Pattersons Insurerbuild Pty Ltd v AWS Services Vic Pty Ltd
[2021] VSC 639
•1 October 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2020 04167
| PATTERSONS INSURERBUILD PTY LTD (ACN 076 016 996) | Applicant |
| v | |
| AWS SERVICES VIC PTY LTD | Respondent |
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JUDGE: | Gorton J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 26 August 2021 |
DATE OF JUDGMENT: | 1 October 2021 |
CASE MAY BE CITED AS: | Pattersons Insurerbuild Pty Ltd v AWS Services Vic Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2021] VSC 639 |
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ADMINISTRATIVE LAW – Appeal from a decision of the Victorian Civil and Administrative Tribunal – Whether Tribunal erred in failing to award damages to the applicant – Whether Tribunal made finding of breach of contract – Whether damages ought to flow from breach – Where grate drain not great drain – Assessment of damages for breach of contract – Whether reasonable to award rectification damages – Whether respondent denied procedural fairness – Applications for extension of time and leave to appeal granted – Appeal dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr JB Waters | Ms Hacioglou of Pattersons Insurerbuild Pty Ltd |
| For the Respondent | Mr JM Shaw | G&M Lawyers |
TABLE OF CONTENTS
A. Background................................................................................................................................... 1
B. The application for an extension of time................................................................................. 2
C. The shower in St Kilda............................................................................................................... 3
D. The balcony in Frankston.......................................................................................................... 6
D.1.Pattersons’ arguments and the Tribunal’s approach...................................................... 6
D.2.The finding of no liability even having regard to Mr Gough’s evidence.................... 7
D.2.1.The factual context and the Tribunal’s reasons................................................... 7
D.2.2.The Tribunal’s finding on breach........................................................................ 11
D.2.3.The Tribunal’s finding on damage...................................................................... 12
D.3.Conclusions......................................................................................................................... 16
D.4.Mr Gough’s evidence and procedural fairness............................................................. 16
D.4.1.Mr Gough’s reports and oral evidence.............................................................. 16
D.4.2.The Practice Note................................................................................................... 20
D.4.3.Did the Tribunal provide procedural fairness?................................................ 21
Impartiality............................................................................................................ 22
Lack of Expertise.................................................................................................. 24
E. Disposition................................................................................................................................... 25
HIS HONOUR:
A. Background
This proceeding concerns a leaking balcony in Frankston and a leaking shower in St Kilda. Both were the subject of insurance claims. The balcony had a tiled surface, and a drain running along one edge. The shower was a typical shower with a tiled floor and tiled walls behind an openable glass shower screen. Pattersons Insurerbuild Pty Ltd (‘Pattersons’), the applicant, was engaged by the insurers of the properties to fix the problems with the balcony and the shower. In order to do so, it engaged AWS Services Vic Pty Ltd (‘AWS’), the respondent, among other things, to remove and replace the tiling and the waterproof membranes underneath the tiles both on the balcony and in the shower. It was a term of each contract that AWS would perform the work it was engaged to do in compliance with relevant standards and with professional skill, care and diligence. There was a specific term in the contract for the work on the balcony that AWS would install the new membrane in accordance with Australian Standard 4654.2 (‘the Standard’).
The work performed on the balcony did not stop the leak. The leak in the shower returned after a period of time. Pattersons arranged to have further repair work done on both the balcony and the shower. It then commenced a proceeding in the Victorian Civil and Administrative Tribunal (‘VCAT’ or ‘Tribunal’) against AWS in which it alleged that AWS had failed to perform its work to the standard required, and sought damages from it assessed by reference to the further amounts that it had had to spend.
In the claim against AWS relating to its work on the balcony, Pattersons called evidence from a building surveyor, Mr Gough. In the claim against AWS relating to its work on the shower, Pattersons called evidence from a leak detection expert, Mr Smith. AWS was represented by one of its directors, Mr Abreu. He also gave evidence. AWS denied that it was in breach of the contracts and contended that the leak at the balcony was due to problems with the drain along the edge of the balcony that it had not been asked to replace or repair, and that the leak in the shower had returned due to natural deterioration over time in the silicone sealing.
The Tribunal found for AWS. Pattersons has now applied pursuant to s 148 of the Victorian Civil and Administrative Tribunals Act 1998 for leave to appeal against the Tribunal’s decision. That section only allows appeals on a question of law. The appeal, if leave is granted, is to be determined with the application for leave. This proceeding was commenced out of time, and Pattersons sought an extension of time.
B. The application for an extension of time
The Tribunal made its order on 16 September 2020. The application for leave to appeal had to be filed on or before 14 October 2020.[1] It was not. Pattersons filed its application for leave to appeal on 2 November 2020, in which it acknowledged that it required an extension of time. On 6 November 2020, it filed a summons in which it sought the extension of time. The power to extend time is found in s 148(5) of the Victorian Civil and Administrative Tribunal Act 1998.[2] Pattersons have to persuade me that in all the circumstances it is in the interests of justice that I extend time.[3]
[1]Victorian Civil and Administrative Tribunal Act 1998 (Vic) s 148(2)(a); Supreme Court (Miscellaneous Civil Proceedings) Rules 2018 (Vic) r 4.04(b).
[2]Metricon Homes Pty Ltd v Softley (2016) 49 VR 746, 769 [67] (Warren CJ, Tate JA agreeing at 770 [72] and Robson AJA agreeing at 811 [293]).
[3]See, eg, Jackamarra v Krakouer (1998) 195 CLR 516, 539–43 [66] (Kirby J); Muto v Secretary to the Department of Planning and Community Development (2013) 38 VR 293, 296 [13] (Neave JA).
Pattersons relied on an affidavit sworn by its in-house legal counsel, Ms Hacioglou. Ms Hacioglou, who was not cross-examined, explained that she instructed counsel to prepare the appeal materials on 28 September 2020, which was well within time, but that counsel had overlooked the time period. She herself had been unaware of the time limit until she was informed by counsel on 25 October 2020 that he had overlooked the time limit. This all took place at a time where the COVID-19 pandemic meant that she was working from home and for reduced hours, which had created significant additional work pressures on her. AWS acknowledged that the short delay would not cause it any prejudice beyond the prejudice of having to face the application and any appeal. AWS accepted that the explanation given would have been acceptable if Ms Hacioglou were an external lawyer working for a private law firm, but contended that it was not acceptable given that she was a lawyer employed by Pattersons.
The period of time under consideration is relatively short. I am satisfied by the explanation offered. I do not consider the fact that Ms Hacioglou was an in-house legal adviser rather than an external lawyer makes much of a difference. This is not a case where Pattersons made an informed decision not to seek leave to appeal but changed its mind, or delayed for a prolonged time before making a decision to seek leave to appeal. Rather, it acted promptly, but, due to an oversight on the part of those advising it, in the unusual circumstances of persons working at home during the COVID-19 pandemic, it missed the time limitation imposed by the Act. In the absence of actual prejudice, I am satisfied in the circumstances that it is in the interests of justice to extend time for the bringing of this application, and so I will do so.
C. The shower in St Kilda
The work on the shower was only part of a large amount of work that AWS performed at a number of units at an apartment block in St Kilda. There was a term in the contract for the work in the shower that AWS would supply and install a suitable sealant. The contract required AWS to return to remedy any defects during the period of 12 months after it had finished its work.
AWS replaced the tiles between March and July 2014, and returned to rectify some caulking on 12 February 2015. The evidence revealed that by July 2017 the shower was leaking again. There was no evidence that identified when prior to July 2017 the shower began to leak. The Tribunal concluded that the leak was caused by a breakdown of the silicone under the shower screen.[4] It was apparent that AWS had installed the silicone, because it had also removed and replaced the shower screen. There was no direct evidence that the silicone had been improperly applied in or prior to March 2015. The leak-detection witness that Pattersons called, Mr Smith, explained that silicone deteriorates and comes away with use, and that for that reason it should be replaced every 12 months.
[4]Pattersons Insurerbuild Pty Ltd v AWS Services Vic Pty Ltd [2020] VCAT 799, [155] (Member Edquist) (‘Reasons’).
The Tribunal did not accept that AWS was liable to pay damages to Pattersons. Pattersons sought leave to appeal on the ground:
The Tribunal erred by finding that [AWS] was not liable for defects in silicone beyond an extended defects liability period of 12 months from February 2015.
Pattersons contended that the Tribunal found for AWS because the Tribunal wrongly considered that AWS could not be liable for problems that arose after a period of 12 months. That is, Pattersons contended that the Tribunal failed to consider that AWS could be liable in contract to pay compensation for a defect so long as a proceeding was commenced within the limitations period of six years, even if AWS could not be compelled by the contract itself to remedy the defect outside the 12-month period.
Pattersons’ submission that AWS could be liable to pay compensation for a defect so long as a proceeding was commenced within the limitation period of six years, even if AWS could not be compelled by the contract itself to remedy the defect outside the 12-month period, is correct. However, I do not accept that the Tribunal erred, as I do not accept that it reasoned to the contrary. The Tribunal was, as Pattersons acknowledged, well aware of the distinction between a contractual right to remedy a defect and a potential obligation to pay damages. The Tribunal said:
At the hearing, the effect of the expiration of Pattersons’s power under the defects liability clause to direct AWS to return to site to correct a defect was discussed. Pattersons submitted that this did not extinguish AWS’s liability for defective work under its contract. I accept this submission. AWS’s liability for breach of contract is an issue separate to AWS’s obligation to return to site to rectify defects under the defects liability mechanism. Whether AWS has contractual liability in all the circumstances is now examined.[5]
[5]Ibid [119].
The Tribunal then set out the various clauses of the contract that Pattersons contended that AWS had breached. It referred to a defective work order that Pattersons had sent to AWS, which had mistakenly attributed the leak to a problem with the shower door, but said that this mistake did not matter because ‘AWS’s liability turns on whether it had breached its contract’.[6] It then considered Mr Smith’s evidence, and concluded that the cause of the leak was the breakdown of the silicone under the shower screen, before stating:
Certainly, AWS had an obligation to perform the work in accordance with the statutory requirements, good industry practices and in compliance with relevant standards, tolerances and codes. However, it was not suggested that the mere use of silicone around the shower screen breached any of those requirements. AWS also warranted that its works, when completed, would be suitable for use and occupation. There is no evidence that the ensuite was not fit for purpose when initially occupied by reason of the use of silicone as a material. For a similar reason, it cannot be said that the works were defective because of the use of silicone. Finally, although AWS warranted that the materials supplied would be of good and merchantable quality, there is no evidence that the silicone utilised was not of this quality. For these reasons, I reject Pattersons’s assertion that the use of silicone breached any warranty contained in the Service Level Agreement.[7]
[6]Ibid [125].
[7]Ibid [158] (a minor error in expression in the final sentence has been corrected).
The Tribunal observed that if the deterioration in the silicone had occurred within 12 months then AWS could have been required under the contract to come back to rectify the deteriorated silicone. The Tribunal noted that there was no such obligation here because the 12-month period had expired before a complaint had been raised in relation to the silicone. But the Tribunal did not say that this meant that AWS was thus free from any liability to pay compensation. Indeed, the Tribunal said the opposite:
There was no contractual obligation on AWS to come back and rectify any defect after this point, even though it still retained legal liability for defects.[8]
[8]Ibid [160].
For these reasons, there is no basis to conclude that the Tribunal wrongly decided that AWS was not liable to pay damages to Pattersons because the problem with the silicone arose outside the defects period. Rather, the Tribunal was not satisfied that AWS had installed the silicone in breach of contract, and accepted that the emergence of a problem with the silicon more than 12 months after it had been installed was explicable, in accordance with Mr Smith’s evidence, as a failure on the part of the owner to maintain the shower, rather than a failure in the application of the silicone. This understanding of the reasons was confirmed by the Tribunal’s statement in its conclusion:
I have rejected the proposition that there was a breach of warranty because of the use of silicone as a material, and I have found that the failure of the silicone around the shower screen is a maintenance issue rather than a construction defect.[9]
[9]Ibid [169].
This factual conclusion, which was clearly open on the evidence, is not able to be challenged in this appeal. In my view, this ground of appeal has insufficient prospects to grant leave.
D. The balcony in Frankston
D.1. Pattersons’ arguments and the Tribunal’s approach
The Tribunal:
(a) first, decided not to place any weight on Mr Gough’s evidence, and determined that this was a sufficient reason to dismiss Pattersons’ case;[10] and
(b) second, decided further that, even if Mr Gough’s evidence were to be considered, Pattersons could not succeed because it had not established that there was a defect in the membrane placed by AWS that was a cause of the leak.[11]
[10]Ibid [52].
[11]Ibid [57].
Pattersons had two proposed grounds of appeal directed at the Tribunal’s dismissal of its claim against AWS for work done on the balcony. The first was that the Tribunal erred by ‘giving no weight to the evidence of Mr David Gough’. That formulation does not in terms identify an error of law. However, Pattersons’ submissions clarified that the ground was that the Tribunal had failed to accord it procedural fairness, and also, perhaps, that it had rejected Mr Gough’s evidence for reasons that were not reasonably open. The second proposed ground of appeal was that the Tribunal had erred in law ‘by failing to find [AWS] was liable to [Pattersons] in circumstances where it found that the work performed by [AWS] was defective in fact’. Again, this argument was clarified in submissions to be that the Tribunal had erred by assuming that AWS could not be liable for breach of contract unless the defective membrane was found to be the cause of the leak.
Because the Tribunal went on to consider whether Pattersons would succeed if regard were to be had to Mr Gough’s evidence, Pattersons cannot succeed in this appeal unless it succeeds in its second ground. It is therefore convenient to consider the second ground first.
D.2. The finding of no liability even having regard to Mr Gough’s evidence
D.2.1. The factual context and the Tribunal’s reasons
The Standard referred to by Mr Gough had a diagram (inserted below) that showed a drain with a single vertical side where it adjoined the tiled surface. The pictured drain looked like an open gutter of the type typically seen on rooves. The diagram showed the membrane curving from the horizontal and travelling 35 mm vertically down inside the drain.
The drain here under consideration was a box or grate drain; that is, it had a cover. Importantly, the side where the drain adjoined the tiled surface was not a single vertical face but had a step in it part way down. It is apparent that the cover of the drain was to lie on that step. Had the membrane been laid so that it extended 35 mm down into the drain, it would have had to descend the initial vertical face, travel across the step, and then descend further on the far side of the step. A picture of the drain is below. The step is about 15 mm from the top of the drain.
It was, ultimately, common ground that the membrane was not laid so that it extended 35 mm down into the drain. It was instead laid so that it extended to the step but no further.
Mr Abreu contended, in substance, that the drain was so different in shape from the drain shown in the Standard that the Standard was not applicable to it. He contended that the way AWS had laid the membrane was sufficient to prevent leaks and was the best way to lay it, as otherwise the membrane would be damaged when the cover was placed on the drain. It was a theme of his defence that the leak was due to the defective drain, that Pattersons had known of this but ignored it, and that the need to redo AWS’s work was due to the pre-existing defective drain, rather than anything to do with the way the membrane had been laid by AWS.
One issue that arose, then, was whether laying the membrane only to the step in the drain was a breach of contract. This would require consideration of whether or how the Standard applied. Another issue that arose was whether, if there were a breach of contract, that breach was a cause of loss, in circumstances where:
(a) there was an unrelated problem associated with the drain, for which AWS was not responsible, that was or might have been a cause of the leak;
(b) because of the leak, the drain had to be replaced; and
(c) the replacement of the drain necessarily required that the tiles and membrane be removed and replaced anyway, which was the measure of the damages that Pattersons was claiming from AWS.
In order to understand the Tribunal’s approach, it is necessary to refer to another aspect of the dispute below which is not part of the dispute in this appeal. One of the requirements of the Australian Standards was that the tiles be laid with an expansion or movement joint every 4.5 metres. It was common ground that this was not done (although movement joints were present around the outside of the tiles). There was no suggestion that the failure to include the movement joint was a cause of the leak. It also became common ground that a movement joint could be inserted without having to relay the tiles.
The relevant findings of the Tribunal included the following:[12]
[12]Footnotes have been omitted.
[56]… I accordingly have no difficulty in finding, on the balance of probabilities, that the grate drain was a cause of leaking into the residence below the balcony.
[57]For the reasons explained [that is, the rejection of Mr Gough’s evidence], Pattersons’s has adduced no acceptable evidence to establish that a defect in the membrane placed by AWS was also a cause of the leak. Accordingly, there is no basis to make a finding of liability against AWS.
[58]Far from being ‘the most likely cause of the water leakage’, as postulated by Mr Gough, the membrane may not have been a cause of the leakage at all, and was at most a contributing factor.
PATTERSONS’S ARGUMENTS BASED ON MR GOUGH’S EVIDENCE
[59]By way of completeness, I address these arguments. … [Pattersons] rely on four defects Mr Gough opined existed in AWS’s works at the Frankston property:
(a)the membrane failed to extend into the drainage channel, contrary to 4654.2 and was not installed in accordance with the … Australian Standards …
(c)no movement joints were installed; …
Movement joints
…
[67]Mr Gough did not provide an estimate of cost of replacing the inflexible grout as a standalone item, because he was of the view that the entire balcony required renewal.
[68]I refer below to the issue of the defective grate drain. Because the grate drain had to be replaced, removal and replacement of the tiles (and the underlying membrane and screed) was required in any event.
[69]For both these reasons, no damages are allowed to Pattersons because of the lack of a movement joint.
…
The turn down of the membrane
…
[81]Mr Gough in his report extracted a diagram from AS4654.2, being the Australian Standard for Waterproofing membranes for external above-ground use. This showed that the membrane should extend into the gutter by a minimum of 35 mm. Pattersons assert in their submissions that Mr Abreu conceded that the turndown was limited to about 15 mm. Pattersons accordingly contend that the membrane was defective. Moreover, the existence of the defect represented a breach of the contract …
[83]It seems likely that … the membrane did not extend into the gutter by 35 mm. Mr Abreu appears to accept that this was the case, but breach of the Building Code of Australia and AS4654.2 is denied. The denial of liability is based on the membrane going down to the lip of the gutter, and it was the gutter that was defective. AWS contends that as the ‘drain channel lip goes directly up the wall behind the sheeting, this would make it virtually impossible for the leak to be in this area’. Furthermore, AWS contends the downturn:
was to the extent of the existing drain, it could not have gone down any further without compromising the membrane. The membrane can only go down to the nearest lip which is what was done.
[84]Regrettably, Mr Gough had not considered the impact of a defect in the grate drain when he prepared his report, because no information about the defective drain was included in the documents he listed he had received or referred to in the preparation of this report. The upshot is that even if I had been prepared to place substantial weight on Mr Gough’s evidence — which I am not for the reasons discussed above — there exists a hiatus in the evidence.
Conclusion regarding the existence of a defect in the membrane.
[85]In these circumstances, I am not prepared to find that there was a defect in the membrane because it did not extent into the gutter by 35 mm. On this basis, the claim against AWS in relation to the allegedly defective membrane fails.
NO LOSS IN ANY EVENT FLOWED FROM THE ALLEGED MEMBRANE DEFECT
[86]Even if I had been prepared to conclude that there had been a defect in the membrane because it did not extend to a mandated depth into the gutter, I cannot be satisfied on the basis of the evidence presented that the defect has caused Pattersons any loss. This is because there is a fundamental question as to the cause of the leak from the balcony into the residence below.
D.2.2. The Tribunal’s finding on breach
With respect to the Tribunal, it is not clear how it reached the conclusion it expressed in para 85 of its reasons that the failure of the membrane to extend 35 mm down the side of the drain did not amount to a ‘defect’. Paragraph 83 establishes that the Tribunal had found that the membrane did not extend 35 mm into the drain. It seems unlikely, in the absence of explicit reasoning to this effect, that the Tribunal concluded that this was not a ‘defect’ because the contract did not require the membrane to extend 35 mm down the side of the drain. If this were the Tribunal’s finding, I would have expected there to be some analysis about whether or not the Standard applied to that design of drain or whether the contract only required substantial compliance with the Standard and that this deviation from the Standard was within a permissible variation.
Rather, it seems to me more likely, and I find, that the Tribunal reached this conclusion because it assumed that the membrane could only have a relevant ‘defect’ if the quality said to constitute the ‘defect’ was a cause of the leak. This is consistent with the use of the word ‘defect’ in the phrase ‘defect in the grate drain’ used in para 84. It would be a strained usage to refer to the drain’s divergence from the design in the diagram set out in the Standard as a defect, so the word ‘defect’ in para 84 must instead be a reference to that quality of the drain that led to it being responsible for the leak. Consistently with this, the phrase ‘hiatus in the evidence’, when referring to the evidence of Mr Gough, must be a reference to the fact that Mr Gough had not considered the fact that the drain had this ‘defect’ when he opined that the fact that the membrane did not go down far enough was the probable cause of the leak.
For this reason:
(a) I reject Pattersons’ argument that the Tribunal erred by failing to award it damages in circumstances where it had made a finding that AWS was in breach of contract, because I do not accept that the Tribunal did make a finding that AWS was in breach of contract; but
(b) I accept Pattersons’ argument that the Tribunal misdirected itself at the breach level. The Tribunal ought to have considered, but did not consider, whether the failure to lay the membrane 35 mm into the drain was, in the circumstances, a breach of contract (even if it were not a cause of the leak).
As noted above, AWS contended that laying the membrane beyond the step in this style of drain would lead to an inferior result and that, for this reason, it was not in breach of contract by laying the membrane only to the step rather than 35 mm down the vertical face. The implicit proposition underlying its position must have been either that the Standard should be interpreted in a way that does not make the 35 mm applicable to this style of drain, or that the contract by implication allowed for a divergence from the Australian Standards if strict compliance with the Australian Standards would lead to an inferior result.
Although this issue remained unresolved by the Tribunal, I am prepared to assume, for the purposes of determining this appeal, that, by failing to lay the membrane 35 mm into the drain, AWS was in breach of its contract.
