Mason v Fraser

[2021] VSC 461

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

JUDICIAL REVIEW AND APPEALS LIST

S ECI 2020 01107

JESSICA MASON and DARREN MASON	Applicants
v
CASSANDRA FRASER and DARREN PETER FRASER	Respondents

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JUDGE:	Keogh J
WHERE HELD:	Melbourne
DATE OF HEARING:	4 March 2021
DATE OF JUDGMENT:	4 August 2021
CASE MAY BE CITED AS:	Mason v Fraser
MEDIUM NEUTRAL CITATION:	[2021] VSC 461

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ADMINISTRATIVE LAW – Appeal from a decision of the Victorian Civil and Administrative Tribunal – Building works carried out by owner builder – Sale of property – Action by purchaser for breach of warranties implied into contract of sale – Applicable limitation period – Whether alleged defects disclosed in pre-purchase report – Whether award for defects to work which was carried out – Denial of natural justice – Building Act 1993 (Vic) ss 129, 134, 137C, 137B – Victorian Civil and Administrative Tribunal Act 1998 (Vic) s 148(1) – Limitation of Actions Act 1958 (Vic) – Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd (2014) 48 VR 558 – Hueppauff v Intercontinental Travels Pty Ltd [2001] SASC 119 – Bandelle Pty Ltd v Sydney Capitol Hotels Pty Ltd (2020) 246 LGERA 159 – Price v Goodrem [2014] VCAT 1409.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	AT Schlicht	Calvert Jefferson Lawyers
For the Respondents	A Downie	EddyLaw

HIS HONOUR:

Introduction

1. The applicants (‘the Masons’) carried out building works as owner-builders to a house situated on a property in West Footscray (‘the property’), before selling it to the respondents (‘the Frasers’). The warranties in s 137C of the Building Act 1993 (Vic) (‘Building Act’), which include that the building works were carried out in a proper and workmanlike manner, and in accordance with all laws and legal requirements, were part of the contract of sale of the property.

1. The Frasers claimed the building works were defective in numerous respects, and brought an action in the Victorian Civil and Administrative Tribunal (‘the Tribunal’) against the Masons for damages for breach of the implied warranties.  After contested hearings in May 2019 and January 2020 the presiding Tribunal Member found in favour of the Frasers in relation to some of the alleged defects.  The Masons have applied to appeal the Tribunal orders, relying on grounds briefly stated as follows:

(a)   the Member misconstrued the Building Act by concluding that the limitation period applicable to the Frasers’ action for breach of s 137C warranties had not expired, and the action was not barred;

(b) the Member erred in awarding damages where the Frasers were put on notice of defects by building reports obtained at the time of the contract of sale, contrary to the operation of s 137C(3) of the Building Act;

(c)   it was not open to award the Frasers damages for construction of a stormwater drainage system and additional downpipes because they were not part of building works carried out by the Masons; and

(d)  the Member failed to accord the Masons natural justice by refusing to allow them to lead further evidence at the second Tribunal hearing in respect of matters determined at that hearing.

1. The Tribunal awarded damages to the Frasers in two orders, the first of which was made in July 2019, and the second in January 2020.  The Masons seek to appeal part of both orders, but did not commence this proceeding by filing a notice of appeal until after the second order was made.  Further issues which arise are whether:

(a)   the appeal from the first Tribunal order is out of time; and

(b)  the time to apply for leave to appeal the first order should be extended.

Background

1. The Masons purchased the property in 2001.  Over a period of years, they carried out building work renovating and adding to the house on the property in four stages:

(a)   Under a building permit applied for in November 2005, building a rear extension and an ensuite at the front of the house (‘the first permit works’).  A final inspection was carried out on 4 February 2008.

(b)  Without building permits, in or around 2009, converting a pre-existing downstairs bathroom into a bathroom laundry, rearranging and renovating the kitchen, converting the former living room into a bedroom by constructing a wall and removing a fireplace (‘the unpermitted works’).

(c)   Under a building permit dated 22 February 2009, restumping the house (‘the restumping works’).

(d)  Under a building permit dated 21 July 2010, building a second storey.  The certificate of final inspection was issued on 3 December 2012 (‘the second storey works’).

1. The parties entered into a contract of sale of the property in January 2013.  The contract of sale was signed by the Frasers as purchasers on 10 January 2013, and by the Masons as vendors on 14 January 2013.

1. It was a general condition of the contract of sale that if ss 137B and 137C of the Building Act applied the Masons gave the warranties those sections provided for.

1. Attached to the contract of sale was a report on domestic building work prepared by building practitioner Robert Paul on 29 November 2012, following an inspection of the property on 28 November 2012.

1. A special condition made the contract of sale conditional on the Frasers receiving a satisfactory building report on or before 16 January 2013.  The Frasers received a report from Inspector Alex Scaffaro on 15 January 2013.

1. The certificate of final inspection issued for the second storey works was attached to the contract of sale.  No notice was given in the contract of the earlier building works carried out by the Masons.

1. In December 2017, the Frasers initiated the Tribunal proceedings seeking damages for breach of the warranties in s 137C of the Building Act.

1. On 18 July 2019, after a five-day hearing in May of that year (‘the May hearing’), the Member awarded the Frasers $96,700, and granted them leave to apply within 30 days for a further hearing regarding the window flashings defect.  The Frasers particularised a claim for the window flashings, and at a further hearing on 28 January 2020 (‘the January hearing’), the Member awarded them $13,071.80 in respect of that claim, $11,282.44 interest on the total award of damages, and costs.

1. The Masons seek to appeal the parts of both Tribunal orders concerning the following awards:

(a) Storm water connection:   $26,000

(b) Downpipes:   $3,750

(c) Waterproofing:   $29,700

(d) Sealing to butt joins in external cladding:          $24,250

(e) Electrical wiring:   $4,000

(f) Window flashings:   $13,071.80

The Masons apply to have orders for costs and interest set aside, and for those matters to be remitted to the Tribunal.

Appeal from VCAT

1. A party may appeal from an order of the Tribunal on a question of law with leave of this Court.[1]  To justify leave the appeal must have a real prospect of success.[2]  An application for leave to appeal must be made within 28 days after the Tribunal order.[3]  The Court may extend the time to make the application.[4]

   [1]Victorian Civil and Administrative Tribunal Act 1998 (Vic) s 148(1).

   [2]Kennedy v Shire of Campaspe [2015] VSCA 47, [12]–[14]; Mirvac Victoria Pty Ltd v Liszka [2019] VSC 561, [18].

   [3]Victorian Civil and Administrative Tribunal Act 1998 (Vic) s 148(2).

   [4]Ibid s 148(5).

Is the appeal of the first Tribunal order out of time?

1. The notice of appeal was filed to commence this proceeding on 26 February 2020.

1. The Masons submitted that the order made by the Tribunal in July 2019 was an interim order, and time to appeal did not commence to run until the order was made in January 2020 finally determining the proceeding, and rendering the Tribunal functus officio.[5] I reject this submission. Terms defined in s 3 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (‘VCAT Act’) include:

interim order means an order of an interim or interlocutory nature;

order of the Tribunal includes interim order of the Tribunal;

The July order was final in character because it determined the rights of the parties on those parts of the action brought by the Frasers which were the subject of that order. Further, there is nothing in s 148 of the VCAT Act, which distinguishes between final and interim orders for the purposes of the time to appeal in sub-s 148(2)(a). 

[5]The Big Apple Group Pty Ltd v Melbourne City Council [2019] VSC 147, [37] (Mukhtar AsJ).

1. The Masons submitted that, if it was necessary, leave should be granted to them to appeal the July order out of time.

1. The purpose of the discretion to extend time is to enable the court to do justice between the parties.  A party seeking to extend time must explain the delay and justify it being excused.  Matters relevant to the exercise of the discretion include the length of and reasons for delay, whether the applicant has an arguable case on appeal, prejudice to the respondent if time is extended, and the importance of the subject matter.[6]

   [6]Trkulja v Dobrijevic [2015] VSCA 281, [27]; Advaland Pty Ltd v Bitcon [2015] VSC 235, [39] (Derham AsJ).

1. In an affidavit filed on the appeal the Masons’ solicitor Ms Calvert-McCredie stated that both she and her clients believed the July order was interim, and that when the Frasers applied on 14 August 2019 for a further hearing on the window flashings issue the Masons decided, on advice, that they should wait until that issue had been determined before commencing an appeal.

1. The delay of around seven months before commencing the appeal must be viewed in the context that the Frasers’ claim was not fully determined by the July 2019 order.  The issues of interest and costs, which largely flowed from the July order and were always likely to be part of any appeal from that order, were only dealt with in the January 2020 order.  Further, after the Frasers applied for a hearing on the window flashings the possibility arose that the Masons would also seek to appeal the order determining that issue.  There were practical reasons of efficiency and costs which favoured commencing the appeal after the January 2020 Tribunal order, when all of the issues in the action by the Frasers against the Masons which might be subject of an appeal had been determined.  I accept that the Masons believed, on advice, that they should wait until all matters in dispute had been finally determined before commencing an appeal.  It is likely, had the Masons applied to appeal the July order within time, that this proceeding would have been delayed until final orders were made by the Tribunal determining all outstanding issues, and there was an opportunity for the Masons to consider whether to appeal from the January 2020 order.  I am not satisfied that delay by the Masons has resulted in significant prejudice to the Frasers as a consequence of being denied the benefit of the July 2019 order longer than would have been the case had an appeal been commenced within time.  Although I have found against the Masons on each ground, the appeal was not so lacking in merit as to weigh heavily against extending time.  For the above reasons I will extend the time for the Masons to apply for leave to appeal the July 2019 Tribunal order.

Ground 1:  The applicable limitation period

1. The Masons’ first ground of appeal is:

The Tribunal failed to find that, where warranties are implied into a contract of sale of land under s 137C of [the Building] Act, the time limit to bring a claim is within the “prescribed period” under s 137B(7) of the Act, being 6 years and 6 months from the issuing an occupancy permit or certificate of final inspection where either is required, or otherwise, 6 years and 6 months from the completion of the works.

Relevant provisions

1. The sale of a building by an owner-builder is dealt with by s 137B of the Building Act, sub-s (2) of which provides:

A person who constructs a building must not enter into a contract to sell the building under which the purchaser will become entitled to possess the building (or to receive the rent and profits from the building) within the prescribed period unless—

(a)in the case of a person other than a registered building practitioner—

(i)the person has obtained a report on the building from a prescribed building practitioner that contains the matters that are required by the Minister by notice published in the Government Gazette; and

(ii)the person obtained the report not more than 6 months before the person enters into the contract to sell the building; and

(iii)the person has given a copy of the report to the intending purchaser; and

(b) the person is covered by the required insurance (if any); and

(c)the person has given the purchaser a certificate evidencing the existence of that insurance; and

(d)in the case of a contract for the sale of a home, the contract sets out the warranties implied into the contract by section 137C.

Construct includes to make alterations to, enlarge or extend a building.[7]  The ‘prescribed period’ is defined in sub-s (7) to mean:

[7]Building Act 1993 (Vic) s 137B(7).

(a)in relation to a contract for the sale of a building on which domestic building work has been carried out—

(i)6 years and 6 months (or such longer period (not exceeding 10 years) as is prescribed) after the completion date for the construction of the building; or

(ii)if neither an occupancy permit nor a certificate of final inspection is issued or required to be issued in respect of the construction of the building—

(A)7 years after the date of the issue of the building permit in respect of the construction of the building; or

(B)if a building permit is not issued or required to be issued in respect of the construction of the building, 6 years and 6 months after the certified date of commencement for the building…

1. The warranties implied into a contract for sale of a home are set out in s 137C(1):

(1)The following warranties are part of every contract to which section 137B applies which relates to the sale of a home—

(a)the vendor warrants that all domestic building work carried out in relation to the construction by or on behalf of the vendor of the home was carried out in a proper and workmanlike manner; and

(b)the vendor warrants that all materials used in that domestic building work were good and suitable for the purpose for which they were used and that, unless otherwise stated in the contract, those materials were new; and

(c)the vendor warrants that that domestic building work was carried out in accordance with all laws and legal requirements, including, without limiting the generality of this warranty, this Act and the regulations.

1. Division 2 of Part 9 of the Building Act deals with limitation of actions. In that Division, a building action is defined in s 129 to mean:

an action (including a counter-claim) for damages for loss or damage arising out of or concerning defective building work;

Building work is defined in s 3(1) of the Building Act:

means work for or in connection with the construction, demolition or removal of a building;

and in s 129:

building work includes the design, inspection and issuing of a permit in respect of building work.

1. The limitation on the time to bring a building action is dealt with in s 134:

(1)Despite any thing to the contrary in the Limitation of Actions Act 1958 or in any other Act or law, a building action cannot be brought more than 10 years after the date of issue of the occupancy permit in respect of the building work (whether or not the occupancy permit is subsequently cancelled or varied) or, if an occupancy permit is not issued, the date of issue under Part 4 of the certificate of final inspection of the building work.

The Tribunal’s reasons

1. The Member determined that the ‘prescribed period’ was relevant to whether the warranties were implied into the contract of sale, but did not operate as a limitation period. Because the contract of sale was entered into within the prescribed period which applied to each stage of the building works the warranties implied by s 137(7) of the Building Act applied to those works.

1. The Member then concluded that an action for breach of the s 137C warranties was within the definition of building action in s 129 of the Building Act, and said:

I consider that where the warranties apply, they can, provided an occupancy permit has been issued or there is a certificate of final inspection, be sued upon until the expiration of 10 years after the date of issue of the occupancy permit, or the certificate, as the case requires.[8]

In response to the case put by the Masons the Member said:

The Masons, in their written submissions, contend that sl34 of the Building Act does not apply, as it relates to defective building works, whereas an action brought under s137C relates to breach of warranties. I regard this contention as misconceived. An action brought for breach of the warranties implied into every domestic building contract by s8 of the Domestic Building Contracts Act is clearly a building action within the definition contained in s129 of the Building Act. The warranties set out in ss137C(l) of the Building Act are effectively identical to the warranties set out respectively in ss8(a), (b) and (c) of Domestic Building Contracts Act. It cannot be said that the 10 year time limit for the bringing of a building action arising under s134 of the Building Act applies to an action brought for breach of a s8 warranty, but a different time limit applies to an action brought for breach of a sl37C warranty.[9]

[8]Fraser v Mason (Building and Property) [2019] VCAT 1009, [27] (‘Fraser v Mason’).

[9]Ibid [30] (citations omitted).

1. The Member concluded that where there was no occupancy permit or certificate of final inspection, the breach of warranty cause of action will, under s 5 of the Limitation of Actions Act 1958 (Vic) (‘Limitation of Actions Act’), be barred six years from the date on which it accrued, which in this case was 10 January 2013 when the contract of sale was entered into.[10]

   [10]Ibid [37].

1. The Member concluded the Frasers were within time because they commenced the action in the Tribunal within 10 years of the certificate of final inspection issued for the first permit works, within 10 years of a certificate of final inspection, if one was issued, for the restumping works, and within the six-year limitation period that applied to the unpermitted works, and the restumping works if there was no certificate of final inspection.  It was not disputed that the claim in relation to the second storey works was brought within time.

Submissions

Masons

1. Section 134 of the Building Act does not apply because the action brought by the Frasers was not a ‘building action’ as defined in s 129. The Frasers’ claims were for breach of warranties that domestic building work performed and the materials used satisfied a particular standard and complied with applicable laws, not for loss and damage arising out of or concerning defective building work.[11]

   [11]See Hueppauff v Intercontinental Travels Pty Ltd [2001] SASC 119 (‘Hueppauff’).

1. Warranties under the Domestic Building Contracts Act 1995 (Vic) (‘the DBCA’) are different to those implied by s 137C. The DBCA warranties are prospective and apply to work to be performed by a builder. The s 137C warranties are retrospective. The purchaser in the case of works that have been completed is in a different position to a person who enters a contract to have building works carried out, because the purchaser is able to investigate the works and make their own inquiries about defects. Accordingly, it was an error to conclude by analogy, as the Member did, that because the 10-year time limit in s 134 of the Building Act applies to claim for breach of warranties in s 8 of the DBCA, it must also apply to a claim for breach of the warranties in s 137C(1).

