OWNERS UNITS PLAN NO. 2735 & MADISON CONSTRUCTIONS PTY LTD and TOTAL OUTDOOR LIVING CONCEPTS (Civil Disputes)

[2011] ACAT 13

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

OWNERS UNITS PLAN NO. 2735 and MADISON CONSTRUCTIONS PTY LTD & TOTAL OUTDOOR LIVING CONCEPTS (Civil Disputes) [2011] ACAT 13

XD 1019 of 2010

Catchwords:             CIVIL DISPUTES – construction of vergolas in a strata complex – absence of drainage – flooding of balconies – leaking  balcony floors – costs of investigations and rectifications –liability under statutory warranty - agent’s liability- agent accepting liability and communicating it to the Applicant – acting as agent for a non-existing entity – estoppel –tort of unjustified interference in contractual relations – apportionment of liability

List of legislation:     Building Act 2004, s 88 and Part 6

Tribunal:                  A. Anforth, Senior Member

Date of Orders:  20 January 2011
Date of Reasons for Decision:         14 February 2011

IN THE ACT CIVIL &                   )

ADMINISTRATIVE TRIBUNAL )   FILE NUMBER

XD 1019 of 2010

UNITS PLAN 2735

Applicant

MADISON CONSTRUCTIONS PTY LTD

First Respondent

TOTAL OUTDOOR LIVING CONCEPTS PTY LTD

Second Respondent

Tribunal        :          Mr A. Anforth, Senior Member

Date               :          20^th January 2011

ORDER

1.     The First Respondent is to pay the Applicant the sum of $5,000.00 within
28 days.

2.     The Second Respondent is to pay the Applicant the sum of $5,000.00 within 90 days.

3.     This Order is in full and final satisfaction of all claims arising from water leakage to Units 7 to 10, caused by the installation of the vergolas.

4.     Total Outdoor Living Concepts Pty Ltd Trading as Home Plus Vergola ACT is the Second Respondent.

Mr A. Anforth
Senior Member
ACT Civil & Administrative Tribunal

REASONS FOR DECISION

1. The following are the reasons for a decision given ex tempore on
   20 January 2011. The reasons have been requested by the First Respondent.

Factual history

1. The matter relates to a building dispute concerning the vergolas constructed in December 2004 on the balconies of units 7, 8, 9 and 10 in a strata complex at Manuka. The Applicant is the Owners Corporation for the complex. The developer was Keffoe P/L which was deregistered on 3 June 2007. The First Respondent (Madisons) was the project manager for the development. The principal builder was Kell & Rigby P/L. The Second Respondent actually constructed the vergolas.

1. A letter of complaint from the Applicant dated 17 March 2008 to Madisons outlined essentially two kinds of problems with the vergolas. The first kind of problem concerned the absence of drainage to capture the rain water. The result was that some vergolas were redirecting the water to the balcony of units below causing those balconies to flood. The second kind of problem concerned the absence of effective waterproofing on the balcony floors with the result that rain water cascading from one balcony onto the balcony below caused flooding.

1. On 17 March 2008 Madisons replied to the Applicant stating that were acting on behalf of Keffoe P/L and would ‘address any warranty issues required in terms of the Building Act’. Madisons said:

I do not anticipate that we will get to this quickly in view of the current resources constraints. If you cannot wait, and if you have a solution in mind, I would invite you to obtain a quote for a contractor to address your concerns, and, subject to it being a reasonable price, we will be happy to pay for your preferred solution.

1. On 21 April 2008 R&B Solutions provided the Applicant with a report on the kind of problems and a quote for rectification. The quote was composed of several parts. The first part related to the installation of down pipes on units 7, 9 and 10 with painting at a cost of $3,200 plus GST. The second part of the quote dealt with the drainage problem with unit 8 at a cost of $2,100 plus GST. The third part of the quote dealt with the absence of effective waterproofing on the balcony of unit 8 at a cost of $500 to $1,000 plus GST. The quote then contains the notation ‘$6,380’ as the apparent total.

1. On 12 May 2008 Madisons again emailed the Applicant and said:

we’re still struggling with manpower. Have you considered my offer to pay for a reasonable solution by your constructor?

1. On 14 May 2008 the strata manager replied to Madisons accepting the offer for reimbursement and enclosing the report and quote from R&B Solutions.

