Mangano v Amescorp Pty Ltd

[2024] NSWDC 195

District Court

New South Wales

Medium Neutral Citation:

Mangano v Amescorp Pty Ltd [2024] NSWDC 195

Hearing dates:

20 May 2024 – 23 May 2024

Date of orders:

31 May 2024

Decision date:

31 May 2024

Jurisdiction:

Civil

Before:

Newlinds SC DCJ

Decision:

See para [126]

Catchwords:

CIVIL LAW – principal judgment – Home Building contract – Implied warranties – Alleged defects – Damages – Liability of sole director of builder – “Nominated supervisor” within the meaning of the Home Building Act 1989 – “Construction work” within the meaning of the Design and Building Practitioners Act 2020 – Duty of care – Breach of duty – Loss

Legislation Cited:

Design and Building Practitioners Act 2020 ss 36, 37

Home Building Act 1989 ss 53, 180

Cases Cited:

Blatch v Archer (1774) 1 Cowp 63

Burnie Port Authority v General Jones Pty Ltd [1994] HCA 13

Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389

Ghosh v Medical Council of NSW [2020] NSWCA 122

The Owners Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659

The Owners Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWSC 116

Category:

Principal judgment

Parties:

Samuel Joseph Mangano (First Plaintiff)
Teresa Mangano (Second Plaintiff)
Amescorp Pty Limited (First Defendant)
James Patrick Raad (Second Defendant)

Representation:

Counsel:
Mr I Chatterjee (Plaintiffs)
Mr J Y Li (Defendants)

Solicitors:
Michael Atkinson Associates (Plaintiffs)
Madison Marcus (Defendants)

File Number(s):

2023/00098845

JUDGMENT

Introduction

1. The plaintiffs, Mr and Mrs Mangano, are the registered proprietors of land in Gables, New South Wales.

2. The first defendant, Amescorp Pty Ltd, “the builder”, is a company who, amongst other things, performs building work and by contract dated 10 November 2019 agreed with the plaintiffs to build on the land a two-storey residential house with a “granny flat” for a sum of $706,200 including GST.

3. The second defendant, James Raad, is the sole director of the builder and was the “nominated supervisor” pursuant to s 53 of the Home Building Act 1989 (“the HBA”) in relation to the building works to be carried out for the plaintiffs pursuant to the contract.

4. By an Amended Statement of Claim dated 11 July 2023, the plaintiffs claim damages quantified at $521,111.32 against:

1. The builder on the basis of a series of alleged breaches of the statutory warranties in s 18B of the HBA, which are implied into the residential building contract between the plaintiffs and the builder. The damages are said to be the consequence of approximately 17 alleged defects in the building work;

2. The builder for the same damages on the basis that it was a person that carried out “construction work” within the meaning of s 36 of the Design and Building Practitioners Act 2020 (“the DBPA”) and therefore it owed to the plaintiffs a statutory duty of care pursuant to s 37 of the DBPA, which is said to have been breached; and

3. James Raad, also pursuant to s 36 of the DBPA, the allegation being that he too carried out “construction work” within the meaning of s 36 of the DBPA and is thus liable for any economic loss suffered by the plaintiffs as a result of what is alleged to be a breach of his duty of care created by s 37 of the DBPA.

The issues

5. There is no dispute between the parties that the builder will be liable under both the HBA and the DBPA if the alleged defects are made out to my satisfaction. The builder pleads no statutory defences with respect to the claim under the HBA and as its liability under that Act is absolute (subject of course to the plaintiffs proving the existence of the relevant defects and damages), there is no need for me to consider the liability of the builder under s 36 of the DBPA because the same relief will be available under the HBA. In other words, the DBPA claim adds nothing to the claim against the builder. The issues for determination against the builder are, have some or all of the alleged defects been made out and if so what, if any, damages flow from those defects.

6. There are a series of separate legal and factual questions involved in the claim against James Raad.

7. The first is whether s 36(1)(d) of the DBPA, in the factual circumstances as occurred, means that he too was carrying out “construction work” as defined.

8. If he was carrying out “construction work” then the second question of law will be to define in the circumstances the content of the duty of care imposed on him under s 37 of the DBPA and third, to determine whether there has been a breach of that duty, and if so, whether some or all of the damages consequent on the alleged defects were caused by any breach of duty. The answer to the last two questions may mean that any liability of James Raad is not co‑extensive with that of the builder.

Overview – Undisputed facts

9. In around November 2019, the plaintiffs obtained development consent for inter alia the construction of a two-storey residential building, with an attached granny flat and swimming pool. The builder successfully tendered to perform a substantial portion of the construction works involved therein and the parties entered into a written contract on 10 November 2019 in the total sum of $706,200 for the construction of a double storey dwelling with triple car garage and attached granny flat.

10. There is no dispute the contract was for the performance of “residential building works” within meaning of the HBA, and therefore the statutory warranties set out in s 18B were implied into the Contract.

11. Construction works commenced on 15 December 2019. The builder appointed Mr Richard Raad as the onsite supervisor of the works, though Richard Raad’s specific qualifications or experience for undertaking that role are not the subject of evidence, nor is there any evidence as to what he actually did in performing the role. I infer Richard Raad is a relative of James Raad, possibly his brother.