1. The Tribunal was incorrect to conclude that the warranties implied by s 137C ran from the date of execution of the contract of sale, not the date of final inspection of the building works, or the completion of the works where no final inspection took place. The warranties operated from and may be sued on for the length of the ‘prescribed period’ set out in s 137B. This construction is consistent with a contextual interpretation of ss 137B and 137C, permissible in the light of s 33 of the Limitation of Actions Act,[12] and would avoid the unusual and unsatisfactory result of a limitation period of up to 12.5 years for works performed by an owner-builder without a permit, no matter how small those works were. The Explanatory Memorandum to the bill that inserted these provisions stated that s 137C was introduced to ensure that successors in title are covered by the warranties, which suggests Parliament’s intention was that warranties would apply from completion of building works, and that successors in title would take the benefit of the warranties for the length of the prescribed period. On this construction, the only cause of action not statute barred was the claim for breach of warranties relating to the second storey works.

   [12]Limitation of Actions Act 1958 (Vic) s 33 ‘Saving’: The periods of limitation prescribed by this Act shall not apply to any action or arbitration for which a period of limitation is prescribed by any other enactment including, without affecting the generality of the foregoing, and except as provided in Part IIA, the provisions of section twenty-nine of the Administration and Probate Act 1958 and section twenty of the Wrongs Act 1958.

Frasers

1. The definition of ‘building action’ in s 129 of the Act is intentionally broad so as to capture a wide variety of claims.[13]  The form of words ‘arising out of or concerning defective building work’ appears to permit a more indirect connection between the defective building work and the loss or damage.  The Frasers’ action is for breach of a warranty that the building work was carried out in a proper and workmanlike manner.  Such an action clearly falls within the definition of building action.

   [13]See Dinov v Allianz Australia Insurance Ltd (2017) 96 NSWLR 98; Bandelle Pty Ltd v Sydney Capitol Hotels Pty Ltd (2020) 246 LGERA 159 (‘Bandelle’).

1. There is no material difference between the terms in which warranties are expressed in s 8 of the DBCA and s 137C of the Building Act. An action based on an alleged breach of a DBCA warranty is a building action, and attracts the operation of s 134 of the Building Act. There is no reason why s 134 should not equally apply to an alleged breach of s 137C warranty. The distinction the Masons seek to draw, on the basis that the DBCA warranties are prospective whereas the s 137C warranties are retrospective, is immaterial.

1. The Masons’ construction of ‘prescribed period’ ignores the text of s 137B and the context in which it sits, and undermines the legislative purpose of s 134. On a plain reading of s 137B(1), (2) and (7), the ‘prescribed period’ commences with an event and lasts a specified time during which an owner-builder must do certain things if selling a building, one of which is to include the s 137C warranties in a contract of sale. There is no reference in the Building Act, or in the Explanatory Memorandum to the amending act which inserted these provisions, to the time for bringing an action based on alleged breach of the warranties being limited to the prescribed period.  A warranty is a binding promise,[14] which can only exist where there is a promissor and promisee.  The warranties come into existence from the date of the contract of sale.

   [14]Oscar Chess Ltd v Williams [1957] 1 All ER 325, 327 (LJ Denning).

Analysis

1. Statutory construction begins and ends with a consideration of the text.[15]  The context and purpose of a provision are also important.[16]  A construction of a provision that promotes the purpose or object underlying the act in which it sits is to be preferred to a construction that would not promote that purpose or object.[17]

   [15]Federal Commissioner of Taxation v Unit Trend Services Pty Ltd (2003) 250 CLR 523, 539–40 [47]; Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503, 519 [39].

   [16]Ibid.

   [17]Interpretation of Legislation Act 1984 (Vic) s 35(a). See also Miller v Martin [2020] VSCA 4, [120], [121].

1. It is not in dispute that the prescribed period under s 137B of the Building Act for each stage of the building works expired after the date of the contract of sale. The effect of s 137B(2)(d) was to prohibit the Masons from entering into the contract to sell the property to the Frasers unless the contract set out the warranties in s 137C. It was a condition of the contract that if ss 137B and 137C of the Building Act applied, the Masons gave the warranties provided for.  The warranties were given by the Masons to the Frasers when the parties entered the contract.

1. If s 134 of the Building Act does not apply to the Frasers’ action, the limitation period would be as provided by the Limitation of Actions Act. An action for breach of the s 137C warranties accrued at the time of breach,[18] which in this case was the date of the contract of sale.  Because the limitation period would expire six years later[19] the Frasers’ action was commenced within time.

   [18]Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd (2014) 48 VR 558, 580 [84], 585 [104] (‘Brirek Industries’).

   [19]Limitation of Actions Act 1958 (Vic) s 5.

1. Where it applies s 134 of the Building Act operates to replace the limitation period otherwise provided by the Limitation of Actions Act.[20] The broad definition of building action in s 129 of the Building Act was intended to capture a wide range of potential claims and to provide certainty as to the applicable limitation period whether the cause of action was in tort or for breach of contract.[21]

   [20]Brirek Industries (n 18) 588 [115]-[116], 593 [135].

   [21]Ibid 585 [103], 593 [136].

1. An action by the purchaser of a property against the person responsible for building work for breach of a warranty in s 137C(1) to recover the cost of rectification of defective building work is, on the plain meaning of the definition in s 129 of the Building Act, an action for damages for loss or damage arising out of or concerning defective building work.  In Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd,[22] considering the operation of s 129 and s 134 of the Building Act, the Court of Appeal said:

   [22]Brirek Industries (n 18).

113Section 134 addresses ‘a building action’. Section 129 of the Building Act defines that term to mean ‘an action (including a counter-claim) for damages for loss or damage arising out of or concerning defective building work’. Actions for breach of contract and actions for negligence in tort are both actions for damages for loss or damage. Section 129 defines ‘building work’ to include the ‘issuing of a permit in respect of building work.’ Section 3(1) of the Building Act defines ‘a permit’ as including a building permit.

114Section 134 does not contain any express limitation that confines its application to cases in contract or in tort. It does not contain any reference to some distinction between limitation periods for actions in negligence as opposed to those in contract. It does not contain any reference to patent or latent faults. It does not contain any suggestion that its operation is limited to physical loss and damage. What it does is to limit the period within which ‘building actions’ may be brought generally.

115The words ‘[d]espite any thing to the contrary in the Limitation of Actions Act 1958 or in any other Act or law’ have work to do in s 134. The Limitation of Actions Act and other Acts provide for different periods of limitation. The period provided for in s 134 operates despite those different periods.

…

135The words of s 134 of the Building Act should not be read down so that they are confined in their operation to claims in tort in such a way that it is only those claims that have the benefit of, and are subject to, the 10-year limitation period stipulated. The construction given to s 134 by the trial judge imposes unwarranted limitations on the scope and applicability of the section. In our opinion, actions founded in contract, independent of any tort claim, fall within the scope of s 134 and may be brought within 10 years from the date of issue of the occupancy permit.[23]

Building work may be defective if it is imperfect in form, structure or function. In their application to the Tribunal the Frasers made a claim based on multiple building defects, and sought to recover the cost of necessary rectification work. The Frasers alleged there were imperfections in the form, structure and function of the building works because they were not carried out in a proper and workmanlike manner and, in some respects, did not comply with all necessary laws and legal requirements. There is a real and discernible connection between the loss and damage suffered by the Frasers and the defective building work for which the Masons were responsible as owner-builders. The action brought by the Frasers is a building action within the definition in s 129 of the Building Act.

[23]Brirek Industries (n 18) 588 [113]-[115], 593 [135].

1. The Masons relied on the judgment in Hueppauff v Intercontinental Travels Pty Ltd [2001] SASC 119 (‘Hueppauff’)[24] as supporting a construction of ss 129 and 134 of the Act for which they contended. After purchasing a house from the appellant, the respondent in Hueppauff brought an action for breach of a warranty that no building work had been carried out without all necessary consents and approvals having been obtained. The applicant had installed a different type of septic system on the property to that set out in approved plans. On appeal from the Magistrates Court, Martin J considered the operation of s 73(1) of the Development Act 1993 (SA), which provided:

   [24]Hueppauff (n 11).

