The Owners Strata Plan 98726 v Elite Realty Development Pty Ltd (No 3)

[2024] NSWSC 673

Supreme Court

New South Wales

Medium Neutral Citation:

The Owners - Strata Plan 98726 v Elite Realty Development Pty Ltd (No 3) [2024] NSWSC 673

Hearing dates:

27 May 2024

Decision date:

31 May 2024

Jurisdiction:

Equity - Technology and Construction List

Before:

Stevenson J

Decision:

Judgment entered in favour of the plaintiff against the first defendant in the sum of $3,080,269.26

Catchwords:

BUILDING AND CONSTRUCTION – contract – damages – defects – judgment earlier entered against builder with damages to be assessed – assessment of damages

Legislation Cited:

Home Building Act 1989 (NSW)

Cases Cited:

Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36

Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2006] NSWCA 361

Casbee Properties Pty Ltd v Patoka Pty Ltd [2003] NSWCA 361

Ellis’s Town House Pty Ltd v Botan Pty Ltd [2017] NSWCA 20

Radford v de Froberville [1977] 1 WLR 1262

South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd (2004) 88 SASR 65; [2004] SASC 81

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8

The Owners – Strata Plan 98726 v Elite Realty Development Pty Ltd [2024] NSWSC 397

The Owners – Strata Plan 98726 v Elite Realty Development Pty Ltd (No 2) [2024] NSWSC 398

Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61

Category:

Principal judgment

Parties:

The Owners – Strata Plan 98726 (Plaintiff)
Elite Realty Development Pty Ltd (First Defendant)

Representation:

Counsel:
I Chatterjee (Plaintiff)

Solicitors:
Sachs Gerace Lawyers (Plaintiff)

File Number(s):

2021/76656

JUDGMENT

1. The plaintiff is the owners corporation in respect of a residential development in Maroubra comprising a three-level residential unit block, consisting of nine units (“the Property”). Each unit has a balcony or courtyard. The Property has one level of basement parking and a flat concrete tiled slab building roof with planter boxes.

2. The defendant, Elite Realty Developments Pty Ltd (“the Builder”), is the builder of the Property. It was engaged by the developer, Maroubra Road Development Pty Ltd, by a contract dated 19 September 2017. The works were completed on 11 December 2018.

3. The owners corporation brings these proceedings against the Builder for breaches of statutory warranties implied into the building contract as successor in title to the Property. ^[1]

   1. Home Building Act 1989 (NSW), s 18B.

4. Substantial and systemic defects have been identified in the Property, with the costs of rectification assessed by the owners corporation’s quantity surveying expert, Mr Matthew Spicer, at $3,080,269.26.

5. On 12 April 2024, I entered judgment in favour of the owners corporation against the Builder, with damages to be assessed. ^[2] I also dismissed the cross-claims that the Builder had hitherto made against third parties but had not pursued. ^[3]

   2. See The Owners - Strata Plan 98726 v Elite Realty Development Pty Ltd (No 2) [2024] NSWSC 398.

   3. See The Owners - Strata Plan 98726 v Elite Realty Development Pty Ltd [2024] NSWSC 397.

6. The matter was set down for assessment of damages before me on 27 May 2024. The Builder did not participate in the hearing.

7. The measure of damages for defective building work is the reasonable costs of rectification, so as to give the plaintiff “the equivalent of a building … which is substantially in accordance with the contract”. ^[4] The work must be “necessary to produce conformity” with the contract and also “must be a reasonable course to adopt”. ^[5] These are questions of fact to be examined in each case.

   4. Bellgrove v Eldridge (1954) 90 CLR 613 at 617; [1954] HCA 36 (Dixon CJ, Webb, and Taylor JJ).

   5. Ibid at 618.

8. Such work will only be considered unreasonable in “fairly exceptional circumstances”, such as where the innocent party is “merely using a technical breach to secure an uncovenanted profit”,^[6] or where the cost of the “proposed rectification is out of all proportion to the benefit to be obtained”. ^[7]

   6. Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [17] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ), citing Radford v de Froberville [1977] 1 WLR 1262 at 1270 (Oliver J).

   7. Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2006] NSWCA 361 at [82]-[88] (Tobias JA, Giles and McColl JJA agreeing), citing Casbee Properties Pty Ltd v Patoka Pty Ltd [2003] NSWCA 361 at [56]-[60] (Giles JA, Mason P and McColl JA agreeing) and South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd (2004) 88 SASR 65; [2004] SASC 81 at [90] (Debelle J); see Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61 at [81] (Macfarlan JA; McColl and Basten JJA agreeing); Ellis’s Town House Pty Ltd v Botan Pty Ltd [2017] NSWCA 20 at [42] (Gleeson JA, Leeming and Simpson JJA agreeing).

9. I have been greatly assisted by the careful submissions prepared by Mr Chatterjee, who appeared for the owners corporation.

10. Much of what follows is taken, with gratitude, from Mr Chatterjee’s submissions.

The defects

11. There are a number of distinct categories of defects. While the total quantum of rectification costs is significant, this largely arises from the fact that each of the defects identified arises in multiple instances across the Property.

12. The two most expensive single defects arise from the need for remediation of:

1. a failure by the Builder to waterproof the basement walls (an amount of $151,900 is claimed); and

2. lack of falls to drainage to the terrace of unit 3 ($54,442).

13. The majority of defects otherwise are individually less than $9,000 (333 items), with the remainder ranging from $10,420 to $26,545 (37 items).

