Keogh v Samchris Pty Ltd

Case •

[2024] NSWCATCD 32

•

08 March 2024

No judgment structure available for this case.

Civil and Administrative Tribunal


New South Wales

Medium Neutral Citation: Keogh v Samchris Pty Ltd [2024] NSWCATCD 32
Hearing dates: 22 and 24 August 2023
Date of orders: 08 March 2024
Decision date: 08 March 2024
Jurisdiction:Consumer and Commercial Division
Before: L. Wilson, Senior Member
Decision:

1. The respondent must, within six months of these orders:

(a) rectify Items 1 – 3, 28, 31, 73 (master bedroom water leak) in accordance with the agreed scope of work plus the additional work set out by the homeowners’ expert at CB1755 to 1757.

(b) rectify Items 4, 5 – 15, 16 – 18, 27, 33 – 68 in accordance with the agreed scope of works at CB1757, CB1758, CB1761, CB1762.

2. The application is otherwise dismissed.

3. Each party must pay their own costs.

4. If either party wishes to apply for a cost order different to Order 3:

(a) they must make that cost application by 29 March 2024.

(b) the other party may respond to that application with written submissions filed and served by 19 April 2024.

(c) Parties may provide cost submissions in reply if they wish, on or before 26 April 2024.

(d) In any cost application or cost submissions, parties must indicate their attitude to the Tribunal deciding the question of costs on the papers (that is, dispensing with a hearing on costs).

(e) in the event any party makes an application pursuant to Order 4(a), Order 3 lapses.

Catchwords:

Home building – Reliance on flawed designs or specifications – Clause 40 contract

Home building – s.18F defence

Home building – Major defects – preferred outcome

Home building – Variations paid by homeowners – Homeowners seeking refund – s.48K(3)

Legislation Cited:

Home Building Act 1989 (NSW), 3B, 18B, 18E, 18F, 48A, 48K, 48MA

Civil and Administrative Tribunal Rules 2014 (NSW) 38

Cases Cited:

Akerman v Harvey Norman Designs and Renovations (Home Building) [2007] NSWCTTT 722

David Cameron Jones t/as Oz Style Homes v Panchal [2018] NSWCATAP 238

Diao v Rawson Homes Pty Ltd [2021] NSWCATAP 273

Jones v Dunkel (1959) 101 CLR 298

Li v MACD Developments Pty Ltd [2015] NSWCATAP 287

Moody v M K Building Services Group Pty Ltd [2022] NSWCATAP 212

Professional Construction Service Pty Ltd v The Owners - SP 92156 [2023] NSWCATAP 323

S Turnell and W Turnell v Atlantic Construction Pty Ltd [2014] NSWCATCD 89

The Owners – Strata Plan No 66375 v King [2018] NSWCA 170

Category:Principal judgment
Parties: Steven John Keogh (first applicant)
Jacqueline Mary Keogh (second applicant)
Samchris Pty Ltd (respondent)
Representation:

Counsel:
M. Klooster (applicants)
J.R.B Pearson (respondents)

Solicitors:
Michael Atkinson & Associates (applicants)
Lawandi Lawyers (respondent)
File Number(s): 2022/00410158 (Previously HB 22/39599)
Publication restriction: Nil

REASONS FOR DECISION

  1. This is a home building dispute which arises from the home building contract between the parties to renovate the applicants’ residential property in Baulkham Hills. They entered the contract in January 2018 and the building works were completed by about October 2018. This application was lodged on 31 August 2022 so it is only within time for major defects as defined in s.18E of the Home Building Act 1989 (NSW) (HB Act). The homeowners seek a money order so they can engage another builder to undertake rectification works while the builder asks the Tribunal to make a work order which is the preferred outcome pursuant to s.48MA of the HB Act.

  2. Further the applicants seek a money order in the nature of a refund of monies paid by them to the respondent for variations the applicants say they should not have been liable to pay. This is not a breach of statutory warranties claim, nor is it a quantum meruit claim as the variations have already been paid. The respondent does not bear the onus of proving it can keep the money; the applicants bear the onus of proving they are entitled to a refund of the variations they have already paid.

Issues

  1. The Tribunal must resolve the following issues:

  1. The existence and extent of each alleged defect, and whether each is a major defect.

  2. Whether the respondent has a valid defence under s.18F of the HB Act or because the defect results from a design defect.

  3. For each agreed or found defect, the reasonable and necessary rectification method.

  4. Whether a work order or money order ought be made.

  5. Whether the applicants are entitled to refund of variations they have paid, including whether their claim is within time.

Evidence and submissions

  1. The parties provided a Joint Tender Bundle or Court Book (CB) to the Tribunal in accordance with directions of the Tribunal. This two volume CB is the documentary evidence the parties relied upon: see T-003. Added to the 1,763 pages in the CB were further documents tendered during the two-day hearing. These are numbered differently beginning with SDA followed by 1772-1777, 1842-1845, 1896-1897, 1898-1899, 1910-1913, 1972-1977, 1984-1987, 1996-2003, 2174-2181 and 2199-2198.

  2. The two engineering experts were cross examined: T-009ff. They were Tony Dockrill for the applicants and Alexander Kameas for the respondent.

  3. The two building experts were cross examined: T-146ff. They were Matthew Crosby for the applicants and Steven Nakhla for the respondent.

  4. The male homeowner, Steven Keogh, was cross examined (T-060ff) as was the director of the respondent, John Hanna (T-086ff).

  5. The parties provided the Tribunal with the transcript of the two day hearing so the oral evidence can be referred to by transcript page number, as above.

  6. Both parties preferred to have the transcript before making their closing submissions which they preferred to provide the Tribunal in writing. The homeowners’ submissions were provided to the Tribunal on 13 October 2023 (HO subs) and the respondent’s on 3 November 2023 (R subs). The homeowners provided their submissions in reply (reply subs) on 17 November 2023.

  7. The Tribunal refused to admit a supplementary cost report by the homeowners’ building expert Mr Crosby which was served on the builder at the commencement of the final hearing and handed up to the Tribunal at that time. Oral reasons for refusing to accept that report were delivered at T-143 to 144.

Agreed facts

  1. The homeowners set out the agreed facts in paragraph 1.2 of their submissions. The respondent did not contest any of the listed facts “not in dispute”.

  2. The applicants are the registered proprietors of the property the subject of this dispute.

  3. On 10 January 2018 the homeowners entered into a written contract with the builder for the fixed price of $412,500 to carry out residential building works to the property.

  4. On 18 January 2018 the builder obtained insurance required under part six of the HB Act.

  5. On 18 January 2018 the builder issued a new contract in the amount of $431,778 (the Contract). The homeowners verbally accepted the Contract. Whilst the Contract was not signed by the homeowners it is common ground that the contract governs the relationship between the parties and complies with the requirements of Part 2 Division 1 of the HB Act.

  6. The Contract included architectural plans prepared by Inspired Spaces (CB552-571) and engineering plans prepared by SDA Structures Pty Ltd (SDA) (CB573-578) dated September 2015. These plans were prepared on behalf of the homeowners without the involvement of the builder: T-63 to 64.

  7. Jake Fugar was an engineer who worked at SDA during and prior to the construction period.

  8. On 2 February 2018 a complying development certificate (CDC) was issued for the works with excavation commencing shortly thereafter.

  9. By about October 2018 the works reached practical completion.

  10. On about 30 November 2018 the builder issued Variation 1 comprising 8 items totalling $34,951.90. The homeowners paid the builder all of the $34,951.90.

  11. On 15 May 2019 a final occupation certificate issued.

  12. Between 16 and 19 January 2020 water ingress occurred into the bedroom located in the basement (the master bedroom).

  13. Between 7 and 10 February 2020 and also in March 2021 there was further water ingress into the master bedroom during heavy rain.

  14. On 23 April 2021 the applicants made a complaint to NSW Fair Trading with the site meeting taking place on 6 May 2021.

  15. On 22 May 2021 NSW Fair Trading issued a rectification order. The time to comply with the rectification order was extended until 15 July 2021 at the request of the builder, with the works set out therein completed by the end of September 2021: B subs para 113.