D.2.3. The Tribunal’s finding on damage
That, however, is not the end of the matter. The Tribunal stated in para 86 that, even if there were a ‘defect in the membrane because it did not extend to a mandated depth into the gutter’, it had not caused Pattersons any loss. I take this to be the Tribunal concluding that, even if AWS had laid the membrane in breach of contract, that breach did not cause Pattersons any loss or otherwise give it a right to damages. Unless there were an error of law in this conclusion, the ultimate dismissal of Pattersons’ claim must stand.
This calls for an analysis of whether or not AWS’s laying of the membrane 15 mm rather than 35 mm into the drain, assuming that to be in breach of contract, caused Pattersons a recoverable loss. This is to be assessed in circumstances where:
(a) Pattersons were obliged, I am prepared to assume, to remedy the leak on the balcony. It was under this obligation both before and after AWS performed its work;
(b) in order to remedy the leak on the balcony, Pattersons was required to replace the drain, because the drain (rather than anything to do with the tiles or the membrane) was the source of the leak;
(c) Pattersons had retained AWS to dig up and to replace the tiles and the membrane but it had not retained AWS to replace the drain. After AWS had performed its work, the balcony was left in a situation where the membrane extended 15 mm rather than 35 mm into the drain. This was not a cause of any leak. But the balcony was still leaking because the drain had not been replaced;
(d) after AWS had performed its work, and prior to commencing the proceeding below, Pattersons retained someone else to replace the drain. This fixed the leak. In order to replace the drain, the membrane and tiles laid by AWS had to be removed and replaced; and
(e) there was no suggestion that the fact that the membrane extended 15 mm rather than 35 mm into the drain added to the cost of the work done to replace the drain. There was no suggestion that, if the membrane had been 35 mm rather than 15 mm into the drain, the tiles and membrane would not have had to have been dug up and replaced when the drain was being replaced.
Pattersons sought damages by reference to the amounts it had paid to have the tiles and membrane laid by AWS replaced when it replaced the drain.
The fundamental principle is that Pattersons is entitled to such a sum in damages as is required to place it in the same situation it would have been in if the contract had been performed.[13] It is not entitled to be placed in a better position.[14] Damages are assessed as at the time of breach, but events that would reasonably have been expected to occur after breach had the contract been performed may be taken into account in order to ascertain what is required to place Pattersons in the same position it would have been in if the contract had been performed.[15] That is how, for example, damages for lost profits have to be assessed.
[13]Robinson v Harman (1848) 1 Ex 850, 855; 154 ER 363, 365 (Parke B); Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, 285–286 [13] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).
[14]Commonwealth v Amann Aviation (1991) 174 CLR 64, 82 (Mason CJ and Dawson J), 99 (Brennan J), 136 (Toohey J), 155 (Gaudron J), 163 (McHugh J).
[15]See, eg, Johnson v Perez (1988) 166 CLR 351, 360 (Mason CJ).
In ordinary circumstances, if Pattersons had not been obliged to dig up AWS’s work in order to replace the drain in any event, Pattersons’ loss could be measured by reference to the amount necessary to re-lay the membrane so that it was 35 mm rather than 15 mm into the drain, unless the cost of doing so was such that that was not a reasonable course to adopt[16] or those damages could otherwise be seen as an uncovenanted profit secured for a technical breach.[17]
[16]Bellgrove v Eldridge (1954) 90 CLR 613, 618 (Dixon CJ, Webb and Taylor JJ); Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, 288–289 [17] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ); Metricon Homes Pty Ltd v Softley (2016) 49 VR 746, 793 [195] (Robson AJA).
[17]Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, 288 [17] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ); Metricon Homes Pty Ltd v Softley (2016) 49 VR 746, 797 [211] (Robson AJA).
However, in my view, the fundamental principle set out in para 35 above, when applied to the matters set out in para 33 above, leads instead to a conclusion that Pattersons is not entitled to any damages from AWS.[18] After AWS had performed its work, Pattersons still had a leaking balcony that required the drain to be replaced. This was not due to any failure on AWS’s part. The fact that Pattersons still had to replace the drain, with all that that involved, was, to my mind, sufficiently connected to the work under consideration to be relevant in the assessment of what damages, if any, are recoverable from AWS. In my view, it would be artificial to assess damages without having regard to that fact. In the course of performing that necessary work, the tiles and membrane laid by AWS had to be removed and re-laid, regardless of the depth to which the membrane had entered the drain. It follows that, in the particular circumstances of this case, Pattersons would not have been in a materially different position if AWS had laid the membrane 35 mm rather than 15 mm down the drain. Either way, the membrane and tiles had to be, and in fact were, removed and replaced by Pattersons at its cost shortly afterwards, and for reasons that had nothing to do with any depth of the membrane.
[18]Strictly, it may have been entitled to nominal damages in these circumstances. But this was never what it sought.
In summary, because the failure to lay the membrane 35 mm rather than 15 mm down the drain did not cause Pattersons any additional expense or require it to do any work that it would not otherwise have had to do, Pattersons is not entitled to damages from AWS. To award Pattersons damages assessed by reference to the amounts it spent replacing the tiles and membrane would put Pattersons in a better position than it would have been in had AWS complied with the contract.
Alternatively, if the correct analysis is to consider that Pattersons has suffered loss but is not able to recover damages if it would be unreasonable for it to do so, to award Pattersons the damages it sought would be the notional equivalent of requiring AWS to redo its work, only for Pattersons then to tear up that work and rebuild it again itself the moment AWS had finished. This would not be a reasonable approach. It would be akin to Pattersons taking advantage of a technical breach to obtain an uncovenanted profit.