12. During the course of the construction, James Raad, who was the “nominated supervisor” for the purposes of the HBA, attended the site weekly (up until lock up stage) and afterwards on a fortnightly basis. He describes his role as being to supervise and oversee Richard Raad, to meet with the plaintiffs (and in particular in relation to allegedly defective works), and to periodically inspect the works and monitor its progress.

13. Site possession was handed over on 23 December 2020, albeit with alleged defective works, many of which are admitted. Those defects can broadly be described as follows, the items and references are to a joint report prepared by the experts (Exhibit B):

1. Defects in the installation of vertical control joints, including the remediation of defectively installed joints (Item 2, Exhibit B (“EB”) p1321);

2. Defects in the finish of the external brick walls, noting a level of overlap with Item 2 in this regard (Item 3, EB1323);

3. Defects in the burnished concrete floor finish (Item 4, EB1326);

4. A defective home theatre window (Item 5, EB1328);

5. Three defective sliding doors (Item 6, EB1330);

6. Non-compliant window assemblies (Item 7, EB1332);

7. Defects in the metal roofing (Item 8, EB1335);

8. Defective granny flat laundry (Item 9, EB1337);

9. Various defects in the remaining internal wet areas (Items 10 - 17, EB1339);

10. Various minor defects identified in a “proprietor defect schedule” (Item 18, EB1362).

Structure of these reasons

14. I will first deal with the alleged defects in order by reference to the schedule and the item numbers prepared by the experts in their joint report.

15. I will then turn to the question of what damages have been shown to have been the consequence of any or all of those defects, so as to come to a conclusion as to liability and damages as against the builder. That will involve in part identifying what scope of work is necessary to rectify any proved defects and then to determine the cost of that scope of work. Finally, I will deal with some miscellaneous claims for delay and the like, the question of some admitted unpaid progress claims issued by the builder, and how they should be dealt with. I will then direct the parties to agree as to the arithmetical result consistent with those findings.

16. I will then deal with the claim under the DBPA against James Raad to decide whether he owed a duty of care and articulating what he needed to do in the factual circumstances to discharge that duty. I will then decide whether, in the circumstances of such defects as I have found, James Raad breached his duty of care, and if so, finally deal with the question of what damages he might be responsible for.

The alleged defects

Overview

17. Turning then to the defects by reference to the agreed items.

The experts

18. At this point I should record that I heard evidence from three experts. Mr Iskowicz was called by the plaintiffs. He is a retired builder and consultant, he provided his opinion as to firstly the defects, secondly the scope of work required to rectify the defects, and finally his opinion as to the cost of rectifying those defects. On behalf of the defendant, Mr Xue, who is a builder gave evidence as to his opinion as to the defects and what he considered an appropriate scope of works to rectify those defects he identified. Finally, Mr Madden was called by the defendant. He is a quantity surveyor who gave me his opinion as to the cost of the rectification works recommended by Mr Xue and Mr Iskowicz.

19. The evidence of the experts was given concurrently. Mr Iskowicz and Mr Xue gave evidence together and thereafter Mr Iskowicz and Mr Madden gave evidence together.

20. I was extremely impressed with all three experts. I formed the view that each and every one of them was doing their very best to assist the court and that they honestly and reasonably held their respective opinions.

21. With some very minor exceptions, they each conceded that in almost every case where they held contrary opinions that the opinion held by their counterpart was one which, whilst they did not agree with it, was reasonable and open. They each made appropriate and frank concessions when various errors in approach or fact were pointed out to them by their counterpart.

22. I did form the view that Mr Iskowicz had an advantage over both Mr Xue and Mr Madden because he had conducted the original inspections and he had put together the original list of defects with his proposed scope of works. I formed an impression – and this is without any criticism of any of the other experts – that as a result he had thought more deeply as to what was required to be done and the extent of that work with more precision than the other experts. That being said, I also formed the view that he was perhaps being a little bit conservative in relation to his quantification and in respect of some of the individual defects, and again, to a limited extent, his scope.

Quantum

23. With that qualification, generally I accepted Mr Iskowicz’s evidence as to the cost of remediation works for any proved defects. I also accept Mr Madden’s evidence on that same topic was his honest opinion and that it was reasonable. I formed a global impressionistic view that in the same way Mr Iskowicz was being a little conservative as to his estimate of costs, Mr Madden was a little too bold as in the opposite direction. I have decided on a global basis, taking into account that impression, to reduce Mr Iskowicz’s quantification of the defects which I find the defendant is liable for by a global amount of 15% to take into account that conservative approach and also to build in some of the concessions he made during the course of cross-examination. To take any other approach would involve an overly detailed analysis of each and every item. In light of the fact that no individual defect is worth much money on its own and most of the individual costed items are worth even less, I think such an approach would be disproportionate in cost to the amount involved and would not necessarily yield a more reliable result. Both counsel agreed that an overall reduction would be a justifiable and principled method of dealing with the question of quantum, although they differed as to how much the reduction ought be. The 15% reduction is impressionistic but is based on the evidence and submissions and is in my judgment appropriate.

Alleged defects

24. Counsel for the plaintiffs has prepared an extremely useful document, being a defects list cross-referenced. I marked that document MFI 9 and left it with the papers. It provides a helpful summary of where the various experts evidence as to liability can be found in their respective reports and in the joint report and also sets out the quantum based, firstly on Mr Iskowicz’s quantification of his opinion as to his scope, then Mr Madden’s opinion as to Mr Iskowicz’s scope, then Mr Madden’s opinion as to the cost of Mr Xue’s scope.

