v J & G Knowles and Associates Pty Ltd [2025] VCAT 967 There were also various clauses of the contracts of sale which indicated that the vendor promised to carry out construction of the apartment complex including one which provided that the vendor owes the purchaser the same warranties as set out in section 8 of the DBCA.

2. Is J & G Knowles an owner-builder who owes the OC and lot owners the warranties contained in section 137C of the Building Act?

Section 137B of the Building Act applies where a person obtains a building permit in their own name and carries out work as an owner-builder and then sells the property within a specific timeframe (currently 6.5 years). When a property subject to section 137B is sold, pursuant to section 137C of the Building Act, the vendor is deemed to give the purchaser statutory warranties regarding the building work, which are essentially the same as the warranties under section 8 of the DBCA.

It was established that the vendor was the owner, and also the person (or entity) which constructed the home (being domestic dwellings), and did enter into contracts of sale of the homes. As such, it was found that in the alternative to the contracts of sale being domestic building contracts, J & G Knowles was an owner builder of the apartment complex and owes the lot owners the warranties in section 137C of the Building Act.

3. Can the lot owners pursue a claim against the builder for defective works on common property?

The majority of the defective works claims were made in relation to common property. There were only two lot owners claims for consequential damages in respect of water damage and mould, however these claims were not proven.

Considering the subject of the claims by the lot owners concerned common property, which is owned by the OC, and having regard to the Supreme Court decision in Body Corporate No 1/PS40911511E St James Apartments v Renaissance Assets Pty Ltd [2004] VSC 438 the lot owners’ claim was struck out.

4. VCAT’s assessment of breach of the statutory warranties

The OC raised various issues including, inter alia, external wall cracking, failed waterproofing, car park cracking, roof leaks, moisture rising and construction not as per the stamped plans. The Tribunal undertook a detailed analysis of the evidence provided by the building experts, ultimately preferring the opinions of the experts engaged by J & G Knowles.

It was confirmed that the usual process in assessing defective building work is by determining the cost to rectify defects, provided the rectification work is both necessary to produce conformity with the terms of the contract and reasonable in all the circumstances (Bellgrove v Eldridge (1954) 90 CLR 613, 617–18). In considering what is reasonable, regard may be had to the following principles (as summarised in Clarendon Homes Vic Pty Ltd v Zalega [2010] VCAT 1202, [165](d)):

Whether and to what extent the work, although not in conformity with the contract, is nonetheless serviceable;

Whether and to what extent the defect has affected the value of the work or the building as a whole;

The cost of rectification and whether the cost would be wholly disproportionate to the real damage suffered by reason of it; and

The likelihood that, if rectification is awarded, the sum ordered will actually be spent on rectification (indicating whether the amount sought is greater than the real loss suffered).

A key factor in the assessment of damages was the adequacy of the expert reports. The OC's evidence was largely rejected for specific items, such as the concrete carpark cracks, due to a failure in substantiation. The OC's expert did not provide the required technical or quantifiable evidence to place the cracking within a defect category, thus failing to prove a breach of the statutory warranty under s 8(c) of the DBCA (works to comply with all laws and legal requirements). Conversely, J & G Knowles' experts provided a detailed comparative assessment, concluding the cracking fell within acceptable industry standards and what is to be expected. The Tribunal's preference for the latter underscores the necessity for expert opinions to be grounded in clear, measured, and persuasive technical data.

Furthermore, the Tribunal was critical of the substantiation provided by the OC's expert regarding the quantum of rectification. Claims for certain items (which were accepted as defective or incomplete) were deemed unsuccessful due to the lack of necessary breakdown and explanation as to how the scope of work would rectify

the defect or how the claimed amount was calculated. In contrast, the expert evidence concerning rectification costs presented by J & G Knowles was preferred due to the following advantages:

J & G Knowles engaged a qualified quantity surveyor to prepare costings, whereas the OC's expert lacked this qualification.

2. The quantity surveyor's assessment was observed as methodical, rigorous, and more detailed than the OC's estimate.

3. Costs were calculated based on what would be charged by a building company employing relevant trades directly, rather than using a main contractor's sub-contractor costs plus margin.

This was assessed as more viable, realistic, and economical, aligning with the "reasonable" limb of the damages assessment standard. In some instances, the Tribunal was forced to accept the costings provided by J & G Knowles due to the absence of an alternative from the OC’s expert. This outcome is a critical reminder that litigants must provide comprehensive, detailed, and complete costings to avoid the Tribunal defaulting to the opposing party's figures.

The case confirms that builders selling their own developments face statutory warranties (DBCA or under s137C of the Building Act). However, for applicants, it is also a reminder that only the Owners Corporation has the standing to claim for common property defects. Furthermore, the case reinforced the importance that expert reports must be comprehensive, quantified, and provide cost breakdowns to be persuasive to the Tribunal.

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