1. On 21 May 2008 Madisons paid to the Applicant a cheque for $6,930 being the sum sought by the Applicant and an additional sum of $550 paid by Madison.

1. On the same day the strata manager acknowledged the cheque ‘to cover the cost to rectify the vergolas and balconies at the complex’.

1. On 21 May 2008 the Applicant obtained a quote for $2,161 for painting of the affected areas.

1. On 26 May 2008 the strata manager wrote to Madisons saying that the cheque for $6,380 did not cover the cost of repair of the render to the building caused by the flooding and the repairs.

1. On 22 June 2008 the Applicant wrote to Madisons and itemised the costs incurred to date and the expected final cost of rendering. After allowing for the money already paid by Madisons the Applicant sought the further sum of $6,678.50.

1. On 7 July 2008 R&B Solutions provided the Applicant with a further report setting out what was involved in investigating the problem with the waterproofing failure on the balcony on unit 8. The estimated cost of the investigation was $1,500 to $2,000 plus GST.

1. In August 2008 R&B Solutions carried out the investigations of the balcony at unit 8 at a cost of $3311.

1. On 25 March 2009 R&B provided a report of its investigations and identified that the leaking was caused by the puncturing of the water proof membrane by the vergola support pole. The mode of repair was set out at an estimated cost of $2,000 to $3,000 plus GST.

1. On 7 July 2009 for the first time Madisons advised the Applicant that they were not the builders for the development and that further complaints should be directed to Kell and Rigby.

1. There followed a series of email correspondence over several months that led to no outcome. On 23 November 2009 the Applicant wrote to Madisons and set out the amended claim that it made divided into the cost of the investigations and the cost of the rectifications:

   ·Investigation costs stands as previous: $4,317

   ·Amended rectification costs now stand at:

   oFurther membrane treatment: $2,728

   oRender and ceiling repair: $4,510

   oRefitting exterior blinds to vergola frame: $280

   oTotal for previous investigation and proposed rectification: $11,835.

1. Over February and March 2010 the Applicant and Madisons attempted to engage the Second Respondent in the dispute. Arrangements were made for an onsite inspection by all the parties which occurred on 15 March 2010.

1. On 25 March 2010 Mr Barilaro for the Second Respondent replied denying liability.

1. On 22 June 2010 Madisons wrote to the Second Respondent insisting that the faulty work was that of the Second Respondent who should accept liability for the rectification work.

Proceedings in the Tribunal

1. On 28 July 2010 the Applicant filed the present application with the Tribunal nominating only Madisons as the Respondent. The claim sought asserted ‘water damage to building rendering and associated structures’ and claimed ‘reimbursement of fees paid for investigation and rectification’. Beyond this the claim was not particularised but was accompanied by a volume of annexures, the content of which is set out above.

1. On 30 August 2010 Madisons filed its Response. The Response denied any liability to the Applicant on the bases that:

   (a)Madisons was not the developer or builder,

   (b)it had no contract with the Applicant, and

   (c)it had no contract with the Second Respondent.

1. In its Response Madisons asserted that it was only the agent of Keffoe P/L and had only ever acted in that capacity in negotiations with the Applicant.

1. The matter was listed for conciliation on 21 September 2010 but no settlement was reached.

1. On 5 October 2010 the Applicant filed an application to join the Second Respondent.

1. On 24 November 2010 Mr Barilaro for the Second Respondent filed a Response. The Response asserted:

   (a)The Second Respondent was sub-contracted by Madisons to do the vergola work. Invoices from the Second Respondent to Madisons were annexed.

   (b)The Second Respondent had not been contacted by Madisons about the problems or given a chance to fix the problems before the work was done by R&B Solutions.

1. On 24 December 2010 the Second Respondent filed an amended Response which asserted:

   (a)The Second Respondent was contracted by Madisons to do the vergola work.

   (b)The guarantee on work was only 2 years which expired in late 2006.

   (c)The Second Respondent denied that any of the leakage problems were due to its defective work.

   (d)Madisons had not contacted the Second Respondent until December 2009 at which time the Second Respondent had been deprived of the opportunity to rectify its own work.

1. On 18 January 2011 Madisons filed and served a statement from Mr David O’Keefe, a director of Madisons, in which he deposed that:

   (a)Madisons was the project manager for the development.