25. With some limited exceptions, I have generally determined to accept most of the scope of works proposed by Mr Iskowicz where it differs from that proposed by Mr Xue. Again, this is not because of any adverse view I formed of Mr Xue but rather, an impression I formed as a result of listening to and reading their respective evidence in relation to each item.

26. Dealing then with the individual items by reference to item number in the joint report, my reasons are as follows.

Item 1 – Site establishment costs

27. Mr Iskowicz has allowed an amount of $12,035 for what he describes as site establishment costs.

28. Mr Xue does not accept this part of the claim. He gave evidence that he was of the opinion that the entire claim for site establishment costs is a double up of the preliminaries already claimed and applied by Mr Iskowicz for items such as insurance, setting out, plant and scaffolding, supervision, etc.

29. In oral evidence Mr Iskowicz accepted that there was probably some doubling up but stated that in his opinion there was always an element of doubling up as between site establishment costs and preliminaries and he maintained his view that the amount claimed was appropriate and did not constitute double counting.

30. Mr Xue in turn accepted that there probably was an inevitable amount of double counting in every such quantification of this sort of claim.

31. On balance, leaving to one side the global reduction of Mr Iskowicz’s assessment, I accept Mr Iskowicz’s scope of work in this regard and allow the site establishment claim, albeit reduced by 15%.

Item 2 – Rectification of the vertical control joints

32. The claim is for six vertical control joints. In his reports Mr Xue accepted that two vertical control joints are missing and need to be installed. In cross-examination, he agreed that the newly installed joints did require brick ties, with the result that his scope of works was deficient as it did not include the necessary works for that to occur which in short compass would be: one, removing the necessary bricks; two, installing the ties; and three, reinstating the bricks.

33. Mr Xue frankly accepted that he might have missed some of the incorrectly retrofitted joints in his inspection and was willing to accept that Mr Iskowicz’s photos are sufficient to demonstrate the existence of incorrectly retrofitted joints. Mr Madden, after reviewing Mr Iskowicz’s photos during a break in cross-examination, agreed that there were six incorrectly retrofitted vertical control joints. Counsel also accepted that fact.

34. I accept Mr Iskowicz’s scope of works as to this item as the experts ultimately agree as to the number of joints, and Mr Xue’s scope was in error as he frankly conceded in oral evidence. As to quantum, I accept Mr Iskowicz’s estimate subject to the 15% reduction.

Item 3 – Rectification of brick finishes

35. This was a question only identified during the process of the experts giving their oral evidence. The question was if the bricks were glazed or not. Mr Iskowicz had assumed, wrongly, that the bricks were glazed. The parties agree that the installed brick is the PG Ultra Blue brick identified in Exhibit C. It is not glazed. While that is different from the brick originally opined on by the experts, there is no material distinction for the purpose of the contended defect, which concerns a failure to provide a sufficiently high-quality external brick finish in line with the sample finish.

36. The real contest between the experts is whether there is visible scarring, pitting or otherwise defacing of the external brick finish of the property. Mr Xue says that in his opinion the scarring is not visible from a normal viewing angle. I don’t think I can accept that in light of the photographs I have seen. Mr Xue agreed in cross-examination that his proposed rectification method (a gloss sealer) was transparent and would not remediate pitting, scarring or poor grout finish. He also accepted that sealant required re-application, while Mr Iskowicz gave cogent evidence that a brick finish would last the lifetime of a property, with any fading occurring evenly such that the overall aesthetic would remain intact.

37. As I have said, there are numerous photographs that objectively establish the visible scarring, poor quality perp-end and bed joints etc – see for instance EA568, 575, 576, 583, 584, 586, 590, 591, 592, 594 (see sill ends), 599, 600, 606, 608 (see bed joints), 609, 610, 614, 623, and 624. I am satisfied this defect is established.

38. I accept Mr Iskowicz’s scope as to rectification of this item subject to the 15% reduction. The assumption he made as to the type of bricks goes only to quantum and I have factored that into the overall 15% reduction.

Item 4 – Rectification of burnished floor finishes

39. The contract provided for a burnished floor finish. Mr Xue agrees the present floor is not consistent with a burnished floor finish. The photos in evidence show that the appearance is very poor, in my judgment it falls way short of an acceptable standard - see in particular EA646 - 651.

40. Mr Xue accepted that his proposed scope of rectification would not result in a burnished floor finish, and would only result in smoothing the current floor. That cannot in my opinion be a satisfactory or reasonable resolution of this significant defect for the plaintiffs.

41. Mr Xue also gave evidence that only arose in the course of cross-examination that Mr Iskowicz’s scope of works would also not result in a burnished floor but was unable to explain why he had not raised this in his earlier report or at conclave.

42. Mr Iskowicz accepted there was a risk that his scope of rectification may not address the issue, but considered that it was the most reasonable course in the circumstances to seek to rectify the defect.

43. I accept that this defect is established and I accept Mr Iskowicz’s scope of works and his quantification subject to the 15% reduction.