For these reasons, I consider that the Tribunal was correct to conclude that Pattersons had no claim for damages against AWS. In my view, this was the reasoning behind the Tribunal’s conclusion expressed at para 86 of its reasons set out above that the defect did not cause Pattersons any loss. It was the same reasoning that the Tribunal had given for its conclusion that Pattersons was not entitled to any damages for the (admitted) failure by AWS to lay the tiles without a movement joint, when the Tribunal said: ‘Because the grate drain had to be replaced, removal and replacement of the tiles (and the underlying membrane and screed) was required in any event.’[19]
[19]Reasons, [68].
The result might have been different if Pattersons had been able to persuade the Tribunal that the leak came from the way the membrane had been laid. That was Pattersons’ main argument, but it lost that argument on the facts.
Finally, from a policy perspective, this is the better result. On the Tribunal’s findings, the work done by AWS was wasted because it did not fix the leak. The reason for this is that the leak was due to a faulty drain, which was something that AWS was not asked to fix. Nor was AWS asked to identify the source of the leak. The work on the tiles should have been done once, but was done twice. One party or the other had to bear the cost of the wasted work. On the findings made, the work was done twice rather than once because of a decision made by Pattersons not to have the drain fixed when the tiling was replaced the first time.
D.3. Conclusions
In light of my conclusion that there was no legal error in the Tribunal’s conclusion that Pattersons had not established its entitlement to the damages it claimed even if Mr Gough’s evidence were accepted, it is not strictly necessary for me to consider Pattersons’ argument that the Tribunal denied it procedural fairness in the way it treated Mr Gough’s evidence. However, given that the matter was fully argued, it seems appropriate that I do so.
D.4. Mr Gough’s evidence and procedural fairness
D.4.1. Mr Gough’s reports and oral evidence
Mr Gough was called as an expert witness. The circumstances in which he came to give evidence were as follows:
(a) On 3 October 2013, someone on behalf of an insurer, perhaps Pattersons itself, inspected the premises, accepted that there was water leaking into the premises from the first floor balcony, and prepared a proposed scope of works. The scope of works for the balcony included removing the tiles and mortar, removing the membrane, installing a new membrane that complied with the Standard, and replacing the tiles. The proposed scope of works did not identify the drain as being a problem or require any work to be done on the drain itself.
(b) On or about 22 January 2014, AWS agreed to perform the work as set out in the proposed scope of works referred to in para (a) above. The work was performed in or about May to July 2014.
(c) On 8 May 2015, Australian Leak Detection inspected the balcony at Pattersons’ request. It performed a ‘static test’, which the balcony failed. This was a test where water was run to the area ‘to re-create rain water’. The water was found to track to the study. The report stated that ‘the initial leak located was found to have been silicone sealed water tight’. Australian Leak Detection noted, however, that there remained a leak ‘where [the] grate [that is, the drain] meets the surrounding wall’. The report indicated that repairs had to be undertaken where the drain met the rendered wall.
(d) On 8 October 2015, Australian Leak Detection inspected the balcony for a second time (although the person who inspected and reported was different). This report noted that the balcony failed a ‘spray test’ to the drain. The report identified problems with some broken down silicone on the lip of the drain, and stated that it appeared that ‘the strip drain may have been installed incorrectly’. It also said that some flashing external to the balcony had not been sealed and was allowing water in, and that there were some hairline cracks to some skirting tiles that might also be contributing to the leak.
(e) At some stage prior to 11 March 2016, Pattersons engaged ‘Just Inspections’ to provide a report in relation to the balcony. Pattersons did not provide Just Inspections with either of the Australian Leak Detection reports prior to asking Just Inspections to prepare its report. According to its report, Just Inspections is a trading name of Buildcheck (Vic) Pty Ltd.
(f) On 11 March 2016, Mr Gough, working for Just Inspections, inspected the balcony and prepared a report for Pattersons (‘the 2016 Just Inspections report’). The report included various photos and a copy of the diagram from the Standard. The report asserted that the membrane had not been installed in accordance with the Standard where it joined the box drain, and said that this was the ‘most likely’ cause of the water leakage. The report recommended the removal of the tiles, replacement of the membrane, and replacement of the tiles. The report did not otherwise identify any problems with the drain or its installation. The report made it clear that Mr Gough had performed a visual test only and had not performed any water testing.
(g) On 24 March 2016, Pattersons sent AWS the 2016 Just Inspections report, and advised AWS that it proposed to engage a contractor to perform the work indicated and to look to AWS for the cost of so doing. In response, AWS noted that it was still owed $10,000 for the work it did.
(h) Pattersons then arranged for further work to be performed on the balcony directed at remedying the leak. That work took place in April and May 2016. It seems that further work remedying the areas in the unit that had been damaged by water took some time longer. The documentation tendered suggested that the works performed on the balcony included removing and replacing the drain. As noted above, it was common ground that this work included digging up and relaying the membrane and the tiles. Pattersons did not call any evidence from anyone who performed or supervised this work.
(i) On 28 August 2017, Pattersons sent AWS a letter of demand for the cost of the work done referred to above. AWS denied that it was responsible for the leak and refused to pay.
(j) Pattersons then commenced a proceeding at the Tribunal. It contended that AWS had breached its contract by failing to perform the work to the appropriate standard and it sought damages assessed by reference to the money it had spent.
(k) On 27 November 2019, Mr Gough prepared, at Pattersons’ request, a formal ‘Report for Presentation at VCAT’ (‘the 2019 Buildcheck report’), in which he set out in a slightly different format the same photographs, diagram and opinions that had been in the 2016 Just Inspections report. The report indicates that it was prepared by Buildcheck Engineering & Building Consultants. It made it clear that it was based entirely on the 11 March 2016 inspection and that no further investigations had been made since then. Further, it described the 2016 Just Inspections report as ‘a limited investigation’, and noted that it was ‘based on visual inspection only’.