Despite the Limitation of Actions Act 1936, or any other Act or law, no action for damages for economic loss or rectification costs resulting from defective building work (including an action for damages for breach of statutory duty) can be commenced more than 10 years after completion of the building work.[25]

Martin J concluded:

Section 73 has no application to a claim for damages resulting from a breach of a contractual warranty as to approvals and consents or for damages for misrepresentation as to approvals and consents.[26]

The decision in Hueppauff is distinguishable on the basis that it concerned a different statutory regime, both in terms of the warranty that was found to have been breached, and the limitation provision.  The phrase ‘resulting from’ in the limitation provision under consideration in Hueppauff requires a more direct and immediate connection between the defective building work and the loss and damage suffered than the phrase ‘arising out of or concerning’ in s 29 of the Building Act.

[25]Ibid [33].

[26]Ibid [38].

1. In Bandelle Pty Ltd v Sydney Capitol Hotels Pty Ltd,[27] the New South Wales Court of Appeal considered s 6.20(1) of the Environmental Planning and Assessment Act 1979 (NSW) which provided:

   [27]Bandelle (n 13).

A civil action for loss or damage arising out of or in connection with defective building work or defective subdivision work cannot be brought more than 10 years after the date of completion of the work.

Emmett AJA found the statutory provisions were concerned with participants in the building industry, and that a building action must be understood as extending to claims against persons of that character.[28]  His Honour observed that when considered at a level of generality the phrase ‘arising out of or in connection with’ suggested no more than the existence of some real and discernible connection between the two subject matters linked by the phrase.  His Honour concluded that the clear object of the provision was:

to afford a limitation protection to those engaged in the building industry, irrespective of the nature of the claim, so long as the claim can be shown to be for loss ‘arising out of or in connection with’ or ‘arising out of or concerning’ defective building work.[29]

The analysis in Bandelle supports the conclusion I have reached as to the proper construction of s 129 of the Building Act.

[28]See Australian Rail Track Corporation Ltd v Leighton Contractors Pty Ltd [2003] VSC 189.

[29]Bandelle (n 13) 187 [127].

1. I accept the Frasers’ submissions in relation to the construction and operation of ‘prescribed period’ as defined in s 137B(7). The definition determines a period during which an owner-builder must do certain things if selling a building. There is nothing in the Building Act to indicate that the prescribed period is in fact a limitation period which applies to an action by a purchaser for breach of warranties implied into a contract of sale by ss 137B(2)(d) and 137C(1). This conclusion is supported by the statutory context. The definition of prescribed period is within Division 3 of Part 9 of the Building Act, not Division 2 which specifically deals with limitation of actions.

1. The Member was correct to conclude that s 134 of the Building Act applied to the stages of the building work where a certificate of final inspection was issued, and that if no certificate was issued the limitation period was as provided by s 5 of the Limitation of Actions Act.  The Masons have not demonstrated error in the reasons of the Member, and ground 1 fails.

The second ground of appeal:  Defects disclosed in pre-purchase report

1. The second ground of appeal is:

Having received two independent reports into the state of the property before the contract of sale was executed which identified numerous defects, the Tribunal awarded the Respondents damages in respect of those defects for a breach of the warranties implied into the contract of sale by section 137 of the Act, notwithstanding the operation of section 137C(3) of the Act.

1. Section 137C(3) provides:

A provision of an agreement or instrument that purports to restrict or remove the right of a person to take proceedings for a breach of any of the warranties listed in subsection (1) is void to the extent that it applies to a breach other than a breach that was known or ought reasonably to have been known to the person to exist at the time the agreement or instrument was executed.

1. The Member identified conditions of the contract of sale directed to restricting or removing the right of the Frasers to take proceedings for breach of the s 137C(1) warranties, and concluded that the Masons were not liable for defects which were known or ought reasonably have been known to the Frasers at the time of the contract.

1. However, the Member rejected the Masons’ argument that the building report which the Frasers obtained from Mr Scaffaro at the time of the contract of sale put them on notice of waterproofing defects in the downstairs ensuite and the upstairs bathroom, and the external cladding defect. 

Downstairs ensuite

1. Mr Scaffaro’s report included the following in relation to the downstairs ensuite:

The silicon caulking between the ensuite shower floor tiles and wall tiles is separating and cracking which is caused by settlement of the stumps below the bedroom divding [sic] wall as noted in the bedroom section of the report.  As this is in a wet area must be adequately re-sealed to prevent any potential water leaks.  Ongoing settlement and continued separation at this junction may cause the water proofing membrane behind the tiles to crack which will lead to a shower leak.  If access can be gained below this area the sub floor will also be checked for any moisture damage, if there is no access available then is recommended access be made prior to proceeding with the purchase of the property to determine whether there is any concealed moisture damage. The bedroom wall adjoining the shower was tested with a moisture meter and contained normal levels of moisture.  It appears the skirting board along this wall may have been replaced at some point.  Major Defect-Further Investigation-Water Penetration.

1. Mr Scaffaro’s report contains the following definitions:

Defect means a variation or fault in material or a component or assembled element that deviates from its intended appearance or function.

…

Major defect means a defect of such significance that without correction would not avoid Safety Concerns, loss of the intended practical performance of the building element or an additional decline in the existing condition of the property inspected.

Minor defect means a defect which is not a Major Defect.

The term ‘further investigation’ is used in the report to mean:

A defect or possible defect that in the opinion of the inspector warrants further investigation by an appropriate specialist.  This may also refer to defects where further access is required.

1. The Member relied on a photograph of the floor of the ensuite taken after the tiles had been removed, which he concluded suggested the floor was damp and showed no sign of waterproofing, and evidence that when a tradesman touched weatherboards external to the ensuite his hand went through the wall, which he concluded demonstrated there was no effective water resistance to the wall.  In response to the Masons’ submission that the Scaffaro report put the Frasers on notice of this defect, the Member said:

I consider this to be a good example of the sort of situation referred to by Ipp JA in Allianz v Waterbrook [[2009] NSWCA 224] where a defect is apparent, but its significance is unknown. I find the Frasers are not disentitled from pursuing this claim simply because of the reference to leaks in the ensuite in their pre-purchase report.[30]

[30]Fraser v Mason (n 8) [131].

The upstairs bathroom

1. In relation to the upstairs bathroom Mr Scaffaro reported:

The floor tiles surrounding the bathroom floor drain is somewhat drummy, can be related to the method of installation or the type of adhesive.  At the time of inspection the tiles were not lifting or cracking but drummy tiles can lead to surface cracking, therefore may require re-installation by a tiler.  Minor Defect-Installation.

1. The Member rejected Mr Mason’s evidence that he had waterproofed the bathroom floor in accordance with the appropriate Australian standard when undertaking tiling work.  Relying on photographs the Member concluded that waterproofing had been placed over only part of the bathroom floor.

External cladding

1. In relation to unpainted cut edges of weatherboards Mr Scaffaro said:

The weatherboards visible from this balcony contain unpainted cut edges which will need to be adequately sealed as they will absorb moisture and rot at a much more rapid pace than intended.  This should be completed throughout the property to all ends of the weathboards [sic].  Minor Defect- Installation.

Mr Scaffaro made this observation from a balcony which was part of the second storey works.

1. The Member made the following findings:

146At the hearing Ms Fraser complained that the Masons when placing weatherboards on the house had failed to prime the cut edges. The Masons note in their written submissions that Urban Property Inspections had, in their report at [23] remarked that the weatherboards visible from the balcony contained unpainted cut edges that needed to be adequately sealed, and that this should be completed throughout the property. The Masons contend that the Frasers were on notice about this defect, and cannot make a claim about it. I accept this submission in so far as it relates to the whole of the upstairs extension. The weatherboards visible from the balcony above that extension, and the ends of visible boards had not been properly seen, the Frasers might reasonably have inferred that the rest of the weatherboards in the upstairs extension suffered from the same defect.

147I do not think this defence avails the Masons in respect of new weatherboards apply elsewhere in the house. This is important what, as at the hearing Mr Mason sought to minimise the problem. However, Ms Fraser in a very effective cross examination forced Mr Mason to concede that he had not only placed weatherboards on the upstairs extension, but had altered the weatherboard exterior of the house on the ground floor in the second bedroom when the front rebuilt, in the kitchen/dining room where a window was moved, and in the bathroom laundry when the exterior door in the west wall was cut. On this basis for Mr Mason was also forced to concede that he had cut into the weatherboards in about 80% of the house.

148Mr Mason was asked about who had done the work. Question by question, he disgorged that he had been assisted with the weatherboards by a friend named Simon, and that he did not know whether Simon was a registered builder or not. As to the exterior door in the bathroom/laundry, Mr Mason said he had been assisted by a carpenter named Mullins.

On the basis of these findings the Member allowed the cost of replacement of ground floor weatherboards.

The Masons’ submissions

1. The Tribunal misapplied s 137C(3) of the Building Act, by requiring the Masons to show, pursuant to Allianz v Waterbrook [2009] NSWCA 224 (‘Allianz’),[31] that the Frasers had ‘full knowledge’ of the defects, which required not only knowledge of the existence of the defects, but also of their significance. 

   [31]Allianz v Waterbrook [2009] NSWCA 224 (‘Allianz’).

1. In order for the exception in s 137C(3) to operate it was not necessary that the specific defect, which was the subject of the claim for damages, was known or ought to have been known to the purchaser at the time of the contract of sale.

1. The Scaffaro report put the Frasers on notice of the possibility of water penetration and sub-floor water damage in the downstairs ensuite, which was described as a major defect requiring further investigation. Therefore, the Frasers knew or ought reasonably have known that there was a defect to the downstairs ensuite which constituted a breach of the warranties implied by s 137C of the Building Act. Similarly in the upstairs bathroom, Mr Scaffaro’s finding of drummy tiles surrounding the bathroom floor drain, which he recorded as a minor defect, put the Frasers on notice that there was a relevant breach of the s 137C warranties. In relation to the external cladding Mr Scaffaro’s observation from the upstairs balcony of unpainted cut edges of weatherboards, and a recommendation of the need to adequately seal the ends of all weatherboards throughout the property, put the Frasers on notice of the defect where weatherboards had been cut as part of the building work. The only conclusion open to the Member was that the Frasers were precluded by conditions of the contract from making a claim for breach of warranty for building works in the downstairs ensuite, upstairs bathroom and the external cladding because they were on notice of relevant defects by Mr Scaffaro’s report.

The Frasers’ submissions

1. The Member correctly stated the test in s 137C(3) of the Building Act.

1. The Member considered the Scaffaro report.  The defects observed by Mr Scaffaro in the downstairs ensuite and the upstairs bathroom are not the same as the defects the Member found to exist.  The Frasers are laypeople, not experts, and had no real opportunity to undertake further investigations in response to the Scaffaro report before the contract of sale became unconditional.

1. The Frasers were not on notice of the extensive work performed by Mr Mason to weatherboards on the ground floor of the house.  The Member found that it was only under effective cross-examination at the hearing that Mr Mason conceded that he had not only placed weatherboards on the upstairs extension, but had altered the weatherboards to the remainder of the house which involved cutting into about 80% of them.  Because the Frasers were not on notice of that work they had no reason to suspect that the ground floor weatherboards were defective because butt joins had not been sealed.

1. It was open to the Member to conclude that the Frasers were not on notice of the waterproofing and external cladding defects.  The submissions by the Masons in support of this ground amount to an impermissible attempt to appeal the weighing of evidence by the Member.

Analysis

1. The defence raised by the Masons at the Tribunal hearing, and the Member’s reasons, were based on a consideration of Mr Scaffaro’s report.  There is no doubt that the Member had regard to the contents of Mr Scaffaro’s report when considering whether the Frasers knew or ought reasonably have known of the waterproofing and external cladding defects at the time of the contract of sale.

1. The statutory test in s 137C(3) requires consideration of ‘a breach other than a breach that was known or ought reasonably to have been known …’. The test applies to a particular breach. A contractual term will be ineffective in excluding liability unless the purchaser knew or ought reasonably have known of the breach for which a claim is being made.

1. The particular breach found by the Member in the bathroom areas was a failure to apply waterproofing to the floor, and, in a case of the downstairs ensuite, to the walls, in accordance with the relevant Australian standard.  The most cogent evidence on which the Member relied were photographs taken after tiles had been removed which showed the absence of waterproofing.

1. The Scaffaro report identified separating and cracking silicon caulking in the downstairs ensuite which may damage the waterproofing membrane and cause moisture damage to the sub-floor.  In the upstairs bathroom the identified defect was drummy tiles which Mr Scaffaro said could lead to surface cracking.  The waterproofing defects found by the Member were different and distinct from those identified in the Scaffaro report, and only became known when the bathroom floor tiles had been removed.  It was open to the Member to conclude that the waterproofing defects were not a breach of warranty that was known or ought reasonably to have been known by the Frasers as a consequence of receiving the Scaffaro report.  It is difficult to understand how a different conclusion could have been reached.

1. The different approaches taken by the Member in relation to the external cladding defect are explained by the evidence.  The contract of sale disclosed the second storey works, which included affixing weatherboards to that newly construct part of the house.  The Member accepted that the ends of visible weatherboards observed by Mr Scaffaro which were part of the second storey works had not been properly sealed, and found that the Frasers might reasonably have inferred that the rest of the weatherboards in the upstairs extension suffered from the same defect.

1. In contrast the Frasers did not know at the time of the contract of sale that building work carried out by the Masons on the house included cutting and replacing most of the weatherboards to the original ground floor.  It was only in cross-examination during the Tribunal hearing that Mr Mason was forced to concede that he had cut into the weatherboards in about 80% of the house.  I infer the Member concluded it could not be said the Frasers knew or ought to have known of the breach of a warranty in carrying out building work when they were not on notice that the work had been performed.  That conclusion was open to the Member on the evidence.

1. The Member’s reasons, and the submissions of the parties on appeal, considered the judgment of Ipp JA in Allianz v Waterbrook,[32] a case which concerned a claim by a subsequent purchaser against the insurer of the builder for a breach of statutory warranty resulting from defective building work.  The insurance policy excluded liability for defects that were reasonably visible at the time the property was acquired.  Ipp JA concluded that loss suffered by a successor who acquired a building in full knowledge of its defects was caused not by the existence of those defects, but by the decision to purchase at the agreed price, and said this observation was:

   [32]Ibid.

predicated on the “full knowledge” of the defects being not only knowledge of the existence of the defects but also knowledge of their significance. A party may know of the existence of defects (because they are patent), but may not appreciate – even acting reasonably – that major expenditure would be required to remedy them.[33]

[33]Ibid [111].

In the reasons, the Member said:

58.The significance of this observation was spelt out by Ipp JA at [116], where he said:

I have pointed out that where defects are patent a party, even though acting reasonably, might be unaware that major expenditure would be required to remedy them. The repair of patent defects that on their face appear to be trivial, might — on opening up the work — be found to require major reconstruction. In my opinion, applying general principles of causation, in such circumstances the knowledge of a successor in title of the patent defects might not be a new intervening cause. In that event, the chain of causation would not be broken and the successor would be able to prove that it suffered loss.

59.I acknowledge the defence raised by the Masons based on the existence of the pre-purchase reports, but will have regard to the approach of Ipp JA expressed at [110] and [116] of his judgment when applying the defence when it is raised by the Masons in connection with particular defects.

1. The approach taken by Ipp JA is not directly relevant to a consideration of the operation of s 137C(3) of the Building Act, and its application to the facts of this case, because his Honour was concerned with the cause of loss suffered by the purchaser of a property, and the defect under consideration was patent. 

1. It would have been an error for the Member to rely on the decision in Allianz as directing the proper construction of s 137C(3). However, it is not clear to me that the Member has fallen into error in that way. Rather, it appears the Member treated his Honour’s analysis as an example of the factual inquiry that may be relevant to a purchaser’s knowledge of the existence of defects.

