The Owners - Strata Plan 94800 v Aushome Construction Pty Ltd

[2025] NSWDC 143

District Court

New South Wales

Medium Neutral Citation:

The Owners – Strata Plan 94800 v Aushome Construction Pty Ltd & Anor [2025] NSWDC 143

Hearing dates:

25 February 2025, 14–16 April 2025

Date of orders:

28 April 2025

Decision date:

28 April 2025

Jurisdiction:

Civil

Before:

Abadee DCJ

Decision:

See paragraph [178].

Catchwords:

BUILDING AND CONSTRUCTION – building works on a large residential apartment building – Owners of strata plan, as successors in title, rely upon entitlements to sue on statutory warranties against the builder and developer – Home Building Act 1989 (NSW), ss 18B, 18C, 18D – determination of whether defects were ‘major’ defects – Home Building Act 1989 (NSW), s 18E(4)

BUILDING AND CONSTRUCTION – whether District Court empowered to make a ‘work order’ where the alternative claim for relief, a money claim, exceeds the monetary jurisdiction of the New South Wales Civil and Administrative Tribunal – Home Building Act1989 (NSW), ss 48A, 48K, 48L, 48MA, 48O

CIVIL PROCEDURE – exercise of power to make directions for parties to take specified steps and the time for such steps to be completed by – directions for further reports on issues concerning rectification costs

Legislation Cited:

Civil and Administrative Tribunal Act 2013 (NSW)

Civil Procedure Act 2005 (NSW), ss 56 57, 58, 60, 61(2), 143

Design and Building Practitioners Act2020 (NSW)

Evidence Act 1995 (NSW), s 79

Home Building Act 1989 (NSW) ss 3C, 18B, 18C, 18D, 48A, 48K, 48L, 48MA, 48O

Interpretation Act 1987 (NSW), s 33

Uniform Civil Procedure Rules 2005 (NSW), r 7.2

Cases Cited:

Bellgrove v Eldridge (1954) 90 CLR 613

Blatch v Archer (1774) 98 ER 969

CessnockCity Council v 123 259 932 Pty Ltd [2024] HCA 17; (2024) 418 ALR 304

Commonwealth v Verwayen (1990) 170 CLR 394

Ippolito v Cesco [2020] NSWSC 561

Stevenson v Ashton [2019] NSWSC 1689

Texts Cited:

Nil.

Category:

Principal judgment

Parties:

The Owners – Strata Plan No 94800 (Plaintiff)
Aushome Construction Pty Ltd (ACN 114 033 055) (First Defendant)
South Summit Group Pty Ltd (ACN 166 478 431) (Second Defendant)

Representation:

Counsel:
M Gunning (Plaintiff)

Solicitors:
Madison Marcus (Plaintiff)
First Defendant (P Rao, Director of the First Defendant, in person)
Second Defendant (W Zhang, Director of the Second Defendant, in person)

File Number(s):

2023/00363237

Publication restriction:

Nil.

Reasons for judgment

Background

1. On 24 March 2015, the first defendant (‘Aushome’) entered into a contract with the second defendant (‘South Summit’) for the latter to provide the former with construction works on a large residential apartment building in Aird Street, Parramatta (the ‘Property’).

2. On 17 February 2017, an interim occupation certificate was issued. Consequently, pursuant to s 3C(2)(a) of the Home Building Act 1989 (NSW) (the ‘HB Act’), completion of the works was deemed to be completed.

3. At all times up to 21 February 2017, South Summit was the registered proprietor of the Property. Through its ownership of at least four units, it is treated as a ‘developer’. On that date, the plaintiff, the Owners of Strata Plan 94800 (‘the Owners’ Corporation’) was registered. The common property in the strata plan became vested in the Owners’ Corporation. Also, by reason of ss 18C and 18D of the HB Act, the Owners’ Corporation was treated as successor in title to South Summit and therefore entitled to the benefit of the same warranties in s 18B of the HB Act. As a developer, South Summit was taken to have done the residential building work which Aushome had performed on its behalf.

4. The defendants did not dispute this analysis.

5. On 3 February 2023, not long before the expiry of the limitation period, the Owners’ Corporation commenced a proceeding against Aushome and South Summit in the New South Wales Civil and Administrative Tribunal (‘the NCAT’). By the proceeding, the Owners’ Corporation claimed damages arising from what it contends were breaches resulting in major defects in the construction works.

6. On 7 November 2023, the proceeding was transferred to this Court. A statement of claim was filed on 20 March 2024. A (joint) defence was filed on 11 April 2024.

7. The hearing of the proceeding commenced before me for hearing on 26 February 2025. By consent, the hearing was adjourned to 14 April 2025; primarily to enable the building experts for two of the parties to engage in a conclave which had not occurred prior to the date when the proceeding commenced.

8. Aushome and South Summit were represented by directors. The directors of both companies, respectively, prepared affidavits [1] deposing to their authority to continue the defence of the proceedings on behalf of the companies.

   1. Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), r 7.2

Scope of rectification works

9. Although the Owners’ Corporation identified as one issue the scope of rectification works in their pre-hearing schedule of issues (Exhibit A, tab 3), ultimately, they were correct to (generally) say that if I accepted their contention that a particular item was a major defect, the defendants did not contest the suggested scope of rectification for that item proposed by the Owners’ building expert, Mr Hodsdon.

10. Mr Hodsdon’s description of the rectification works, as summarised in the Plaintiff’s Updated Scott Schedule (Exhibit D, fourth column) is incorporated by reference.

11. An exception is for the items 4.3 and 31.1, which items are dealt with at greater length elsewhere in these reasons.

12. Subject to that exception, in the circumstances, the appropriate scope of works for the items in respect to which I have determined that there were ‘major defects’ is as Mr Hodsdon proposes.

The issues

13. Ultimately the real issues for adjudication were:

1. whether there is or are any ‘major defect(s)’ (“Issue 1”);

2. whether the appropriate relief is a ‘work order’ or an order for damages (“Issue 2”); and

3. quantification of the costs for rectification works (“Issue 3”).

Issue 1

The procedural chronology

14. Between 7 April 2022 and 13 April 2022, Mr Bruce Hodsdon and Mr Jarrod Chater of RHM Consultants Pty Ltd, inspected the property and observed defects in the common property. Mr Hodsdon conducted another inspection in September 2022 and on 26 October 2022 he authored his first report.

15. Mr Hodsdon prepared a supplementary report for the purposes of further substantiating defects identified in his earlier report as well as identifying new ones; and also to classify the defects as ‘major’ or ‘minor’. His supplementary report was dated 7 June 2024.

16. Mr Hodsdon is an engineering consultant with 19 years of professional experience. He has a Bachelor of Engineering Degree from the University of Wollongong.

17. On 24 October 2024, Mr George Dahrie, of the firm Noviion Engineering authored a report on behalf of South Summit, which responded to both of Mr Hodsdon’s reports. Mr Dahrie lists his qualifications as including a Bachelor of Engineering (Civil/Structural) and Bachelor of Engineering (Environmental) and asserts that he has had over 10 years’ experience in the building construction industry, with particular (initial) working experience in residential construction.

18. On 29 November 2024, Mr Hodsdon prepared a report in reply.

19. In April 2025, after the hearing of the proceeding had been adjourned from 26 February 2025, Mr Hodsdon and Mr Dahrie participated in an on-site conclave. The effect of this was to substantially narrow the differences as between the experts as to the nature and number of ‘major defects’.

20. Subsequent to the joint report that followed the conclave (Exhibit A, tab 11), the parties prepared Scott Schedules (the defendants’ version being a joint one).

21. In what now follows, I will identify the agreed major defects. Thereafter I will address the scope of the parties’ dispute on whether there are major defects. That will involve analysis of the differences in opinion between RHM (Mr Hodsdon) (for the Owners’ Corporation) and Noviion (Mr Dahrie) (for both defendants) before those disputes are adjudicated.

