TQM Design and Construct Pty Ltd v Department of Services Technology and Administration
[2011] NSWADT 144
•10 June 2011
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: TQM Design and Construct Pty Ltd v Department of Services Technology & Administration [2011] NSWADT 144 Hearing dates: 14 December 2010 Decision date: 10 June 2011 Jurisdiction: General Division Before: S Montgomery, Judicial Member Decision: The decision under review is set aside, and in substitution for that decision TQM Design and Construct Pty Ltd is to be issued with a caution in respect of improper conduct in relation to work carried out at 174 Victoria Road, Bellevue Hill.
Catchwords: Home Building Act - home builder - improper conduct - delay in complying with the rectification order Legislation Cited: Administrative Decisions Tribunal Act 1997
Home Building Act 1989Cases Cited: Director-General, Department of Fair Trading v Cohen [2000] NSWFTT 3
Handley in Pilipczyk & Anor v Commissioner for Fair Trading [2007] NSWADT 85
Woolley v Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 127Category: Principal judgment Parties: TQM Design and Construct Pty Ltd (Applicant)
Department of Services Technology & Administration (Respondent)Representation: M Taouk Agent (Applicant)
J Coss (Respondent)
File Number(s): 103222
REasons for decision
GENERAL DIVISION (S MONTGOMERY, (JUDICIAL MEMBER)): This matter relates to an application by TQM Design and Construct Pty Ltd ("TQM") for review of a decision of a delegate of the Director General of the Department of Services Technology & Administration ("the Department"). The determination required TQM to pay to the Director General, as a penalty, the amount of $2,500. A separate determination required that Mr Maroun Taouk, a director of TQM, to pay a penalty of $1,500.
Background
In June 2009 a Notice to Show Cause ("the Notice") was issued to TQM, inviting it to show cause why disciplinary action should not be taken against it on the ground that it is guilty of improper conduct under section 56(c) of the Home Building Act 1989 ("the Act"). The Notice allowed TQM to make submissions by 31 July 2009.
The allegation made in the Notice referred to residential building work undertaken by TQM at 174 Victoria Road, Bellevue Hill ("the property"). The Notice alleged that TQM failed, without reasonable cause, to comply with a rectification order ("the rectification order") issued on 11 December 2007 by a Senior Building Inspector in the Department's Home Building Service, Mr Foster . The rectification order required TQM to rectify specified defective work by 9 March 2008.
The issue of the rectification order arose following a complaint to the Office of Fair Trading by Mr Phillip and Mrs Bessie Loparta, Representatives of the Owners Corporation at the property ("the Owners Corporation"). The Owners Corporation complained that rectification works undertaken by TQM following Mr Foster's inspection of the property in July 2005 was not properly carried out, and that water penetration problems had resurfaced.
Mr Foster conducted an inspection of the property in December 2007 and issued a new rectification order.
The rectification order stated:
The contractor is required to do the following
1. Rectify water ingress to walls of lift lobby areas to levels 1 & 2, make good render and any consequential damages caused by water ingress and repaint walls and ceilings as required.
High range moisture readings to walls were taken and evidence of water ingress from external wall and planter box area above.
2. Remove soil to planter box and excavate as required to identify source of water ingress to wall. Water proof planter box and wall as required to prevent further water ingress. Make good planter and adjoining areas after excavation and remedial works.
3. Install suitable over flashing to parapet wall as required to prevent water ingress to glass atrium to unit 3 front balcony area.
4. Make good any consequential damage caused by water entry to timber flooring, ceilings and walls.
5. Remove rusting angles to garden planter boxes, render and repaint as required.
The date by which this Rectification Order is to be complied with is: 9th March 2008
inspector: Norman Foster Date: 11th December 2007
The time allowed for completion of the work took account of the difficulties that TQM might experience in carrying out work during the remainder of December 2007 and most of January 2008 due to the Christmas break and summer holidays. It anticipated that the works could be carried out during late January and February 2008. TQM ultimately attended to the works in May 2008.
The Department's determination found that TQM was guilty of improper conduct under section 56(c) of the Act. The Notice allowed TQM to make submissions by 31 July 2009 in that it failed, without reasonable cause, to comply with the rectification order.
A separate determination found that Mr Maroun Taouk, as a director of TQM at all relevant times, was also guilty of improper conduct within section 54(1) of the Act.