1. The breaches of warranty in this case did not relate to patent defects.  The Member only referred to Allianz when analysing liability for the waterproofing defect to the downstairs ensuite.  The absence of waterproofing was concealed by the bathroom tiles, and only became known when the tiles were removed.  If, contrary to my earlier conclusion, the Member erred in the reliance he placed on Allianz when analysing liability for the downstairs ensuite waterproofing defect, this did not materially influence the outcome of the Frasers’ cause of action, and is not a vitiating error.  In my view the Member arrived at a decision that was clearly correct on the material before the Tribunal.[34]

   [34]Kozanoglu v Pharmacy Board of Australia [2012] VSCA 295, [121], [124]; Forster v Legal Services Board (2013) 40 VR 587, [137].

1. I reach the same conclusion, for the same reasons, in relation to the upstairs bathroom waterproofing defect and the external cladding defect.  Additionally I note that when considering liability for these defects the Member made no reference to, and placed no apparent reliance on, the reasoning in Allianz.

1. For these reasons ground 2 fails.

Third ground of appeal:  Work referred to on permits

1. The third ground of appeal was:

6.2.3Despite a building permit being issued for the performance of building works that did not include the construction of a stormwater system or additional downpipes, the Tribunal erred in law by in [sic] awarding an amount for the construction of a storm water system and additional downpipes.

1. Awards for the stormwater drainage system and the downpipes relate to the second storey works. In defence of those claims the Masons submitted that requirements for connection of the house to the stormwater system and for additional downpipes to the ground storey were unrelated to and not part of the second storey works, and could not be the basis of a breach of a s 137C warranty relating to those works.

1. The Member found the stormwater piping of the house was not connected to any legal point of discharge.  The Member set out the evidence of Mr Hay, an engineer called by the Frasers:

69.Mr Hay’s evidence concerning the stormwater drainage system was contained in his report of 20 February 2017. He noted that on the west side of the house, a storm water pipe is visible above ground leading east beneath the dwelling. On the north side, he noted that the downpipe outlet at the north-east corner was visible at the surface, and terminated in the front veranda. It had been partially buried and was blocked by driveway gavel. He deposed (on page 3):

Corrective works should comprise the installation of a system of drainage to regulate the sub-surface moisture around the dwelling as much as possible…. Where possible, existing property drainage would be retained but alterations to existing pipes and fittings would be dictated by corrections to be made to perimeter paving and ground levels and the availability of a suitable drainage outlet.[35]

[35]Fraser v Mason (n 8).

1. The Member found that responsibilities regarding stormwater drainage were imposed on the Masons by requirements of the building permit issued for the second storey works.  The Member said:

76The Masons, in their written submissions, contend at [30] that these notes are of a pro forma nature, and go on to argue at [33] that the requirements in respect of stormwater only become relevant if the permit requires a new stormwater drain to be installed or the existing one to be upgraded.

77I reject these contentions. In my view, having applied successfully for a permit to carry out a substantial upstairs extension, they became obligated to perform relevant requirements set out in the permit. The creation of a compliant stormwater drainage system was necessary because the upstairs extension had a drainage system under which water from the upper roof gutters was carried by 4 downpipes to the existing ground floor roof gutters.

Cost of making the stormwater drainage system compliant

78.Accordingly, I consider that the Frasers are entitled to an award in respect of the rectification of the drainage system on the property. The cost of constructing a complying system was assessed by Mr Hay at $26,000. No attack was made on this figure. The Masons in their defence concentrated on liability and did not criticise the Frasers’ quantification. I accept Mr Hay’s assessment of the relevant works, and award the Frasers $26,000 in respect of this issue.[36]

[36]Ibid [76]-[78].

1. The Member referred to evidence of Mr Osborne, a building consultant, that there were four downpipes from the second storey roof to the lower roof, but only two downpipes from that roof to the ground, and said:

114[Mr Osborne] suggests that this number is inadequate, as the number does ‘not appear to take into consideration the size of the roof area’. Although Mr Osborne’s language is equivocal, I find the decision made by the Masons’ roof plumber when constructing the upper story roof to be instructive. That plumber evidently thought four downpipes were appropriate. In the circumstances, I do not think that the Masons can simply assert that they do not have to address the adequacy of the ground floor downpipes because they were pre-existing. I accept that two new downpipes should have been added.[37]

When dealing with the issue of downpipes in his report Mr Osborne said:

The two downpipes to the lower section of the roof are inadequate to remove the stormwater from the entire dwelling.

Two downpipes are insufficient to remove the volume of stormwater coming from the entire building and upper storey walls.

The downpipe provision to the lower storey roofs does not comply with the building handbook.

…

I would have expected to see at least four (4) downpipes not two (2).

[37]Ibid [114].

Submissions

Masons

1. The warranties in s 137C(1) relate to work that is carried out by or on behalf of an owner-builder, not to work that is not carried out.[38]  A building permit did not require the stormwater system that was prescribed by the expert, Mr Hay.  The Member disallowed a separate claim to attach stormwater pipes to a legal point of discharge because of evidence that resurfacing of the adjacent road by the council had interfered with the legal point of discharge.  The work which Mr Hay said was required was unrelated to any condition of the permit and to the work undertaken by the Masons.  Mr Hay’s recommendations related to the need to correct ground subsurface moisture, and had nothing to do with construction of the second storey to the house.  The problem with draining of stormwater from the house existed before and was unrelated to the second storey works.

   [38]Price v Goodrem [2014] VCAT 1409 (‘Price’).

1. There was no requirement in the building permit for the second storey works to install two further downpipes on the ground level. Those works did not involve an extension to the dimensions of the roof area, and there were only two downpipes on the ground floor of the house since it was constructed. It was not open to the Member to conclude that there was a failure to install additional ground floor downpipes, which was a breach of the s 137C(1) warranties.

Frasers

1. It is an unreasonable construction to limit the meaning of ‘work carried out’ in the s 137C(1)(a) warranty to only work that was physically done, and not to work that was omitted. Building defects are non-conformances that usually result from a combination of doing (such as use of an incorrect method) and not doing (such as omissions). If omissions were excluded from the scope of this warranty the protections intended to be provided by s 137C of the Building Act would be seriously undermined.

1. The warranty in s 137C(1)(c) required the Frasers to comply with all laws and legal requirements, including the Building Act.  Failure to comply with a building permit is an offence under the Building Act.[39]  Therefore a failure by the Masons to comply with the building permit issued for the second storey works is a breach of the warranty.  The Member correctly construed the building permit as requiring the Masons to create a compliant or to upgrade the existing stormwater drainage system.  There was evidence that the stormwater system was defective and did not comply with the permit conditions, and accordingly it was open to the Member to find for the Frasers on this issue.

   [39]Building Act 1993 (Vic) s 16(2).

1. It was open to the Member to conclude that in order to carry out the second storey works in a proper and workmanlike manner the existing ground floor roof drainage had to be upgraded by adding two further downpipes.

Analysis

1. The first permit works, which were carried out between 2005 and 2008, involved extension of the ground floor roof area.  The building permit requirements included that the stormwater be connected to the existing legal point of discharge, that new downpipes be connected to existing stormwater, and for appropriate drainage beneath the building. 

1. The second storey building permit included the following requirements in relation to stormwater and drainage:

STORMWATER

10MM DIAMETER (MIN) OR AS PER ENGINEERS DESIGN CLASS 6 UPVC STORMWATER LINE LAID TO A MINIMUM GRADE OF 1:100 AND CONNECTED TO THE LEGAL POINT OF STORMWATER DISCHARGE. PROVIDE INSPECTION OPENINGS AT 900MM C/C AND AT EACH CHANGE OF DIRECTION.

THE COVER TO UNDERGROUND STORMWATER DRAINS SHALL NOT BE LESS THAN

- 100MM UNDER SOIL
- 50MM UNDER PAVED OR CONCRETE AREAS
- 100MM UNDER UNREINFORCED CONCRETE OR PAVED DRIVEWAYS

- 75MM UNDER REINFORCED CONCRETE DRIVEWAYS

DRAINAGE NOTES

-ALL DRAINAGE & SEWERAGE PIPES ADJACENT TO BUILDING TO BE SETBACK AT A DEPTH THAT WILL NOT AFFECT ANGLE OF REPOSE (45 DEGREES) TO FOUNDING DEPTH.