Item 5 – Home Theatre Windows

44. Mr Xue agrees that the home theatre windows do not open, that is obviously a defect, the only question is how can this be fixed. The contest between the experts is whether contact between the aluminium frame and the concrete render can result in corrosion to the powder coating. Mr Xue agrees the window frame at present is in contact with the render on all sides, but disagrees that this is a problem.

45. Mr Iskowicz gave evidence that he had direct experience with the corrosive effect caused. His opinion is supported by the recommendations in AS2047‑2014 and that provides objective support for his opinion.

46. In addition, Mr Xue’s scope of repair would require cutting the tops of the upright sill bricks, with the resultant exposure of the hollow core. I don’t think that is satisfactory.

47. I accept this defect and Mr Iskowicz’s scope. It is an example of where I think he is being a little conservative, I have taken that into account when reducing the quantum by 15%.

Item 6 – Sliding door thresholds

48. AS2047 (Exhibit D), p32, 7.2.2 mandates the incorporation of flashing into the “building envelope” where it is necessary to restrict water from entering into the interior of a building from the exterior.

48. There are three aspects on this defect where the experts differ - whether this is a location where it is necessary, whether there has been water ingress, and whether it is possible to identify without invasive investigation whether the door flashing is in situ.

49. That last aspect was only raised by Mr Xue in the course of cross-examination. He did not traverse that matter in his liability report or in conclave.

50. It is Mr Iskowicz’s opinion that the flashing is necessary. He points to evidence of water ingress and annexes photos of what is said to be efflorescence (EA628). He further orally said that flashing of this type should be visible, and is not in situ. Mr Xue does not agree with each of those points, but to my mind did not provide a satisfactory explanation or alternate hypothesis as to what the “white marks” (D2, p180, 34 - 37 - which what Mr Iskowicz says is the efflorescence) on the floor at the sliding door are.

51. Mr Xue’s position is that “[f]lashing underneath the windows are mandatory”. AS2047 is directed to both windows and doors. Flashing is mandatory in the building envelope where it is necessary. Noting the obvious similarities between an external glass sliding door, and a glass window, Mr Xue’s position that flashing is mandatory for windows perhaps is consistent with Mr Iskowicz’s position that it is also necessary for doors.

52. In my judgment, notwithstanding Mr Iskowicz’s careful and detailed approach to identifying and analysing the various defects, precisely the same can be said of Mr Xue. I find that Mr Xue also honestly holds his opinions and that they are equally reasonable.

53. On balance I cannot choose between the competing positions. I am not persuaded by Mr Iskowicz’s opinion as Mr Xue’s seems equally persuasive. This defect is not proved. Mr Iskowicz’s scope should be specifically reduced to take this finding into account.

Item 7 – Non-compliant window assemblies

55. The starting point is there is no labelling on the windows. Labelling is a requirement under AS2047 that the windows both be actually certified as to water and air pressure resistance before installation (and not just capable of certification), and that a label identifying specific matters be affixed to the windows (EA343). The lack of a label provides a solid basis to infer lack of certification.

56. The builder has not adduced any evidence of a relevant certificate. The material indicates that no such certificate was ever made available to the certifier. Moreover, Mr Iskowicz gave direct evidence of non-compliance. Mr Iskowicz said in his report that the frames exhibited inappropriate twist and flexure. At the hearing, Mr Iskowicz also said that the thickness of the aluminium sheets themselves “were markedly less” than the usual thickness of these kind of frames - “1.6-to-2-millimetre”.

57. It was only at the hearing, during concurrent evidence, that Mr Xue gave evidence that he had tested the frame assemblies for twist and flexure and did not find any issue despite the fact that Mr Xue expressly noted in his report that Mr Iskowicz raised that matter. He was unable to explain why he did not include this observation and opinion in his report or raise it in the conclave.

58. The plaintiff has submitted this is an issue on which the Blatch v Archer principle applies - the plaintiffs cannot lead better evidence - with the result that I ought to infer the fact in favour of the plaintiffs because I know they were not in a position to call better more direct evidence: Blatch v Archer (1774) 1 Cowp 63. It is also appropriate in my opinion for a Ferrcom inference to be drawn: Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389. The builder could have proved this fact by direct evidence yet did not do so. Sworn evidence was given on behalf of the builder but it did not deal with the question at all. Instead, it invites inferences in its favour. In those circumstances, I am not prepared to draw those inferences. I infer that the windows have not been certified and are as a matter of fact non-compliant and not up to standard, with the result that Mr Iskowicz’s scope should be accepted.

59. In any event, leaving inferences to one side, on the direct evidence of Mr Iskowicz, which I prefer to Mr Xue’s very late evidence to the contrary, I accept the windows are defective. This defect is proven, and I accept Mr Iskowicz’s scope of work subject to the 15% reduction.

Item 8 – Metal roofing and ancillary rainwater goods

60. The only dispute between the experts is whether the battens underneath the garage roof are spaced at 1.2m or greater intervals. If so, it is accepted that the garage roof is defective.

61. Mr Iskowicz gave direct evidence that the roof battens are visible from a study in the house and that he observed the battens from there. He was not challenged on that in cross-examination. Mr Xue did not observe the battens but he did not look from the relevant window. There is no reason not to accept Mr Iskowicz’s observations. I accept Mr Iskowicz and find the defect proved, as is Mr Iskowicz’s scope.