  16. In February and March 2022 further water ingress occurred after heavy rain. At this point in time the homeowners moved upstairs as they could no longer use the master bedroom.

  17. There is no dispute that there is a grassed area at the front of the residence between the road and the residence. This grassed area slopes downwards towards the residence: CB481, HO subs para 2.3. There is also no dispute that surface water that runs over the front grassed area seeps into the subfloor zone and that there is excessive groundwater and moisture throughout the subfloor area: CB481-482, HO subs para 2.3.

  18. On 31 August 2022 the homeowners commenced these proceedings. As this is more than two years from practical completion (in October 2018) the homeowners are only in time for defects that meet the definition of major in section 18E of the HB Act.

Issue 1: The existence and extent of each alleged defect, and whether each is a major defect.

  1. The Scott Schedule comprises 83 items however items 74 to 83 inclusive are classified “contract items” and the building experts offer no comment on these.

  2. The vast majority of defects are agreed between the building experts, and subsequently, the parties agree as to the existence and extent of these defects but not liability, as the builder asserts it has a valid defence to the agreed defects. Whether the builder has a valid defence to the master bedroom leak defects will be considered below under “Issue 2”.

  3. The Joint Scott Schedule is at CB1752 to 1763, signed by both building experts and dated 21 August 2023 (which was the day before the final hearing began). Items 1 – 73 are the alleged (and often times agreed) defects. Items 74 to 82 are not in fact defective items and refer to the “reimbursement claim” which is “Issue 5” dealt with separately. Items 22 (movement), 23 and 83 (liquidated damages) were not pressed by the homeowners: HO subs para 5.3 and 6.46, JSS CB1761.

  4. Only defects that meet the definition of “major defect” in s.18E of the HB Act are within time.

Items 1 – 3, 28, 31, 73: Master bedroom water leak

  1. Items 1 - 3 are agreed to be defects by the building experts: CB1755. As to item 28, the experts agreed it was rectified with item 1: CB1761. Item 31 is included in item 1: HO subs 6.63, CB1762. Item 73 is included in item 1: HO subs 6.68, CB1762.

  2. The builder submitted “These are the same as Item 1 identified by Mr Dockrill. As this issue concerns matters specific to the field of engineering, the Tribunal should refer to the evidence of the engineers”: B subs, para 94. The builder did not give any references to the “evidence of the engineers” it submitted the Tribunal should consider.

  3. The Tribunal assumes the builder wanted the Tribunal to turn back to paragraphs 17 to 32 about Dockrill Item 1. A summary of the builder’s position is at paragraph 32:

This item is not a defect, for the following reasons:

  1. the masonry walls are pre-existing, as indicated by the basement demolition plan [CB555];

  2. As discussed above, sub floor drainage is a pre-existing issue that is unrelated to the Works;

  3. there is evidence of rising damp prior to the builder commencing the Works [CB1058[2]]; and

  4. no works were undertaken in the subfloor area, and there is no evidence that any works undertaken by the Builder had any effect on the flow of water in the sub floor.

  1. Further, the builder submitted that the Contract works did not include stormwater management: paragraphs 28 to 30. During the design phase the homeowners raised concerns about water control and raising damp and held a meeting with Robyn Hawke to discuss drainage issues in the garage: B subs para 29. The builder submitted that the homeowners did not obtain a stormwater or hydraulic design or consult a hydraulic engineer: para 30.

  2. It is not known how these matters provide a defence to the agreed defect, accepted by both engineers (CB491-493) and both building experts (CB1755).

  3. The Tribunal cannot accept the proposition that the builder is not responsible for the entry of stormwater into the sub-floor area because there were issues with water control, rising damp and drainage before the building works. It is clear the homeowners had issues with water control, rising damp and drainage before the building works. They engaged various professionals over a period that spanned years. They then engaged a builder, the respondent in these proceedings, to undertake extensive renovations to the sum of almost half a million dollars. They were entitled to expect the building works (renovations) performed by the respondent were not going to continue those same water and drainage issue, let alone exacerbate them. If the respondent was concerned about the efficacy of the works, it could avail itself of the defence in s.18F of the HB Act. Otherwise the builder is responsible for building defects arising from its work: see reply subs 4.4(b).

  4. The Tribunal also cannot accept that the builder is not liable because it did not perform works to the subfloor. The construction work performed by the builder has caused excessive uncontrolled stormwater to enter the sub-floor. This has been caused or exacerbated by the builder’s work which was not done in accordance with Part 1.2, 2.2 or 3.1.2.5 of the NCC (CB1755-1756) or AS2870, AS/NZ 3500 or AS4678 (CB494-498).

  5. The Tribunal agrees with the homeowners’ submissions in paragraph 6.2 and concludes items 1, 2 and 3 are defective.

  6. The builder submits it is not liable for these defects as they arise due to the builder relying on defective designs. As will be seen in “Issue 2” below, the Tribunal finds the builder procured and built according to Option B provided by SDA engineers, therefore it built to the defective design that it procured.

  7. Furthermore, the Court of Appeal has already considered the interaction between the warranties in s.18(1)(a) and (c): The Owners – Strata Plan No 66375 v King [2018] NSWCA 170. Those warranties are “(a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract” and “(c) a warranty that the work will be done in accordance with, and will comply with, this or any other law”. The Court of Appeal clearly explained the party responsible for the building works, here the builder, in King it was a developer, is responsible for defect arising from the work even if the work was built according to (faulty) plans.

  8. Both experts agree these items are major defects as defined in s.18E of the HB Act and the Tribunal agrees: CB1408 and 1410. While the Tribunal is not bound by an expert opinion that a defect meets the definition of major defect, without more, it can be seen that these defects are in a major element of the building (footings, floors, walls) 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 the inability to inhabit or use the building (or part of the building) for its intended purpose.” The water ingress issues are such that the homeowners cannot use the renovated master bedroom downstairs: CB22, para 39. This has been so since about March 2022.

Item 4: Subfloor ventilation

  1. The building experts agree about this defect: CB1757, B subs para 95.

  2. The defences in s.18F and cl.40.2 do not apply, as found below.

  3. The subfloor ventilation defect is inextricably linked to the water ingress in items 1 – 3. Item 4 meets the definition of major defect as does items 1 – 3: see homeowner’s statement CB22 para 39 and mould report CB995. It is not contested that this item is a major defect.

Items 5 – 15: water entry to garage; front retaining wall

  1. The building experts agree about this defect: CB1757.

  2. The defences in s.18F and cl.40.2 do not apply, as found above and below.

  3. In the builder’s submissions, it made mention of some oral evidence of the building experts: paragraphs 96 and 97. It is not clear if these observations are in support of a submission that these items should not be found to be defective by the Tribunal.

  4. The homeowners replied to paragraphs 96 and 97 of the builder’s submissions in paragraph 4.15. The homeowners read those paragraphs as an attempt by the builder to resile from its expert’s agreement that these items are defective. I am not sure the observations of the oral evidence are an attempt by the builder, or the builder’s expert, to resile from its expert’s previous agreement. An agreement, it must be remembered, which was reached the day before the final hearing begun.

  5. The Tribunal accepts the evidence of the experts that they agree items 5 – 15 are defects.

  6. The Tribunal agrees with the homeowners’ expert that these defects constitute a major defect. That is not challenged by the builder. The water ingress is such that the homeowners cannot use this part of the building and the defects are in a major element: CB995 at para 5.

Items 16 – 18: Water entry loungeroom ceiling; roof pitch

  1. The building experts agree these items are defective: CB1758. The homeowners’ expert expressed the opinion the defects constitute a major defect. The builder did not contest this. The Tribunal finds on the facts that these items constitute a major defect.

Items 19 and 20: floor falls

  1. The building experts agree these items are defective: CB1758-1759.

  2. The agreed scope includes repairing a waterproof membrane but only “if damaged during works”. Waterproofing is defined in s.18E to be a major element of a building however one hopes no works will be required to the waterproofing, as one hopes no damage will occur during the removal of the tiles, screed and adhesive. Certainly this defect is not in the waterproofing; the defect is the non-compliant fall in the laundry (item 19) and ensuite (item 20).