Applicable legislation
Part 4 of the Act deals with disciplinary proceedings. Improper conduct is addressed by sections 51 to 54. Sections 51 relevantly provides:
51 Improper conduct: generally
...
(2) The holder of a contractor licence is guilty of improper conduct if the holder:
...
(b) without reasonable cause, does not comply with the requirements of a rectification order under Division 2 of Part 3A ...
Sections 54 of the Act relevantly provides:
54 Improper conduct: members of partnerships or officers of corporations
(1) An individual who is a member of a partnership or an officer of a corporation that is the holder of a contractor licence is guilty of improper conduct if the holder does any of the things referred to in section 51 or 52.
...
An act of improper conduct within section 54(1) of the Act constitutes a ground for taking disciplinary action under section 56(c). Section 56(c) provides:
56 Grounds for taking disciplinary action against holder of a contractor licence
The Director-General may take disciplinary action under section 62 against the holder of a contractor licence on any of the following grounds:
...
(c) that the holder is guilty of improper conduct ...
Section 61 of the Act provides that if the Director-General is of the opinion that there are reasonable grounds for believing that there are grounds for taking disciplinary action under section 62 against the holder of an authority, the Director-General may serve a notice in writing on the holder of an authority, inviting the holder to show cause why he, she or it should not be dealt with under this Division.
The Notice alleged improper conduct under section 56(c) of the Act for failure, without reasonable cause, to comply with the requirements of a rectification order.
Section 62 provides:
62 Disciplinary action that may be taken by Director-General
If, after compliance with this Division, the Director-General is satisfied that any ground on which disciplinary action may be taken against the holder of an authority has been established in relation to the holder, the Director-General may do any one or more of the following:
(a) determine to take no further action against the holder,
(b) caution or reprimand the holder,
(c) make a determination requiring the holder to pay to the Director-General, as a penalty, an amount not exceeding $11,000 (in the case of an individual) or $50,000 (in the case of a corporation) within a specified time,
(d) vary the authority held by the holder, by imposing a condition on the authority, including a condition requiring the holder to undertake a course of training relating to a particular type of work or business practice within a specified time,
(e) suspend the authority for a period not exceeding its unexpired term,
(f) cancel the authority,
(g) disqualify the holder, either temporarily or permanently, from being any one or more of the following:
(i) the holder of any authority, or any specified kind of authority,
(ii) a member of a partnership, or an officer of a corporation that is a member of a partnership, that is the holder of an authority,
(iii) an officer of a corporation that is the holder of an authority.
The Department's case
The Department relied on the evidence of Norman Foster who is the coordinator of the Department's home building disputes unit. Mr Foster undertook an inspection of the property and was responsible for the issuing of the rectification order. Mr Foster attended and gave evidence at the hearing and was cross-examined.
Mr Foster's evidence is that he inspected the property on 11 December 2007. The builder was present for the inspection. Defective items were identified and he allowed TQM four months to complete the works. Mr Foster's evidence is that in setting a time for completion he would have taken account of the holiday period and the possibility of weather impacting on the progress of the work.
He said that he received correspondence dated 27 February 2008 from Mr Taouk on behalf of TQM. That correspondence indicated that the works would not be completed by the specified date as a result of the inclement weather. Mr Foster replied to Mr Taouk indicating that Mr Taouk needed to nominate an alternative date for completion. He was not aware of having received nomination of an alternative date.
On 9 March 2008, the date for completion of the rectification work, Mr Foster contacted TQM. He was advised that the work had been completed however the Owners Corporation representatives disagreed.
Mr Foster undertook a further inspection of the property on 18 March 2008 and prepared a report dated 24 April 2008 ("the 2008 report"). The Department relied on that report as evidence of alleged defective work.
The 2008 report identified two items. Item number 1 was described as "[f]ailed waterproof membranes to planter boxes adjacent lift lobby areas at the rear of unit 2 resulting in water ingress and consequential damages to walls & ceilings of lift lobbies". It stated:
"The work does not comply with [the Building Code of Australia], Part 2.2, Objective O2.2 and Performance Requirement P2.2.2 Waterproofing as water is still entering the building from failed water proof membranes to planter box, it cannot be shown that the work undertaken by the builder has to satisfied satisfy both the Objective and Performance requirements of the BCA. ...