Agreed major defects

22. The agreed defects identified in the joint report, an opinion (where expressed) of whether or not they are ‘major’ and a concise summary of the defect(s) are as below. The term items is a reference to what appears in the Scott Schedule

23. First, there are those which concern a failure to provide a balcony and terrace overflows, constituted by items 2.3, 3.2, 4.1, 8.1, 20.1, 27.1, 33.3, 36.2 and 41.3.

24. Secondly, there are those concerning corrosion in the bathroom in unit 4 and water penetration adjacent to the bathroom in unit 31, constituted by items 4.3 and 31.1.

25. Thirdly, by item 17.1 there was water penetration from the soffit of the balcony at unit 17.

26. Fourthly, there was vertical cracking to the balustrade of the northern balcony, constituted by items 36.1 and 41.2.

27. Fifthly, there was water penetration on level 1 and level 12 foyers, constituted by items C1.2 and C1.13.

28. Sixthly, there was a fire stairwell defect, referred to in C2.1.

29. Seventhly, there was exposed and corroded steel reinforcement on the rooftop, referred to in C4.1.

30. Eighthly, there was leaching or cracking of the basement carpark, referred to in C5.1.

Abandoned claims of major defects

31. As I indicated in the course of oral argument with him, Mr Gunning accepted that to the extent to which, if at all, individual items (or those that had been disputed) were not referred to in his closing submissions (MFI 5), the Court would treat those items as being abandoned. These are items 7.1, 11.1, 13.1 14.1, 26.1, 31.1 and 40.1.

Disputed major defects

The defendants’ general submissions

Mr Rao’s submissions

32. Mr Rao submitted further that the Owners’ Corporation had delayed bringing its claim until a point about half a month away from the expiry of the ‘major defect’ limitation period. I understood Mr Rao to say that since then, the proceeding had been dragged out in a way that was unfairly adverse to the defendants, as new defects had been identified.

33. I reject these submissions. The Owners’ Corporation brought its claim for damages resulting from a breach of warranty resulting in a major defect within the limitation period. [2] It is irrelevant how long it delayed in bringing its suit, so long as it brought it within that period. The defendants had no basis for complaining that they were prejudiced because of the time they took to investigate a prospective claim so long as it was instituted before the expiry of that period. What matters is the quality of the evidence that was adduced (by the Owners’ Corporation) and not adduced (by the individual directors for the two defendants) in light of the relative or comparative capacity or power of the party to adduce evidence and the other party to contradict. [3] The Owners’ Corporation did not ‘drag out’ the proceeding. It is a commonplace in building cases for them to be lengthy, even for new facts (such as defects) to emerge which suggest a need for further inquiry, and potentially further evidence, before the stage is reached for a final hearing.

    2. HB Act, s 18E(1)(b).

    3. Blatch v Archer (1774) 98 ER 969 at 970; applied recently in Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17; (2024) 418 ALR 304 at [129].

34. Separately, Mr Rao challenged Mr Hodsdon’s qualifications. Mr Rao cited a lack of basic knowledge of building regulations, such as the requirements of the Building Code of Australia (BCA) and Australian Standards (AS); an inability to ‘describe’ the meaning of a ‘major element’ or ‘major defect’; confusion in the concepts of weatherproof and waterproof and a lack of qualification to suggest a construction method.

35. These particular attacks upon Mr Hodsdon’s qualifications are rejected. An initial difficulty is that if there were force in them, it would ordinarily be expected that Mr Hodsdon’s reports would have been challenged as being inadmissible. [4] A related initial difficulty is that, if (as occurred) they became admitted, it would have been expected that Mr Hodsdon would have been confronted with them at some point, either before or during the hearing, to meet the challenge fairly presented to him. Part of the difficulties arises from the defendants being represented by directors not familiar with the laws of evidence or acquainted with orthodox (and fair) civil procedures.

    4. Evidence Act 1995 (NSW), s 79.

36. Be that as it may, no suggestion was ever made by Mr Dahrie, who was in a position to assess his counterpart’s qualifications (or lack thereof), that Mr Hodsdon was not qualified. Mr Hodsdon was transparent about his qualifications. They are evident, for example, at pp 5–6 (paragraphs 1.2.1–1.2.3) of his first report (Exhibit A, tab 6).

37. Further, each of the points made by Mr Rao about deficiencies in Mr Hodsdon’s knowledge base were baseless. He did supply the Court with cogent explanations as to the BCA and AS requirements and concepts. He did describe what he meant by ‘major element’ and ‘major defect’ which to my mind was closer to the mark than Mr Dahrie. The other points raised by Mr Rao were simply bare assertions reflecting a difference in opinion that he, Mr Rao (who did not give evidence himself and whose qualifications were themselves not made transparent, or susceptible to scrutiny), had with Mr Hodsdon.

Mr Zhang’s submissions

38. In this challenge to Mr Hodsdon, Mr Rao was effectively joined by Mr Zhang. In his written and oral submissions, Mr Zhang had noted differences of view between the building experts on certain identified items and implicitly invited the Court to prefer Mr Dahrie’s opinion over that of Mr Hodsdon where that occurred. When the Court inquired why it should form this general preference in the course of verbal argument, Mr Zhang provided several explanations: that Mr Hodsdon had been involved ‘from the beginning’ (relative to Mr Dahrie), which meant that he had an opportunity to obtain information more quickly, but in certain instances he did not obtain such information; that Mr Hodsdon had lesser experience; that Mr Hodsdon changed his mind more than Mr Dahrie.

39. I reject each of these submissions by Mr Zhang made in oral argument. As to Mr Hodsdon’s suggested ‘greater involvement’ this, in my view, was an advantage for Mr Hodsdon who, in particular, had the opportunity to inspect throughout 2022 closer to the time when such things as water ingress was likely to be observed. As to the point about his supposedly superior access to information, as I was reminded by Mr Gunning, the Owners’ Corporation’s Counsel, the drawings (Exhibit B), which had strong evidentiary effect in relation to some disputed items, appeared to have come into Mr Dahrie’s possession (from Mr Zhang or someone from the second defendant) before they were seen by Mr Hodsdon. At any rate, in the lengthy build-up to this proceeding, in respect of which both defendants were legally represented for much of the time, it was open for them to invoke coercive court processes to obtain documents apparently relevant to the issues. As to the extent of experience, Mr Hodsdon had 19 years of experience whereas Mr Dahrie appeared to have just over 10 years, so this submission had little merit.

General assessment of the experts

40. Both experts were, in my view, adequately qualified. Mr Hodsdon had the advantage of inspection of the property closer in time to the events than Mr Dahrie. I also formed the view, exemplified by the discussion of the causes for water ingress, that Mr Dahrie reached his conclusions without considering whether there was adequate basis for them. I refer, specifically, to his attribution of water ingress to the proximity of downpipes. I appreciate that no expert likes to be informed that their opinion might lack a proper basis. But I formed the impression that Mr Dahrie was defensive and at some points argumentative when deficiencies in his views were exposed. Further, I considered that he appeared to develop views in the course of the conclave which were additional to those which had been identified in his earlier reports. An example of this was Mr Dahrie’s point about deficiencies in painting not amounting to a defect but treated only as a ‘maintenance’ concern. I was not convinced that this could simply be explained away by a circumstance that he had been supplied new evidence; particularly in the light of his omission to identify what that new evidence was. I considered that Mr Hodsdon was consistent in his views and the reasons for them. Generally, where there was conflict, I am inclined to prefer Mr Hodsdon’s views.

“Major defect” and “major element”

41. Section 18E(4) of the HB Act defines a ‘major defect’ as follows:

(a) a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause—

(i) the inability to inhabit or use the building (or part of the building) for its intended purpose, or

(ii) the destruction of the building or any part of the building, or

(iii) a threat of collapse of the building or any part of the building, or

(b) a defect of a kind that is prescribed by the regulations as a major defect, or

(c) the use of a building product (within the meaning of the Building Products (Safety) Act 2017) in contravention of that Act.

42. The expression ‘major element’ is also defined under the statute (in a way that resembled Mr Dahrie’s understanding) to mean:

(a) an internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams), or

(b) a fire safety system, or

(c) waterproofing, or

(d) any other element that is prescribed by the regulations as a major element of a building.

43. The Owners’ Corporation drew my attention to and extracted in its written outline of submissions certain propositions enunciated by Harrison AsJ in Stevenson v Ashton [2019] NSWSC 1689 concerning the expression ‘major defect’ in s 18E(4). These were:

1. A claimant must establish that a defect is “likely to” cause any of the consequences in s 18E(4)(a)(i)–(iv). It is unnecessary to prove that a defect has already caused one or more of those matters (at [51]);

2. It is unnecessary for the claimant to demonstrate any degree of imminence to damage (at [76]);

3. When considering expert evidence adduced to establish a major defect (relevantly, in that decision, waterproofing), it is unnecessary to prove the manifestation of consequences (in s 18E(4)(a)(i)–(iv)). It is enough to establish the consequences that the defect is likely to cause (at [87]).

44. During the course of the concurrent evidence, the experts expressed their views about weatherproofing and waterproofing which helped explain their differences on individual items. Mr Rao, in particular, raised with the experts the requirements of BCA FP 1.4 and AS 4654.

45. Mr Hodsdon acknowledged that the expression ‘waterproofing’ was not defined in the BCA. He understood ‘weatherproofing’ to reflect resistance that was not dependent upon a singular element (such as a coating system). Mr Hodsdon said that the AS 4654 was broken into two parts: the waterproof membrane and the installation of the membrane, the latter being used solely for external waterproofing, such as roofs and balconies. Under the AS 4654, the waterproofing was primarily horizontal. (Mr Dahrie agreed with this last aspect.) Mr Hodsdon believed that the same damage was envisaged in FP 1.4 as in AS 4654. But Mr Dahrie considered that there was a clear difference in the BCA between the expressions weatherproofing and waterproofing. He argued that in a balcony and rooftop there could be compliance if waterproofing was applied. But the same standard could not apply to an external wall.

44. Mr Hodsdon had assumed that there was a single-skin coating system that had been applied. Mr Hodsdon said he had not been provided with a copy of the coating system. Mr Dahrie believed that there were indications that both a single-skin coating system and ‘Hebel’ application were present. Mr Dahrie explained that although there were many instances of cracking, in some of those areas, there was no evidence of water ingress.

45. Another point of difference between the experts was that Mr Dahrie considered that the façade belongs to the external walls (load-bearing or non-bearing). Mr Hodsdon disagreed. Thus Mr Dahrie believed that coating was not part of a major element: it was part of the façade. Mr Hodsdon countered that there were elements to the external façade that were not load-bearing, but the façade still provided a waterproofing function. Any failure with it would generate a major defect.

46. I will now go on to consider the items where there is a continuing dispute about major defects. For that purpose I adopt the classification of the type of defect indicated by the plaintiff.

Internal water penetration

49. During the course of the concurrent evidence from the building experts, further agreement was reached about some items. These items all featured water ingress. That development came about after the experts had a supplementary short conclave to discuss stormwater drainage diagrams (Exhibit B).

Items 2.1, 2.2, 6.1 and 17.2

50. Eventually, it appeared to me that it was agreed, but if I am wrong in that, at any rate I find, that items 2.1, 2.2, 6.1, and 17.2 were additional major defects. I agree with Counsel for the plaintiff that this must follow logically from Mr Dahrie’s evidence in his earlier report that it was the location of the downpipes in the areas of water ingress that singularly explained the water penetration. It also follows from Mr Dahrie’s position of not contesting Mr Hodsdon’s scope of works in relation to items 2.1 and 2.2, which reinforced the latter’s opinion that the items presented a ‘waterproofing’ issue (a ‘major element’ for the purposes of s 18E(4)) and was likely to cause several consequences such as health and amenity concerns.

Item 3.1

51. This item concerned water ingress in the living room in unit 3.

52. This dispute also fell away as the experts accepted that (unlike other items), the presence of a drainpipe explained water ingress.

53. This is not a major defect.

Item 14.2

54. This item concerned water ingress for bedroom 1 for unit 14.

55. In his report, Mr Hodsdon discerned evidence of water penetration in the form of high moisture meter readings to the base of the western wall adjacent to the north-western corner and instructions from the occupants that the area had previously been damp.

56. Upon inspection, Mr Dahrie did not discern signs of active water ingress. But if there was, Mr Dahrie initially thought, this was attributed to the location of a stormwater stack in the area as its likely source. Mr Dahrie eventually conceded that, contrary to his earlier view, a stormwater stack was not located in the area of the ingress. But unlike some other items, this did not alter his conclusion. He considered that the water ingress was positioned in the junction between a window and wall. That had not been referred to in Mr Dahrie’s written report.

57. I preferred Mr Hodsdon’s view over Mr Dahrie’s view in respect to this item since the latter did not identify any other cause of the ingress and the former had directly discerned water penetration. I agree further with the Owners’ Corporation’s submission that it is not a sufficient answer to say that a window was not part of the waterproofing if, as I find, the problem of water ingress through the window was likely to result in health and amenity concerns within the unit.

58. This was a major defect.

Item 28.1

59. This item concerned water penetration into the living room for unit 28.

60. Mr Hodsdon reasoned that even if there had not been any penetration though the façade, this would still constitute a major defect. However, Mr Hodsdon accepted that he had nothing to go by beyond the instruction he received from the occupant about this defect. It had not been evident at the time of his initial inspection in 2022.

61. Mr Dahrie’s position about this item was distinctive in comparison to other items in respect to which it became apparent that there was no drainwater pipe in proximity which might help explain water ingress. In respect to this item, he agreed that he erred when he had asserted that there was a stormwater stack. However, for this item, he perceived that there was no moisture ingress; even if he agreed he had no other explanation for water ingress.

62. I am not persuaded that this was a major defect.

Items 29.1

63. For this item, the experts agreed that the likely cause of ingress was a nearby downpipe.

64. This is not major defect.

Item 40.1

65. This item concerned water ingress and staining to the joints in the wall lining the eastern wall to the enclosed balcony for unit 40. Mr Dahrie accepted that there was large cracking and delamination of the wall with high moisture readings along the wall. He also agreed that the external coatings of the building displayed signs of wear and tear. He further agreed that the water penetration likely occurred through the cracked external wall, although Mr Dahrie was uncertain as to the source of the ingress.

66. As I have indicated, I did not find Mr Dahrie’s evidence, attributing the problem to painting (a matter he had not earlier raised about item 40.1 in his individual report) to be convincing. Mr Hodsdon provided a plausible explanation about the painting and Mr Rao did not give evidence about the painting that he did when he had the opportunity to do so.

67. I allow this item as a major defect as well.

Cracking of the external coating system

Items 39.1

68. Item 39.1 concerned the northern balcony on unit 39, on level 11 of the building. It is directly below until 41 (on level 12). The experts found vertical cracking to the rendered balustrade on the northern balcony, where it interfaced with the façade. It was measured as approximately 5mm in width. They further agreed that the external coating displayed signs of wear and tear, associated with the age of the building.

69. The curiosity was that in the result, the experts appeared to distinguish between the items, despite the clear similarities in the problem.

70. Mr Hodsdon said that the problem was that water was allowed to get into the space and there was no capacity for it to drain. Assuming, as he did, that the external coating was the primary waterproofing for the building, the cracking may affect the integrity of the waterproofing provisions.

71. Mr Dahrie thought that the cracking should be repaired, but did not require repainting of the entire balustrade. Localised repair was appropriate. A painting issue was not a major element. He considered that the balcony balustrade was not above an habitable area and the cracking could be treated with a sealant. In cross-examination, Mr Dahrie was challenged about the omission of some of these views from his primary report; but Mr Dahrie said that these particular views were only expressed in relation to new matters referred to by Mr Hodsdon subsequent to the latter’s primary report. As was also pointed out by the Owners’ Corporation in its submissions, Mr Dahrie had indicated in his report that further water testing for the eastern façade was warranted. The extent of the cracking indicated that Mr Dahrie’s view that the inadequacy in the level of painting was not a major element was beside the point when what was left was a manifest failing in waterproofing; which clearly is a major element.

72. Given the extent of the cracking already apparent, and the risk of compromised waterproofing, I consider that the defects associated with items 39.1 and 41.2 are major defects.

Item 33.1, 33.2 and 34.1

73. These items also asserted concerning minor cracking and deterioration in the render in the exterior of the building. The experts similarly agreed that the external coatings of the building displayed signs of wear and tear, consistent with the age of the building.

74. Mr Hodsdon assumed that the exterior coating of the building formed the primary waterproofing of the building in the area. That being so, he considered that cracking affected the integrity of the waterproofing, a major element. He recalled that he first noticed cracking in April 2022.

75. For these items, Mr Hodsdon accepted that there was no reference in his 2022 report to water ingress in relation to these items. But he reiterated that external coating was the primary means of waterproofing. The existence of cracking allows water to penetrate other elements. He maintained that it was this risk that rendered the item as a major defect.

76. Mr Dahrie did not consider that the paint coating was a major element. He did not equate external coating to waterproofing as Mr Hodsdon had done. It was a maintenance item.

77. But for the view I formed about items 39.1 and 41.2, I would have found force in Mr Dahrie’s view. It is significant that towards the end of 2024, well over seven years after practical completion, the extent of the cracking was under 2mm and therefore within the Guide to Standards and Tolerances. But as indicated the standard for identifying a major defect is not one of immediate, or obvious manifestation of damage. The standard is in the realm of ‘likely consequences’. Mr Hodsdon raised, as a hypothesis, the failure of waterproofing due to the construction of a single-skin wall system that did not provide for internal drainage. The extent of the cracking in relation to items 39.1 and 41.2 lent a plausibility to that hypothesis.

78. I similarly find that items 33.1, 33.2 and 34.1 indicate major defects.

Items C3.1, C 3.4–3.6

79. These item concerned defects in cracking on external facades and surrounds, and particularly the northern elevation (C3.1), eastern elevation (C3.4) and western elevation (C3.5 and C3.6). The experts agreed that the external coatings displayed wear and tear, which was associated with the age of the building.

80. Mr Hodsdon adhered to his view, expressed in relation to earlier items, about the significance of painting. To reiterate, his view assumed that the external coating was the primary waterproofing for the building.

81. Mr Dahrie was challenged about the suggestion in his earlier report (duplicated for C3.4) that there should be water testing before rectification since the cause of the ingress had not been substantiated. He did not exclude the possibility that there was a problem with the waterproofing. He disputed that a failure in coating might lead to water penetration: the cracking was less than 2mm.

82. For the same reasons as given for the other items relating to external coating, I consider these are major defects.

Water penetration to level 10 foyer

Item C1.11

83. This item concerned the internal common foyers on level 10, with water penetration manifesting in staining to the plasterboard wall and skirting board and carpet. Water had been sprayed against the exterior of the window frame resulting in water penetration to the foyer, emanating from beneath the skirting in the affected area after only a few minutes.

84. The source of the experts’ disagreement about this item concerned the significance of windows. Mr Hodsdon believed that being part of the external enclosure, they performed a waterproofing function, by keeping weather out of the building. A failure in their efficacy meant that there was a failure of a major element and hence, a major defect.

85. Mr Dahrie agreed that windows were part of an enclosure and part of the waterproofing. However there was no load-bearing element and this precluded them being considered as a major element of the building.

86. I addressed this same point about the windows earlier in these reasons in relation to item 14.2. The result is the same for this item as well.

87. I find that this was a major defect too.

Issue 2

88. Curiously, all parties vacillated on the question as to the appropriate form of relief.

89. In its statement of claim, when articulating its claims for relief, the Owners’ Corporation sought both a work order (prayer 1) and an order for damages (prayer 2).

90. By their (joint) defence, Aushome and South Summit denied that the Court was even empowered to make a work order. They did not apply to amend that defence, as was strictly appropriate. Be that as it may, at the hearing, they argued that only a work order was appropriate.

91. At an early point of the hearing, the Owners’ Corporation indicated its preference was for a work order. But in closing submissions, the Owners’ Corporation submitted that an order for damages is more appropriate.

Submissions

92. The Owners’ Corporation argues that an order for damages is its preferred form of relief for the following reasons. First, there is doubt whether this Court (as distinct from the NCAT) can even make the order; given the terms in s 48O of the HB Act and the absence of a provision enabling them to renew the proceeding in this Court should the work order not be complied with, which is available in a proceeding in the NCAT (cl 8 of Part 5 of Schedule 4 of the Civil and Administrative Tribunal Act 2013 (NSW)). Secondly, given that there is some similarity, if not analogy, between a work order and an order for specific performance, the latter form of equitable relief is notoriously considered inappropriate if it requires the Court’s ongoing supervision of building works. Thirdly, this is not a situation where the Owners’ Corporation has elected to seek a work order in preference to an order for damages: both forms of relief are alternative and (subject to the question of power) both forms of relief would be available to a claimant who proves breach of warranties through defective building work. Fourthly, if the analogy between a work order and an order for specific performance is a good one, damages may still be awarded even if specific performance has been sought.

93. Mr Rao submitted that earlier in the hearing, both parties had indicated a preference for there to be a work order. The defendants were hoping to receive an adjudication of the rectification works that were necessary. The Owners’ Corporation had changed its mind and should not be allowed to do so.

94. South Summit’s position, expressed through its director (Mr Zhang) in his opening, was aligned with that of Aushome, to the extent that it agreed that the preferred outcome was a work order. But it differed in one respect: if any liability fell upon the defendants to perform the rectification work as a result of a finding of major defects in breach of the implied warranties, the obligation to perform the work should only fall upon Aushome; and not South Summit.

Consideration

95. I agree with the Owners’ Corporation’s submission that there is doubt about the power of this Court to make a work order under ss 48MA and 48O of the HB Act.

96. By s 48A of the HB Act, a ‘building claim’, in the requisite sense, relevantly means a “claim” (individually or in combination) for:

“(a)   the payment of a specified sum of money, or

(b)    the supply of specified services …”

97. This definition of building claim could encompass a money claim (including damages for defective works) and a work order (being the supply of a specified service).

98. The NCAT has non-exclusive jurisdiction to hear building claims within a limited monetary jurisdiction of $500,000 (HB Act, s 48K(1)). But it is the NCAT, and not a court, that Parliament has designated as the preferred forum for building claims within that limited monetary jurisdiction (HB Act, s 48L). Section 48MA of the HB Act provides that:

A court or tribunal determining a building claim involving an allegation of defective residential building work or specialist work by a party to the proceedings (the responsible party) is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome. (Emphasis supplied.)

99. Section 48O(1) provides that in determining a building claim, the NCAT is empowered to make one or more of the following orders as it considers appropriate, including:

“(c) an order that a party to the proceedings—

(i) do any specified work or perform any specified service or any obligation arising under this Act or the terms of any agreement …”

100. Ball J (as his Honour then was) described s 48MA as a ‘curious’ provision in Ippolito v Cesco [2020] NSWSC 561 (“Ippolito”) at [65] and noted that it was common ground in the case before him that the Supreme Court of New South Wales was not empowered to order the ‘responsible party’ to undertake rectification work. By parity of reasoning, prima facie, it might be expected that the same result should apply to this Court.

101. I agree with his Honour’s epithet ‘curious’ as it applied to s 48MA. However, the position may not be quite so clear as it appears. For one thing, in Ippolito, Ball J stated (at [65]) that it was common ground that s 48MA did not apply to the (Supreme) Court. Leaving aside the question of whether a single instance decision of the Supreme Court is binding on this Court on a point of statutory construction, there is added doubt to be accorded to its precedential status when the point in the Supreme Court was not contested, as it is in this Court: there was no common ground in this case about s 48MA not applying; as a constraint on power exercised in this Court under the HB Act.

102. I noted earlier the legislative intention that small (in monetary terms) building disputes should preferably be determined in the NCAT, even if jurisdiction of other courts is not ousted in relation to claims within that limit.

103. Had the case remained in the NCAT (on the assumption that it held jurisdiction), it would appear to be uncontroversial that the NCAT could make a work order, having regard to the principle in s 48MA (depending upon other matters). However, the case was transferred to this Court and the ordinary legal effect of that, absent statutory provision to the contrary, is that the case is treated as if it had always commenced here (cl 6 of Schedule 4 to the Civil and Administrative Tribunal Act 2013 (NSW); see also Civil Procedure Act 2005 (NSW), s 143(1)(a)).

104. The power to be exercised under s 48O is to be understood in context, and that textually includes s 48MA. Section 48MA contemplates that a ‘determination’ of a building claim that involves rectification of defective work by the responsible party, could be made by a ‘court’. I infer that the inclusion of the word ‘court’ suggests that it has some work to do. The word ‘court’ is not defined (in Schedule 1 to the HB Act). But particularly in light of the circumstance that this Court has concurrent jurisdiction to deal with relatively small building claims (even if it is not the preferred forum), I expect that the District Court could be such a ‘court’ and consider, further, that s 48MA provides some indication of a legislative intention that the District Court, as a ‘court’, at least in relation to small claims under $500,000, that is to say, where it is exercising a concurrent jurisdiction to the NCAT, may make a work order. Otherwise it is inexplicable that the word ‘court’ is included in s 48MA. This construction of s 48O clearly facilitates the legislative purpose in s 48MA and is a pointer in favour of it under orthodox principles of statutory interpretation. [5]

     5. Interpretation Act 1987 (NSW), s 33

105. On the other hand, the heading to s 48O is ‘Powers of Tribunal’ – a reference to the NCAT (with no reference in the heading to the powers of a court).

106. In my opinion, it is arguable that for a ‘claim’ that would otherwise have fallen within the jurisdiction of the NCAT (ie one for a money claim for less than $500,000), but which is instead brought in the District Court, this Court would be empowered to make a work order under s 48O(1)(c) of the HB Act.

100. However, in the events that have occurred in this litigation, it is unnecessary to resolve this point of construction.

101. As a result of the transfer of the proceeding from the NCAT to the District Court, the Owners’ Corporation is to be treated as having made a ‘claim’ in this Court for a sum of money greater than $500,000; whatever be the final quantum of any order for damages that it ultimately receives.

102. As Ball J noted in Ippolito (at [66]) it is notorious that Courts are loathe to order specific performance of building contracts because of difficulties in formulating appropriate orders and the expectation that the order will require the Court’s continuous supervision. Although it is a matter of some speculation, it is not too difficult to envisage that a money claim for damages for breach of the implied warranties exceeding $500,000 would correspond to very substantial building works, which may make supervision by a court much less suitable than if the works were ‘valued’ in a sum under that monetary threshold (and therefore within the NCAT’s jurisdiction).

103. In Ippolito, as an alternative to the exercise of power under s 48O, Ball J (at [66]–[77]) ultimately rejected other courses of action which, although not involving a work order under the legislation, might achieve the same effect. These were: an order for specific performance, an adjournment of proceeding after an indication of the Court’s determination of the contentious defects and the appropriate rectification methods, a remittal of the dispute to the NCAT and a (restorative) mandatory injunction on the facts in that case.

104. The decision in Ippolito was referred to in the Owners’ Corporation’s written submissions, served prior to the closing verbal submissions, and were referred to again by the Owner’s Counsel in his closing address. The directors for the defendants were therefore on notice of the decision.

105. Neither Mr Rao nor Mr Zhang attempted to distinguish Ippolito by reference to the facts in this case. Their argument for a work order was substantially no more than one of bare assertion that they had an entitlement, inferentially as the ‘responsible party’, to perform the rectification work.

106. But as Ball J pointed out (at [75]–[76]) s 48MA, properly construed, did not alter (in the sense of displacing) the owner’s right under the common law to bring and obtain an order for damages [6] where that is claimed. The defendants’ submission jars against that view, with which I respectfully agree.

     6. Bellgrove v Eldridge (1954) 90 CLR 613

107. The Owners’ Corporation’s claim for relief for damages had been notified to the defendants in their Statement of Claim as one alternative claim for relief. The circumstance that the Owners’ Corporation may, during the course of the proceeding, and even in the course of the hearing, have waxed and waned as to what remedy it would ultimately press for does not derogate from the fact that it brought a money claim. It is not estopped from doing so, not least because the defendants have not identified any detrimental reliance upon a representation unequivocally conveyed by only a single prayer for relief in the Owners’ Corporation’s pleading, but, more simply, because the Owners’ Corporation did not confine itself to a claim for a work order. [7]

     7. Commonwealth v Verwayen (1990) 170 CLR 394

108. Further, I accept the Owners’ Corporation’s submission that under the general law, there is no true election between an order for damages and specific performance (in the sense that it presents inconsistent remedies) and I do not understand that a different result would apply to s 48O even if that provision applied. On this last aspect, in the prefatory words to s 48O(1), it is plainly indicated that the Tribunal (and therefore, for sake of the present analysis, this Court) could make “one or more of” the orders in s 48O(1), including payment of money (by damages) and a work order. The provision itself contemplates a variety of forms of relief that could be ordered and, what is more, do so “even if it is not the order that the applicant asked for” (s 48O(2)). (Emphasis supplied.)

109. The volume and nature of the defects are such as to call into question the competence of the builder. As I will also allude to in Issue 3, builders who engage in construction work now need to have certain registered qualifications for certain works. Mr Rao did not demonstrate what they were and it is uncertain whether, putting aside items 4.3 and 31.1, he would have the necessary qualifications in the hypothetical contingency that this was required. This another consideration which militates against a work order even on the doubtful premise that this Court was empowered to make such order.

110. The costs of rectification, although not yet finally quantified by this judgment, will be very substantial (even if, somewhat ironically, they may even fall short of the $500,000 threshold for the NCAT’s jurisdiction). The litigation has now been on foot for over two years. In my view, the Owners’ Corporation should not be forced to have the builder, in which it has no residual confidence, perform the rectification works or someone delegated or sub-contracted to that task by either defendant.

111. The Owners’ Corporation is entitled to the order for damages that it claims.

Issue 3

119. Some evidentiary developments in the latter stages of the hearing affected the parties’ cases on quantification of costings for rectification works.

Evidentiary debates

Information from Mr Madden

120. In the hearing, the Owners’ Corporation relied upon a report by David Madden, of MBM, dated October 2023. The defendants did not rely upon any evidence from their own quantity surveyor.

121. On the last day of the hearing, after the building experts gave evidence concurrently, the Owners’ Corporation sought to rely upon added information provided from Mr Madden. This was not in the form of a report, but rather four separate documents. Mr Rao, director of Aushome, objected to some, but not all of the information.

122. The material provided to the Court comprised:

1. a partially updated plaintiff’s Scott Schedule (Exhibit D);

2. an untitled document corresponding to Section 7.0 of Mr Madden’s first report (Exhibit E);

3. an extract, marked ‘Building Indices’ from the 43^rd edition of the Rawlinson text (Exhibit F); and

4. a ‘quarterly update’ (April 2025) from Rawlinson relating to price escalations in the Sydney area (Exhibit G).

123. To be clear, the defendants did not object to the documents that became Exhibits F and G. They confined their objections to the documents that became Exhibits D and E.

124. Over the objection of both defendants (to the documents that became Exhibits D and E), I granted leave to the Owners’ Corporation to rely upon the new information, indicating that the reasons for that decision would be supplied with these principal reasons. The reasons for admission are as follows.

125. To reiterate, what was mainly in issue was whether any, and if so, how many of the defects constituted ‘major defects’, the appropriate scope of works and the costs of rectifications.

126. The first of those issues was the focus of concurrent evidence over the last two days of the hearing by the building or engineering experts for the Owners’ Corporation and the defendants. Those experts, Messrs Hodsdon and Dahrie, had conferred earlier this month and ultimately produced a joint report, close to the resumption of this hearing, only signed off by Mr Dahrie on 11 April 2025. Messrs Hodsdon and Dahrie had previously prepared individual reports. The first one from Mr Hodsdon was prepared in October 2022. His supplementary report was dated 7 June 2024. Mr Dahrie’s report was dated 24 October 2024.

127. Case management directions in this matter were made by the Judicial Registrar on the Online Court. These included dates by which the parties were to serve their expert reports. Relevantly, from my perusal of the Court file, it appears that the first time directions were made for service of ‘evidence of quantum’ was in April 2024.

128. The hearing of this case had commenced on 25 February 2025. By consent, it was adjourned on 26 February 2025 to facilitate a conclave between Messrs Hodsdon and Dahrie, as well as the preparation of Scott Schedules; which had not previously been the subject of directions.

129. On the third of the issues I identified earlier, that of quantification of rectification costs, the Owners’ Corporation relied upon the opinion evidence of Mr Madden. Mr Madden prepared a report dated 16 October 2023. That report was prepared on the basis of acceptance (or assumption as to the correctness) of Mr Hodsdon’s views of the defects and scope of rectification works as they had been respectively recorded in Mr Hodsdon’s first report of October 2022.

130. Mr Madden’s first report was voluminous. It ran to 207 pages. Materially, it provides costs breakdowns, it appears, on every item of majorly defective work identified by Mr Hodsdon in the latter’s first report from October 2022.

131. At section 7.0 of Mr Madden’s first report, there is a table, which was reproduced in the Owners’ Corporation’s Schedule of Issues (within Annexure A to the schedule), and which summarised Mr Madden’s findings. He reported the trade cost of the building defects, when escalated to December 2023, as $534,863. When other contingencies, a margin, fees and costs (compendiously described as ‘on costs’) were added, Mr Madden assessed the rectification costs as being $867,479.

132. The Court was informed that following service of Mr Madden’s report of 16 October 2023, the defendants did not serve any report from an expert quantity surveyor to compete for acceptance with Mr Madden’s report, in response. The defendants have had Mr Madden’s first report now for over 18 months. The defendants’ omission to serve their own report from a quantity surveyor has occurred notwithstanding the service of Mr Dahrie’s report on 24 October 2024 which, to some not insignificant extent, contained differences of opinion on the identification of major defects and scope of rectification works.

133. The Owners’ Corporation claimed damages in the alternative. Whether or not a work order should be made or whether damages should be ordered is addressed in Issue 2 that I have now dealt with. But in circumstances where there was no doubt that: (a) the Owners’ Corporation raised both forms of relief in the alternative; and (b) the defendants, whilst they were legally represented [8] , had been on notice of the alternative claims for relief, and (c) the defendants had not contested any of Mr Madden’s earlier methodology or costings when they had the opportunity to do so, the Owners’ Corporation should, in principle, be entitled to rely upon any updated evidence of his costings in the light of the evidence that fell from the building experts at the hearing. Naturally of course, the evidence of Messrs Hodsdon and Dahrie did not address costings.

     8. The defendants were legally represented until October 2024 (for Aushome) and February 2025 (for South Summit).

134. As very often occurs in building disputes, and in fulfillment of their paramount duties to the Court, the building experts have narrowed many, albeit not all, of their differences on the issues of defects and scope of rectification work. That process, which is beneficial to the parties and certainly to the Court, was achieved partly as a result of a belated building expert conclave and partly the result of their giving concurrent evidence at the resumed hearing. Self-evidently, both aspects of the process of streamlining, or attempting to streamline, disputes about the defects and scope of rectification works, had only been undertaken very recently and at a time when the defendants were not legally represented.

135. This is all the background to the current debate as to the admissibility of the added information sourced from Mr Madden. At the conclusion of the concurrent evidence from the building experts at the end of day two of the hearing, Counsel for the Owners’ Corporation foreshadowed his client’s intention to rely upon a supplementary ‘report’ by Mr Madden. In fact four separate documents were prepared. There was no report, and no explanatory commentary by Mr Madden in respect to the four documents. All of these documents were served on the evening of the second day of the hearing.

136. A rough comparison between section 7.0 of Mr Madden’s first report and his revised schedule (Exhibit E) may be depicted as follows:

Trade costs	On cost
Section 7.0 of Mr Madden’s first report	$534,863	$332,616
Mr Madden’s revised schedule (Exhibit E)	$296,357	$176,966

137. In this context, I will now address the defendants’ objections to what became Exhibit D and Exhibit E.

138. Dealing with the updated plaintiff’s Scott Schedule, which is a large document, there were only two changes to the version that had earlier been in evidence (which appeared in Exhibit A, Tab 2) concerning to costings for items 4.3 and 24.1. The effect of the changes was that for item 4.3 the costing changed from $0 to $4,004 and for item 24.1, the costing changed from $0 (although with a notation that Mr Madden would provide an updated costing) to $3,200.

139. Mr Zhang, who argued the objection to Exhibit D, raised the following points in his objection. First the deadline for service of evidence had passed. Secondly, the defendants did not have enough time to consider the costing and provide a response. Thirdly, there was no clear delineation in the Scott Schedule where defects had been disputed or undisputed. Fourthly, for item 31.1, the costing ($17,024) did not reflect the experts’ (revised) agreement, manifested through their concurrent evidence, about the appropriate scope of the work.

140. None of these points, individually or in combination, were convincing grounds for objection. First, although it was true that the deadline for service of expert evidence had passed, the deadline is not an insurmountable barrier if appropriate cause is shown. Of course, the circumstance that expert evidence (or, as here, information from an expert) is late is a factor to be weighed when considering whether leave is to be granted. However the circumstances indicated explains why the evidence is late. Secondly, the number of changes to the plaintiff’s updated Scott Schedule supplied to the Court on the last day of the hearing was miniscule: two items. If there was force in the argument about a lack of time to consider and potentially adduce evidence, the argument is properly confined to the two items; not the whole of the report. The third point is irrelevant. If the updated version is not admitted, the plaintiff would be confined to the earlier version of the Scott Schedule which was admitted. Of course, it remains open to the defendants to criticise the Scott Schedule if it fails to clearly delineate disputes about defects about individual items, but alteration of two costings does not make any difference when weighing that particular criticism. The fourth point is answered by my response to the second point.

141. Fundamentally, a Scott Schedule represents a document that distils the parties’ respective positions as to asserted defects, asserted scope of rectification works and asserted rectification costs. It is a creature that appears in Part 15 of the UCPR that deals with the general subject of particulars. What matters most is whether the asserted information contained within it (by either party) is substantiated, or at least capable of being substantiated. To deny the Owners’ Corporation the opportunity to change two of the asserted costs for two of the disputed items in the Scott Schedule would deny the Owners’ Corporation the opportunity to make a submission about what are the true and accurate costs on the basis of updated information. That course is not warranted.

142. As to the document that became Exhibit E, Mr Rao, who articulated the basis or bases for objection to the tender for the defendants, made the following points. First, the Owners’ Corporation was confined in its case to a work order, and the document went only to costings that were relevant to a damages claim. Secondly, the defendants had not given enough time to consider its content. Thirdly, as I understood the point, Mr Madden was not a ‘responsible surveyor’.

143. The answers to these points were as follows. First, it was contentious at the point of tender (though now resolved – see above) as to whether the Owners’ Corporation was even precluded from pursuing a claim in damages at all. At the point of admissibility of evidence, however, the plaintiff was undoubtedly entitled to adduce evidence in the event (which later materialised) that the Court determined that the Owners’ Corporation was entitled to advance the claim for damages.

144. Secondly, there is some force to this point if the defendants could prove that they were prejudiced in a material way. I will touch upon this again when addressing the claim when I refer to the issue of ‘escalation’ in costs. But on its face, the document, which follows the same structure as section 7.0 of Mr Madden’s first report, amounts to a downward revision of Mr Madden’s costings in the light of the evidence that came out from the experts recently, through the report after the conclave and the concurrent evidence. Some of those items in the costings are derived from percentages to the trade total. This benefitted the defendants. It became apparent at the hearing that there was a possibility that further change to ultimate costings may be needed after I determined some of the disputed defects. But in circumstances where Mr Madden’s updated costings reduce the defendants’ exposure on damages, where the defendants had never sought to adduce their own quantity surveyor evidence and where the updated costings assist the Court to provide a more accurate estimate of damages reflecting the experts’ considered (and debated) views on the scope of rectification works, I permitted this evidence to be adduced.

145. Thirdly, the defendants’ criticism about Mr Madden is a matter that goes to the weight of his opinion, not the admissibility of the new information supplied.

Items 4.3 and 31.1

146. Another separate evidentiary debate emerged at a time when Counsel for the Owners’ Corporation was making oral submissions in reply. However, in substance, as Counsel recognised, he was not actually making submissions in reply so much as bringing an application arising from my questioning of him during his oral submissions in chief. The debate concerned the costings for these two contentious items.

147. Mr Gunning applied for the Court to suspend the delivery of its judgment, or at least final orders, to enable two supplementary and inter-related steps to occur. The first was for the defendants to obtain a regulated design from a registered practitioner (who was not nominated) about the scope of the works that the building experts had discussed during the conclave and again in their concurrent evidence. Mr Gunning clarified that the Owners’ Corporation would accept Mr Dahrie as someone appropriate to perform this task. Mr Dahrie (or some other person) should prepare a report within 14 days. To the extent that there was any additional cost to obtaining the design, it should be borne by the defendants. The second, taking place a short time (7 days) after completion of the first step, was that a joint expert quantity surveyor, who was nominated to be Mr Stephen Bolt, of the firm W T Partnership, to quantify the costs of such design. The parties should jointly be liable for the costs of any report to quantify the costs of that work.

148. In support of this application, Mr Gunning referred to the circumstances in which the experts came to agree on the scope of the work. To recall, this was that for these items, the appropriate work was a localised water stop and membrane rectification undertaken in accordance with a regulated design provided by a registered Design practitioner. This was, in effect, that such agreement was not foreseen. Neither Mr Hodsdon nor Mr Dahrie referred to this matter in their individual reports. It emerged through the process of the conclave and in the concurrent evidence.

146. Mr Gunning indicated that the obligation to procure a ‘regulated design’ properly fell on the defendants. He referred me to provisions in the Design and Building Practitioners Act 2020 (NSW). This explained why, in the Owners’ Corporation’s submission, the defendants should bear any cost associated with the design plan.

147. The defendants opposed this application. First, Mr Rao [9] said that the defendants were hoping to do the work that this Court determined was necessary to do, as part of the work order, and to do so without a further delay of 3 weeks. Secondly, Mr Rao submitted that the defendants were capable of attending to this defect itself without getting a regulated design practitioner, in effect, to tell them what to do. Thirdly, it was unfair that the Owners’ Corporation raised this late on the last day of the hearing.

     9. Mr Zhang was given the opportunity to make submissions on this application but indicated that South Summit was prepared to abide the Court’s adjudication of it.

148. None of these points are persuasive. As to the first, the unstated premise or assumption is that a work order would be imposed. By these reasons generally, the assumption has not been fulfilled. Secondly, I place weight upon Mr Dahrie’s opinion, reflected in the special legislative provisions, that it requires special expertise to consider the design. There is no evidence that the directors of the first or second defendants have that expertise. Thirdly, the assertion of ‘unfairness’ was rather glib or at least did not have anything to substantiate it. Although the application is late, that does not itself make it unfair. Mr Dahrie is familiar with the problem and that, by itself, would reduce any cost that the defendants would bear for having a regulated design produced; certainly in comparison with any other new building practitioner brought in to do the task.

149. Rejecting the objections as I have, I still have to consider whether the application is appropriate. The first question is one of power. I am satisfied that ss 61(2)(a) and (b) of the Civil Procedure Act2005 (NSW) confers on the Court ample scope to direct that a ‘specified step’ in relation to the proceeding and by a certain point in time; so long as the step is otherwise one that could lawfully be taken (and would not be manifestly unreasonable) and so long as it is consistent with general case management objectives (in s 56 of the Civil Procedure Act). Although the pertinent provisions in the Design and Building Practitioners Act commenced after the construction works were originally performed in this case [10] , the award of damages is intended, to practically compensate them for the costs of someone else, other than the defendants, rectifying the works, and whoever performs those works will be bound by those provisions. In this way, I am satisfied that the Owners’ Corporation’s proposal, and the directions I make under the Court rules, are consistent with ss 5(a) and 19 of the Design and Building Practitioners Act 2020 (NSW).

     10. Part 2 of the Design and Building Practitioners Act 2020 (NSW) commenced on 1 July 2021

150. In my view, the Owners’ Corporation’s proposal has intrinsic merit, even if it does necessitate some delay and some additional cost. The Court has, in relation to items 4.3 and 31.1 been presented, unexpectedly albeit belatedly, with a consensus position between the two building experts as to the scope of rectification. I accept that this was not foreseeable (the suggested agreed scope not being referred to in the experts’ individual reports), the matter being raised only in the course of the conclave and elaborated, to a degree, in the concurrent evidence. It would not be just if the Owners’ Corporation were to be deprived of a remedy (measured in monetary terms) to compensate it for the rectification of works required by reason of the breach of warranty. I have to and do consider the interests of justice which, as indicated in s 58 of the Civil Procedure Act2005 (NSW) (including the case management objectives in ss 56–57). I have acknowledged some delay, but in the context of the general length of and nature of this proceeding, it is not considerable: it is measured only in a few extra weeks. Because of other findings I have made in this judgment, there will be a need for the parties to bring in short minutes anyway after these reasons have been published before final orders are made. That is not unusual in building cases.

151. As was raised in argument, the present indication of the costing of the work is just over $21,000. This is a matter relevant to the matter of proportionality raised in s 60 of the Civil Procedure Act. That is not very substantial claim in the scheme of things, but it is not a trivial sum either.

152. I do not understand how there could be prejudiced in the requisite sense: that concern is not determined by whether or not the defendants will ultimately be worse off in connection with these items than appears to be the case. The issue of prejudice is procedural. In this regard, the defendants’ building expert himself identified this as a scope of rectification and the Owners’ Corporation does not object to Mr Dahrie preparing the plan. It would be open for the defendants to negotiate with him the cost of that plan which, as the legislation indicates, is something for which they are prima facie liable to do under the special legislation for building professionals in this state. The costs of the follow up report of Mr Bolt are to be shared.

Findings

156. Subject to certain qualification, the defendants took no issue with Mr Madden’s costs (as revised) for individual items. He was not required to attend for cross-examination.

157. Mr Madden’s updated table was as follows:

Trade costs
Trade total – 31/12/22	$251,897
Escalation from 31/12/22 to 1/5/25	18%	$44,460
Trade total – May 2025	$296,357
On cost
Preliminaries	15%	$44,454
Margin	15%	$51,122
Project contingency	5%	$19,597
Design contingency	2.5%	$10,288
Professional fees	$30,000
Owners’ Corporation cost	$2,000
HBCF insurance based on $435,000	$19,506
On cost total	$176,966
Defect rectification cost total (excl GST)	$473,323

158. I agree with the Owners’ Corporation that Mr Madden’s updated table should be accepted, subject to three qualifications.

159. The first qualification concerns items 4.3 and 31.1. Those costs remain to be addressed in the light of further reports that I refer to below.

160. The second qualification arises where Mr Madden’s costs include those for rectification works upon the assumption that the respective works are required for major defects, but they would not be permitted in the event that I have taken a contrary view.

161. The third qualification is in relation to escalation costs. This had been a feature of section 7.0 of Mr Madden’s first report (16 October 2023), accompanied by explanatory text. Mr Madden explained that when he prepared his first report, there were rises in the costs of material and labour in the construction industry and changes in market conditions, such as the Covid-19 pandemic, increased inflation figures, international matters and supply chain issues. He chose 5.8% from January to the end of 2023, based on the Rawlinsons quarterly update of October 2023 and forecast building price escalation throughout the four quarters of the 2023 calendar year (paragraphs 5.8 and 6.4–6.5).

162. There is evidence to sustain the forecasted for an escalation for building prices throughout different quarters in and price components for various categories for services in 2025 in Exhibit G, and to a lesser extent, earlier years in Exhibit F. However, Mr Madden adopted a figure of 18% for the broad period 31 December 2022 to 1 May 2025 without explaining how he derived it.

163. It was open to Mr Madden to update the appropriate percentage for escalation costs over that period at any time prior to the hearing in a way that was transparent and in a way that might have afforded the defendants the opportunity to challenge it. The percentage did not depend on the outcome of the issue of what were major works.

164. The position is unsatisfactory and presents the court with a conundrum. As I have said, the defendants did not contest Mr Madden’s methodology in deploying an escalator for costs, of the percentage selected in his first report. There is also independent evidence about price rises over the period, including in the Sydney market. But there is no articulated basis supplied by Mr Madden for the 18% figure he selected in Exhibit E; which appears to make several unstated assumptions.

165. There is a need, I consider, to balance the need to compensate the Owners’ Corporation whilst also not putting the defendants in a worse position when they cannot challenge the figure (even though they did not challenge the percentage in Mr Madden’s first report). To reiterate, in Exhibits F and G (which documents the defendants did not object to) there is a reliable source of information for the calculation.

166. Nevertheless, with reference (only) to the building price index (BPI) which appears in Exhibit F, it appears possible to determine the cost variation as between different years. I assume that the building price index correlates to the forecasted building price escalation in terms of what is captured even though the former is a historical document and the latter is a projection. The ‘example’ which appears below the first of the tables on that page points the way. Thus, it is possible to assess the percentage variation in cost between March 2023 and December 2024 (which represents most of the period Mr Madden calculated in Exhibit E) as follows:

December 2024	=	158.02
March 2023	=	146.24	11.78 x 100	= 8.06%
11.78	146.24

167. This methodology had not been proposed by the Owners’ Corporation in its submissions at the hearing and so, in the circumstances, through an email sent by my Associate after judgment was reserved, the parties were given the opportunity to comment upon it. By its supplementary submission (which I have marked as MFI 8) the second defendant agreed with it (in the event that the Court found, as it has, that an escalator percentage should be drawn from Exhibit F) it in its supplementary submissions. The first defendant did not avail itself of the opportunity to provide a supplementary submission.

168. By its supplementary submission (which I have marked MFI 9), the Owners’ Corporation accepted this methodology subject to two qualifications. The first was that the escalation should go back to the December 2022 quarter (not March 2023). The second was that the escalation should go beyond December 2024 into the forecasted periods in first and second quarters of the calendar year 2025.

169. I do not accept the latter qualification. I do not think it is fair to the defendants to factor in any additional increments for the 2025 calendar year (as they appear in Exhibit G), as it is uncertain how that fits with the BPI in Exhibit F. Further, it is not clear for example, whether the forecasted escalator for the second quarter (3.0%) is partly a compound of what appears in the forecast for the first quarter (1.5%). The first quarter had passed by the time the hearing commenced was no evidence of what the BPI actually was at the end of that quarter. The second quarter has now commenced but since it is a projection for the future, fairness would indicate that some adjustment would need to be made to take into account possible hypothetical events that might effect on the basis of assumptions that have not been laid out.

170. As to the former qualification, I do not accept this either. In his original report, Mr Madden’s escalation proceeded from the first quarter of 2023. It was not explained why that should now be pushed back to the last quarter of 2022, as the Owners’ Corporation submits.

171. In the circumstances, it is appropriate therefore to substitute as the percentage escalation, 8.06% for the current 18%.

172. Subject to these qualifications, I accept Mr Madden’s methodology and calculations contained in Exhibit E.

Conclusions

173. I accede to the Owners’ Corporation’s application to implement its two-step proposal. However, the parties should, as a matter of fairness, have the opportunity of making further submissions (in writing) about the appropriateness of the costs Mr Bolt has allowed for. This is analogous to submissions parties make as to whether a referee’s report should be adopted.

174. I do not consider it necessary to prescribe the documents that should be supplied to Mr Bolt. That should be left to the parties. Common sense suggests that he be supplied with the Plaintiffs’ updated Scott Schedule, the joint expert report prepared by the building experts following the expert conclave as well as these reasons.

175. In conjunction with the opportunity to make specific submissions about Mr Bolt’s report, the parties should have the opportunity to confer about the appropriate quantification of costs generally, consistently with the rulings on major defects in these reasons. Further, they should also make submissions as to the appropriate quantification of pre-judgment interest and the appropriate orders for costs.

176. Although this may appear self-evident, the parties should understand that the further opportunities for them to make submissions should not be treated as a license to attempt to relitigate matters determined by these reasons. To the extent that further submissions are made that travel beyond the scope of the orders I am about to make, the parties should understand such submissions will be disregarded.

177. Should there be any issue with the reports, liberty to apply is granted on two days’ notice.

Orders

178. For the reasons in this judgment, the Court orders:

1. Pursuant to s 61(2) of the Civil Procedure Act2005 (NSW):

1. Mr George Dahrie (or some such other registered Design Practitioner as the defendants nominate) is to prepare, at the defendants’ cost, a Regulated Design to address the matters referred to by the building experts in items 4.3 and 31.1 in the plaintiff’s Updated Scott Schedule within 14 days of the date of these reasons and supply them to the parties.

2. Mr Stephen Bolt, of the firm WT Partnership, is to prepare, at the shared costs of the parties, a report quantifying the costs of such Regulated Design within 7 days of receipt of the report referred to in (a) and to provide a copy of such report to the parties.

2. Within 5 business days of its receipt of the report in order (1)(b) above, the plaintiff is to make submissions on:

1. the quantification of costs specifically for items 4.3 and 31.1; and

2. the final quantification of costs generally, as well as pre-judgment interest and costs in accordance with these reasons.

3. Within a further 5 days of receipt of the plaintiff’s submissions the subject of orders 2(a)–(b) above, the defendants are to make submissions on:

1. the quantification of costs for items 4.3 and 31.1 specifically; and

2. the final quantification of costs generally, as well as pre-judgment interest and costs.

4. All of the reports and submissions referred to in these orders are to be copied to the Associate to Abadee DCJ on the dates they are prepared.

5. Subject to any further application, any continuing dispute about the costs for items 4.3 and 31.1 specifically, the final quantification of costs generally, pre-judgment interest and costs will be determined on the papers.

6. Liberty to apply on two days’ notice.

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Endnotes

Decision last updated: 28 April 2025