  3. The defect is not “in a major element”, the major element being waterproofing. There is no defect in the waterproofing. The homeowners’ submissions at 6.28 and 6.33, and in reply at 4.16, are rejected.

  4. The homeowners submitted “ponding that occurs by reason of the inadequate fall in the tiles creates an inability to use the bathroom for its intended purpose”: paragraphs 6.28 and 6.33. That is also rejected. There is no evidence that water ponds. The builder’s expert found “Water will not pond” in the laundry (item 19, CB1437, at 8.19.3) or in the ensuite (item 20, CB1440, at 8.20.3). The builder’s expert answered the questions “Is this a major defect under the Home Building Act 1989” as “No” for both defects: CB1439 and CB1440.

  5. The builder made no submissions that items 19 and 20 were not major defects: see paragraphs 99 and 100. Despite the builder’s lack of submissions, the Tribunal cannot be satisfied these items meet the definition in s.18E of the HB Act and therefore these items are out of time.

Item 21: floor fall ensuite shower

  1. The building experts agree this item is defective: CB1758.

  2. This is not a major defect. See items 19 and 20 above. The same rationale applies: HO subs 6.33, JSS at CB1758 “if damaged during works”, B subs 101, reply subs 4.17.

Items 24 – 26, 29, 69: minor defects

  1. The Homeowners concede these items are not major defects therefore they are out of time.

Item 27: Brickwork waterproofing

  1. The building experts agree this is a defect: CB1761. The builder notes this agreement and makes no other submission: para 103. It must be both parties agree this is a defect in a major element of the building. Accordingly, the Tribunal will find it is a major defect.

Item 30: incorrect window installed

  1. The building experts agree this is a defect: CB1761.

  2. The defect is not in a major element of the building. There is no evidence to satisfy the Tribunal this defect causes, or is likely to cause—

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

  2. the destruction of the building or any part of the building, or

  3. a threat of collapse of the building or any part of the building.

  1. The Tribunal has not been taken to any evidence to make the necessary findings of fact that this constitutes a major defect, or even that the homeowners cannot or do not use the room with this window for its intended purpose.

  2. The Tribunal agrees with the builder’s expert that this is not a major defect: CB1456.

Items 33 to 68: rear deck construction

  1. The building experts agree these items are defects: CB1762. The builder notes this agreement and makes no other submission: para 108. It must be both parties agree this is a defect in a major element of the building. Accordingly, Tribunal will find it is a major defect, even though the Tribunal has its reservations whether it is.

Issue 2: Whether the respondent has a valid defence under s.18F of the HB Act or because the defect results from a design defect.

Section 18F defence

  1. Section 18F of the HB Act is:

18F Defences

(1) In proceedings for a breach of a statutory warranty, it is a defence for the defendant to prove that the deficiencies of which the plaintiff complains arise from—

(a) instructions given by the person for whom the work was contracted to be done contrary to the advice of the defendant or person who did the work, being advice given in writing before the work was done, or

(b) reasonable reliance by the defendant on instructions given by a person who is a relevant professional acting for the person for whom the work was contracted to be done and who is independent of the defendant, being instructions given in writing before the work was done or confirmed in writing after the work was done.

(2) A relevant professional is independent of the defendant if the relevant professional was not engaged by the defendant to provide any service or do any work for the defendant in connection with the residential building work concerned.

(3) A relevant professional is not independent of the defendant if it is established that the relevant professional—

(a) was engaged on the basis of a recommendation or referral of the defendant to act for the person for whom the work was contracted to be done, or

(b) is, or was within 3 years before the relevant instructions were given, a close associate of the defendant.

(4) In this section, relevant professional means a person who—

(a) represents himself or herself to be an architect, registered design practitioner or registered principal design practitioner (within the meaning of the Design and Building Practitioners Act 2020), engineer or surveyor, or

(b) represents himself or herself to have expert or specialised qualifications or knowledge in respect of residential building work or any particular aspect of residential building work, or

(c) represents himself or herself to be engaged in a profession or to possess a qualification that is recognised by the regulations as qualifying a person as a relevant professional.

  1. The builder submitted, at paragraph 52, to “the extent that deficiencies relate to the Basement Retaining Wall, the Builder is afforded protection by virtue of s.18F(1)(b)” of the HB Act.

  2. The builder bears the onus of establishing the s.18F defence.

Relevant professional

  1. The “relevant professional” that the builder relied upon to make out the s.18F(1)(b) defence was Jake Fugar who was an engineer at SDA which was the firm who created the engineering drawings contained in the Contract.

  2. The parties accept that Jake Fugar is a “relevant professional” as defined in s.18F(4)(a) of the HB Act as he is an engineer: B subs para 60; reply subs para 3.1.

Instructions given in writing before the work was done

  1. The parties described the “instructions given in writing before the work was done” differently, but ultimately it appears they all accepted the instructions were Option B as described below.

  2. The homeowners submitted that there was “no dispute that written notice issued, being the drawing from SDA on 8 March 2018”: HO subs 3.8. The homeowners referred to the director of the builder, Mr Hanna’s, 6 April 2023 affidavit at paragraph 22: CB1028. The homeowners called these the Revised Structural Drawing at paragraph 3.8 and also cited CB1087 which contains a “Concrete Retaining Wall” drawing by SDA labelled “Option B – no drainage”.

  3. The builder referred to an email sent from Fugar to Hanna on 8 March 2018 as the first version of drawings of the basement retaining wall and called this version Option A: B subs para 42.

  4. The builder referred to a further email sent on 9 March 2018 from Fugar to Hanna attaching a second drawing described as “revised sketch”: B subs para 43 citing CB1099-1100. The builder referred to this revised drawing as Option B. CB1100 contains an identical copy of CB1087 which is a “Concrete Retaining Wall” drawing by SDA labelled “Option B – no drainage”.

  5. It seems clear both parties accept that instructions were given in writing before the work was done by the issue of Option B by Fugar to Hanna on 9 March 2018.

  6. The sticking point is whether Fugar is independent of the builder. A further sticking point is whether the constructed work was in accordance with Option B. We shall come to that.

Independent of the builder, acting for the homeowners

  1. For the defence to be established the instructions must have been given by a person who is a relevant professional acting for the homeowners and who is independent of the builder: s.18F(1)(b).

  2. The homeowners engaged SDA (which employed Fugar) by accepting a fee proposal on 5 August 2015: SDA1842-1844. The design works contained in the fee proposal were completed, invoiced and paid for by about 15 September 2015: SDA1842-1844. Those drawings formed part of the Contract.

  3. The revised drawings which included Option B were prepared between 9 February and 9 March 2018. These revised drawings were not contemplated in the 2015 fee proposal.

  4. Mr Hanna, director of the respondent, had Jake Fugar’s phone number since the start of the homeowners’ renovation or “project”. Mr Hanna gave sworn evidence “I have it [Fugar’s number] in case any problems”: T-088.04. When asked, at T-088.05 how he obtained Mr Fugar’s number, Mr Hanna answered “From previous workings, I had the number”. Later, at T-098, Mr Hanna explained “I got his number when we start the project… And I said because I keep record of all engineers, architect, everybody involved with the job… I’ve got the number. Rang him when there is a problem.”

  5. Mr Hanna, having obtained Mr Fugar’s number at the commencement of the project, confirmed he was able to contact Mr Fugar directly and independently of any instruction from the homeowners to do so: T-088.

  6. Mr Hanna confirmed, on oath, that he communicated with Fugar via phone, text messages and email, as well as speak on site: T-088. Mr Hanna confirmed no one told him to speak to Fugar about the revised drawings, that Mr Hanna “did so voluntarily”: T-088.25.

  7. The following evidence is pertinent:

MR KLOOSTER: Yeah. And you didn’t need to talk to my client before you spoke to Jake. It was quite easy for you to just pick up the phone and speak to Jake about any issue that arose as a result of the footings being revealed during excavation, correct?

MR HANNA: Especially in this case, right, from the engineering side, from construction side of it, its very, very dangerous. When we inspect this - the soil, right, by the way. we don’t (indistinct) inspection. The reason is following the something called (indistinct) I know I’m going with this sort of 300, all the way there. Because whatever happened. when we did that, that’s when we - the footings was exposed. That’s dangerous. If it was actually heavy rain, the ceiling we’d lost the whole lot. That’s when I spoke to Steven about it.