As the builder has failed to address moisture ingress to the building, the internal remedial painting has failed and has not been prepared correctly by way of initial sealer under coat and two top coats. Builder has only scraped away deteriorated painted surfaces and applied single coat of paint, which has also failed.
Why defective and why contractors responsibility
The remedial work undertaken by the builder to rectify the water damage to painted walls of lift lobbies to level 1 & 2 has not been undertaken in a proper and workmanlike manner. Common building practice is to prevent to ingress of water in the first instance and to adequately prepare and repaint the surface to AS/NZS2311 Guide to the Painting of Buildings. The work as it has been carried out detracts from the overall appearance of the contracted works. The builder has undertaken minimal preparation and repainting of surfaces which have already began to fail due to failure of builder to address the water ingress at the source. Thereby not complying with section 18B(a) of the Home Building Act 1989, in that the work will be performed in a proper and workmanlike manner."
Item number 2 in the 2008 report was described as "[w]ater ingress to Glass Solarium roofed area of unit 3 and damage to walls and timber flooring." It stated:
"silicone seal used to seal the glazed roof to the parapet wall of unit 3. No flashing has been provided and there is no evidence Parapet damp proof course to wall or flashing to be seen at weephole. Builder has attempted repair by applying additional silicone to glazed roof area and cleaning of weep holes only ...
The objective of the BCA has not been met as water is still entering the building and damaging the walls and painted surfaces.
The work does not comply with BCA, Part 2.2, Objective O2.2 and Performance Requirement P2.2.2 Waterproofing as water is still entering the building from failed water proof membranes to planter box, it cannot be shown that the work undertaken by the builder has to satisfied satisfy both the Objective and Performance requirements of the BCA.
Why defective and why contractor's responsibility
Builder has failed to provide adequate flashing to glazed roof where it abuts the parapet wall, and has relied on a silicone seal only which does not keep water from entering the inside of the dwelling when it rains, The builder has attempted several times to address water ingress by re-applying silicone. Evidence of high range moisture readings to inside surfaces were noted at the time of inspection along with water staining to walls and ceiling areas.
Mr Foster's evidence was that he did not undertake destructive testing. He considered that the planter box was the obvious source of the problem and excavation was necessary to rectify it. That had not been done. He formed his report on the basis of his observations. He conceded that in the case of moisture ingress to a building it is common for a contractor to explore a number of options to address the problem and if one fails to then try something else. However, his view was that the minimum that should have been done was to remove soil from the planter box and assess the membrane, rectify the problem, check the box then reinstate the soil. At the time of inspection there had been no attempt to do that. A cover could have been placed over the box to permit the work. He estimated that time needed to carry out the planter box work would have been approximately two days to excavate, one day to dry, one day to apply the membrane and one day to reinstate. It could have been covered to allow the work to be completed even if there was concern about the weather.
He also considered that moisture ingress into the lift lobby was a consequence of the failed planter box membrane.
Mr Foster also conceded that there have been no further complaints after the rectification work was completed in May 2008. However, he stated that the time for compliance with the rectification order was 9 March 2008, TQM had advised that it had complied with the rectification order at that time however the Owners Corporation representatives were not satisfied with the outcome.
TQM's case
Mr Taouk appeared on behalf of TQM. He provided detailed written submissions in support of TQM's case and also gave oral evidence. TQM also relies on a statement of Mr Peter Sukkar declared on 9 October 2009. Mr Sukkar was a maintenance contractor employed by TQM to complete the items identified in the Rectification Order.
Mr Taouk submitted that TQM needed dry conditions for the rectification works to be successful, to ensue external waterproofing complied with the manufacturer's specifications. He relied on the daily rainfall statistics for Rose Bay (approximately one kilometre from the property) for the months of January - March 2008 to support his assertion that inclement weather during the months of February and March 2008 pre-vented the area from being dry and thus waterproofing could not be done.
Mr Taouk conceded that he received the rectification order when it was made in December 2007 and he agreed that the work did not commence until February 2008. He said that work could not commence from the time the rectification order was issued because he needed to allocate workers. Mr Sukkar needed to move from other jobs. Mr Taouk stated that Mr Sukkar was self supervised but that he provided him with a daily briefing.
He argued that it is not possible to rectify the defects of Items 1 - 4 properly in high moisture conditions as the membrane would delaminate and fail again. That would result in non-compliance with Part 2.2 of the BCA. He stated that while there were dry days between the rain days the intermittent rain would cause consequential delays due to the existence of high moisture.
