Settling parties beware: the dangers associated with settlement agreements where parties agree to carry out subsequent rectification works

The NSW Supreme Court explored the application of a settlement agreement arising in prior NCAT proceedings to the performance of repair works, as well as considered the respective defendants’ liability under separate claims pursuant to the Design and Building Practitioners Act 2020 (NSW) and the Home Building Act 1989 (NSW).

In issue

• the nature and extent of the terms of a settlement agreement entered into by the plaintiff in prior NCAT proceedings and the relevant responsibility to rectify defects
• whether the fourth defendant was in breach of s 37 of the Design and Building Practitioners Act 2020 (NSW) (the DBPA) and s 5B – E and s 5Q of the Civil Liability Act 2002 (NSW) (the CLA)
• whether the fifth defendant carried out 'construction work' as contemplated by s 36 of the DBPA, and ultimately, breached the duty of care owed subject to s 37 of the DBPA, and
• whether the second defendant breached statutory warranties under s 18B of the Home Building Act 1989 (NSW) (HBA).

The background

The first defendant, Samdora Pty Ltd (Samdora), was the builder of nine town houses in Mangerton, NSW (the property).

NCAT Proceedings

In 2018, Strata Plan 92183 (the plaintiff), commenced proceedings in the NSW Civil and Administrative Tribunal (NCAT) against Samdora and the developer of the property (second defendant – 3173 Pty Ltd), pursuant to the Home Building Act 1989 (NSW) (HBA).

The NCAT proceedings were ultimately resolved pursuant to a settlement agreement between the parties (the settlement agreement), with the plaintiff withdrawing the NCAT proceedings. It was the plaintiff’s contention that by virtue of the settlement agreement, Samdora and 3173 Pty Ltd were to undertake certain specified works by way of rectification. Samdora subsequently engaged Noun Construction Pty Ltd (Noun) to carry out the repair works.

Supreme Court Proceedings

The plaintiff issued proceedings in the NSW Supreme Court against Samdora, Samdora’s sole director (Mr Ghassan Nassif), 3173 Pty Ltd, 3173 Pty Ltd’s sole director (Mr Elie Chahwan), Noun and Noun’s director (Mr Omar Noun), alleging defects in relation to the original works performed (original works) as well as the repair works carried out in performance of the settlement agreement (repair works). Judgment was entered against Mr Noun on the first day of hearing.

Settlement Agreement

The first issue that arose was in regard to the precise terms of the settlement agreement. 3173 Pty Ltd and Mr Chahwan contended that the settlement agreement contained a release, meaning they had a complete defence against the plaintiff’s claim against them in the proceedings. Further, 3173 Pty Ltd argued that, whilst it was formally a party to the settlement agreement, it had no obligation to perform the repair works as that obligation rested squarely with Samdora (which had now been deregistered).

The plaintiff submitted that the release did not form part of the settlement agreement, and rather that the settlement agreement meant Samdora and 3173 Pty Ltd were both obligated to undertake the repair works. As Samdora had been reregistered, the critical dispute was accordingly whether 3173 Pty Ltd had any liability in relation to the repair work to be performed as a result of the settlement agreement.

The parties adduced contemporaneous correspondence in support of their interpretation of the settlement agreement.

Defects

The plaintiff’s claims in relation to the alleged defects were as follows:

1. As against Mr Nassif – breach of s 37 of the DBPA and ss 5B – E and 5Q of the CLA.
2. As against Mr Chahwan – breach of s 37 of the DBPA.
3. As against 3173 Pty Ltd – breach of the statutory warranties under s 18B of the HBA (relating to the original works).

The decision at trial

The Court found that all correspondence regarding the settlement agreement indicated the matter was to be resolved 'by way of the builder doing repairs on reasonable terms'. That is, that Samdora would carry out the work to be performed. Accordingly, the Court held that the settlement agreement imposed no express positive obligations on 3173 Pty Ltd in relation to the repair works and therefore the plaintiff’s claim against 3173 Pty Ltd and Mr Chahwan for failing to carry out the repair works under the settlement agreement failed.

Regarding the defects, the Court held that in order for Mr Chahwan to have any liability pursuant to s 37 of the DBPA, it must be demonstrated that he carried out 'construction work' as defined in s 36 of the DBPA. As the plaintiff was unable to prove that the Mr Chahwan had been 'supervising, coordinating, project managing or otherwise having substantiative control over the carrying out of building work' (and specifically, in relation to the repair work), the claim against Mr Chahwan failed.

With respect to Mr Nassif, in his capacity as the director of Samdora, it was not in dispute that he owed a personal, non-delegable duty to the plaintiff under s 37 DBPA to exercise reasonable care to avoid economic loss of the requisite kind. In addressing the allegations against Mr Nassif, the Court considered the evidence on a defect-by-defect basis. The Court ultimately concluded that Mr Nassif had breached his duty of care under s 37 of the DBPA in relation to some of the alleged defects on the basis that he failed to carry out any regular inspections or checks of the works that would have brought said defects to light. In reaching this conclusion, the Court accepted Mr Kavanagh’s expert opinion that had Mr Nassif carried out an active supervisory role during the construction process via regular inspections/checking of the works, then the defects should/would have been identified and rectified prior to completion. However, Mr Nassif’s liability was limited only to those defects which the Court accepted to have been observable prior to 27 October 2016, that date being the date of the final occupation certificate (and thus falling into Mr Nassif’s supervisory window).

In order for the claim against 3173 Pty Ltd to succeed, the defects had to be classified as 'major' under s 18E of the HBA, meaning they had to meet a two-part test:

1. was it a defect in a 'major element' of a building?, and
2. did it cause or was it likely to cause 'the inability to inhabit or use the building (or part of the building) for its intended purpose?'.

The Court similarly addressed the claim against 3173 Pty Ltd on a defect-by-defect basis, finding that some were major defects under the HBA, rendering the plaintiff partially successful against 3173 Pty Ltd.

Due to substantial methodological differences between the parties’ quantity surveyors, the Court could not come to a conclusion on the extent of any damages award. As a result, His Honour suggested the quantum of the matter should be decided separately on the basis of an actual quote for all the work to be undertaken to provide a reliable guide for the amount of damages, if any, that would be awarded. The parties agreed to this suggestion.

Implications

This case is a timely reminder of the importance of taking care when drafting settlement agreements, particularly when a contractor agrees to carry out rectification works. It is imperative that any obligations a party agrees to undertake can be enforced against any other defendant parties, in the event of default.

It also highlights the dangers of bringing claims under the DBPA against directors and the need to prove that they had direct involvement in a project to be able to substantiate that they carried out 'construction works' for the purposes of s 36 of the DBPA - noting incidental involvement is not enough.

Strata Plan 92183 v Samdora Pty Ltd [2026] NSWSC 406