MR KLOOSTER: I understand. I’m not saying you didn’t speak to my client about it. So I understand you excavated, and you realised that the footings were exposed. and then you spoke to my client. And on your evidence, you say that you’ve spoken to the structural engineer, which I presume is Jake. You have to give a verbal answer, sir.

MR HANNA: Yes.

MR KLOOSTER: And you tell my client that Jake will send through plans to you to build a retaining wall to hold up the existing foundations. You tell my client that’s what was going to happen. So you tell my client two things. One is that there’s a problem. Correct. And the second thing is, is that you are going to take it upon yourself to deal with Jake to get the problem fixed.

MR HANNA: Correct.

MR KLOOSTER: Correct. And then in all your subsequent dealings with Jake about this issue. you didn’t have to come back to my client. You just sorted it out yourself, correct?

MR HANNA: Correct.

  1. On Mr Hanna’s own evidence, the builder told the homeowners there was a problem with the footings and that the builder would fix the problem with the assistance of the structural engineer.

  2. On Mr Hanna’s own evidence, the builder dealt with the problem by dealing with Mr Fugar of SDA directly, without any involvement of Mr or Mrs Keogh (the homeowners).

  3. The revised drawings which Fugar created at the request of Hanna were emailed directly from Fugar to Hanna and the homeowners were not carbon copied into the emails: SDA2000 email sent 9 March 2018 attaching Option B.

  4. The homeowner, Mr Keogh, gave evidence which was consistent with Mr Hanna’s evidence set out above. In his statement at CB455 Mr Keogh said at paragraph 4:

I did not provide any instructions to Jake Fugar of SDA Structures about preparing the Retaining Wall Detail. I did not engage Jake Fugar to prepare the Retaining Wall Detail. It was John Hanna who engaged Mr Fugar.

  1. On 29 March 2018 SDA issued a tax invoice for the revised drawings to Mr Keogh: CB458-459. That tax invoice reveals the drawings or “professional services” were “rendered” between 9 February and 9 March 2018. The only person who dealt with SDA during this period was Mr Hanna. Mr Keogh did not deal with SDA during this period. The invoice described “Office Time” to include “Co-ordination with builder regarding structural details”: CB459.

  2. After Mr Keogh received the tax invoice via email on 29 March 2018, Mr Keogh spoke with Mr Hanna on site and asked him “Is this for you or me to pay?” Mr Hanna replied “I’ll take care of it” and indeed he did. There was cross examination of Mr Keogh about this alleged conversation at T74: B subs paragraph 65. The oral answers by Mr Keogh in that part of the cross examination are equivocal. Regardless of the exact words spoken at the onsite meeting referred to by Keogh in his statement, it is the case that the builder did “take care of” the invoice from SDA which had been sent to the homeowner who then passed it onto the builder: CB1123.

  3. That tax invoice was paid by the builder: T-091.22; CB1123. At no point did the builder request that the homeowners pay this invoice or reimburse the builder for having paid the invoice: CB1123 para 8.

  4. It is clear, from the above, that the relevant professional – Jake Fugar, the engineer - was acting for the builder who had requested revised drawings from Fugar or SDA. The homeowners were not involved in this further work done by SDA in 2018. SDA had acted for the homeowners in 2015, and thereafter acted for the builder on instructions from the builder’s director Mr Hanna.

  5. The builder submitted, at paragraph 61, that “SDA was acting for the Owners pursuant to a letter of engagement, which was signed by the Owners: CB1916-1919.” The Court Book (CB) goes to 1763 pages and thereafter there are further pages which have prefix SDA before their page numbers. There is no CB1916. There is no SDA1916 tendered in these proceedings. Thankfully the homeowners gave a correct page reference in their reply submissions which was CB1124-1125.

  6. The builder’s submissions focussed on the terms of the letter which included a phrase “Liaison with Builder and Architect during the construction phase: CB1917”. As explained, there is no CB1917 in the evidence however one can find that phrase at CB1125 under the heading “SCOPE OF WORKS…b) Construction Services”. A complete reading of the 2015 fee proposal does not support the builder’s submission that the agreement between the homeowners and SDA made in 2015 included liaison with the builder during the construction phase including the completion of further designs and documentation (CB1124-1125):

SCOPE OF WORKS

a) Design and Documentation

…

b) Construction Services

During the construction of the project, the work would need to be inspected to ensure compliance with the design documentation and to allow issue of Council Certification on satisfactory completion of the project. Our Scope for this portion of the work would be as follows:

●   Inspection of the construction work to ensure compliance with the construction documentation

●   Liaison with Builder and Architect during the construction phase

●   Review of workshop drawings for compliance with design intent

●   Issue of Council Certification upon satisfactory completion of the project

FEE STRUCTURE

a) Design and Documentation

…

b) Construction Services

Site inspections would be carried out as requested during construction to allow issue of Council certification on satisfactory completion of the project and would be charged at $500/visit (excl GST). you should allow for at least 2 inspections.

Attendance at weekly site meetings has not been allowed for.

Office time associated with builders queries and checking workshop drawings during the construction would be provided at the hourly rate given below.

  1. Clearly the 2015 fee proposal contemplated the preparation of drawings which the builder would implement then the engineer would check so council certification could be issued. It did not contemplate revised drawings. It proposed to charge “Office time” associated with answering “builder’s queries”; it certainly would not have included designing revised drawings upon the builder’s request.

  2. The Tribunal does not accept that the 2015 agreement between the homeowners and SDA covered the revised drawings done by SDA in 2018 at the request of the builder, and paid by the builder.

  3. The builder submitted that Mr Keogh “appeared to withdraw from [the] position” that Option B was prepared by SDA acting as the builder’s engineer: paragraph 63, citing T-073.1-7. The Tribunal does not accept Mr Keogh resiled from his evidence set out in paragraph 4 of his statement (see above). Under oath Mr Keogh said (T-072 to 073):

… I took Mr Hanna at his merit when he said that he engaged the engineer, and the engineer’s opinion was that a retaining wall needed to be constructed.

Mr Pearson: … at that time you didn’t tell Mr Hanna that the respondent was going to be responsible for the cost of this drawing being prepared did you?

Mr Keogh: there was no discussion about it.

Mr Pearson: It was always your understanding that SDA was preparing this drawing in its capacity as your engineer?

Mr Keogh: I must admit I haven’t thought about it.

  1. The builder’s submissions that the Tribunal ought draw a Jones v Dunkel inference from the homeowners’ failure to call Mr Fugar is misplaced: B subs, para 72.

  2. The homeowners correctly identified, in paragraph 3.4 of their reply submissions, that “the onus to establish a defence under section 18F at all times rested with the builder… to the extent any party was expected to call Mr Fugar and any adverse inference is available for a party’s failure to call Mr Fugar that party is the builder.”

  3. A Jones v Dunkel inference is not needed for the Tribunal to reject the s.18F defence. The defence is not established on the evidence. However since the parties raised the issue the Tribunal will briefly address it. To the extent it makes any difference, the Tribunal draws an inference that any evidence Mr Fugar was prepared to give would not have assisted the builder. This is because the builder’s failure to call Mr Fugar as a witness has not been explained, other than the builder’s misplaced attempt to criticise the homeowners for not calling the witness, and it is reasonably expected that Mr Fugar could have given evidence about relevant conversations and other matters with Mr Hanna.

Defective design

  1. Paragraphs 1 to 13 of the builder’s submissions sets out why the builder is not liable for these defects because of cl.40 in the Contract. Sub-clause 40.2 in the Contract was:

The builder is not liable if the building works do not comply with the requirements of sub-clause 40.1 if the failure relates solely to:

(a)   a design or specification prepared by or on behalf of the owner (but not by or on behalf of the builder); or

(b)   a design or specification required by the owner, if the builder has advised the owner in writing that the design or specification contravenes sub-clause 40.1.

  1. The builder can avoid liability for a breach if it can prove that the breach was caused solely by the builder following defective designs, specifications or drawings prepared by the homeowners: see Li v MACD Developments Pty Ltd [2015] NSWCATAP 287 at [69].

  2. The Tribunal finds that the respondent did not construct as per the Option B which is at CB1087, and described by the homeowners as the Revised Structural Drawing in paragraph 3.8. The builder, like the Tribunal, refers to the relevant SDA drawings as Option B: para 49 and elsewhere.

  3. The builder did not construct as per option B. Option B called for the exposed top of the wall to be 150mm wide (CB1234) and Mr Nakhla measured it to be built at 350mm wide (T52.10-20). Mr Nakhla conceded that what was constructed was not in accordance with Option B: T52.20-25. These submissions were made by the homeowners in paragraph 3.12 and appear not to have been refuted by the builder.

  4. The Tribunal thus cannot be satisfied that the only reason the work is defective is because the builder relied on the defective drawings which is Option B, because the builder did not build in accordance with Option B. Furthermore Option B was prepared on behalf of the builder, not the homeowners as found below.

  5. The Tribunal has not been taken to any evidence that establishes that reliance on Option B, had construction been in accordance with Option B, is the sole cause of the defects identified by the building and engineering experts. The builder bears the onus of establishing that it is not liable by application of cl.40.2 of the Contract. It has not discharged the burden of proof in this regard.

  6. The Tribunal rejects the builder’s submissions from paragraph 1 to 13. The Tribunal does not find cl.40.2 absolves the builder of liability for the construction works which were said to rely, but did not strictly rely, on the drawings in Option B.

  7. Even if the builder could rely on cl.40.2 of the Contract, that is only a defence to liability with respect to matters listed in cl.40.1 of the Contract. It would not prevent the Tribunal finding the respondent breached the statutory warranty in s.18E(1)(e) which is “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,” It would appear, on the facts, that the works have not resulted in the renovated master bedroom being reasonably fit for occupation due to the excessive water ingress. In any event the defence in cl.40.2 does not arise on the facts in this case and the builder cannot avoid liability for the defects found in items 1 – 3.

Conclusion

  1. The Tribunal is not satisfied the s.18F or defective design defences apply for the reasons set out above.

Issue 3: For each agreed or found defect, the reasonable and necessary rectification method.

  1. The homeowners set out the principles regarding rectification works at paragraph 5.7. These are not controversial.

Items 1 – 3, 28, 31, 73: Master bedroom water leak

  1. The scope is largely agreed but for the removal of the bulk mass retaining wall that protrudes into the Master Bedroom: CB1756.

  2. The homeowners’ expert gave evidence that the removal of the bulk mass retaining wall protruding into the Master Bedroom was also required to enable an external waterproofing membrane to ensure that no further water ingress occurs: T160.20-30, HO subs 6.9. The Tribunal agrees this work is a reasonable course to adopt. The additional, or not agreed, works are not exorbitant or disproportionate to the very serious defect which is items 1, 2, 3, 28, 31 and 73. The additional scope is reasonable and should be included in the scope of works.

Items 4, 5 – 15, 16 – 18, 27, 33 – 68

  1. Each of these scope of works are agreed: CB1757, CB1758, CB1761, CB1762

  2. The work order made will reflect the agreed and found scope of works.

Issue 4: Whether a work order or money order ought be made.

  1. Section 48MA of the HB Act is as follows:

48MA Rectification of defective work is preferred outcome in proceedings

A court or tribunal determining a building claim involving an allegation of defective residential building work or specialist work by a party to the proceedings (the responsible party) is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome.

  1. The Appeal Panel has considered s.48MA on many occasions. The recent decision Moody v M K Building Services Group Pty Ltd [2022] NSWCATAP 212 states it plainly at [49] to [50]:

49 The failure to consider making a work order raises a question of law. As was noted in John McDonald Building Services Pty Ltd v Gusa [2022] NSWCATAP 60 at [69]:

“The requirement of s 48MA that the Tribunal have regard to the “principle” that a work order is the “preferred outcome” creates a mandatory relevant consideration (Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24; [1986] HCA 40) failure to have regard to which is an error of law.”

49 [sic] To the same effect were the decisions in Galdona v Peacock [2017] NSWCATAP 64 at [50] and [65] and Leung v Alexakis [2018] NSWCATAP 11 at [139].

50 The actual making of a work order is not mandatory, but it is mandatory to consider whether a work order should be made. In this case, where the appellants had not proved any damages, we cannot see how a work order would not have been made.

  1. Even more recently, the Appeal Panel observed in Professional Construction Service Pty Ltd v The Owners - SP 92156 [2023] NSWCATAP 323 at [110]:

As the Appeal Panel noted in Kurmond at [43], s 48MA is directed towards the remedy or ”outcome” to be provided by the court or tribunal where a claimant establishes the responsible party has carried out defective residential building work or specialist work. In this sense, it is not properly described as a ”presumption”. Rather, it is a remedy to be ”preferred” to other forms of order which the Tribunal might make. The section does not mandate a work order.

  1. The homeowners addressed the question of what is the appropriate remedy in part 8 of their submissions from paragraph 8.1 to 8.4, reiterated in 4.19 of their reply submissions. The applicable principles are correctly identified in paragraph 8.2.

  2. The builder addressed this question in paragraphs 119 and 120 of its written submissions.

  3. The reasons put forward by the homeowners to persuade the Tribunal to make a money order are in paragraph 8.3. In answer to many of the reasons it must be observed the builder has proceeded on the basis he has a complete defence to the most serious defects by virtue of s.18F. This defence has not been accepted by the Tribunal, but the builder has clearly had legal advice that the defence does apply and the defence was rigorously pursued by its legal team. In those circumstances it is understandable that the builder has not gone ahead, at great expense, to rectify the defects.

  4. Furthermore the Tribunal accepts animosity may exist between the parties, as often occurs in litigation. This is not sufficient to displace the primacy of a work order as the homeowners themselves pointed out in sub-paragraph 8.2(c). In any event, the builder denies the relationship between the parties has broken down: B subs 119(a).

  5. As to evidence of capacity to carry out the works, the builder asks the Tribunal to make a work order and the Tribunal is not aware of any authority that states a work order can only be made if the builder proves it is able to carry it out. It is assumed that a licensed builder who claims to be ready, willing and able to carry out a work order, can do so: see B subs 119(c) and (d); CB1024, 1051, 1052, 1053-1055, CB1034 at para 65. It was not put to the respondent’s director that the respondent does not have the capacity to rectify defective works. In fact the respondent has undertaken rectification works in the past: B subs 119(e); CB1034, paras 62 – 64.

  6. The homeowners submitted at 8.3(d) that “the terms of any proposed work order have not been prepared or issued at any time”. This submission is vague. It was incumbent on the homeowners to properly prepare their case. This includes providing evidence establishing any breaches of the statutory warranties, and evidence of the appropriate scope of works to rectify proved defects. If there is insufficient evidence as to the required rectification works, this is on the homeowners not the builder. The failure would certainly not support the Tribunal making a money order.

  7. In all the circumstances the Tribunal finds the preferred outcome is the appropriate outcome in these proceedings. A work order will thus be made.

Issue 5: Whether the applicants are entitled to refund for variations they have paid, including whether their claim is within time.

  1. The applicants seek a money order in the amount of “$34,951.90 for reimbursement of disputed and invalid variations”: HO subs 9.1.

  2. However in paragraph 1.5 the applicants’ “refund claim” is summarised with reference to invoice Variation No. 001 (CB366) with total including GST $31,171.90.

  3. From the hearing, the Tribunal had understood the homeowners’ position to be that they agreed with items 2 and 6 but disputed variations 1, 3, 4, 5, 7 and 8. The disputed variations amount to $31,171.90 and the Tribunal had thought the homeowners thought they are entitled to a refund for those items. However submissions in accordance with this understanding did not appear to be made in the homeowners’ written submissions.

