Carbone v Fowler Homes Pty Ltd [2024] NSWCA 192

The decision handed down in respect to Carbone v Fowler Homes Pty Ltd [2024] NSWCA 192 provides important case law for builders regarding claims for damages.  The decision highlights the importance of building contracts including substantial amounts in liquidated damages provisions to avoid claims being made for general damages.

Giuseppe and Matthew Carbone each entered into a contract with Fowler Homes Pty Ltd to construct residences on their properties in Oran Park, NSW.  The contracts were based on standard form ‘NSW Residential Building Contract for New Dwellings’ created by the Housing Industry Association.  The contracts stipulated that construction was to be completed within 48 weeks and should this not occur, liquidated damages of $1 per day could be claimed by the owner.  The dwellings, which should have been completed in July 2019, were not finished until April 2021.

The issue for the Court was whether a claim for damages due to delay was limited to the amount specified in the liquidated damages clause or whether another claim of damages could be made in addition.  Fowler Homes argued that the liquidated damages clause constituted all damages that could be recovered for delay, claiming there was an essential difference between $1 per day and $0 per day in damages.  Leeming JA, however, found that in contracts which already provide an extension to builders when delay occurs outside of their control, the owner should not be left with such nominal damages when it can be proven that the delay is the fault of the builder.

Ultimately the Court decided that the liquidated damages clause, having specified a nominal amount, does not prevent another claim of damages from being made.  The Court found that the loss of weekly rent during the period while the dwellings were unable to be occupied had been successfully established meaning Giuseppe and Matthew Carbone were entitled to make a claim for lost rent in the form of general damages.

The outcome of this case provides confirmation of the principle outlined by Justice Michael Ball in Cappello v Hammond & Simmonds NSW Pty Ltd [2020] NSWSC 1021.  Ball J outlined that the liquidated damages clause was not exhaustive and “by specifying the amount of liquidated damages at $1 per working day, the parties intended not to provide for a substantive right to claim liquidated damages and intended instead to leave the plaintiffs a right to claim damages they could prove they had actually suffered” [32].  He also noted that this is not the case if a substantial amount is specified as liquidated damages.

The consequence of this judgement is that builders could face considerable claims for damages in cases where there are non-qualifying cases of delay.  To mitigate this risk, contracts can be amended to include a substantial amount for liquidated damages and a condition which expressly excludes common law damages for delay.  The amount for liquidated damages should be an amount which could be argued as a genuine and honest pre-estimate of damages.  Including this substantial amount means in the event of a dispute, any claim for damages becomes a claim under the terms of the contract making it easier to enforce and quantify as opposed to having a common law general damages claim.

The decision in Carbone v Fowler Homes Pty Ltd serves as a reminder to builders to amend their contracts to include a substantial rather than nominal amount, in liquidated damages clauses, and a clause excluding common law damages for delay, to reduce the risk of claims being made for general damages in addition to liquidated damages.