Doonan v Ultra Modern Developments Pty Ltd t/as Eagle Homes

[2015] NSWCATCD 85

Civil and Administrative Tribunal

New South Wales

• Amendment notes

Medium Neutral Citation:

Doonan v Ultra Modern Developments Pty Ltd t/as Eagle Homes [2015] NSWCATCD 85

Hearing dates:

24 March 2015

Decision date:

16 July 2015

Jurisdiction:

Consumer and Commercial Division

Before:

P Boyce, Senior Member

Decision:

1.  The respondent is to pay to the applicants damages in the sum amount $27,727.02 on or before 15 August 2015.

2.  Any application for costs is to be in writing to the Tribunal supported by evidence and submissions and is to be filed and served on or before 30 July 2015.

3.  Any evidence and submissions in reply from the party opposing the application for costs is to be filed and served on or before 14 August 2015.

4.  The parties are to advise the Tribunal in their respective submission if they consent to the issue of costs being determined dealt with on the papers.

5. Alternatively the parties are to make submissions as to why such an order should not be made pursuant to section 50 of the Civil and Administrative Tribunal Act 2013.

Catchwords:

Defective building work, breach of statutory warranty, methodology of calculating rectification costs

Legislation Cited:

Home Building Act 1989

Category:

Principal judgment

Parties:

David Doonan and Lynne Doonan (applicants)
Ultra Modern Developments Pty Ltd t/as Eagle Homes (respondent)

Representation:

Counsel: Mr W Carney (Respondent)
Solicitors: Steele + Co, Solicitors (Applicants)

File Number(s):

HB 14/16737

Publication restriction:

Unrestricted

REASONS FOR DECISION

Application

1. The applicants are home owners.

2. The respondent is a builder licenced under the Home Building Act 1989.

3. The applicants filed an application with the Tribunal on 27 March 2014 seeking an order that the respondent and a second respondent, Boral Montoro Pty Ltd, “do work or services as stated below to the approximate value of $50,000.00 to repair outstanding warranty repairs that Eagle Homes won’t do. Total amount claimed: $50,000.00”.

4. The applicants included in their application reasons for seeking the order as:

“The fact that Eagle Homes has had over 12 mths to have repairs done. They won’t comply with Fair Trading Rectification Order. I have lost a lot of time because don’t turn up when they say they are lost wages and what they have tried to repair they make worse”.

5. The applicants discontinued their claim against the second respondent on 9 September 2014.

Jurisdiction and Law

6. This application is a building claim made pursuant to the Home Building Act 1989 (“Act”).

7. Section 48A of the Home Building Act defines:

“building claim” means a claim for:

(a) The payment of a specified sum of money, or

(b) The supply of specified services, or

(c) Relief from payment of a specified sum of money, or

(d) The delivery, return or replacement of specified goods or goods of a specified description, or

(e) A combination of 2 or more of the remedies referred to in paragraphs (a)-(d)

that arises from a supply of building goods or services whether under a contract or not, or that arises under a contract that is collateral to a contract for the supply of building goods and services, but not include a claim that the regulations not to be a building claim”.

“building goods and services” means goods or services supplied for or in connection with the carrying out of residential building work or specialist work, being goods or services:

(a) Supplied by the person who contracts to do, otherwise does, that work, or

(b) Supplied in any circumstances prescribed by the regulations to the person who contracts to do that work.

8. Section 3 of the Home Building Act defines:

“residential building work” means any work involved in, involved in co-ordinating or supervising any work in:

(a) The construction of a dwelling, or

(b) The making of alterations or additions to a dwelling, or

(c) The repairing, renovation, decoration or protective treatment of a dwelling”.

9. Section 48K(1) of the Act provides:

Jurisdiction of Tribunal in relation to building claims

(1) The Tribunal has jurisdiction to hear and determine any building claim brought before it in accordance with this Part in which the amount claimed does not exceed $500,000 (or any other higher or lower figure prescribed by the regulations).

10. At the time of entering into the building contract, S 18E prescribed the time for proceedings to be commenced in relation to a breach of statutory warranty as follows:

(1) Proceedings for a breach of a statutory warranty must be commenced in accordance with the following provisions:

(a) proceedings must be commenced before the end of the warranty period for the breach,

(b) the warranty period is 6 years for a breach that results in a major defect in residential building work or 2 years in any other case,

(c) the warranty period starts on completion of the work to which it relates (but this does not prevent proceedings from being commenced before completion of the work),

(d) if the work is not completed, the warranty period starts on:

(i) the date the contract is terminated, or

(ii) if the contract is not terminated—the date on which work under the contract ceased, or

(iii) if the contract is not terminated and work under the contract was not commenced—the date of the contract,

(e) if the breach of warranty becomes apparent within the last 6 months of the warranty period, proceedings may be commenced within a further 6 months after the end of the warranty period,

(f) a breach of warranty becomes apparent when any person entitled to the benefit of the warranty first becomes aware (or ought reasonably to have become aware) of the breach.

(2) The fact that a person entitled to the benefit of a statutory warranty specified in paragraph (a), (b), (c), (e) or (f) of section 18B has enforced the warranty in relation to a particular deficiency in the work does not prevent the person from enforcing the same warranty for a deficiency of a different kind in the work (the other deficiency) if:

(a) the other deficiency was in existence when the work to which the warranty relates was completed, and

(b) the person did not know, and could not reasonably be expected to have known, of the existence of the other deficiency when the warranty was previously enforced, and

(c) the proceedings to enforce the warranty in relation to the other deficiency are brought within the period referred to in subsection (1).

(3) The regulations may prescribe defects in a building that are not (despite any other provision of this section) a major defect.

(4) In this section:

major defect means:

(a) a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause:

(i) the inability to inhabit or use the building (or part of the building) for its intended purpose, or

(ii) the destruction of the building or any part of the building, or

(iii) a threat of collapse of the building or any part of the building, or

(b) a defect of a kind that is prescribed by the regulations as a major defect.

Note.

The definition of major defect also applies for the purposes of section 103B (Period of cover).

major element of a building means:

(a) an internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams), or

(b) a fire safety system, or

(c) waterproofing, or

(d) any other element that is prescribed by the regulations as a major element of a building.

11. At the time the building work was carried out s 18B of the Act provided:

Warranties as to residential building work

The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work:

(a) a warranty that the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract,

(b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new,

(c) a warranty that the work will be done in accordance with, and will comply with, this or any other law,

(d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time,

(e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling,

(f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder’s or person’s skill and judgment.

12. As to the matter now before the Tribunal, the Tribunal is satisfied that it has jurisdiction to hear and determine claim.

Undisputed Facts and Background

13. On 22 November 2011 the applicants entered into a contract with the respondent for the respondent to build a home on land owned by the applicants at South Bowenfels for a contract price of $235,495.00.

14. The contract is in the form of the “BC4 Contract” issued by the Master Builders Association of New South Wales.

15. A Notice of Practical Completion was issued and accepted by the applicants on 17 October 2012.

16. A final occupation certificate for the dwelling was issued on 22 November 2012.

17. As a result of complaints made to the NSW Fair Trading by the applicants, NSW Fair Trading made rectification orders with respect to the building work as follows:

1. Reference number 6378872 issued 26 March 2013 requiring work to be carried out by the respondent by 26 April 2013 to remedy defects as follows:

1. Lining to front and rear porch.

2. Defective roof tiles.

3. Damaged colorbond gutter to front of dwelling.

4. Defective paintwork throughout dwelling (Internal and External).

5. Clean paint work from glass front door.

6. Kitchen panels damaged by paint.

7. Clean and repair mortar to brickwork.

8. Remove and reinstall weather strip to external of laundry door.

9. Damaged kitchen sink tap fittings.

10. Rear sliding door.

2. After the period to carry out the rectification work expired the building was reinspected by NSW Fair Trading and a report written and dated 30 May 2013 by NSW Fair Trading identified that the following items remained defective or not completed in a good and workmanlike manner:

1. Paint marks remain on front door entry and kitchen cupboards;

2. Mortar smears had not been cleaned from external brickwork;

3. Marks not cleaned from front door entry without damaging glazing;

4. The rear aluminium sliding door is not installed in a good and tradesman like manner.

18. The applicants were still dissatisfied with the building works and commenced this claim.

Home Owners Claim and Evidence

19. The applicants claim was crystalised into the items set out in the Scott Schedule prepared by the applicants’ expert witness dated 2 September 2013 and incorporated into the applicant’s expert’s report prepared by Axiom Construction Consultants and dated 6 September 2014 (“Axiom”). The Axiom Report was admitted in evidence.

20. The respondent’s expert witness, Aspect Enterprises Pty Ltd, has prepared a report dated 18 November 2014 (“Aspect”). The Aspect Report was admitted in evidence.

21. The parties’ experts have agreed on the scope of works to remedy the items 1-6 and 8-10 in the Scott Schedule. The costing of the rectification work and Item 7 remain in dispute.

22. The respective items are now set out with the applicants’ original claim, the applicants’ expert concession and the respondent’s expert’s concession as to cost:

Item Number	Item	Applicants’ claim	Applicants’ Expert concession at conclave	Respondent’s Expert Concession at conclave
1	Kitchen joinery	3,680.00	3,240.00	357.00
2	Plaster Board lining	2,820.00	1,840.00	1,816.50
3	CSD Home Theatre	1,090.00	635.00	565.57
4	Garage lining	1,245.00	180.00	141.14
5	En-suite shower recess	1,655.00	1,390.00	1,132.48
6	Kitchen window Masonry	6,105.00	4,405.00	4,022.18
7	Masonry Entry	6,620.00	6,620.00	1,802.81
8	Living room sliding door	11,820.00	9,240.00	6,867.10
9	Fibre cement soffit lining	1,405.00	1,060.00	nil
10	Kerb Stormwater Outlet	1,450.00	nil	1,060.00
Sub-total 1	37,890.00	28,610.00	17,764.78
Remedial Builders margin (30%)	11,367.00	8,583.00
Sub total 2	49,257.00	37,193.00
Remedial contingency (5%)	2,462.85	1,859.65#
Total cost excluding GST	51,719.85	39,052.65
Respondents Allowance for margin, overheads and contingency (40%)	7,105.60
HOW Insurance (2%)	1,034.40	781.05#
HOW Insurance (0.65%)	336.00
Sub-Total 3	52,754.25	39,833.70#	25,206.38#
GST **	5,275.43	3,983.37	2,520.64
Total	58,029.68	43,817.07	27,727.02

#    amounts calculated and tendered in Exhibit 1 corrected by Tribunal to remedy arithmetic error.

**   calculated by Tribunal

Methodology of costing

23. The respective experts differ in their costing of remedying the defective works.

24. Axiom states the methodology used in the estimating of the cost of the remedying the defects as being at paragraph 71 by reference to Rawlinson’s Construction Cost Guide (“Rawlinson’s”) subject to:

1. After the author of the report to applied what he considers to be a realistic estimate of time to carry out the particular item of remedial work in a “proper, compliant and tradesman-like manner”.

2. Acceptance that Rawlinson’s rates are intended to be used for feasibility studies and not for remedial work and as such the rates have been adjusted based on the authors experience.

3. He has applied a 30% remedial builders margin based on his experience of Home Owner Warranty Builders charging between 20% and 40% depending on the degree of difficulty of the work;

4. He has also added a 5% contingency to the total cost for unforseen items;

5. Adding 2% for Home Owners Warranty Insurance (“HOWI”);

6. There is no allowance for GST, legal costs in the figure;

7. The methodology is in accordance with “Australian Standard Method of Measurement of Building Works”, that method being adopted by the Australian Institute of Quantity Surveyors.