   (b)Keffoe was the developer of which Mr O’Keefe was the director.

   (c)Keffoe was incorporated only for the purpose of the present development. It did not maintain a separate administration or bank accounts. Its affairs were managed by Madisons. Madisons received accounts on behalf of Keffoe and paid bills on Keffoe's behalf.

   (d)After the development was completed in 2003 Keffoe was wound up and finally deregistered in June 2007.

   (e)Kell & Rigby were the builders

   (f)When the problems with the vergolas arose in 2008 Madisons accepted responsibility on behalf of Keffoe for public image purposes but denies that this amounted to acceptance of any liability at law.

   (g)The Second Respondent was sub-contracted by Keffoe P/L and not by Madisons.

1. At the hearing on 20 January 2011 the Applicant was represented by
   Mr Wilson, Madisons was represented by Ms Mylecharane, solicitor and
   Mr Barilaro appeared for the Second Respondent.

1. No party sought to join Kell & Rigby who were not a party to the proceedings. It was common ground that the vergolas were not within the scope of work carried out by Kell & Rigby. The vergolas were a later addition by the developer, Keffoe P/L.

1. The evidence addressed separately the two kinds of problems with the vergolas, namely, the absence of drainage downpipes and the leaking balcony floors.

1. The parties agreed to the amounts to be rounded off to the nearest thousand dollars. The total investigation and rectification costs were $17,000 of which $7,000 was for the drainage and $10,000 for the leaking balconies. No party took issue with this quantification, the dispute centred on the liability issue.

1. Mr O’Keefe gave evidence for Madisons. He affirmed the content of his statement and informed the Tribunal that the involvement of Madisons had been to protect the good name of the company in the industry. He was aware that stakeholders in the industry would not be impressed by reliance on the distinction at law between Madisons and Keffoe P/L.

1. The Tribunal asked Mr O’Keefe and Ms Mylechrane why Madisons had not sought to involve the Second Respondent prior to authorising the investigations and rectification by R&B Solutions. The prejudice to the Second Respondent was pointed out. There was no satisfactory response and the Tribunal was left with the impression that Madisons thought the issue would be a minor one that was not worth escalating by involving the Second Respondent.

1. Madisons did not seek to deny the need for the rectifications. Madisons paid $7,000 for the drainage problem and did not seek any contribution from the Second Respondent for this cost. The sole issue was who should bear the $10,000 for the cost of the investigation and rectification of arising from the leaking balconies.

1. The Applicant and Madisons both accepted the content of the report from R&B Solutions which pointed to the cause of the leaking arising from punctured water proofing membrane during the installation of the vergola support poles by the Second Respondent. Dyna bolts at the base of the pole penetrated the membrane. The Second Respondent argued that if it had punctured the membrane leaking would have been expected earlier than March 2008. The Applicant responded that the years 2005-2007 were low rainfall years. The Second Respondent also sought to place the fault for the puncture on Watson’s Blinds which had installed blinds that required an attachment to the vergola support pole in question on the balcony of unit 8.

The consideration of the evidence

1. The Tribunal was satisfied that the leaking of the balcony of unit 8 was caused by the puncture of the water proofing membrane by the dyna bolts inserted by the Second Respondent. There were photos showing the puncture and the parties had attended on site and carried out testing which demonstrated the puncture.

1. There was no evidence that anything done by Watson’s Blinds had any involvement.

1. The Second Respondent contended that its 2 year warranty had expired and therefore it had no further liability in respect of the matter. The Tribunal took the parties to Part 6 Building Act 2004 which deals with residential building work. Section 88 imposes a 6 year statutory warranty for the benefit of the owner at the time of the work and for the successors in title to the owner. In the present case the owner at the time of the work was the developer, Keffoe P/L, and the Applicant is the successor in title to the Keffoe.

1. The Tribunal informed the parties that even if section 88 did not apply for any reason, the Second Respondent still had exposure in tort for 6 years.

1. On the evidence before it the Tribunal was satisfied that the leakage problem on the balcony of unit 8 was caused by defective work by the Second Respondent. The Tribunal accepted that the use of dyna bolts to penetrate the water proofing was inherently likely to cause leakage problems and was not an accepted method of carrying out the work in question.

1. On the basis of the above finding the Second Respondent was separately liable under the statutory warranty and in tort to the Applicant for the cost of rectification of the leaking problem in the sum of $10,000.

