The Owners - Strata Plan 83572 v Jackson Teece Chesterman Willis Pty Ltd

[2019] NSWSC 942

Supreme Court

New South Wales

Medium Neutral Citation:	The Owners – Strata Plan 83572 v Jackson Teece Chesterman Willis Pty Ltd [2019] NSWSC 942
Hearing dates:	15 – 17 July 2019
Decision date:	25 July 2019
Jurisdiction:	Equity - Technology and Construction List
Before:	Stevenson J
Decision:	Proceedings dismissed with costs
Catchwords:	BUILDING AND CONSTRUCTION – residential building work – statutory warranties – remedial work to leaking façade – scope of work to be undertaken by the remedial builder – whether work done without due care and skill – whether any loss shown to have resulted from builder’s work
Legislation Cited:	Home Building Act 1989 (NSW)
Category:	Principal judgment
Parties:	The Owners – Strata Plan 83572 (Plaintiff) Jackson Teece Chesterman Willis Pty Ltd (First Defendant) Michael Fitzgerald Consulting Engineers Pty Ltd (Second Defendant) Momentum Mortgages Limited (Receivers and Managers appointed) (Third Defendant) Mark Paul Neumann (Fourth Defendant) Naomi Ann Neumann (Fifth Defendant)
Representation:	Counsel: T Bland (Plaintiff) G Carolan (Fourth and Fifth Defendants)   Solicitors: Everingham Solomons Solicitors (Plaintiff) Nexus Lawyers Pty Ltd (Fourth and Fifth Defendants)
File Number(s):	SC 2016/299125

Judgment

1. The plaintiff is the Owners Corporation in respect of a development in Hunter Street, Newcastle known as “Bellevue on Bellevue”.

2. The development comprises a commercial suite and three two-bedroom residential units in the former Bellevue Hotel and an adjacent seven storey residential apartment building containing 28 two-bedroom residential units.

3. The development site is located immediately adjacent to the Hunter River, within 1km of the Newcastle oceanfront.

4. Construction of the development commenced in June 2007. The builders were Bay Building Investments Pty Ltd and, later, Merewether Technologies Pty Ltd. Neither is involved in these proceedings.

5. By October 2008, the façade to the seven storey building had been constructed using a James Hardie product comprised of compressed fibre cement sheeting known as “ExoTec” façade panels.

6. The Owners Corporation was created on registration of the strata plan on 19 April 2010.

7. By the time the strata plan was registered, construction was almost complete but leaking was occurring through the façade of the building on all levels.

8. A final occupation certificate was issued on 19 October 2010.

9. The only remaining defendants are Mr Mark and Mrs Naomi Neumann; the fourth and fifth defendants.

10. The Owners Corporation has settled with the first and second defendants, Jackson Teece Chesterman Willis Pty Ltd and Michael Fitzgerald Consulting Engineers Pty Ltd. The third defendant, Momentum Mortgages Limited (Receivers and Managers appointed), has been deregistered.

11. In August 2010, Mr and Mrs Neumann operated a partnership trading as “Mark Neumann Building” and were engaged by the then project manager of the development, Cyre Group Ltd, to carry out remedial works in respect of the façade.

12. As only Mr Neumann was involved in the day to day work on the site, I shall, without any intending any disrespect to Mrs Neumann, refer simply to him.

13. Mr Neumann performed the rectification work in January and February 2011. That work was residential building work for the purposes of the Home Building Act 1989 (NSW).

14. Although the Owners Corporation’s claim against Mr Neumann once ranged much wider, the question now is whether the Owners Corporation has established that the remedial work done by Mr Neumann in relation to the façade was in breach of the warranty implied by s 18B of the Home Building Act that the work would be done with due care and skill.

Decision

15. The Owners Corporation has not established that the work done by Mr Neumann was done without due care and skill.

16. Nor has the Owners Corporation established that it has suffered any loss as a result of the work Mr Neumann did.

17. In any event, Mr Neumann has a defence to the Owners Corporation’s claim under s 18F of the Home Building Act.

18. The proceedings must be dismissed with costs.

A troubled development

19. On 8 November 2004 the Development Application was lodged with Newcastle City Council on behalf of the then owner and developer of the property, Task Developments Pty Ltd.

20. By the time application was made for a Construction Certificate, on 30 April 2007, the applicant developer was Task Developments 2 Pty Ltd (“Task 2”).

21. Task 2 borrowed funds from Momentum which took a mortgage over the property. On 13 October 2008 receivers and managers (“the Receivers”) were appointed to Momentum.

22. On 14 February 2009 the Receivers caused Momentum to take possession of the property.

23. By the Receivers, Momentum appointed Cyre Group as its project manager with effect from 1 September 2009.

24. On 11 September 2009, Cyre Group appointed Jackson Teece as architects to the project.

The leaking façade

25. It is common ground that water is penetrating the building through the ExoTec façade.

26. Mr Neumann’s building expert, Mr Peter Ellis has opined that “[w]ater penetration to the building is due to defects in the original installation of the cladding system”.

27. The Owners Corporation’s building expert, Mr John Worthington has opined:

“Leaking is occurring through the façade on all elevations as evidenced by water stains to the plasterboard that would indicate that it is endemic with the cause of the leaking [being] either a fault in the product/s used, a fault in the method of installation or a combination of both factors”.

28. As the correspondence between Cyre Group, Jackson Teece and Mr Neumann in November and December 2010 reveals, the consensus of opinion was that the most significant shortcoming in the installation of the façade was the failure of the builder to install head flashing in the windows. Such flashing, if properly installed, would have caused water permeating through the façade to be repelled from the face of the building to the outside. It appears that if the water ingress problem at this development is to be resolved, the façade will have to be removed to enable head flashing to be installed. The likely cost of that exercise is in excess of $1.1 million.

29. Mr Neumann was not involved in the installation of the façade. It had been in place some two years before his engagement by Cyre Group and had been leaking for some time prior to that engagement.

30. James Hardie specified that the ExoTec panels were to be installed with a 10mm nominal expressed joint between adjacent panels, that “[i]n coastal areas located within 1km of the shoreline…all horizontal and vertical expressed joints must be filled with a suitable sealant” and that moisture should be managed in the installation in the following way:

“2.5 MOISTURE MANAGEMENT

The ExoTec facade panel and fixing system acts as a weather shield. To achieve a particular level of weathertightness, the designer must determine the appropriate moisture management detailing for the project. The designer should consider the following matters when making that determination:

●   It is the responsibility of the builders and designers to identify moisture related risks associated with any particular building design. It is the responsibility of the builder to ensure appropriate moisture management is provided during framed wall construction through effective use of flashings, sealants and vapour permeable membranes such as vapour permeable sarking, building wraps, vapour retarders and damp proof course. …

…

●   For high walls it may be necessary to provide flashing to drain the facade at one or more intermediate levels.”

31. James Hardie also specified that “normal maintenance requirements” included “annual checks and maintenance for the exposed sealant”.

The engagement of Mr Neumann

32. On 12 August 2010 Mr Neumann met with Mr Peter Donn from Jackson Teece.

33. Mr Donn gave Mr Neumann two sets of “Architectural Defects Inspection Reports” which set out, for each unit and common area, defects requiring rectification. Mr Donn sought a quotation from Mr Neumann to carry out the work referred to in those reports.

34. Later that day, Mr Neumann wrote to Mr Marlon Zunac from Cyre Group, care of Momentum:

“Thank you for the opportunity to forward our offer to rectify defects and complete unfinished items at the Bellevue apartments as set out in the email from Peter Donn dated 12th August 2010”.

35. Mr Neumann set out a schedule of rates for labour charges. Mr Neumann agreed he was “taking on this work on pretty much a do-and-charge basis”.

36. Although Mr Neumann’s letter spoke of offering to “rectify defects and complete unfinished items”, the subsequent course of dealings between him, Mr Zunac and Mr Donn reveals that Mr Neumann’s obligations were not at large. Rather, they were subject to supervision by Cyre Group and Jackson Teece and to the approval and direction by Cyre Group. Cyre Group was, in turn, acting under the instructions of the Receivers. Evidently, the Receivers were funding the completion of the development.

37. The following day, 13 August 2010, Mr Zunac instructed Jackson Teece to inform Mr Neumann that “our clients” (the Receivers) had agreed to retain Mr Neumann “for outstanding works to Bellevue Hotel”. Mr Jason Elsley from Jackson Teece wrote to Mr Neumann stating that “we are pleased to advise that our clients have accepted your Letter of Offer”.

38. Thereafter, Cyre Group engaged Mr Neumann’s services in an ad hoc fashion. For example, in late September 2010, Mr Zunac instructed Mr Donn to instruct Mr Neumann to carry out work in respect of door hardware and various sanitary compartments.

39. The Owners Corporation no longer makes any complaint about such matters. All complaints hitherto made, otherwise than in respect of the work Mr Neumann did in relation the façade in January and February 2011, have been abandoned.

Sealing the expressed joints on the façade

40. The first mention in email correspondence of the possibility that work might be done sealing the expressed joints on the façade was contained in an email that Mr Zunac sent Mr Neumann on 1 November 2010 as follows:

“Further to our discussions last week, please find attached rectification register detailing the items requires for repair by unit purchasers.

Of note, we are looking to address immediately Unit 7.01 which has had water entering through what appears to be the facade and the dining room window. I have attached a floor plan detailing its location.

Concurrently, we are waiting for a response regarding final payments, so there may be an option to negotiate the return of some trades to attend to 7.01 (which may involve some facade work and sealing of express[ed] joints).

Could you please provide a proposal for the rectification services. I would look to discuss with yourself to appropriates of some of the cosmetic item [sic] (i.e. plastering and painting) however would like to fix those critical in nature (i.e. water entering the building).”

41. Mr Zunac referred to Unit 7.01. That unit was on the top floor of the seven storey building. It was, by then, occupied and suffering water ingress. Evidently, Mr Zunac was “waiting for a response regarding final payments”, presumably from the Receiver. Thus Mr Zunac referred to the possibility that “some trades” might return to do work in Unit 7.01 “which may involve some facade work and sealing of express[ed] joints”.

42. Mr Zunac invited Mr Neumann to put forward a proposal for those “rectification services”.

43. On 5 November 2010, Mr Zunac wrote to Mr Donn:

“Please be advised that we have engaged Mark Neumann to commence remedial / rectification works to Hunter Street Newcastle. Unit 7.01 has been identified as a priority, as water is entering through the living room wall and window and is currently occupied.

Mark has removed the plasterboard wall lining and has identified that water is being soaked through the curved masonry wall, which is being transferred to the internal lining.

The window does not have a header flashing and water is entering through as a result.”

44. This is the first reference in the correspondence to the absence of head flashing in the windows and the relationship between that and the water ingress. Mr Neumann had removed the wall lining within Unit 7.01 and had discovered that the reason for water ingress in that unit was the absence of head flashing.

45. Mr Zunac asked Jackson Teece to visit the site and provide recommendations and said that upon review of those recommendations he would give instructions as to the “best course of action”. This email shows that Mr Zunac, on behalf of Cyre Group, was in charge of the process and was the person who would determine what work was to be done.

46. Later on 5 November 2010, and as requested by Mr Zunac, Mr Donn met Mr Neumann at Unit 7.01. Mr Donn wrote to Mr Zunac, with a copy to Mr Neumann:

“We have met [Mr Neumann] on site to discuss and inspect the moisture penetration issues effecting Apartment 701.

See attached images and refer to below.

Dining Room Window

1.   Water is dripping through upper left hand side (when looking at window from inside)

2.   A portion of the top plate has been removed for inspection

3.   Header flashing does not appear to have been installed

4.   Side flashing on left hand-side visible

5.   Immediate remedial works – apply sealant to affected area

6.   Long-term remedial works (after dry out) installed [sic: install] header flashing and apply sealant to ends where it abuts side flashing

…

8.   Water could also [be] coming in from poorly constructed parapet cladding. …”.

47. In this email, Mr Donn confirmed that no head flashing had been installed in the window in Unit 7.01. Mr Donn stated that the “immediate remedial works” would be to “apply sealant” to the “affected area” from inside the unit.

48. Item 6 dealt with long-term remedial works, after the internal area had dried out, and involved installation of head flashing. Mr Neumann gave this evidence in cross-examination in relation to those matters:

“Q. And (5) "Immediate remedial works, apply sealant to the affected area."?

A. Yes.

Q. So, that was, basically, from inside the building to apply sealant

A. Yeah.

Q. -- to --

A. To buy to fix

Q. -- prevent --

A. -- it from the inside, yeah.

Q. And, sixth, "The long term remedial work after dry out, install header

flashings and apply sealant to ends where it abuts side flashings."?

A. Yes.

Q. Now, there was no scaffold in place at this stage, was there?

A. No.

Q. The scaffold had long gone?

A. Yes. Hang on. No, we hadn't - we hadn't scaffold at that point. Scaffolding - the scaffolding came after that point.

Q. The scaffolding came down after that point?

A. This work that you're talking about here on that 701 was before the stage it went up.

Q. Was there scaffold in place on the building or not?

A. No, no scaffold.”

49. On 22 November 2010 Mr Donn and Mr Neumann inspected the roof of the building. In his affidavit Mr Neumann said that:

“During this inspection, I noticed that there many joints and openings in the facade that were not sealed and offered the potential for water entry”.

50. On 23 November 2010 at 7:50am Mr Neumann reported to Mr Zunac:

“I organised a meeting yesterday with a building maintenance climbing team and we found that there are loads of areas that from the top looking down the sides you can see joints that are not tight to the cladding which may let wind and water to penetrate the exterior, now they can seal the building from the outside and will get back to us with a quote soon and availability to do the work”.

51. In cross-examination Mr Neumann said that what he observed was that:

“…the sheeting that they've screwed to the metal channel was obviously buckled and warped and not tight. It wasn't pulled in tight.”

52. Mr Neumann continued:

“Q. Was it buckled and warped because it had been exposed to weather?

A. We don't know. Maybe poor workmanship, maybe not a straight facade so that product - ExoTec doesn't bend real well so - it's very straight so if the substrate maybe is not straight it will - won't pull in tight and those gaskets don't seal. When you looked down from the top you could see the sort of cladding going in and out, in and out, which tells you you wonder whether it's actually getting a seal with the gasket.

Q. Again for us lay people, the gasket gets applied for what purpose?

A. To stop the water getting in.

Q. Does the gasket get applied to the front of the sheet or the back of the sheet?

A. Back of the sheet.

Q. And it's applied like a tape or is it applied as a physical hard barrier?

A. There's two parts of the gasket. There's a gasket - they have a channel like that and it's got two little rebates. There's a little piece of metal with two rubber gaskets either side and that snaps into that one, then the cladding goes over the top and it pulls in tight to that rubber and seals it like that so there's no physical - you don't need to put any silicon or sealant on it at all if it's done correctly, but if that piece of steel that they've put on or the wall of the building is wonky the sheet still goes on straight but there could be areas where that gasket is not pulling up tight to it. Like a head gasket on a car, if it's warped it won't pull up tight.”

53. Mr Neumann’s reference to the “building maintenance climbing team” was a reference to an abseiling contractor, Ottra Pty Ltd trading as Off the Top Rope Access. A representative of that organisation was also present at the rooftop meeting on 22 November 2010.

54. In his email, Mr Neumann said “now they [the abseiling team] can seal the building from the outside and will get back to us with a quote soon”. I do not read this as a statement by Mr Neumann that he was giving any warranty that the work of the abseiling team would in fact “seal the building”. Rather, I think a fair reading of Mr Neumann’s email is that he was stating no more than that it was possible that an abseiling team such as Ottra could carry out the application of a sealant to the building.

55. Later on 23 November 2010 at 1:29pm, Mr Zunac wrote to Mr Neumann referring to “our conversation today” and to Mr Neumann’s 23 November 2010 email and requesting him to “please proceed with obtaining the quotation [from Ottra] for sealing the facade express[ed] joints”. Mr Zunac concluded: “Once this has been received, we will forward [it to the Receivers] for approval and respond accordingly”.

56. Later on 23 November 2010 at 4:14pm, Mr Donn wrote to Mr Zunac, with a copy to Mr Neumann:

“Col Broadbent [an employee of Mr Neumann] dropped into our office this afternoon to lodge his timesheet…

He also reiterated the suggested scope of work to ‘waterproof’ the façade (as alluded to earlier today by Mark Neumann in his email).

If we can offer our advice at this juncture…

------ our understanding of what is proposed is the result of an absence of header flashing above window openings (the quantity of which is unknown).

The ‘waterproofing’ proposed involves applying sealant to the recessed joints onto and around the effected areas.

We are concerned that such an application will breakdown over a relatively short period of time.

Alternatively, one could argue that it makes more sense to remove the localised fibre cement panels above the affected window openings and install the header flashing that should have been installed in the first place (see attached extract from James Hardie literature).

Note - the extract indicates a wall section that is not on the Bellevue but the principle is the same.

We would recommend that a James Hardie Representative be contacted to investigate this matter further prior to any solution being adopted and would be happy to arrange this co-ordination with Mark Neumann Building.

[Mark [Neumann] - hope you don’t mind us providing some input on this - keen to get your thoughts]”.

57. Mr Bland who appeared for the plaintiff, placed some reliance on Mr Donn’s statement that Mr Broadbent, who was an employee of Mr Neumann, had “reiterated the suggested scope of work to ‘waterproof’ the façade”.

57. However Mr Donn’s association of that statement with Mr Neumann’s email sent earlier that day (set out at [50] above) makes clear to me that Mr Broadbent did no more than repeat Mr Neumann’s suggestion that an abseiling contractor could, if required by Cyre Group, apply sealant to the building “from the outside”.

58. In cross-examination Mr Neumann said that he did not know and could not say who suggested the use of a sealant. Mr Bland asked “could it have been you?” to which Mr Neumann replied:

“Possibly, but I’m not saying it was me. Marlon [Zunac] was also on the phone during that period as well”.

60. As I have said, at [40] above, Mr Zunac’s email of 1 November 2010 suggests he first raised the possibility of sealing the expressed joints in the façade on the exterior of the building.

61. In any event, the more important aspect of this email is Mr Donn’s statement that he was “concerned that such an application will breakdown over a relatively short period of time”.

62. His parenthetical note to Mr Neumann (“hope you don’t mind us providing some input on this”) shows that Mr Donn saw himself as providing advice to Mr Zunac that overrode any suggestion Mr Neumann might make.

63. Later on 23 November 2010 at 4:34pm, Mr Zunac replied to Mr Donn’s email by stating:

“We would be happy to conduct further investigative work to provide a more permanent solution than the current one proposed.

Please liaise with [Mr Neumann] and James Hardie representative to investigate and exhaust alternate options”.

64. Mr Zunac’s reference to “a more permanent solution” was clearly a reference to Mr Donn’s statement that “it makes more sense” to remove the fibre cement panels and install head flashing (above at [56]).

65. Mr Zunac’s email prompted Mr Donn to contact James Hardie. This occurred later on 23 November 2010 at 5:10pm.

66. According to an internal James Hardie note, Mr Donn explained that the Bellevue apartments “header flashings [were] not installed” and that Mr Neumann, the “new contractor on site”, “wants to pump [Sikaflex] into all express[ed] joints as a remedy”.

67. That may have recorded the James Hardie’s representative’s understanding of Mr Neumann’s position. But the correspondence above shows that it was an overstatement to say that Mr Neumann “wanted” to adopt this course. It was simply one that he had exposed as a possible option.

68. Also on 23 November 2010 at 7:34pm, Ottra wrote to Mr Neumann:

“Thank you for considering Ottra Pty Ltd for the sealing of all horizontal and vertical joints at The Bellevue Apartment on Hunter Street Newcastle.

…

…the building will require all the joints to be sealed as a preventative measure as our visual inspection showed no signs of water proofing regarding the joints.”

69. Ottra proposed a scope of works including to “[s]eal with Bostic or similar product all joints as directed by [Mr Neumann]” with Mr Neumann “to supply all sealants”.

70. The next morning, on 24 November 2010 at 7:46am, Mr Neumann forwarded Ottra’s quotation to Mr Zunac concluding:

“Here is the quote from Alex at Ottra and it’s a [sic] estimate only based on rates per hr, he thinks he can get it done before Christmas but it’s a few weeks off, so I’ve said could he do one day to do above the leaking windows so we can get the plaster fixed and painted for Christmas and he can get here for a day shortly after this Friday possibly.

…

PS Its still your call if you want this remedial external patching done this way as its still best to replace the sheets with the correct head flashings as instructed in [James Hardie’s] manual”.

71. In his postscript to this email, Mr Neumann was giving Mr Zunac the clearest possible warning that Mr Neumann regarded application of sealant to the expressed joints on the façade as being no more than “remedial external patching” and that the best course was to remove the façade and install “the correct head flashings”.

72. As Mr Donn was shortly to discover, James Hardie was adamant that window flashing was necessary to ensure that its ExoTec panelling was appropriately water resistant.

73. Contrary to Mr Bland’s submissions, I do not see anything in Mr Neumann’s opening sentence that somehow dilutes the force of Mr Neumann’s warning. All Mr Neumann was saying in the first sentence was that he had suggested to the representative of Ottra that he should try to find one day before Christmas to conduct the “remedial external patching” above the location on the building where windows were actually leaking.

74. Section 18F of the Home Building Act, relevantly, provides:

18F Defences

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

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

75. I regard Mr Neumann’s postscript to his 24 November 2010 email as being clear advice to Mr Zunac that the proposed “remedial external patching” was not the “best” means by which to deal with the problem of water ingress.

76. Later on 24 November 2010 at 9:43am, Mr Zunac responded to Mr Neumann’s email set out at [70] above, with a copy to Mr Donn, by stating:

“In accordance with the advice received from Peter Donn, I will wait for the response from the Hardie representative as to the best option available to treat the facade.”

77. On 1 December 2010 Mr Donn reported to Mr Zunac that he had spoken to a technical representative from James Hardie, Mr Luke Woods, and that he had pressed Mr Woods “on what his advice would be”. Mr Donn continued:

“His response was just that – recommending that the header flashing would need to be installed – which means removing significant portions of the exterior cladding and installing the flashings in accordance with their installation manual.

In terms of rectification work and cost – this would no doubt mean that the building would need to be re-scaffolded (which should be confirmed with Mark Neumann).

I’m sorry that this advice is not what we were hoping for.”

78. Thus Mr Donn told Mr Zunac that James Hardie’s position was the same as that which Mr Neumann had recommended; namely, that the façade should be removed and head flashings installed.

79. On 6 December 2010 Mr Hamzat Matar, a Technical Support Officer from James Hardie, wrote to Mr Donn repeating the matters I have set out concerning James Hardie’s specifications and recording that:

“The head flashing detail is an integral part of the window flashing requirements.

…

All window flashing details as outlined in our installation instruction (as attached) are recommendations outlined by James Hardie to provide the best protection for moisture ingress.

These details outlined above and as stated in our installation instructions are warranted recommendations of James Hardie. If these detail[s] are not conformed to the designer would be responsible for moisture management detail for the intended project.”

80. On 8 December 2010 Mr Donn forwarded to Mr Zunac Mr Matar’s advice under covering letter. In that letter Mr Donn stated:

“On review, their advice is un-wavering and in our opinion their attendance on site to inspect the façade somewhat pointless as their stance is so definite. We also talked with Mark Neumann about the poor quality of jointing at the expressed joints. As we can only assume that they were not installed according to Hardie’s manual’s details, we would assume that James Hardie would only make the same response.

To dismantle and replace the façade, this time with correct flashings, would involve complete re-scaffolding at considerable cost. With that in mind, the cheaper alternative option is to apply sealant to every expressed joint on the façade, using a swinging cradle.

Although not ideal and not in compliance with James Hardie’s installation details it is a low-cost option to apply some level of weather protection to the façade. The method proposed relies heavily on the consistent application of the sealant within the recessed joints and the quality of the sealant used.

Mark Neumann has investigated two sealant options for us to date (data sheets are attached for both products):

●   POWER-PRO600 by Powers Fasteners, and

●   SIKAFLEX-PRO, by Sika Australia

In both cases the manufacturer appears to be resistant to provide a warranty statement attached to their product (both our office and Mark Neumann have investigated - but will continue to probe). Instead, the manufacturer advises that its effectiveness is dependent on the quality of workmanship during installation.

To bring this matter to conclusion, Mark Neumann favours SIKAFLEX-PRO (based on advice received from NHS Plasterboard – who are a local wall linings supplier). SIKAFLEX-PRO is also available in several colours (11 in total) and the ‘Dark Grey’ sample appears to be similar to actual finished paint system on the façade. Therefore, no additional paint over the sealant would be required. Mark [Neumann] intends to apply the sealant to a sample area of the façade adjacent to Stair 6 and review its performance on application and resistance to moisture.

We trust the above course of action is satisfactory and await your review and instruction. We request that you directly instruct Mark Neumann Building.”

81. This letter is vital background to an understanding of the work that Mr Neumann did. In this email, Mr Donn advised Mr Zunac, in the clearest possible terms, that the preferable course was to remove the façade and install head flashings. Mr Donn made clear that the alternative, to apply sealant to the expressed joints of the façade was “not ideal” and would only result in “some level of weather protection to the façade”.

82. Mr Zunac must have read this advice in light of Mr Donn’s statement on 23 November 2010 that the sealant to be applied to the expressed joints may well “breakdown over a relatively short period of time”.

83. Mr Donn also emphasised that the manufacturers of the two sealants proposed by Mr Neumann, including the Sikaflex that was ultimately used, were “resistant to provide a warranty statement”. In effect, Mr Donn was recommending “the cheaper alternative option”, presumably because he was aware of a disinclination on the part of the Receiver to expend more funds than was absolutely necessary to get the building complete.

84. Thus, in his letter, Mr Donn said that to “bring this matter to conclusion”, Mr Neumann would use the Sikaflex product to apply sealant to a sample area and review its performance. Mr Donn then sought Mr Zunac’s “review and instruction”.

85. Mr Neumann carried out the application of the Sikaflex sealant to a sample area. In his affidavit Mr Neumann said:

“This involved cleaning a joint, gunning in the Sikaflex and ensuring the joint was filled by packing and finishing it with a ‘pop-stick’.

The test panel was then hosed, with another person on the inside of the building checking for leaking.”

86. On 8 December 2010, Mr Zunac, who had evidently by now heard of the results of Mr Neumann’s testing of Sikaflex using a sample, wrote to Mr Neumann:

“With reference to the attached quotation for sealing the facade express[ed] joints, I would like to progress this further and obtain a lump sum quotation for these works.

1.   Is it possible to determine the duration this application would take given that a sample application has now been completed.

2.   Would it be quicker and cheaper to use an elevated working platform to complete these works.

3.   What would be the anticipated cost for the supply of the [Sikaflex] material.

I look forward to your response shortly.”

87. This email bespeaks Mr Zunac’s desire to achieve a “quicker and cheaper” solution to the problem of removal of the façade and installation of flashing.

88. Later, on 10 December 2010, Mr Neumann replied to Mr Zunac’s 8 December 2010 email estimating that “the time for labour and supervision will be 3.25 weeks” and that the likely cost to apply the Sikaflex sealant would be in the order of $41,000. Mr Neumann concluded his email by stating that the “Sikaflex has held well in the test panel and the colour is a good match”.

89. By 17 December 2010 Mr Zunac had evidently decided to adopt what Mr Donn had described in his letter of 8 December 2010 as being the “cheaper alternative option” to “apply sealant to every expressed joint on the façade” (see [80] above).

90. Thus, one of the Receivers, Mr Mark O’Reilly, reported to Mr Paul Bollen, a director of Momentum:

“As discussed, recurring water leakages have caused substantial water damage in several apartments over a number of occasions (usually during severe storm events).

Accordingly, Cyre have conducted extensive investigative works in order to determine the source of the water entering the building.

Cyre, in conjunction with Mark Neumann (construction contractor) and Peter Donn (architect), have recently determined the cause of the water leakages to be the defective construction of the facade. In some areas of the facade, it has been identified that panelling is lifting from the back beading, which is allowing water to enter into the cavity (and then flow through to the individual apartments).

Crye have researched the full range of potential rectification methods and have proposed the application of a water proof sealant to all adjoining areas between the facade panels. Cyre have obtained a quotation from the relevant contractors to complete this work (including hiring the required abseiling equipment and contractors) at circa $43,000 (including GST).

Cyre are confident that this will prevent the occurrence of any further water damage and given the nature of the defective works and the potential for further substantial damage (that Momentum as developer would be required to rectify), we consider this to be the appropriate course of action.

Due to the contractor closing for the Christmas period, we have tentatively scheduled these works to be completed at the beginning of the new year.”

91. Mr O’Reilly reported that Cyre Group had “researched the full range of potential rectification methods” and proposed that the solution was the “application of water proof sealant to all adjoining areas between the facade panels” and that Cyre Group were “confident that this will prevent the occurrence of any further water damage”.

92. Mr O’Reilly did not mention the reservations that had been expressed by both Mr Neumann and Mr Donn to the proposal that Cyre Group was recommending, nor the advice of James Hardie; presumably because Mr Zunac had not told him.

93. There the matter rested until the New Year.

94. On 18 January 2011 Mr Bollen replied to Mr O’Reilly’s email of 17 December 2010:

“As discussed the repairs are required as a claim for defects exists if nothing is done.

We discussed the warranty for the repairs which we appreciate is not a warranty for rectification of the works but for the work done by the repairers.

It is possible the problem could reappear but the problem needs to be addressed.

We agree with the quote and are happy for the works to commence.”

95. Mr Bollen’s reference to the possibility that “the problem could reappear” bespeaks a recognition by him that Cyre Group’s proposal may well result in no more than a temporary solution to water ingress problem.

96. Mr O’Reilly forwarded Mr Bollen’s email of 18 January 2011 to Mr Zunac and said:

“Accordingly, we are happy for the works to proceed immediately. However, please first advise how you/Jackson Teese [sic] propose to monitor Mark Neumann and the other relevant contractors to ensure the application of the water proof sealant is at an appropriate level of workmanship.”

97. Mr Zunac then wrote to Mr Neumann:

“Please be advised that I have received confirmation to proceed with the facade remedial works immediately.

However prior to commencing, could you please advise on the monitoring and documenting process to be executed to ensure the workmanship is completed to the highest level.

Once this has been received, I will send through a final acceptance email for the proposed works.”

98. Mr Neumann replied on 19 January 2011:

“The monitoring and documenting process will take the form of a report which will be provided to you at the end of the project. Contained in this report will be:

Daily photos

Written description of the work completed each day

Daily weather and temperature record

All this information will be recorded by our Site foreman Colin Broadbent and then the formal report will be produced.”

99. In his affidavit Mr Neumann gave the following account of the work done:

“Remedial works on the façade commenced on or around 25 January 2011.

I instructed the crew performing this work to do so as follows:

a.   Clean the express[ed] joint of salt and debris with a rag;

b.   Use masking table around the edges to prevent residue remaining;

c.   Gun Sikaflex into the joint and pack it with a ‘pop-stick’; and

d.   Gun further sealant into the joint if necessary to ensure it was filled and smooth.

…

The work was completed on or around 15 February 2011.”

Did Mr Neumann warrant that the work he did would render the building “waterproof”?

100. In final submissions Mr Bland said:

“It’s the Owners Corporation position that, as a result of the defective workmanship by Mr [Neumann], the facade is not performing, because his engagement was to give a facade that was, in fact, going to be water-resistant.”

101. Implicit in that submission is the proposition that Mr Neumann agreed, warranted or represented that the result of his application of sealant to the expressed joints was that the façade would be water resistant.

102. I do not accept that submission.

103. Mr Neumann’s “engagement” was to do the work as Cyre Group instructed.

104. The only warranty he gave was that imposed by s 18B of the Home Building Act: that is, his work will be done with due care and skill.

105. By the postscript to his 24 November 2010 email (see [70]), Mr Neumann, in terms, disavowed representing that his work was anything beyond “remedial external patching”. He warned that this was not the best way to solve the water ingress problem.

106. These matters were understood by Cyre Group. Jackson Teece had made clear that they were concerned that application of sealant to the expressed joints may “break down over a relatively short period of time” (see [56] above) and that application of sealant to the expressed joints “not ideal” and no more than a “low-cost option to apply some level of weather protection to the facade” (see [80] above).

107. Nonetheless, Cyre Group instructed Mr Neumann to proceed this way.

Did Mr Neumann perform the work with due care and skill?

108. The Owners Corporation’s coatings expert, Dr Stuart Bayliss, inspected some of the ExoTec panels on 15 October 2016, almost six years after Mr Neumann had applied sealant to the expressed joints.

109. In cross-examination Dr Bayliss said that he expected that the Sikaflex sealant would, as a general rule, have an effective lifespan of 15 years “plus or minus 5 years”.

110. Dr Bayliss agreed that in a location near the ocean, with natural deterioration expected in such a position, the likely effective lifespan of Sikaflex was at the lower end of that range.

111. Dr Bayliss said in one of his reports:

“Installation of sealant to the joints by abseil access is a difficult process. Cleaning of salts and other contaminants from the joints may not have been adequate and the presence of poorly adherent paint would be difficult to detect. As a result, there are numerous locations, at the time of my inspection, where the sealant is separating from the edges of the ExoTec panels.”

112. Dr Bayliss included in his report six photographs which appear to show some cracking in the sealant, as well as separation of the sealant from the adjacent panel.

113. Dr Bayliss also pointed to “several issues” in the methodology adopted by Mr Neumann which, he said, “would contribute to sealant failure”.

114. However, there was no evidence from Dr Bayliss, or any other witness, that the relatively few examples of sealant separation has played any role in the penetration of water to the building.

112. There has been no maintenance of the façade since the sealant was applied in January and February 2011, despite James Hardie’s recommendation that there be “annual checks and maintenance for the exposed sealant” (see [31] above).

113. Ms Carola Wright, one of the lot owners, gave this evidence about maintenance of the façade:

“Q. Since 2015 can you tell his Honour how often the expressed joints on the external facade of the building are inspected and/or maintained by way of

reapplication of Sikaflex or sealant or any other process?

A. To date they have not been replaced. The experts that we employed for this have been advising that they are faulty so why would we maintain.

Q. The answer to the question is you've done nothing to maintain them?

A. No.”

117. I am not able to conclude from this evidence that Mr Neumann did not perform the work with due care and skill.

118. Further, there is no evidence that any shortcoming in Mr Neumann’s work has made any difference to the manner in which water is penetrating the building. There could be a number of reasons, including lack of maintenance, why the sealant has separated from the adjacent panels in the few places the subject of Dr Bayliss’s evidence.

Did Cyre Group instruct Mr Neumann to do work contrary to Mr Neumann’s written advice?

119. In any event, for the reasons I have set out above, Mr Neumann has a defence under s 18F of the Home Building Act as Cyre Group instructed Mr Neumann to carry out the work in a manner contrary to the advice Mr Neumann gave in the postscript to his 24 November 2010 email.

Assuming Mr Neumann performed the work without due care and skill, what damage has the Owners Corporation thereby suffered?

120. There is a further problem, and that is that there is no evidence of what damage, if any, the Owners Corporation has suffered as a result of any want of due care and diligence in Mr Neumann’s application of the sealant to the expressed joints.

121. In final submissions, I asked Mr Bland to direct me to any such evidence.

122. Mr Bland’s response was:

“I can’t take you to that evidence because the experts didn’t turn their mind to that”.

123. I gave Mr Bland an opportunity, following close of oral submissions, to direct my attention to any evidence which would enable me to come to any conclusion about this matter.

124. He was not able to do so. Mr Bland’s note, sent the day following final submissions, did no more than refer to extracts from the Owners Corporation’s records of payments made to various contractors for work done in relation to water ingress. Those records cast no light on the relevant question.

Conclusion

125. It is for those reasons the proceedings should be dismissed with costs.

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Decision last updated: 25 July 2019