14. The owners corporation relied upon expert reports from:

1. a structural engineer, Mr Dusko Mirilovic, whose reports deal with building defects generally;

2. a further engineer, Mr Ian Pomeroy, whose report deals with recurring defects in the external façade of the Property;

3. a further structural engineer, Mr David O’Neill, whose report relates to a lack of waterproofing in the basement walls and movement joints in the roofs of units;

4. an hydraulic consultant, Mr Ian Laurie, whose report deals with defects in the plumbing systems and roof drainage systems at the Property;

5. an electrical engineer, Mr Peter Matthews, whose report deals with defects in electrical installation;

6. a building consultant and engineer, Mr Gary Yedalian, whose report deals with defects in the kitchen ducting and air conditioning systems; and

7. Mr Spicer, whose reports set out the total cost of rectifying the various defects identified by the other experts. As I have said above,^[8] Mr Spicer’s opinion is that the total cost is in the order of $3 million.

   8. At [4].

The building defects generally

15. Mr Mirilovic has identified the following building defects:

1. inadequate falls to drainage in balconies, courtyards of units and tiled areas of the common areas;

2. incomplete, delaminating, or separating sealant in numerous locations, including the external façade, balconies, tiled expansion joints, common areas, and unit internals such as door frames and floor interfaces;

3. an absence of movement joints in the internal and external tiled areas in a large number of the apartments and common areas;

4. defective waterproofing and drainage to planter boxes;

5. inadequate falls to floor waste in bathrooms, ensuites and showers;

6. the migration of water through the walls and ceiling of the carpark, with resultant water damage to a fire door and water ponding in the eastern wall of the fire stairs;

7. defective external wall construction, with incorrect cavity flashing installations and resultant water ingress through the cavity wall into the units; and

8. defective window installations in three of the units, with resultant water ingress.

Recurring defects in the external façade

16. Mr Pomeroy has identified recurring defects in the external façade of the Property, caused by:

1. defective sealant application or deterioration to the external façade;

2. render cracking and delamination;

3. poor coating finishes to the external common walls throughout the Property;

4. weepholes covered by the façade coating, or otherwise incorrectly installed; and

5. corroding embedments throughout the façade in various isolated locations.

Failure to waterproof the basement walls

17. Mr O’Neill has identified that it was a requirement of the Development Application Approval for the basement to be “tanked” and that this has not been done. Mr O’Neill also identified that there was “significant evidence of water ingress through the shoring wall and into the basement stormwater pits”, as well as “water rising vertically from underneath the basement slab and penetrating onto the basement slab via the isolation joint around the concrete column”.

Defects in roof drainage and the Property’s plumbing system

18. Mr Laurie has identified a number of systemic plumbing defects as follows:

1. the air conditioning condensate drains, within either the kitchen cupboards under the sink or the laundry sink cupboards, have not been provided with a tundish point or an air gap;

2. brass elbows with running/parallel threads have been installed in the gas service consumer pipework between unit gas appliance isolation valves and the gas cooktops;

3. manual shut off valves have been installed in the gas consumer pipework without an appropriate means of disconnection; and

4. internal gas bayonet fittings have not been secured to the wall framing with screw fixings to prevent strain on the pipework.

19. Mr Laurie has also identified a variety of additional plumbing installation defects, some of which apply to multiple units or common areas.

Defects in electrical installation

20. Mr Matthews has identified eight defects in the electrical installation to the Property.

Defects in ventilation systems

21. Mr Yedalian has identified ventilation defects, being:

1. the flexible ducting for the kitchen exhaust systems in the apartments not being fire rated;

2. the air conditioning drainage lacking appropriate fall;

3. a lack of adequate access to the indoor air conditioning units to enable maintenance to be carried out;

4. defective refrigeration piping insulation on the ceiling void, allowing moisture to condense on the pipes;

5. condensation running off the face of the supply register for the air conditioning units;

6. failure to provide a control switch for the carpark exhaust fan; and

7. inadequate ventilation in the laundry cupboard to one unit.

Consequential and other losses

Mould

22. The owners corporation obtained reports from a mycologist, Dr Heike Neumeister-Kemp, who has found that there is mould in seven of the units. Dr Neumeister-Kemp has assessed that six of the seven inspected units are non-habitable and that two have locations of “high to very high levels of airborne fungi”.

23. The owners of those two units have made claims on the owners corporation for rectification of the mould problem.

24. The claims made against the owners corporation are for a closed period, although the mould problem seems to be ongoing.

Alternative accommodation

25. The owners corporation also claims damages for the cost of relocating the residents of the Property during remediation works.

26. The owners corporation has adduced evidence from Mr Steve Abbott, who has prepared a programming report for remediation works, and Mr Darren Keen, a valuer, who has prepared a valuation report for the cost of alternative accommodation during the work.

27. That evidence shows that the cost of alternative accommodation that is of equivalent quality for a works program will be in the order of $258,000.

Damages overall

28. The evidence adduced by the owners corporation satisfies me that the likely total cost of remedying the building defects, and providing for alternative accommodation while remediation works is carried out, is $3,080,269.26.

29. The evidence before me shows that proposed work is necessary to produce conformity with the building contract and is the reasonable course to adopt. There is no suggestion in the evidence that the owners corporation is seeking to secure an uncovenanted profit or that the costs are out of proportion to the benefit to be gained. ^[9]

    9. See [8] above.

30. I enter judgment in favour of the plaintiff against the first defendant in that sum.

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Endnotes

Decision last updated: 31 May 2024