Madisons’ liability

1. To the extent that Madisons was only the agent of Keffoe in engaging the Second Respondent and for the development in general, Madisons incurred no personal liability in contract to the Applicant or to the Second Respondent.

1. To the extent that Madisons was acting in its capacity as the agent for Keffoe, it incurred no separate liability in tort to the Applicant or the Second Respondent.

1. However, Keffoe was wound up in 2004 and deregistered in 2007 before any of the present dispute commenced. Once Keffoe was deregistered, it ceased to exist as a legal entity and therefore it was not possible for Madisons to be acting as the agent for Keffoe post deregistration.

1. The Tribunal pointed out that Madisons’ decision to gratuitously accept liability for the cost of the drainage and leakage problems was its own decision but once it was communicated to the Applicant it carried legal effects.

1. The Applicant was not required to look behind the corporate veil and ascertain the nature of the relations between Madisons and the deregistered Keffoe. In fact it is not even apparent that the Applicant knew of Keffoe’s role or its deregistration. The Applicant was entitled to rely upon the acceptance of liability and advice by Madisons, even if it was expressed to be on the behalf of the deregistered Keffoe, and to thereafter authorise the agreed investigations and rectifications.

1. The Tribunal informed Ms Mylechrane as part of its ex tempore decision that Madisons were estopped from denying the existence of a contract between itself and the Applicant for the work that Madisons authorised. In authorising this work Madisons was not acting as the agent of Keffoe which no longer existed. Rather Madisons were seeking to protect its industry reputation by accepting responsibility that was not its at law for what appeared at first to be a minor matter.

1. The Tribunal informed Ms Mylechrane of the second ground for Madisons’ liability, namely, that it had committed the tort of an unjustified interference in the contractual relations between the Applicant and the Second Respondent. The Second Respondent had a statutory contractual obligation to the Applicants under section 88 Building Act 2004 to remedy the defects. It was not for Madisons to interfere with this duty by authorising the work to be carried out by R&B Solutions without the Second Respondent having any knowledge of the events.

1. By authorising R&B to do the work Madisons deprived the Second Respondent of the chance of carrying out the repairs. This caused the Second Respondent to incur the various profit costs and margins billed by R&B. Had the Second Respondent carried out the work itself then it could have saved those costs.

1. Madisons did not have to accept liability for the defective work of the Second Respondent but it chose to do so. In so doing it caused the Applicant to believe and act to its detriment upon this advice from Madisons.

Apportionment of the liability

1. Madisons had already accepted responsibility and paid $7,000 for the drainage problems. The drainage issue was not part of the Second Respondent’s work and the Second Respondent had no responsibility for this defect.

1. The primary liability for the leaking balcony is that of the Second Respondent in the sum of $10,000. The Second Respondent is entitled to a contribution from Madisons to the extent that the loss was caused to the Second Respondent by Madisons gratuitous assumption of responsibility and interference with the Second Respondent’s contractual rights.

1. Mr Barilaro estimated that the profit cost component of the work undertaken by R&B Solutions was about 50% i.e. that he could have done the work carried out by R&B for about $5000. There was no challenge to this estimate by
   Ms Mylechrane.

1. On the basis of this estimate the Tribunal apportioned liability for the outstanding $10,000 at 50% for Madisons and 50% for the Second Respondent. Orders were made according with time to pay.

………………………………..

Mr A. Anforth

PUBLICATION DETAILS

TO BE PUBLISHED

To be completed by Tribunal Staff

PART A  FILE NO:      XD 1019 of 2010

APPLICANT:                OWNERS UNITS PLAN NO. 2735
RESPONDENT:            MADISON CONSTRUCTIONS PTY LTD

COUNSEL APPEARING:       APPLICANT:          

RESPONDENT:      

SOLICITORS:  APPLICANT:          

RESPONDENT:      

OTHER:  APPLICANT:          

RESPONDENT:      

TRIBUNAL MEMBER/S:        A. ANFORTH 

DATE/S OF HEARING:  PLACE: CANBERRA

DATE/S OF DECISION:  PLACE: CANBERRA

PART B

RECOMMENDATION:

FULL REPORT ( )        CASE NOTE ( )        UNREPORTED DECISION ( )

COMMENTS: