MITIGATION OF DAMAGES AND OPPORTUNITY TO RECTIFY
When should a builder of a defective premise be given the opportunity to rectify the defects? The New South Wales Court of Appeal in Ceerose Pte Ltd v The Owners – Strata Plan No 89074 [2025] NSWCA 235 addresses this question through the mitigation principle.
Background. This was a building dispute concerning the construction of a 16-level apartment building in Sydney.
The appellants, Ceerose Pte Ltd and Prisand Investments Pte Ltd, entered into a contract to construct the apartment building. The construction was completed in 2014. Thereafter, defects were discovered in the building.
On or around 2018, the respondent commenced legal proceedings but subsequently stayed them to enable settlement discussion between the parties. Ultimately, the parties could not reach a settlement, which would have otherwise obliged the appellants to undertake a list of rectification works.
On a number of occasions in 2018 and 2019, the respondent’s solicitors informed the appellants’ solicitors that the respondent had lost confidence that the appellants had the ability or the desire to perform the rectification works property and timeously. The respondent was, as a result, unwilling to allow the appellants any further opportunity to carry out the rectification.
In the proceedings, the appellants took the position that they had always been willing and ready to carry out the rectification works, but were not permitted to do so by the respondent. This, they said, constituted a failure to mitigate losses by the respondent.
The Court of Appeal made the following observations in relation to the failure to mitigate defence.
Is there a positive duty on the owner of a property to provide the contractor with an opportunity to rectify works? In short, no.
The Court observed that “there is no invariable requirement that the owner provide the builder with an opportunity to rectify works.” (Ceerose at [33])
However, that is not to say that the owner should never provide contractor(s) with an opportunity to rectify works.
In this regard, the Court cited a passage from Julian Bailey’s Construction Law: Volume II (1st edn, 2011, Routledge) at [14.109], which endorses the view that in some circumstances, an owner may offer the original contractor the opportunity to rectify the defects as a way to mitigate losses, especially when hiring a new contractor would be significantly more costly.
In other words, whether an owner should offer the opportunity is not a matter of legal obligation, but rather a question of whether doing so would be reasonable in the circumstances.
This position is consistent with the decision of the English Court of Appeal in Woodlands Oak Ltd v Conwell & Anor [2011] EWCA Civ 254 (“Conwell”). The Court of Appeal held that it is a misstatement of the law to assert that an owner’s failure to give the contractor an opportunity to rectify defective works amounts to a failure to mitigate losses (Conwell at [20]).
Further, it recognised that failing to give contractor the opportunity may amount to a failure to mitigate losses, but that there may well be circumstances where it is entirely reasonable not to give the contractor that opportunity (Conwell at [20] and [22]).
If the owner does not offer the contractor an opportunity to remedy defects, who bears the burden of proving that the owner’s decision was unreasonable in the context of mitigating loss? In short, the contractor.
In the proceedings, the appellants took the position that the evidentiary burden shifted to the respondent once it refused the opportunity.
However, the Court rejected this assertion. It held that the willingness of a contractor to carry out defective works does not shift the evidentiary burden on the employer to show that a reasonable employer in its position would have still acted in the same way (Ceerose at [38]).
Rather, the contractor bears both the legal and evidentiary burden to prove that the employer’s conduct was unreasonable.
Conclusion. The decision in Ceerose should be welcomed by employers and contractors alike, as it provides clarity on how the mitigation principle applies to the rectification of defective works.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.