Ceerose Pty Ltd v Owners — Strata Plan No 89074 [2025] NSWCA 235

November 2025

Executive Summary

In a significant decision for the building and construction industry, the NSW Court of Appeal has definitively ruled that owners corporations and property owners have no positive obligation to provide builders with opportunities to rectify building defects. The Court’s unanimous decision in

Ceerose Pty Ltd v Owners — Strata Plan No 89074 clarifies long-standing uncertainty about mitigation obligations in building defect disputes, placing the burden firmly on defendants to prove that a plaintiff’s refusal to allow rectification was unreasonable in the circumstances.

Key Takeaways

• Owners have no positive obligation to allow builders to rectify defects
• The burden of proving failure to mitigate remains entirely with the defendant builder
• Owners can reasonably refuse rectification opportunities after losing confidence in the builder
• The decision upholds a $1.95 million judgment against the builder and developer

Case Background

The dispute arose from building defects at ‘The Eliza’, a Sydney apartment building completed in 2014 by Ceerose Pty Ltd (builder) and Prisand Investments Pty Ltd (developer). When defects emerged, the owners corporation commenced proceedings alleging non-compliance with the Home Building Act 1989 (NSW).

The appellants admitted some defects existed but claimed they had always been ready, willing and able to rectify them. Crucially, they argued the owners corporation’s refusal to allow rectification constituted a failure to mitigate damages, seeking to reduce their liability accordingly.

By 2018-2019, the owners corporation had clearly communicated through solicitors that it had lost confidence in Ceerose’s ability to properly rectify the defects and would not permit further rectification attempts.

Key Legal Issues

The Court of Appeal addressed four main issues on appeal:

1. Failure to Mitigate Damages

The central issue was whether the primary judge erred in not finding that the owners corporation had a ‘positive obligation’ to afford the builder a reasonable opportunity to rectify defects, and whether the referee had misapplied legal principles relating to mitigation.

2. Procedural Fairness

The appellants alleged the referee had denied them procedural fairness by relying on evidence (solicitors’ letters) contrary to an earlier ruling about their use.

3. Application of Australian Standards

A technical issue arose regarding whether the referee applied an incorrect version of Australian Standards to bathroom drainage defects.

4. Treatment of Invoices

The appellants challenged the referee’s acceptance of certain invoices rendered after litigation commenced.

The Court’s Decision

The Court of Appeal, comprising Kirk JA, Leeming JA, and Ball JA, unanimously dismissed the appeal. Their decision provides important clarification on several key principles:

Mitigation Principles Clarified

The Court emphasised that while plaintiffs bear the duty of establishing loss, the burden of proving failure to mitigate rests entirely with defendants. Importantly, the Court stated:

“In relation to building contracts, there is no invariable requirement that the owner provide the builder with an opportunity to rectify defects.”

The test is whether the plaintiff’s conduct was unreasonable in the circumstances, not whether they failed to provide opportunities for rectification. The respondent had no ‘positive obligation’ to provide rectification opportunities.

Burden of Proof

The Court rejected the appellants’ argument that an ‘evidentiary burden shift’ occurred once they established the owners corporation hadn’t provided rectification opportunities. The Court held that defendants bear both the legal and evidential burden throughout, requiring them to prove the plaintiff acted unreasonably.

Reasonableness of Refusal

The Court found it was reasonable for the owners corporation to lose confidence in the builder’s ability to rectify defects and refuse further opportunities. The owners corporation was not required to ‘positively establish grounds upon which a reasonable person in its position would reject the builder’s offer.’

Practical Implications

For Property Owners and Owners Corporations

• No obligation to provide builders with rectification opportunities, even when defects are admitted
• Can reasonably refuse rectification based on lost confidence in the builder’s capabilities
• Should document reasons for refusal to demonstrate reasonableness if challenged
• May pursue full rectification costs without being required to allow the original builder to attempt repairs

For Builders and Developers

• Cannot rely on offers to rectify as automatic mitigation defence
• Must prove owner’s refusal was unreasonable in all circumstances
• Should focus on quality of initial work to maintain client confidence
• May face full rectification costs even for defects they could potentially repair

For Legal Practitioners

• Mitigation defences require substantial evidence of unreasonable conduct
• No tactical burden shift occurs when rectification opportunities are refused
• Focus on specific circumstances rather than general willingness to rectify
• Document trail of confidence/competence issues strengthens reasonable refusal arguments

Broader Legal Context

This decision builds on recent High Court authority in Arsalan v Rixon (2021) and Cessnock City Council v 123 259 932 Pty Ltd (2024), reinforcing that mitigation principles require careful application to specific factual circumstances rather than broad presumptions.

The judgment aligns with the policy objective of ensuring property owners retain control over rectification decisions while maintaining appropriate standards for building work. It recognises the legitimate interests of owners who have lost confidence in a builder’s ability to properly complete remedial work.

Conclusion

Ceerose v Owners — Strata Plan No 89074 provides valuable clarity for all parties involved in building defect disputes. The decision confirms that property owners retain significant autonomy in deciding whether to allow builders to attempt rectification, while builders face a substantial burden in proving that refusal to allow rectification constitutes unreasonable failure to mitigate.

For the construction industry, this decision emphasises the importance of getting building work right the first time, as opportunities for cost-effective rectification cannot be assumed. For property owners, it provides welcome certainty that they can pursue full damages without being compelled to accept potentially inadequate repair attempts.

The decision represents a balanced approach that protects property owners’ interests while maintaining clear legal principles around mitigation obligations in the building and construction context.

Disclaimer: This article provides general information only and does not constitute legal advice. Readers should seek specific legal advice regarding their particular circumstances.