- SERVICE PIPES AND DRAINAGE PIPE JOINTS TO BE ARTICULATED AT SLAB AND

ARTICULATED AT FOOTING-WALL PENETRATIONS. BACKFILL TO TRENCHES SHALL BE FULLY COMPACTED

- WHERE SEWERAGE AND WATER PIPES PASS ‘THRU’ SLAB AND FOOTINGS, PROVIDE SLEEVE OR LAGGING AROUND PIPES TO ALLOW RELATIVE MOVEMENT 25MM MINIMUM ALL ROUND.

- GRADING AND SITE DRAINAGE – THE AREA WITHIN 2000MM OF BUILDING LINE SHALL BE GRADED SO THAT WATER WILL NOT POND AGAINST THE BUILDING.

- GRADE SHALL BE 50MM WITHIN THE FIRST METRE ON SEVERELY SLOPING SITES ADOPT AG DRAINS ADJACENT TO FOOTINGS WHERE THE GROUND FALLS TOWARD THE BUILDING.

STORMWATER
- 100MM DIAMETER PVC DRAIN 1 IN 100 GRADE AS INDICATED ON SITE PLAN AND PLACE ON QUARTER MINUS BOTH UNDER AND TO SIDES OF DRAINS
- DP – 100x50 DOWNPIPES AS INDICATED

- IO – INSPECTION OPENINGS AT 9M SPACINGS

STORMWATER AND DRAINAGE DISCHARGING POINT –
TO KERB & CHANNEL LOCATION TO BE DETERMINED SITE BY BUILDER, OWNER AND PLUMBER WITH AID OF COUNCIL RECORDS

ADOPT SEWER GRADE WHEN SUSPENDED UNDER TIMBER FLOOR CLIPPED TO JOIST WITH MINIMUM GRADE.

Mr Mason conceded that no stormwater or drainage work was carried out as part of the first permit works or the second storey works in compliance with the permit requirements.

1. In his first report Mr Hay noted that substantial renovations had been carried out to the house under several building permits dating back to 2005, and detailed the ways in which drainage and stormwater systems at the property were non-compliant.  In his second report Mr Hay detailed necessary remediation of the stormwater and drainage systems.

1. At first instance, and on appeal, the Masons relied on the decision of Senior Member Walker in Price v Goodrem [2014] VCAT 1409 (‘Price’). In that case the respondent carried out extensive renovations to a house as owner-builder. After purchasing the house the applicant brought proceedings in the Tribunal against the respondent claiming damages for breach of the warranties in s 137C of the Building Act.  An expert architect who gave evidence for the applicant said two redundant terracotta sewerage or drainage pipes at the rear of the house should have been removed, or capped and made good, at the time plumbing was upgraded as part of the building work.  Senior Member Walker rejected this claim, finding:

14.The claims made are for damages for breach of one or other of the statutory warranties set out above. These warranties are both set out in the Contract of Sale and are implied into the contract by s.137C of the Act. As a careful reading of those warranties will show, they are confined to the building works that were carried out by the Respondent. They do not extend to work that she might have done but failed to do. In the present case complaint is made that the Respondent did not upgrade some of the plumbing or electrical wiring of the existing house. In each case, such a failure could only be found to be a breach of a s.137C warranty if it could be established that, in order to do the new work that she did do in a proper and workmanlike manner, the existing work had to be upgraded. That would need to be established by expert evidence.

…

18.Since this was not part of the work the Respondent did and since the expert evidence does not establish that, in order for the new work to be done in a proper and workmanlike manner these pipes ought to have been removed or capped, there is no breach of warranty in failing to remove or cap them.[40]

[40]Price (n 38) [14], [18].

1. As the Member correctly concluded the decision in Price can be distinguished in two ways, and the Masons’ defence based on that decision was misconceived.  First, as has already been observed, the permit documents placed legal requirements on the Masons as owner-builders in relation to stormwater and drainage.  Those requirements were part of the second storey works approved under the building permit.  The Member rejected the Masons’ submission that the stormwater and drainage requirements in the building permit were pro forma in nature, and did not impose obligations on them to create a compliant stormwater drainage system.  In contrast there was no evidence in Price about the existence or requirements of a building permit.  Second, the redundant terracotta sewerage pipes in Price were incidental and unrelated to the plumbing work performed as part of the renovation.  However in this case, as the Member found, the need for a compliant stormwater drainage system was directly related to drainage of stormwater from the second storey extension.  The findings made and conclusions reached by the Member were open on the evidence.  The Masons have not established error in relation to the stormwater drainage issue.

1. The need for additional downpipes on the ground storey relates to the adequacy of stormwater drainage from the second storey roof and walls.  It was open to the Member to accept evidence that the need for two further ground floor downpipes was related to the second storey works, and was required for the works to be compliant.

1. I dismiss ground 3.

Ground 4

1. The fourth ground of Appeal is:

6.2.4[T]he Tribunal erred in that once it granted the right to both parties to present evidence and make submissions regarding the window flashings, it denied natural justice and procedure to the Applicants when it, on 28 January 2020, refused the Applicants leave to call evidence of two parties which they had subpoenaed to give evidence in respect of that alleged defect.

Background

1. Mr Osborne’s report was prepared on the basis that no window flashings had been installed.  His report states:

The BSS report states

‘Note generally there are no flashings to external windows.’

Commenting on the failure to install window flashings Mr Osborne said:

The lack of window flashings being installed behind the weatherboards is defective works by the vendor.

1. Mr Osborne’s report, on which the Frasers relied, described defects to the house and necessary rectification work, and particularised the cost of the required work.  Rectification work for item 13 in Mr Osborne’s report, described as ‘sealing to butt joins in external cladding’, and item 15, ‘window flashings’, were related.  The cost of rectification was particularised by Mr Osborne on the basis that both defects would be rectified at the same time.  The defects involved the ground storey and second storey of the house.

1. Item 13 in Mr Osborne’s report included labour for carpenters to repair and replace weatherboards and install window flashings, and the cost of erecting scaffolding for second storey work.  The total cost for that work was $60,339.  Item 15 set out a claim of $943 for supply of flashings for all windows, and stated:

The works are allowed in item 13 costings.

1. The Frasers particularised their claim in a Scott Schedule filed before the May hearing.  Included in the Schedule was the item for sealing to butt joins in external cladding set out in the same form, and claiming the same amount, as in Mr Osborne’s report.  There was no explanation for the fact that a separate line item for the supply of window flashings was not included in the Scott Schedule.

1. Mr Osborne and Mr Le Vaillant, a builder who carried out work on the house after the Frasers purchased the property, were called to give evidence.  Both witnesses were cross-examined by counsel for the Masons in relation to the window flashings issue.  Mr Le Vaillant’s evidence was that no flashings were installed on the windows of the house.

1. In reasons delivered in July 2019 following the May hearing, the Member dealt with the external cladding and window flashings item in three different ways.  First, the Member disallowed the Frasers’ claim relating to the failure to seal weatherboard cut edges in the second storey extension on the basis the Frasers were on notice of this defect because of Mr Scaffaro’s report.  Second, the Member allowed the Frasers’ claim, based on Mr Osborne’s costings, for rectification work to the ground floor of the house.  Third, the Member gave the Frasers leave to present further evidence and make further submissions regarding the window flashings.  In doing so, the Member said:

181The Frasers did not address this claim in their Scott Schedule, possibly because the works have been rectified by Mr Le Vaillent [sic] and the cost has been subsumed in the cost of rectifying the upstairs weatherboards.

182In the light of my finding against the Frasers in respect of the upstairs weatherboards, it is fair that the Frasers be given an opportunity to address this claim.  On the other hand, it would also be unfair for me to make any determination about the issue without giving the Masons an opportunity to be heard, because understandably they did not think the issue was still alive when they prepared their final submissions.[41]

[41]Fraser v Mason (n 8) [181]-[182].

1. On 14 August 2019, pursuant to the grant of leave, the Frasers particularised a claim of $14,391 for window flashings.