Pattersons called Mr Gough to give evidence. He confirmed the accuracy of the matters contained in the 2019 Buildcheck report, and this report was tendered. Mr Gough was then taken to his 2016 Just Inspections report, and that too was tendered. He confirmed that he had not undertaken any further inspections since the 2016 Just Inspections report and that the 2019 Buildcheck report was based on the 2016 Just Inspections report. He expanded on the opinion contained in those reports that the membrane that had been laid under the tiles had not been turned down into the drain to the amount necessary to comply with the Standard and to the amount needed ‘to stop it possibly backflowing and causing damage’. He said that ‘generally’ he would do water testing to prove where the water was coming from, but that he had not been ‘engaged to do that aspect of the work’. He nonetheless expressed the view, based on the location of the water damage, that there was a ‘high probability’ that the leak was coming from the drain. Mr Gough then qualified this when, still in evidence-in-chief, he acknowledged that in the absence of water testing:
Because the problem is that as much as the membrane cannot be installed correctly, that doesn’t mean that it may leak … So can only really say that the membrane wasn’t installed in accordance with the standard. And that’s probably as far as it can go …
Mr Abreu cross-examined Mr Gough. He challenged Mr Gough’s opinion that the laying of the membrane did not comply with the Standard. He put to Mr Gough that the design of the drain was sufficiently different from the diagram in the Standard such that the Standard was not applicable, and that laying the membrane to the extent required by the Standard would, in light of the drain’s profile, result in damage to the membrane. Mr Gough acknowledged that the grate could ‘potentially’ damage the membrane but maintained that the Standard nonetheless applied. Mr Abreu did not, in terms, suggest to Mr Gough that he was not giving his evidence honestly or that he was biased in favour of Pattersons because Pattersons had retained him. Neither Mr Abreu nor the Tribunal raised any concern with Mr Gough arising from any failure to comply with the VCAT practice note referred to below.
Neither party took Mr Gough to the two prior Australian Leak Detection reports. The Tribunal did indicate, when ruling on an objection to a question directed at the membrane thickness, that Mr Gough’s expertise was ‘right at the heart of this’.
After the evidence had been completed, the matter was adjourned and written submissions were filed. The Tribunal then determined the matter without further oral argument.
D.4.2. The Practice Note
VCAT has a practice note that applies when a party proposes to call expert evidence. It provides that:
Parties to a proceeding must ensure that any expert retained by them to provide a report for use in the proceeding is made aware of the contents of this practice note at the time of such retainer.[20]
[20]Victorian Civil and Administrative Tribunal, Practice Note PNVCAT2: Expert Evidence, 1 October 2014, 2 [7].
It then sets out the duties that expert witnesses owe to the Tribunal, and what information is to be included in an expert witness’s report. It notes that an expert witness ‘is not an advocate for a party to a proceeding’.[21] It obliges an expert witness to identify any opinions that were ‘not fully researched for any reason’.[22] It requires the expert to sign a declaration that he or she has made all the inquiries that are ‘desirable and appropriate’ and that ‘no matters of significance’ have been withheld.[23] As might be expected, the practice note provides that the Tribunal may at its discretion vary its operation.[24]
[21]Ibid 3 [10].
[22]Ibid 3 [11(i)].
[23]Ibid 3 [11(j)].
[24]Ibid 2 [3].
It was apparent that Mr Gough had been retained in 2016 for the purpose of examining the balcony, and not for the purposes of preparing a report for a VCAT hearing. Mr Gough, in the 2019 Buildcheck report, included a statement that he had read ‘VCAT Practice Note 2’ and that he agreed ‘to be bound by the Guidelines of Expert Evidence’. The Tribunal indicated satisfaction that Mr Gough was going to be called to give oral evidence. The Tribunal explained to Mr Abreu his right to explore Mr Gough’s expertise and to contend in due course, if he wished, that he did not have the right expertise or had not made the right inquiries or performed the right tests.
D.4.3. Did the Tribunal provide procedural fairness?
The Tribunal concluded that it was ‘not prepared to place any weight on [Mr Gough’s] evidence’.[25] This was because:
[25]Reasons, [52].
(a) it concluded that he was not ‘impartial’.[26] It reached this conclusion because:
[26]Ibid [40].
(i) Mr Gough had not been sent the Australian Leak Detection reports;[27]
[27]Ibid [39].
(ii) the 2016 Just Inspections report had been obtained for the ‘partisan’ purpose of providing it to AWS to persuade it to return to site outside the defects liability period;[28] and
[28]Ibid [40].
(iii) the 2019 Buildcheck report did not satisfy the requirements of the practice note because Mr Gough had not been provided with the practice note prior to him completing the 2016 Just Inspections report;[29]
[29]Ibid [42].
(b) it concluded that he had ‘no practical experience as a tiler/waterproofer’, and that there was ‘a question as to whether he has the relevant expertise to be qualified as an expert witness in this case’;[30]
(c) despite asserting in the 2019 Buildcheck report, in accordance with the practice note, that he had made all the enquiries that he believed were desirable and appropriate and that no matters of significance had been withheld from the Tribunal, he was ‘forced to concede’ that he had not conducted a water test and had relied on a visual inspection only;[31] and
(d) in these circumstances, Mr Gough was either not an ‘expert’, or had not ‘discharged his duty as an expert’.[32]
[30]Ibid [46].
[31]Ibid [48].
[32]Ibid [50].
Although it would have been open to the Tribunal as the finder of fact to reject Mr Gough’s opinions, the Tribunal was required to accord Pattersons procedural fairness.[33] In my view, the reasons for which the Tribunal rejected Mr Gough’s opinion came, to a significant extent, ‘out of the blue’.[34] Pattersons was not able to reasonably anticipate these criticisms, and was not given sufficient opportunity to respond to them. In that sense the Tribunal’s findings, having regard to the way the matter proceeded, were procedurally unfair to Pattersons. I have formed this view for the following reasons.