62. With respect to Mr Madden’s costing of Mr Iskowicz’s scope, it should be observed that he did not cost the supply or installation of the battens on the mistaken assumption that there was no evidence of that defect. His costing of Mr Iskowicz’s scope is therefore deficient, at least in that regard. This item is allowed at Mr Iskowicz’s quantum subject to the 15% reduction.

Item 9 – Granny flat laundry

63. This item is conceded, and Mr Xue relies on Mr Iskowicz’s costing. The defect is proved, as is Mr Iskowicz’s scope. Mr Iskowicz’s costing is allowed subject to the 15% reduction.

Items 10 to 17 – Internal wet areas

64. There are four essential issues that arise with respect to these eight areas.

65. First, where tiles need to be removed (which is admitted in four areas - Granny Flat Bathroom, Main bedroom ensuite, Main bathroom, Bed 4 ensuite), whether it is appropriate to require the removal of all floor and wall tiles in order to ensure that there is no obvious irregularity in appearance following remedial works by reason of a disparity in tiles (the tile matching issue).

66. The wall tiles used in the bathroom are tall wall tiles, and the wet areas already contain at least two different tiles, and with respect to the Main bedroom ensuite, three different tiles. Given that replacements are needed in several different areas of these four wet areas (the drainage channel, the room threshold, and the shower threshold), the likelihood of there being a clearly visible mismatch is, in my opinion, high. The plaintiffs contracted for specific finishes and it is apparent they had a particular visual aesthetic that was aimed for in the internal wet areas. Mr Iskowicz’s scope of works is accepted for each of these areas, subject to the 15% reduction.

67. Second, whether an unenclosed shower requires a step down (the shower step down issue). I have found this the most difficult question raised in this case. It requires considering the relevant Australian Standards which on any view of things can be fairly described as very complex and ambiguous, if not meaningless. The experts agree this is an “unenclosed shower” as defined in the Standard. AS3740 (Exhibit F) requires a 15mm step down (3.13.2) but contemplates circumstances (relevantly 3.13.5(a)) where a lesser step down may be acceptable. What those circumstances might be is not at all clear.

68. However, an “unenclosed shower” that uses an “unenclosed shower screen” must still comply with 3.18.1.1, which makes it not “suitable for use directly adjacent to doorways unless the doorway is protected against water exiting through the doorway”. Mr Xue accepts that the Main bathroom and Bedroom 4 ensuite does not comply in this regard. Having looked at the Standards carefully and considering the competing meanings available, I allow two step downs. Mr Iskowicz’s scope should be specifically reduced to take this into account and then the balance reduced by 15%.

69. The shower screen must also comply with 3.18.2.3 (Showers without hobs or step-downs issue) which also requires the shower screen to “incorporate or be mounted on an inverted channel, and positioned over the top of the water stop that defines the shower area.” It is accepted that there is no inverted channel under any of the relevant shower screens. I allow this defect subject to the 15% reduction.

70. Finally, whether the raised thresholds to enter the internal wet areas are a trip hazard (the trip hazard issue). Ultimately the question of trip hazard is a question for me. It is a context driven evaluative judgment. There is no useful definition.

71. I take the following matters into account:

1. The thresholds are almost all at inconsistent heights (see EA662 (52mm), 667 (36 mm), 669 (36mm), 673 (40mm), 682 (45mm), and 688 (45mm)), with a variation in the worst instances of 16mm. That inconsistency alone causes a trip hazard as simple habit can cause regular occupants to trip. Mr Xue said that in stairs, a variation of more than 5mm is defective as that gives rise to a trip risk.

2. Bathrooms necessarily have to be capable of use at all times of day and night, in varying light conditions, by persons of all ages and abilities and in all states of impairment. Children, the mobility and/ or vision impaired, the sick, the intoxicated, and those simply unfamiliar with the home are all likely to navigate those bathrooms over the lifetime of the house while in varying conditions.

3. Mr Xue accepted that it is not common to have these thresholds except in some “project homes”.

4. There is no marker to highlight the threshold and such a marker would not be appropriate in a residential home.

5. It seems to me that it was entirely within the builder’s control to ensure a level transition and no evidence was led that the transitions were necessary by reason of site conditions or other external factors.

72. I accept Mr Iskowicz’s reasoning and scope of works for each of the internal wet areas as trip hazards. It is relevant to note that if the plaintiffs are successful on the trip hazard issue, the wet areas have to be wholly reconstructed (in order to bring the floor level down) which means that all floor and wall tiles have to be replaced. Mr Iskowicz’s quantum is accepted subject to the 15% reduction.

Item 18 – Proprietor defect schedule

73. This item is agreed at $13,500.

Other claims

Delay / damages

74. The contract provides for delay costs of $600 per week once “project duration exceeds 34 weeks”. The commencement date of the contract was 10 November 2019 with the result that the 34 week period expired on the 5 June 2019.

75. The property was ready for occupation on 11 December 2020 being a period of 27 weeks multiplied by $600, being $16,200.

76. I allow this claim in full.

Rental accommodation and removalist cost

77. There was some debate before me as to the necessity for, and cost of, alternative rental accommodation and removalist costs to allow the defects to be attended to.

78. As to whether the plaintiffs ought be entitled to be compensated for the cost of storing cars at a site not being alternative rental accommodation, I am satisfied that that claim is reasonable and that there are no three car garages available to rent.

79. As to the question as to whether the plaintiffs would actually reasonably need to move out during the whole of the period of the rectification, I think on balance whilst some of the points made by the defendants are good, it is not unreasonable for the plaintiffs to move out of the house during the period of the renovations which, I would expect will mean that the work will actually take shorter.

80. I allow this claim in full.

Miscellaneous

81. There are:

1. an agreed credit of $9,240, which I allow;

2. remediation costs for specific items damaged by the acid cleaning not dealt with in Mr Iskowicz’s report totalling $4,807 – there was no evidence of this and it is disallowed;

3. replacement cost of a tree on the council nature strip – not allowed; and

4. dog boarding associated with delay in completion – not allowed.

Unpaid invoices

82. It is an agreed fact that there are three outstanding invoices issued by the builder to the plaintiffs in relation to the building contract. They total $69,390.

83. The defendants have submitted that any damages payable by the defendant to the plaintiff must be set off to the extent that the builder is owed money by the plaintiffs pursuant to the contract.

84. I agree in substance, however I think the simple way to deal with it rather than characterising it as a set off is to find that the builder is entitled to a credit for the amount of the unpaid invoices against the damages that I have found are payable to rectify the defective works. This method will put the plaintiffs in the position they would have been if the contract was performed.

Summary of my decision in relation to the claim against the builder

85. In summary, I have found the following defects to have been proved.

1. Item 1 – site establishment costs accepted in full;

2. Item 2 – defect accepted in full;

3. Item 3 – defect accepted in full;

4. Item 4 – defect accepted in full;

5. Item 5 – defect accepted in full;

6. Item 6 – defect not accepted;

7. Item 7 – defect accepted in full;

8. Item 8 – defect accepted in full;

9. Item 9 – defect accepted in full;

10. Items 10-17;

1. I accept that it is reasonable for the plaintiffs to remove all floor and wall tiles in order to ensure there is no obvious irregularity;

2. as to the shower step down issue, I allow two step downs and Mr Iskowicz’s scope should be specifically reduced to take this into account; and

3. As to the trip hazard, this defect is proved in full.

86. As far as quantum is concerned:

1. there should be removed from Mr Iskowicz’s scope the cost of item 6, the sliding door threshold, and no amount allowed for that item; and

2. there should be removed from Mr Iskowicz’s scope all but two shower step downs and his quantification of the balance should be removed in their entirety.

87. As far as to the balance of the quantum claim relating to rectification work. As I have said I have taken the view that, after the specific reductions to which I have referred, there should be an overall reduction of Mr Iskowicz’s revised quantification by 15% to take into account the matters I have referred to.

88. As to the balance of the claims, I have allowed the site establishment costs in full, I have allowed the delay claim in full, I have allowed the full claim for rental accommodation and removalist costs, I have allowed the agreed credit of $9,240, I have disallowed the extra remediation cost of $4,807, I have disallowed the claim for the tree at $242, and I have disallowed the dog boarding at $756. I have found that the unpaid invoices should be accounted for against what would otherwise be the judgment sum.

Short minutes

89. In relation to the claim against the builder there will be a judgment for the plaintiffs. I direct the parties to bring in short minutes of order calculating the amount of that judgment that will be entered based on those findings.

90. As to interest, this has not been argued, but it seems to me prima facie that most of the direct claims for rectification work were complete as at the date that the contract ought to have been completed. However, that is not the case for delay damages and costs of relocation, removalist, and the like.

91. I direct the parties to try and agree on interest, but if there is no agreement I will list the matter for short argument on that question. I will defer dealing with costs until quantum has been finally settled.

DPBA claim against James Raad

92. James Raad denies that he is personally liable to the plaintiffs.

93. At the highest level, James Raad’s status as the builder’s sole director meant that he necessarily had the power to control its operations, but the plaintiffs’ claim against him does not depend on that status alone. Rather, the plaintiffs submit that by reason that James Raad was the sole director and the nominated supervisor (within meaning of the HBA) for the work, and did as a matter of fact engage in some supervision and management of the building works, he performed “construction works” within meaning of the DBPA and therefore owed the plaintiffs a duty of care. So much is, I think, accepted on behalf of James Raad. James Raad however disputes that he has breached the statutory duty imposed. To understand that issue it is necessary to step through the statutory regime.

The legislative scheme

94. Section 37 of the DBPA relevantly states:

1. A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects—

1. in or related to a building for which the work is done, and

2. arising from the construction work.

95. “Construction work” is defined in s 36 to mean:

1. building work,

2. the preparation of regulated designs and other designs for building work,

3. the manufacture or supply of a building product used for building work,

4. supervising, coordinating, project managing or otherwise having substantive control over the carrying out of any work referred to in paragraph (a), (b) or (c).

96. “Building work” in turn is defined to include “residential building work within the meaning of the Home Building Act 1989” (s 36, DBPA).

Did James Raad engage in construction work

97. The builder plainly carried out building work. James Raad had control over that building work because of his total control over the builder as its sole director combined with the fact that he was at least doing some supervision himself. James Raad on his own evidence regularly engaged in, and considered himself responsible for the supervision of employees of the builder (being at the least Richard Raad), and appears to have co-ordinated at least the defective aspects of the build by liaising with, and directing the remedial works undertaken by the builder.

98. Moreover, the position of “nominated supervisor” carries specific responsibilities under the HBA:

53 Improper Conduct: Nominated Supervisors

(1) The holder of an endorsed contractor licence or a supervisor certificate who has control over the carrying out of residential building work or specialist work of any kind is guilty of improper conduct if—

(a) the requirements applicable to the work made by or under this Act or any other Act are not complied with, or

(b) a breach of a statutory warranty occurs in the course of doing that work, or

(c) in the case of specialist work, the work is done otherwise than with due care and skill or faulty or unsuitable materials are used in the course of doing the work.

(2) The holder of an endorsed contractor licence or a supervisor certificate is to be presumed, in the absence of evidence to the contrary, to have control over the doing of all work for which the holder is a nominated supervisor.

(3) It is a sufficient defence to a complaint that a holder has been guilty of improper conduct under this section if the holder proves to the satisfaction of the Secretary that the holder used all due diligence to prevent the occurrence of the improper conduct.

99. Given that on the authorities it appears that sole directors of builders who are corporations are caught by s 37 of the DBPA, even if they were not as a matter of fact involved in the actual construction work or the supervision of it, it is, in my judgment, relatively clear on the facts that James Raad was a person caught by s 36 and therefore under s 37 owed the plaintiffs a duty of care. The concession on behalf of James Raad in this regard is well made. In The Owners Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659 (Stevenson J) explained the operation of the Act as follows:

[25] However, the words “otherwise having substantive control” point to a conclusion to be reached having regard to all relevant circumstances. The words used are not “otherwise substantively controlling the carrying out of” the work. A person could have “substantive control over the carrying out of” work notwithstanding the fact, at any particular moment in time, the person was not actually doing anything to cause that control to be exercised; provided the person had the ability and the power to control how the work was carried out.

[26] In those circumstances, in my opinion, it is sufficient to enliven the definition to establish that the person was in a position where it was able to so control how the work was carried out. That would be a question of fact in each case. The fact that, say, a developer owned all the shares in a builder, and had common directors, might lead to an inference of such an ability to control. Where, as here, the position is the other way around, namely that the builder owns all the shares in the developer, that inference may be less easily available.

100. On the facts, as I have found them, James Raad not only had the ability to control the builder as its sole director, he was actively doing some controlling.

101. While s 37 of the DBPA is a significant extension of the number of entities or persons who might now bear liability for defective building work, it is relevant to note that such persons can seek to apportion liability among other concurrent wrongdoers. As noted in The Owners Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWSC 116 (Rees J):

[28] The intersection between the extended duty of care in section 37(1) of the DBP Act and the proportionate liability provisions of the CLA was recently considered by Stevenson J in Boulus Constructions Pty Ltd v Warrumbungle Shire Council (No 2) [2022] NSWSC 1368. His Honour observed that the definition of “construction work” encompasses a wide range of activity and an even wider range of actors carrying out those activities: at [61]. His Honour then referred to the portions of the Second Reading Speech extracted above, and continued at [64]:

The Act is expressed to be subject to the Civil Liability Act. The proportionate liability regime under Pt 4 of the Civil Liability Act thus applies to actions for breach of the s 37 statutory duty. This enables persons in the position of [the proposed cross-defendants, being the managing director and site supervisor for the builder] to identify concurrent wrongdoers and seek to have their liability for breach of the statutory duty limited under s 35 of the Civil Liability Act. This appears to be the means by which Parliament has sought to address the matters to which [their counsel] referred [being the potentially wide application of section 37 to every person on a construction site].

[29] That is, the extensive statutory duty is potentially ameliorated by the ability of defendants to call in aid the proportionate liability provisions of the CLA.

102. I have concluded that in the circumstances of James Raad’s directorship of the builder, the fact that he was the nominated supervisor under the HBA, and on his own evidence, considered himself responsible for the supervision of employees of the builder (being at least the site supervisor, Richard Raad, and his work in attending site on a reasonably regular basis) that he was engaged in construction work within the meaning of s 36 of the DBPA. No claim for apportionment between him and anyone else has been made so prima facie if he breached his duty he will be liable for the economic loss caused.

103. That however is not the end of the matter. The question then becomes, in the circumstances what is the content of the statutory duty of care. The statutory formula is “to exercise reasonable care to avoid economic loss caused by defects”.

104. It seems to me clear that the content of that statutory duty, or at least whether it has been breached or not, will vary depending upon the factual circumstances of any particular case.

105. This is because what constitutes “reasonable care” will vary depending on all of the circumstances a person caught by the act finds themselves in. To frame the duty by reference to the words of s 37 is only the start of the exercise. The question then becomes, to identify what a person did or did not do and then to determine in the particular factual context if that conduct satisfied the statutory duty.

106. The plaintiff contended in final submissions that, in the circumstances, James Raad, in order to satisfy the statutory duty, had to take reasonable care to ensure that:

1. Suitably qualified and experienced persons were engaged to carry out the works which are the subject of the build;

2. The persons engaged to carry out the works were provided with sufficient information to ensure that the works were carried out in accordance with the plans and the relevant standards; and

3. The works were inspected at appropriate times during their progress to ensure that they were in accordance with the plans and the relevant standards.

107. The plaintiff places emphasis on what Mr Iskowicz said in his report of 6 November 2023. Mr Iskowicz was of the opinion that, at the very least, most of the defective work was not carried out in accordance with the plans and specifications and that there was a lack of inspections, because he says that almost all of the defects are obvious and would have been obvious from the time they were created.

108. Whilst I accept that the content of the duty imposed by the statute is not set in stone, or perhaps more accurately that breach will always be fact dependant, s 39 of the DBPA does provide that the statutory duty is not delegable. The plaintiffs rely on that notion to make the submission that this means that James Raad “cannot acquit himself by actually exercising reasonable care in entrusting the task to a reputable supervisor who in turn retains reputable contractors, but must actually ensure that the task is done and done carefully”: The Owners Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWSC 116 per Rees J at [33]; Burnie Port Authority v General Jones Pty Ltd [1994] HCA 13 at [36].

109. Whilst there was some debate in submissions as to the content of the duty, ultimately, it was conceded by the defendant that James Raad did in the circumstances owe the three duties identified above, or perhaps more accurately he needed to do those three things to discharge his duty. It probably follows from that, James Raad could not delegate those duties to Richard Raad, but this is a difficult question that I do not need to decide.

110. James Raad’s ultimate answer is that he had discharged those duties because as a matter of fact he had taken reasonable care to ensure that suitably qualified and experienced people were engaged to carry out the works… that those persons engaged to carry out the works were provided with sufficient information… and that the works were inspected at appropriate times during their progress to ensure that they were in accordance with the plans and the relevant standards. In other words, without delegating the duty he contends he discharged that duty by appointing Richard Raad as site supervisor.

111. A significant difficulty for James Raad in this regard is that the high point of his evidence, in support of the proposition that he discharged those duties, is his evidence that he retained Richard Raad as the site supervisor and that he attended the site himself on reasonably regular occasions.

112. To my mind, and taking into account the nature of the defects I have found, the fact Richard Raad was retained to supervise is not sufficient to rebut what would otherwise be the overwhelming inference that he did not comply with those duties.

113. By reference to the defects I have found, I am satisfied that either suitable tradespeople were not engaged to work on the project or, if they were qualified, they were not adequately instructed as to what needed to be done, and or appropriate inspections were not carried out when needed.

114. It may well be that Richard Raad had been entrusted to ensure such matters occurred, however this raises the difficult legal question of whether, in entrusting Richard Raad with those duties, James Raad was seeking to delegate his non‑delegable duties, but more to the point, there is no evidence at all that Richard Raad himself was a suitably qualified person to carry out the task of site supervisor. If he was not, and I am not satisfied he was, the question of delegation falls away.

115. James Raad’s evidence, and it was slight, in respect to both his conduct and that of other employees and all subcontractors of the builder on the site was cast at the highest possible level of generality.

116. Whilst James Raad identified that he had appointed Richard Raad as the site supervisor, he chose not to give any details as to Richard Raad’s qualifications or expertise and as to what he actually did in his role in supervising Richard Raad. I think in those circumstances, the approaches taken in cases such as Blatch v Archer (1774) 1 Cowp 63; Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389, Ghosh v Medical Council of NSW [2020] NSWCA 122, all have important parts to play here.

117. As was said in Ferrcom, an inference is available in circumstances where the evidence that was not led by the defendant would not have assisted the defendant. That inference may be drawn where a party fails to adduce particular evidence that one would have expected that party to adduce and where the failure to do so is not satisfactorily explained. James Raad, whilst he gave evidence, was silent as to Richard Raad’s qualifications and experience.

118. In my judgment, almost all of the proved defects must have been entirely obvious at the time the work was carried out and most certainly should have been picked up on appropriate inspections. In the absence of direct evidence that such inspections were carried out I infer no such inspections took place.

119. I also infer that either Richard Raad was not an appropriately qualified person to carry out the supervisory role, or if he was, that for some reason he failed to perform his role adequately and that at the very least, James Raad’s duty of care is extended to taking reasonable steps to ensure that Richard Raad was performing his role appropriately, which I infer James Raad failed to do.

120. For those reasons, I have concluded that James Raad is liable to the plaintiffs for economic loss caused by the defects because he breached his statutory duty of care.

Quantum of claim against James Raad

121. I can see no reason why the breach of the statutory duty of care by James Raad which I have found did not cause the same damages (economic loss) that I have found as against the builder.

122. It seems to me that the economic loss, caused by James Raad’s breach of duty which I have found, is co-extensive with the damages for which the builder is liable.

123. I have considered the submission that it was only the cost of repairing the defects themselves for which he should be found liable, but I think there is no good reason to limit his liability in that way. The fact is, I have determined that the damages against the builder are as a direct consequence of the defects, all of which I am satisfied was also a consequence of James Raad’s breach of statutory duty.

124. There is a clear, logical connection between a failure to comply with those duties and the loss claimed.

125. Accordingly, there will be judgment for the plaintiff in its claim against James Raad in the same quantum as will be determined as against the builder.

Orders

1. There will be judgment for the plaintiff against the first and second defendants.

2. I direct the parties to bring in short minutes of order, consistent with these reasons, as to the quantum of those judgments.

3. I direct the parties to attempt to agree as to interest and costs.

4. I stand the matter over for direction on 7 June 2024 at 9:30 am.

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Decision last updated: 31 May 2024