1. The matter was listed for hearing on 18 November 2019, when the Masons gave notice of an intention to call Mr Park, the building surveyor, who provided the building permit for the second storey works.  Counsel for the Masons told the Member Mr Park would give evidence that he inspected the second storey works, and that flashings were installed, and the works were performed in accordance with the permit.  The Member asked why Mr Park was not called during the May 2019 hearing, and was told because the flashings issue was not raised at that hearing.  After a brief discussion the Member agreed to adjourn the hearing because Mr Park was not available.

1. When the matter came on for hearing again in January 2020 the Frasers indicated they would call no further evidence, and relied on a particularisation of the window flashings claim based largely on Mr Osborne’s evidence.  After the hearing commenced the Member raised whether liability for the flashings defect had already been established.  During a lengthy discussion with counsel for the parties the Member noted there had already been a lengthy hearing and a detailed decision, and the reason for allowing a further hearing was not so that there could be a reopening of the case with substantive evidence called as to the existence of the flashings, but so that the claim could be properly particularised and quantified.  After hearing further submissions from counsel for the Masons the Member concluded by inference from the reasons that he had made a finding of liability on the window flashings defect, and declined to allow the Masons to reopen and call further evidence in relation to that issue.

1. The Member heard submissions from the parties and made an award for the window flashings to the second storey of the house which was substantially based on Mr Osborne’s evidence.

Submissions

Masons

1. Mr Osborne costed the window flashings defect at $943.  However, this claim was not particularised by the Frasers in the Scott Schedule.  After being granted leave the Frasers particularised the window flashings claim at over $14,000.

1. The Member stated in the reasons, and confirmed at the hearing in November 2019, that the Masons would have the opportunity to call further evidence and make further submissions on the window flashings issue.  The Member denied the Masons natural justice by refusing to allow them an opportunity to present their case and call evidence on the window flashings issue at the January 2020 hearing, in direct contradiction to the reasons, and the reasons for adjournment in November 2019.  It is a requirement under the VCAT Act that natural justice be provided, and the failure to do so is an error of law.[42] A denial of natural justice will arise where a party has not been allowed to adduce evidence through the calling of a witness[43] or make submissions.[44]

   [42]Towiev State of Victoria (2008) 19 VR 640, 652–653.

   [43]CGU Insurance Ltd v CW Fallaw & Associates Pty Ltd [2008] VSC 197.

   [44]Port Phillip CC v Hickey [2001] VSC 129.

Frasers

1. The Masons were on notice at all times from August 2018 that the Frasers’ case was that the window flashings were non-existent.  This issue was addressed in multiple documents and in evidence given at the May 2019 hearing, including Mr Osborne’s expert report, Points of Claim exchanged by the Frasers, Mr Mason’s witness statement and defence, evidence given by Mr Osborne and Mr Le Vaillant, and the Frasers’ written submissions following the May hearing.

1. The November 2019 hearing was adjourned on the basis of a submission by counsel for the Masons that the window flashings issue was not raised during the May hearing.  That submission was incorrect.

1. The evidence intended to be called from Mr Park was in respect of a certificate of final inspection issued by him which was already in evidence.  Despite having the opportunity to call Mr Park to give evidence to address the flashings issue at the May 2019 hearing, the Masons elected not to do so.

1. In construing orders a court or tribunal can have resort to extrinsic materials to resolve ambiguity, including referring to the reasons,[45] pleadings, and if necessary the evidence and how the case was conducted.[46]  While there was no express finding of liability on the window flashings issue in the reasons, a finding can be inferred, and that inference was made by the Member at the January 2020 hearing.

   [45]Repatriation Commission v Nation (1995) 57 FCR 25, 334; Owston Nominees No 2 Pty Ltd v Branir Pty Ltd (2003) 129 FCR 558, 569 (‘Owston’).

   [46]Owston (n 45), 569.

Analysis

1. The Masons’ submission that the cost of rectification of the window flashings defect was quantified by Mr Osborne at $943, did not form part of the claim particularised in the Scott Schedule, and was not the subject of evidence at the May 2019 hearing is incorrect.

1. Most of the cost of rectification of the window flashings was for labour and scaffolding for the second storey work.  Those amounts were included within item 13 of Mr Osborne’s report and the Scott Schedule, which also set out the external cladding claim, without differentiating between the two. 

1. The claim in item 13 was disallowed by the Member only to the extent that it related to the weatherboards which were part of the second storey works.  The ground floor claim, which appears to have included weatherboards, trims and flashings, was allowed.  What remained was the separate quantification of rectification for the flashings defect to the second storey.  The difficulty that the Member faced at the conclusion of the hearing and in the reasons was that for the second storey works there was no differentiation in the quantification of the claim for weatherboards, which was not allowed, and the window flashings.

1. The window flashings claim was particularised by the Frasers in Mr Osborne’s report, the Points of Claim which was in effect the pleading of their case, and the Scott Schedule which particularised their case, and was the subject of evidence given at the May 2019 hearing by Mr Osborne and the builder, Mr Le Vaillant.

1. There are two issues relevant to the determination of liability for the window flashings.  First, whether flashings had been installed.  Second, whether a failure to install flashings was a defect.  The only evidence before the Tribunal relating to these issues was that window flashings had not been installed, and that this was defective work by the Masons. 

1. Mr Park issued the building permit for the second storey works, and completed the certificate of final inspection for those works.  The certificate of final inspection was an attachment to the contract of sale.  Both the permit and the certificate were tendered in evidence at the May hearing.  There has been no adequate explanation by the Masons for the failure to call Mr Park or any other witness to give evidence about the window flashings issue at the May hearing. 

1. The conclusion by the Member at the January hearing that liability evidence relevant to the window flashings had been heard at the May hearing, and that the purpose of the further hearing was simply to deal with quantification of the claim, was consistent with the procedural history and the May hearing.  The only evidence given in relation to liability for the window flashings at the May hearing supported the Frasers’ claim.  Allowing the whole of the item 13 claim for the ground storey of the house, as the Member did, it is consistent with liability for the window flashings having been determined in the Frasers’ favour.  It was open to the Member to infer or conclude that liability for the window flashings had been determined adverse to the Masons.

1. The Member did not deny the Masons the opportunity to lead evidence and make submissions about liability for the window flashings.  The Masons had that opportunity at the May hearing when the issue was before the Tribunal, but failed to take it.

1. I conclude there was no denial of natural justice by the Member to the Masons.  Ground 4 fails.

Other matters

Electrical wiring

1. There is no mention of the electrical wiring award in the Amended Notice of Appeal.  The very lengthy written submissions placed electrical wiring under ground 1.  At the hearing counsel for the Masons submitted, without reference to any of the four stated grounds of appeal, that is was not open to the Member to make the electrical wiring award.  Counsel for the Frasers had no proper opportunity to explore and respond to this new submission.  On that basis alone I would dismiss a new and separate ground of appeal from the electrical wiring award.

1. I note the Member found a qualified electrician was not engaged to carry out electrical work in the kitchen, laundry/bathroom and a converted bedroom, and there was no certificate of electrical safety for that work. There is no challenge to these findings. The Member concluded, on that basis, that the Frasers were entitled to have the work checked for electrical safety. It is likely the Member’s conclusions were to the effect that the electrical work was not carried out in accordance with all laws and legal requirements, and was a breach of the s 137C(1)(c) warranty. There is no evident error with the electrical wiring award made by the Member.

Member’s reasons

1. The Amended Notice of Appeal did not raise the failure to give reasons as a ground of appeal.  In reply written submissions the Masons alleged a failure to give reasons for the January 2020 orders.  No oral submissions were made at the hearing in support of a reasons ground.

1. Oral reasons were given during the January hearing for the orders made by the Member.  There is no evidence of a request by the Masons for the Member to give written reasons.[47]  There is no basis for a reasons ground of appeal.

   [47]Victorian Civil and Administrative Tribunal Act 1998 (Vic) s 117.

Conclusion

1. I conclude that:

(a)   The time for the Masons to apply for leave to appeal the July 2019 order is extended;

(b)  Leave to appeal on each ground is granted;

(c)   The appeal on each ground is dismissed.

An order will be made dismissing the appeal.  I will hear from the parties as to any consequential orders.