Impartiality
[33]Victorian Civil and Administrative Tribunal Act 1998 (Vic) ss 97, 98(1)(a).
[34]See, eg, Barrett Burston Malting Co Pty Ltd v Kotzman [2013] VSC 248, [48] (Cavanough J).
To say that a person is not ‘impartial’ is to convey that he or she might not be expressing an opinion that is honestly held or might be expressing an opinion that is affected by conscious or unconscious bias. Mr Gough was retained by Pattersons to provide his opinion before the VCAT proceedings had been commenced. Pattersons then sent the 2016 Just Inspections report to AWS in support of its demand that AWS remedy the balcony. The fact that Mr Gough’s opinion was first obtained in this way might be consistent with him giving an impartial report in order to find favour with the person retaining him, or with him being known by Pattersons to be a person who tended to find fault with contractors in circumstances when others might not. But it is, equally, consistent with Mr Gough being a fair-minded and impartial expert who was retained by Pattersons so that it could obtain a fair-minded and reliable opinion.
AWS put to Mr Gough that the shape of the drain differed from the diagram in the Standard and that laying the membrane to the level required if the Standard applied could cause problems, and Mr Gough agreed with this. However, AWS did not suggest in the course of the hearing that Mr Gough’s opinions were not honestly held, or that he was biased. Neither did the Tribunal. Accordingly there was no reason for Pattersons to anticipate, and seek to respond to, any such suggestion. For the Tribunal to reject Mr Gough’s evidence on the grounds of partiality was in this way procedurally unfair.
I see no problem with Mr Gough not being provided with the two Australian Leak Detection reports before he was asked to prepare the 2016 Just Inspections report. A party might well want to obtain an expert’s opinion free of any influence from other experts. I do share the Tribunal’s discomfort that Mr Gough was not asked to comment on the two Australian Leak Detection reports in the 2019 Buildcheck report. The failure to refer to those reports could justify the rejection of his evidence on the basis that he did not have regard to all relevant material. However, there was no evidence that Mr Gough was made aware of the existence of those reports prior to preparing the 2019 Buildcheck report. As such, the failure to refer to the two Australian Leak Detection reports in the 2019 Buildcheck report is no reason to anticipate that Mr Gough’s evidence would be rejected on the basis that he was not impartial.
I have not ignored the fact that Mr Gough did not undertake a water test when he prepared the 2016 Just Inspections report. The Tribunal was entitled to assume that a proper examination would have included a water test, and it would have been entitled not to accept Mr Gough’s opinion that the way the membrane was attached was the probable cause of the leak for that reason. But when Mr Gough prepared the 2016 Just Inspections report, he was not preparing a report for VCAT but was simply preparing a report for a client. Importantly, that report, as did the 2019 Buildcheck report, made it clear that no such test had been performed. Indeed, the 2019 Buildcheck report had a page at the start that stated:
Limitations
Inspection of the property in 2016 was limited to the balcony surface, drainage channel, area of tile removal and the internal space within the dwelling.
All opinions are based on visual inspection only.
No water testing was undertaken by Buildcheck to verify the opinions made.
For these reasons, the fact that Mr Gough had failed to do a water test was, in the circumstances of this case, no reason for which Pattersons ought to have anticipated that Mr Gough’s evidence would be rejected on the basis that he was not impartial.
The Tribunal commented that Mr Gough was ‘forced to concede’ that he had not completed a water test.[35] This was surprising language in light of the wording of the 2019 Buildcheck report set out above, and the fact that Mr Gough volunteered in evidence-in-chief:
However, with waterproofing failures, generally we would, you know, like to do water testing and actually prove where the water is coming from, generally you know, using a coloured dye. … [W]e were never engaged to do that aspect of the work.
[35]Reasons, [48].
But in my view nothing comes from that, other than that Mr Gough’s frankness tends against the Tribunal’s conclusion that he was not impartial.
Lack of Expertise
Mr Gough was a qualified building surveyor. He stated in his report:
Over the past 17 years I have developed the knowledge and expertise to deal with building defects and the preparation of specifications for the rectification thereof.
Mr Gough was permitted to give opinion evidence without objection. His expertise was not challenged by AWS. The Tribunal made one brief reference to Mr Gough’s expertise in the context of his evidence about the appropriate thickness of a membrane, but there was no suggestion made to him that he did not have the expertise to interpret and apply the Standard, or to identify building defects and how they might be remedied. AWS did not ask the Tribunal to reject Mr Gough’s evidence on the basis that he lacked expertise. For these reasons, I also consider that to reject Mr Gough’s evidence on this basis was procedurally unfair to Pattersons.
In the circumstances, it is not necessary to consider whether or not there was any legal error in the Tribunal rejecting Mr Gough’s evidence on the basis that he had not complied with the practice note.
E. Disposition
I have concluded that the Tribunal failed to accord Pattersons procedural fairness when it concluded that it would not place any weight on Mr Gough’s evidence. I have concluded that the Tribunal, when it considered the situation that would apply in the event that it were to have regard to Mr Gough’s evidence, erred in law by failing to consider whether AWS had breached its contract by failing to install the membrane deeply enough into the drain, even if that failure was not a cause of the leak. But I have concluded that there was no error in the Tribunal’s conclusion that, even if AWS were in breach of the contract, it was not liable to pay damages to Pattersons.
In these circumstances, I will:
(a) grant Pattersons an extension of time to commence this application for leave to appeal;
(b) grant Pattersons leave to appeal; but
(c) dismiss the appeal.
I will hear the parties on the question of costs and on the form of order.
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