25. The Aspect report responds to the methodology used in the Axiom report as follows:

1. The hourly labour rates allocated to trades is based on the Axiom author’s “experience in the administration of remedial work contracts”.

2. The rates are considered to be reasonable; however the Master Builders Association House Construction Charge Out Rates 2014 include overheads and margin (“MBA Rate”).

3. The inclusion of a contingency of 5% is not necessary if a scope of works for the remedial work is adopted.

4. The effect of charging a margin when the charge out rate includes overheads and margin is that of double dipping.

5. The HOWI rate advised in the Axiom of 2% of the cost of works is overstated and evidence in support of the rate of 0.65% for country locations is adduced as part of the Aspect report at Attachment 5.

6. Generally in relation to the rates used by Axiom they are considered by Aspect to be excessive when a margin is added and the allocation of the hours needed is also excessive. Aspect sets out its reasoning for the claim that the allocation of hours is excessive when it exams each item in the Scott Schedule.

7. The reference by Axiom to its methodology being “…in accordance with ‘Australian Standard Method of Measurement of Building Works’, that method being adopted by the Australian Institute of Quantity Surveyors” is not able to be found in the document. It says at section 9.1 “Where documented, temporary, remedial and restoration works shall be so described and measured in detail”. Axiom does not describe the alleged defects in detail and many of the defects were not raised with the builder before these proceedings were commenced.

8. The Master Builders Association (“MBA”) House Construction Charge Out Rates 2014 is the appropriate rate based on the Aspect report’s author’s experience as a builder and project manager operating elsewhere, but in particular, in the Central West and Blue Mountains of NSW.

9. The rates used by Axiom when compared with the MBA Rate already included margin and overhead, the addition by Axiom of a margin is inappropriate.

26. Having considered the methodology used by Axiom and the response by Aspect to the methodology used, the Tribunal is satisfied on the balance of probabilities that appropriate charge out rates and hours are those used by Aspect.

27. The Tribunal is also satisfied that the correct premium for HOWI is 0.65% of the contract price for work undertaken in a country area.

Liability for defects

Items 1-6 and 8-10

28. The Tribunal has considered the evidence of both the applicant and the respondent. The Tribunal is satisfied that the defects alleged by the applicant are defects that are in breach of the statutory warranty in s 18B of the HBA.

29. Section 18B(a) provides that it is implied in every contract to carry out building work by a holder of a contractor’s licence that the work will be carried out in a proper and workmanlike manner in accordance with the plans and specifications. The Axiom and Aspect reports find that the building work carried out by the respondent failed to meet the standard required under the contract or the HBA.

30. The Tribunal is satisfied that the respondent has breached the statutory warranty under the HBA and is liable to compensate the applicants for the loss they have suffered as a result.

31. The Tribunal is satisfied that the appropriate measure of the damages that the applicants have suffered is assessed by the cost of remediation as set out in the conceded figures of the Aspect report.

Item 7

32. The Axiom report concludes that the respondent has not complied with section E of the Specifications in that the bricklayer has failed to “Carry all work true and plumb to even gauge and in level courses to the full height and thickness required” for the external masonry veneer at the front elevation of the home.

33. The report sets out the methodology for making such a determination using a brick gauge to identify that the courses of bricks have been laid on varying thicknesses of mortar. The mortar beds and perp end thicknesses are inconsistent. The brickwork has failed to produce a consistent appearance and has not achieved the aesthetic outcome that is required particularly for the front elevation of the home.

34. Axiom says that the cause of the defect in the external masonry veneer is the “result of inadequate care by the bricklaying contractor responsible for the bricklaying works and the failure of the Builder to properly supervise the works”. The building has not been constructed with a consistent brick gauge and is not consistent over the height of a single area wall, detracting from the appearance of the home. The end result suggests that the masonry veneer has not been constructed by a competent tradesman and there has been inadequate supervision by the respondent.