  4. The legal basis, or cause of action, said to justify the money order (of either amount) is not explained.

  5. The homeowners’ submissions under the heading “Reimbursement for disputed variations” has a subheading “(a) Terms of the Contract and operation of the Act”. Thereafter, in paragraphs 7.1 to 7.3 inclusive the homeowners explain s.7E and cl.1(2) of Part 1 of Sch.2 of the HB Act which are in the same terms as cl.18.1 of the Contract. The homeowners’ submitted in paragraph 7.2 that the HB Act “is silent as to what occurs when there is a failure to comply with these requirements”. This is not correct. Section 10 of the HB Act explains that the builder cannot enforce any remedy, such as damages for breach of contract by not paying variations not made in accordance with the Act. The homeowners refer to s.10 in paragraph 4.18(c) of their reply submissions.

  6. Section 10 has no bearing in this case because the builder is not seeking damages or trying to enforce the Contract. The variations have been paid. It is the homeowners who are seeking a remedy in the nature of a money order, it is just unclear on what basis they do so.

  7. The closest the homeowners get to setting out the legal basis for this “refund claim” is in paragraph 7.3:

The fact that payment has been made by the Applicants is of no import in circumstances where clause 17.6 of the Contract states that all payments made (including for any purported variations) other than the final progress claim are on account only. [footnote reference to CB310.]

  1. As best the Tribunal can decipher, it appears the homeowners think non-compliance with s.7E and/or cl.18.1 of the Contract means they are entitled to be repaid any variations that they have paid. This is not the meaning of ss.7E or 10 of the HB Act, and if it is, the homeowners have not taken the Tribunal to any authority that supports that interpretation. Section 10 speaks about the builder’s ability to “enforce any other remedy in respect of a breach of the contract”. The builder does not need to enforce the Contract because it has been paid. There is nothing for the builder to enforce.

  2. The homeowners spent pages 26 to 30 of their written submissions addressing a hypothetical quantum meruit claim by the respondent, which does not exist. The builder has not commenced quantum meruit proceedings, which is understandable because the builder is not seeking payment of unpaid variations. A quantum meruit claim would only be required by a builder who had not complied with the HB Act or contract in carrying out variations, and had not yet been paid for those variations. That is not the case here. The homeowners have paid all of invoice Variation No. 001.

  3. Other than setting out why the builder’s non-existent quantum meruit claim should fail, the homeowners have not made any submissions setting out why they are entitled to be repaid monies they willingly gave to the builder, after certain works were carried out by the builder.

  4. This places the Tribunal in an awkward position; it can either guess what is the cause of action and then decide if that cause of action has been made out, or it can find there is no legal basis for the refund claim and dismiss it.

  5. The homeowners refer the Tribunal to s.48K(3) of the HB Act which is as follows:

(3) The Tribunal does not have jurisdiction in respect of a building claim relating to building goods or services that have been supplied to or for the claimant if the date on which the claim was lodged is more than 3 years after the date on which the supply was made (or, if made in instalments, the date on which the supply was last made).

  1. The homeowners consider circumstances in which s.48K(3) apply, but do not explain what is the legal basis of their “building claim” referred to therein. If the basis of their claim is their interpretation that ss.7E or 10 of the HB Act entitles them to a refund they are wrong, and this claim fails.

  2. What the homeowners needed to do was set out the cause of action that the Tribunal would need to consider in order to make the money order sought. They have failed to do so. The Tribunal does not consider it the role of the Tribunal to guess at the cause of action, for example restitution, then set out the elements of the guessed cause of action, and then embark on an investigation of some 2,000 pages of evidence and days of oral evidence to try to find facts that may support or uphold the guessed cause of action. That is the role of the parties’ legal representatives not the role of the Tribunal.

  3. The builder made submissions about the “claim for reimbursement” from paragraphs 111 to 118. These submissions only addressed whether the claim was within time, in accordance with s.48K(3). To say the submissions did not assist the Tribunal is an understatement. It may be the builder agrees it is liable to “refund” or “reimburse” the homeowners, but for the fact the claim has been lodged out of time. This is one reading of the scant submissions by the builder.

  4. Whatever was the homeowners’ unidentified cause of action that they considered entitled them to a money order in the amount of $34,951.90 or $31,171.90, it appears both parties considered s.48K(3) applied to that cause of action. The Tribunal will now consider whether the unspecified case for reimbursement has been lodged within time, on the basis that there was an actual cause of action.

Subsection 48K(3)

  1. These proceedings meet the definition of building claim in s.48A of the HB Act. Specifically, the “refund claim” is a claim for one of two specified sums of money that seemingly “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 or services, but does not include a claim that the regulations declare not to be a building claim”: s.48A. No relevant regulation has been brought to the Tribunal’s attention.

  2. The homeowners cited the following cases in regards to “the date on which the supply was made (or … the date on which the supply was last made)”:

  1. S Turnell and W Turnell v Atlantic Construction Pty Ltd [2014] NSWCATCD 89 and Akerman v Harvey Norman Designs and Renovations (Home Building) [2007] NSWCTTT 722: The homeowners submitted at paragraph 7.16 that “this Tribunal has found that defect rectification works carried out under a Rectification Order form part of the supply of building goods and services and are relevant to determine when the last supply of building goods and services were made” then cited these two first instance decisions of, respectively, a General Member of NCAT and Senior Member of the CTTT. Both were determinations of interlocutory matters.

  2. The relevant paragraphs of Turnell are [20] - [21], [31(v)] ,[32(iv)], [33] and [34]:

In relation to a claim for the provision of goods or services supplied per s 48K(3)

20 The applicants also rely upon the issuing of a Rectification Order on or about 17 May 2012. The Rectification Order referred to incomplete building works.

21 The rectification work undertaken by the respondent in compliance with the Rectification Order was completed in or about 13 June 2012. The applicant submits that the work undertaken was the rectification of the leak and that each item listed requiring rectification was caused by the leak. That is, although the Rectification Order does not specifically state that the leak must be rectified, it is implicit in that document in the other work to be done that the Rectification Order is in relation to the leak itself.

22 The applicant submits that work is the subject of a claim pursuant to s 48K(3) of the Act, as it is ‘arising out of the supply of building goods or services’. The applicant submits that there is not requirement for a contract in relation to a claim pursuant to s 48K(3). However, the applicant seeks leave to amend their claim to include a claim under this section.

…

31(v) The applicants are within the statutory time period in relation to their claim pursuant so s 48K(3), it having been lodged within 3 years of the date of the rectification work being undertaken. The Tribunal formally grants leave for the applicants to amend their application to include a claim pursuant to s 48K(3).

…

32(iv) In relation to the claim pursuant to s 48K(3) of the Act, the parties agree that the work the subject of the Rectification Order was carried out in June 2012. Any application must therefore be lodged before June 2015, which is the case here.

33 The parties are in conflict as to the scope of work included in the Rectification Order. The applicant asserts that the work is in relation to the leak itself, not merely the sequelae of the leak. The respondent asserts to the contrary: that the Rectification Order is in relation to cosmetic issues only which have been completed.

34 The matter is to be listed for a Directions Hearing as soon as practicable to clarify the outstanding issues in dispute in relation to the claim pursuant so s 48K(3)and for orders in relation to the service of evidence.

  1. The relevant order made by the General Member in Turnell was “The applicant is granted leave to amend their application to include an application pursuant to s 48K(3) of the Home Building Act 1989.” This decision made reference to the s.48k(3) claim being within time, but it was an application to grant leave to amend to bring that claim. It is not a final decision of the Tribunal. Even if it was a final decision of the Tribunal it is not binding upon me and I do not agree with it. It is not clear what the Turnells’ cause of action was in relation to the rectification works. I am unaware of the outcome of the Turnells’ final hearing. Even if the Tribunal at the final hearing accepted the Turnells’ submission that s.48K(3) applies to defective rectification works, that decision is not binding upon me. The Member who presided over the final hearing of the Turnell’s matter was also not bound by the finding of this General Member in the application for leave to amend, that the s.48K(3) was within time.

  2. The builder submitted at paragraph 116 that Turnell is distinguishable from the present application because “the rectification order in Turnell referred to incomplete works”. Further, in paragraph 117, the builder submitted:

Secondly, in Turnell the rectification order referred to works the subject of the contract which explains why the completion of those works was treated as the last instalment of the same supply. In this case, the Variations were not a supply under the contract, and the rectification order refers to Contract works but not to Variations. The rectification works carried out pursuant to that order did not constitute a supply in respect of the Variations. The two supplies are inherently distinct; the former, being a claim for breach of statutory warranties, is not subject to s.48K(3) HBA.

