Duty to mitigate loss – No positive obligation on an owner to allow a builder an opportunity to rectify defective works: Ceerose Pty Ltd v The Owners – Strata Plan No 89074 [2025] NSWCA 235
 
“The Eliza” apartment building, in the centre of Sydney, was completed in 2014. In light of a range of defects which emerged, the owners corporation commenced proceedings against the builder and developer (collectively, “the builder”). They implicitly admitted the existence of some of the defects but claimed that they had always been ready, willing and able to rectify the defects.  On a number of occasions in 2018-2019, the OC’s solicitors informed the builder’s solicitors that the OC was losing or had lost confidence in the builder and that it was unwilling to allow the builder any further opportunities to repair the defects. The builder contended that the OC’s refusal constituted a failure by it to mitigate its loss.

The matter was referred to a referee. On the mitigation issue, the referee considered that the builder bore the onus of proving that the OC’s decision to deny access to rectify was unreasonable. He concluded that the OC’s refusal was reasonable.

The OC sought adoption of the referee’s reports by the Supreme Court.  The builder sought rejection of aspects of the reports and a declaration that the OC had failed to mitigate its loss such that any avoidable loss could not be recovered. Rees J rejected almost all of the builder’s challenges to the reports, substantially adopted them, and gave judgment for the OC. In particular, his Honour held that the OC’s refusal to allow the builder to rectify the defects did not mean that it had failed to mitigate its loss.

In agreeing that the OC had no “positive obligation” to provide the builder an opportunity to rectify the defects, the Court of Appeal explained that:

It has long been established that even though a plaintiff bears the duty of establishing a loss, the onus is on the defendant to prove facts going to a claim of failing to mitigate a loss, including where the plaintiff incurs costs while attempting to ameliorate its loss or whether it is claimed that the plaintiff should have taken steps to reduce its loss.

The builder’s assertion that “the evidentiary onus shifted” if it established that the OC had not provided it with an opportunity to rectify the defects, thereby invoking what has been called a “tactical” onus, was misconceived. The defendant bears both the legal and evidentiary onus of proving that the plaintiff has failed to mitigate its loss. The onus does not “shift” to the plaintiff at any time.

Establishing a failure to mitigate depends on the defendant establishing that, in the circumstances, the plaintiff has acted unreasonably in some respect such that some or all of the claimed loss should be disregarded.

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

Ceerose has already been applied in the Victoria: Stanley v EWC Construction West Pty Ltd [2025] VSC 699 at [118] (18 November 2025).
 
Liability limited by a scheme approved under professional standards legislation

The Hon Michael Whitten KC and William Thomas