32. The Aspect report agrees with the observations and findings of the Axiom report in regard to the external masonry veneer and considers the respondent liable for the defect.

33. Axiom recommends two methods to rectify the defects in the masonry:

1. that whole of the external brick veneer is demolished and reconstructed; or,

2. a thin bed of proprietary render application is used to conceal the inconsistent brick gauge.

Axiom notes that the render remedy is not the finish that the applicants expected or contracted for, but acknowledges that it is a reasonable option in lieu of total demolition of the external façade.

37. Aspect does not address the issue of demolition and reconstruction of the masonry veneer and generally agrees with Axiom’s recommendation that rendering is the appropriate remedy of the defect.

38. The Tribunal notes that Axiom does not include in its costing’s the demolition option and sets out the scope of works for the render remedy using Rockcote or equivalent pre coloured acrylic render. Axiom calculates that the material required for 20m2 of Rockcote at $80.00 per m2 is $1,600.00 plus preparation, labour and application totalling $6,620.00.

39. Aspect does not agree with Axiom’s calculations of the total area of coverage for the Rockcote application. Aspect’s calculations attached to its report calculates the area needed to be covered is 29.5175m2 with coverage of 3.5m2. The quantity of Rockcote needed is 2 x 10 litre tubs at $109.00 per tub, totalling $218.00. When included in the calculation for preparation, labour and application Aspect finds the cost of remedying the defect as $1,802.81.

40. On the expert evidence adduced by both parties the Tribunal is satisfied that the defects in the entry masonry can be remedied by the application of Rockcote or equivalent pre coloured acrylic render. This item is the remedy of a defect that is important to the appearance that was expected to be achieved by the applicants. It provides a remedy, but compromises their expectation based on the contract and the specifications. The remedy must be carried out with care and precision. The Tribunal is satisfied that will be achieved by the scope of works and the time allocated by Aspect.

41. The Tribunal allows to the applicants the amount as calculated and recommended by Aspect to remedy the defects to the entry masonry in the amount of $1,802.81.

Conclusion

42. The Tribunal is satisfied that the applicants have established that the respondent has failed to comply with the statutory warranties contained in s 18B of the HBA. In particular, the respondent’s building work has not been performed in a proper and workmanlike manner.

43. The respondent in it submission seeks the opportunity to carry out rectification work to remedy the defective work. The Tribunal is not satisfied that a rectification order is the appropriate order in the claim. The applicants have lost faith in the ability of the respondent to carry out the work. The applicants have been put to the trouble of commencing these proceedings after firstly attempting to have defects remedied through the intervention of NSW Fair Trading. Although the respondent did respond to that process and carry out some remedial work, there remained other patent and latent issues. The Tribunal is satisfied that the appropriate order is an order that the applicants be compensated for the loss they have suffered through the respondents breach of the statutory warranties.

44. However, for the reasons set out in these reasons for decision, the Tribunal finds that the amount of damages to which the applicants are entitled is the amount determined by the respondent’s expert plus gst.

Costs

45. Any application for costs is to be in writing to the Tribunal supported by evidence and submissions and is to be filed and served on or before 30 July 2015.

46. Any evidence and submissions in reply from the party opposing the application for costs is to be filed and served on or before 14 August 2015.

47. The parties are to advise the Tribunal in their respective submission if they consent to the issue of costs being determined dealt with on the papers.

48. Alternatively the parties are to make submissions as to why such an order should not be made pursuant to s 50 of the Civil and Administrative Tribunal Act 2013.

Final Orders

49. The Tribunal orders:

1. The respondent is to pay the applicants compensation for cost of carrying out rectification work in the amount of $27,727.02.

P Boyce

Senior Member

Civil and Administrative Tribunal of NSW

16 July 2015

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Amendments

08 September 2015 - case name entered incorrectly

Decision last updated: 08 September 2015