  1. The submissions in paragraph 117 are of limited assistance to the Tribunal, or the builder’s case. It would take much effort to try to disentangle these submissions, and try to respond to them. Suffice to say the Tribunal does not agree with what is submitted by the builder in paragraph 117.

  2. The same can be said of the homeowners’ reply submissions at paragraphs 4.18(b) and (d), that is, that they are of limited assistance. It does not matter whether the builder distinguished Turnell from the present application because the decision in Turnell – to grant leave to amend - is not binding upon me, for what it is worth.

  3. Turning now to Akerman, an interlocutory decision of a single Senior Member of the CTTT. The preliminary issue being considered in Akerman was: “Is a claim for breach of statutory warranties (being faulty rectification works) out of time, given that the original contract is dated 15 January 1998 and a rectification order was made by an inspector of the Office of Fair Trading on 26 August 2004?” The “Findings and Orders” in Akerman were:

1. The Tribunal does not have jurisdiction in respect of the claim for breach of statutory warranty implied into the contract in relation to the works pursuant to the rectification order by an inspector of the Office of Fair Trading.

2. It is arguable that the Tribunal does have jurisdiction in respect of a claim relating to building goods and services supplied between July 2004 and February 2005 pursuant to the rectification order.

3. The matter is to be listed for directions and argument either for dismissal or for the further hearing of an application under s48K(3) HBA.

  1. In the unpaginated decision, the Member explained “The matter to be determined as a preliminary issue is whether the claim (identified on the day of the hearing by Ms McMahon, for the applicant as being a claim for breach of statutory warranties) was out of time. If it was, the Tribunal did not have jurisdiction under s48K(7) to determine the claim.” The Member summarised the parties’ submissions as follows:

The argument by the applicant is simply that the repair works constitute residential building work as defined in Sections 6 and 18A(c) of the HBA. These residential building works attract the warranties implied by section 18B of the HBA.

The respondent contends that the Tribunal has no jurisdiction to hear and determine the application because a claim for breach of a statutory warranty must be commenced within seven years after the completion of the work to which it relates. The respondents’ argument is that the work to which the statutory warranty relates is the work which was commenced in January 1998 and finished in May 1998. The rectification work did not constitute separate or new building work. The contract work does not include the rectification work pursuant to the rectification order made by the OFT inspector.

  1. The Member in Akerman concluded the preliminary hearing by making these findings and observations, none of which are binding upon me (emphasis added):

I do accept that there is force in the respondent’s argument that s18B implies warranties into a contract, that is, the original contract to do residential building work. There is no implication under Section 18B of statutory warranties into the work done under a rectification order.

… I … accept the primary argument that … s48K(7) does not apply to the subsequent defective rectification work for the reasons advanced by the respondent. While I note that Ms McMahon nailed her colours to the mast and based her case purely on the applicability of the limitation period for statutory warranties (s48K(7)) in my view, there is nothing to stop a claim being made ‘in respect to building goods and services supplied to the applicant’ under s48K(3), noting that the limitation period there is three years after the date on which the supply was made. It appears to me to be at least arguable that s48K(3) may be available here. I note that the respondent strenuously opposed any shifting or amendment of the claim to include this … The matter is to be relisted for further directions to consider either the dismissal of the application or the further hearing of the application as a claim under s48K(3).

  1. It can be seen that the part of the interlocutory decision relied on by the homeowners is obiter dicta at best, or legal advice from the Member to the applicant at worst. The applicant brought her claim as breach of statutory warranties. The Member found that claim was out of time. He then seems to suggest to the applicant (who had already “nailed her colours to the mast”) that she might have another “at least arguable” case than the one the Member just found was out of time. It is not known if the applicant, Ms Akerman, availed herself of the Member’s advice and did amend her claim to one fashioned under s.48K(3) and if she did, it is not known what was the outcome of that final hearing.

  2. The Tribunal is not bound by the obiter comments of a Member considering an interlocutory matter. The CTTT in Akerman did not find or hold that “defect rectification works carried out under a Rectification Order form part of the supply of building goods and services and are relevant to determine when the last supply of building goods and services were made”: cf. HO subs at 7.16 and reply subs at 4.18(e). All that the Member in Akerman said was “in my view, there is nothing to stop a claim being made ‘in respect to building goods and services supplied to the applicant’ under s48K(3), noting that the limitation period there is three years after the date on which the supply was made. It appears to me to be at least arguable that s48K(3) may be available here.” It is not known if the applicant ever adopted the Member’s ‘advice’ and amended her claim and it is not known if any amended claim was ever considered by the CTTT after a final hearing.

  3. The Tribunal notes the builder made submissions about Akerman in paragraph 118 and the Tribunal read those submissions.

  4. The other case cited by the homeowners was Diao v Rawson Homes Pty Ltd [2021] NSWCATAP 273. Diao was first cited by the homeowners in support of the submission “Sections 18E and 3B of the Act do not apply to claim brought under s.48K(3)”: paragraph 7.14. That proposition is settled law. Then in their reply submissions the homeowners cited Diao as authority for the proposition “that the test under section 48K(3) is a question of fact as to the date when the goods and services were last supplied. It is from that date that the three-year time limit is to be calculated”: paragraph 4.18(e). The homeowners did not cite a paragraph number from Diao where they say that finding was made.

  5. The builder did not mention Diao, which, considering the citation in the homeowners’ written closing submissions, is not surprising.

  6. Diao is a relevant case. That Appeal Panel sought submissions from the parties about the following questions, at [25]:

(a) Whether the three year time limit specified in s 48K(3) runs from when the work is deemed to be complete in accordance with s 3B of the HBA or from some other date?

(b) If the date from which time runs for a claim under s 48K(3) is calculated in accordance with the provisions of s 3B, why this is so?

(c) If the date from which time runs for a claim under s 48K(3) is not calculated in accordance with s 3B, from what date does time run in this case and why does time run from that date?

  1. The Appeal Panel in Diao explained, at [34(2)]:

Section 48K(3) applies where the cause of action under the HBA is not for breach of statutory warranty, but for some other cause of action such as breach of contract, in cases where building goods and services have been provided to or for the claimant. In such cases, for the Tribunal to have jurisdiction, the application must be lodged within three years of the last supply of building goods and services. Sections 18E and 3B do not apply to claims brought under s 48K(3).

  1. This explanation is, with respect, uncontroversial. Indeed one of the Appeal Panel members had extensively explained the difference between subsections 48K(3) and (7) in the earlier Appeal Panel decision of David Cameron Jones t/as Oz Style Homes v Panchal [2018] NSWCATAP 238.

  2. The Appeal Panel in Diao, explained the basis of the ground of appeal they were considering at [35] and [36]:

35… the Tribunal did not expressly refer to s 3B(3) of the HBA but in applying s 48K(3) of the HBA, it found that the date on which the last supply of building goods and services was when the certifier issued the OC on 1 March 2017. The Tribunal found that the application was therefore brought out of time, being lodged on 8 March 2020, which is more than three years after 1 March 2017. While on that calculation the application was out of time by only a few days, there is no power or discretion provided to the Tribunal under either the HBA or the NCAT Act to extend time under s 48K: S & G Homes Pty Ltd t/as Pavilion Homes v Owen [2015] NSWCATAP 190 at [53].

36 The Tribunal may have considered s 3B(3) of the HBA when taking time to run from the issuing of the OC, although this is not clear. As noted above, the Tribunal stated that it took the date on which the supply was last made as the date on which the OC was issued. However, the Tribunal did not explain why it selected the issuing of the OC as the relevant date to calculate time under s 48K(3).

  1. The ratio decidendi on the relevant question in Diao is at [42]:

The legal meaning of the date of PC by reference to the contract or s 3B(3) of the HBA, or the date of issuing the OC for that matter, is not the relevant to test prescribed by s 48K(3). The test under s 48K(3) is a question of fact as to the date when the goods and services were last supplied. It is from that date that the three year time limit is to be calculated. Section 48K(3) could have but does not refer to PC or s 3B(3) for the purpose of determining the last date on which supply occurred under a building contract.

  1. This is the paragraph that the homeowners’ must have been referring to in their reply submissions at 4.18(a).

  2. Diao is a succinct and helpful decision. The Appeal Panel at [49] provides excellent guidance to the Tribunal at first instance (emphasis added):

…the evidence indicates that the respondent undertook work after PC was certified and after the OC was issued. Further, the evidence establishes that physical “handover” of the premises occurred at a date much later than that certified as PC and well after the OC was issued. It is not clear from the evidence before us that the only work undertaken after the date on which the OC was issue[d] could be characterised as the rectification of defects, as opposed to the completion of works required under the contract.

  1. The Appeal Panel concluded in Diao at [53] and [54] (emphasis added):

53 From the material before us, it appears that time ran from a date that is later than the issuing of the OC, on the basis that the respondent undertook work after that date. We need not be exact about that date for the purposes of this appeal given that the evidence before us is not comprehensive about what work was being undertaken during this time. However, from the material before us it appears that the appellant’s application was brought within time insofar as it was brought under s 48K(3) of the HBA. This means that the appeal does not lack utility.

Conclusion

54 We conclude that to the extent that the Tribunal sought to apply s 3B of the HBA in determining that the application was not within time, this was a misinterpretation of the relevant legislative provisions and constitutes an error of law.

  1. Clearly, the Appeal Panel differentiated works done pursuant to the contract for residential building work, with works done to rectify defective works. The Tribunal agrees that it is relevant if the work is contract works or rectification works (of defective contract works, rectified pursuant to the contract, but nonetheless legally different). Diao is not authority for the proposition that the three years starts to run, for the purpose of the limitation period in s.48K(3), on the last occasion the builder returns to site to undertake rectification works, rather than complete contract works.

  2. If Diao did stand for that proposition, I would not agree with it. Such an interpretation of the last supply of building goods and services would defeat the intention of not only one of the objectives of the HB Act – to compel builders to rectify defects in the works they performed – but also would defeat the time limitations in ss.18E and 48K(7). If the last date building goods and services were supplied was the last time the builder returned to site to undertake rectification works, homeowners could bring cases which formerly would have been breach of statutory warranty claims as breach of contract claims as most standard building contracts expressly or explicitly include the terms of s.18B. The same statutory warranties that are implied into all home building contracts for residential building works, can be explicit or express terms of the contract, such that a homeowner could choose to argue breach of contract instead of breach of the statutory warranties, particularly if the last time the builder returned to site to attend to a defect, or indeed do any work, even in goodwill and not to repair any defect, was within three years of the date the claim was lodged. In these circumstances an applicant would be within time for defects, including minor defects which are out of time two years after practical completion. It is generally the case that practical completion is achieved before rectification work is performed. Work done before practical completion is generally contract work, not classified rectification work.

  1. The Tribunal has read the builder’s submissions at paragraphs 111 to 118 closely. The builder does not, in those paragraphs, submit when should be the date building goods and services were last supplied by it. The builder does not make any submissions about how “the date on which the supply was made” or “the date on which the supply was last made” should be interpreted. Nor does the builder make any submissions about when in fact was the date on which the supply was made or the date on which the supply was last made.

  2. I find that the supply of goods or services referred to in s.48K(3) must be the building good or services performed pursuant to the Contract, during completion of the contract works, and not rectification of earlier performed contract works. I agree with the Appeal Panel in Diao that it is only “the completion of works required under the contract” that can be considered supply for the purposes of s.48K(3) as opposed to “work … which …could be characterised as the rectification of defects”: see Diao at [49] and [42], [53] and [54].

  3. Rectification works do not extend the date the goods and services were supplied. The Contract works, including variations, were supplied when the building works were completed. Supply does not continue to the end of each rectification attempt made by a builder.

  4. To the extent the builder submitted the work described in Variations Invoice 001 on page CB366 “were not a supply under the Contract” that submission is rejected: paragraph 117. In any event no party submitted when the variations works were in fact performed.

  5. There is no authority for the proposition that the Tribunal should separately consider the date the variations set out in CB366 were supplied, as opposed to the other Contract works. Supply does not continue, for the purposes of s.48K(3), each time a builder returns to undertake rectification works.

  6. The test under s 48K(3) is a question of fact as to the date when the goods and services were last supplied. It is from that date that the three year time limit is to be calculated. Section 48K(3) could have but does not refer to practical completion or s 3B(3) for the purpose of determining the last date on which supply occurred under a building contract. The evidence in this case establishes that practical completion was reached in October 2018 and the Variations invoice was issued in November 2018 and the final occupation certificate was issued in May 2019. I do not find the date the goods and services were last supplied are calculated with reference to s.3B of the HB Act. I have regard to the dates of practical completion, and the issue of the final OC, to make a finding of fact about the last date building goods or services were supplied by the builder in undertaking Contract works. As a matter of fact I find all Contract works were likely supplied on or before October 2018 when practical completion was reached, but certainly by May 2019 when the final OC was issued. Works after this time constitute rectification works and are not included in “building goods or services that have been supplied to or for the claimant” for the purposes of s.48K(3).

  7. The last date building goods or services have been supplied to or for the homeowners is 15 May 2019 (at the very latest, likely it was much earlier than this).

  8. These proceedings, which include the “refund claim”, were lodged in August 2022. Clearly that is more than three years after May 2019 so this part of the homeowners’ case is out of time.

Conclusion

  1. The Tribunal is not satisfied on the balance of probabilities that the homeowners’ are entitled to either of the money orders sought. It is not known what was the legal basis of this refund or reimbursement claim and therefore the Tribunal could not possibly assess whether it had been made out on the facts, applying that to the relevant law (which was not identified).

  2. It seems to be conceded that whatever was the cause of action for this part of their claim, s.48K(3) applied. The homeowners are out of time to bring any claim under s.48K(3).

  3. The refund or reimbursement claim is dismissed.

Orders

  1. The builder must, within 6 months from these orders, rectify Items 1 – 3, 28, 31, 73 (master bedroom water leak) in accordance with the agreed scope of work plus the additional work set out by the homeowners’ expert at CB1755 to 1757.

  2. The builder must, within 6 months of these orders, rectify Items 4, 5 – 15, 16 – 18, 27, 33 – 68 in accordance with the agreed scope of works at CB1757, CB1758, CB1761, CB1762.

  3. The case is otherwise dismissed.

Costs

  1. The applicants sought a money order to rectify defects which was not quantified, and in any event, was not awarded. Additionally they sought a money order over $30,000 from the respondent, which means Rule 38 of the NCAT Rules applies.

  2. Therefore costs follow the event. The event is that the applicants have had some success, but have also been unsuccessful. They have achieved a work order for many of the defects, although all those defects were agreed between the parties. They did not obtain a money order for the rectifications (or, more correctly, a further hearing on quantum so that they could obtain a money order).

  3. The builder was not successful in arguing its defences to the majority of defects.

  4. The homeowners failed in their refund or reimbursement claim.

  5. It follows that each party should pay their own costs.

  6. If either party wishes to apply for a cost order different to each party pays their own costs, they must make that cost application by 29 March 2024. If either party, or both, makes a cost application, the other party may respond to that application with written submissions filed and served by 19 April 2024. In any cost application or cost submissions, parties must indicate their attitude to the Tribunal deciding the question of costs on the papers (that is, dispensing with a hearing on costs).

  7. Alternatively the parties will accept the cost order that each party pay their own costs, given the limited success of both parties, and that order will remain.

  8. If either party makes a cost application on or before 29 March 2024 the proposed order will lapse and the Tribunal will make a subsequent cost order following the timetable for submissions.

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

Registrar

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

Decision last updated: 07 November 2024

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Cases Cited

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Statutory Material Cited

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Luxton v Vines [1952] HCA 19
Jones v Dunkel [1959] HCA 9
S Turnell and W Turnell v Atlantic Construction Pty Ltd [2014] NSWCATCD 89