He argued that it was not simply a planter box issue. He stated that the rectification of moisture ingress into the lift lobby was through a 600 thick contiguous piled wall that was constructed adjacent to the boundary. During events of heavy rainfall substantial hydrostatic pressures would be exerted against the wall and moisture content on the inside surface of the wall remain high and above the 20% threshold after a rainfall event for approximately 6-8 days after the rainfall event, preventing TQM from waterproofing the wall. He stated that during rainfall extensive groundwater percolates through rock fractures.
He submitted that the Tribunal must take into account the hydrostatic pressure behind the lift lobby wall approximately 4 meters below ground.
Mr Taouk said that at all times the Owners Corporation representatives were made aware of the circumstances of inclement weather and the climatic conditions required for the application of waterproofing membranes. He denied that TQM advised the Owners Corporation that all works required by the Rectification Order were completed. He asserted that the Owners Corporation was aware that the works had always been works in progress pending a clear period in the weather to complete the works.
Mr Taouk relies on Mr Sukkar' statement in regard to the steps that TQM took to rectify the items identified in the Rectification Order. Mr Sukkar also gave evidence at the hearing and was cross-examined. He stated that he attended the site on seven or eight occasions and tried a number of approaches to address the problems. In his statement Mr Sukkar stated:
1 . On the 21 of January 2008, I received a copy of a Rectification Order from the Department of Fair Trading dated 11 December 2007, TQM requested to mc to carry out the works.
2. I was provided the contact details of Mr Lapada who I contacted and scheduled a time to complete the 5 items Listed in the Rectification Order.
3. On the 4 February 2008 there was extensive rain however I did attend site and with Mr Lapada conducted a visual inspection of the defects.
4. Item 1 & 2 of the rectification pertained to a main entrance underground lobby that was adjacent to a boundary and has a planter box on or above it. Item 3 & 4 were related to a leak emanating from a glass atrium in Unit 3. Item 5 was related to some corroding angles in a planter box.
5. The nature of the defects for Items 1 - 4 required the application of water-proof membranes where the manufactures requirements specified that the surfaces need to have moisture content reading of not more than 20%.
6. In the first half of February 2008 we experienced extensive rain, and it was obvious that I could not carry out any works onsite.
7. We rescheduled our team to carry out the works on the 29 February 2008 but again on that day it was raining.
8. We rescheduled to attend site on the 10 March 2008, it was an over cast day but not raining however the moisture measured to the wall was high.
9. We therefore proceed to complete Item 5 in the rectification order and completed those works by the 14 March 2007.
10. The only items we had to complete were Items 1 - 4, however these defects were complicated to assess.
11. In relation to Item 1 &2, the water ingress in the lobby could have come from three locations, the first location was the upper planter box, the second location was the right hand side wall of the lobby that is fully underground and the third location was water ingress from cracks in the render directly above the planter box.
12. I had to adopt trial and error techniques to exactly ascertain form where the water ingress emanated from. I proceeded to seal the cracks where I believed water was entering from and observe the result.
13. In relation to Items 3 & 4, I clipped some render from above the atrium at the interface with the wall and found that the flashing was installed to the atrium. Item 3 of the defects rectification schedule assumed that no flashing existed whereas on removal of the render which overlaps the aluminium angle flashing did exist. I proceeded to apply a hose test to the atrium and identified water ingress along the seal where the glass panel fits into the aluminium channel. I proceeded to cork those joints and requested from the Occupant of Unit 3 Ms Beuler that during the next rain event she carefully observe if any further leaks occur.
14. In order to determine an accurate scope of works it was imperative that we locate the exact nature of the leak.
15. After a prolonged period of dry weather I attended site on the 12 of May 2009, and observed that the areas were dry enough to apply a new membrane in relation to Items 1 & 2. I removed all the soil to the planter box and to the RHS of the wall that was underground. We applied the new membrane over the whole of the area that being the planter box and the RHS of the wall.
16. In relation to Item 3 & 4, although there was an angle flashing installed below the render, we also installed another flashing over the render.
17. We made good any consequential damage and requested from the owners that they directly contact me if they have any further issues.
18. On the 20 March 2009, I called by the properly to observe if there was any leak in the lobby and observed no water ingress. I have also spoken to Mrs Beuler who has advised me she has no further leaks.
Mr Taouk argued that TQM achieved full compliance with the rectification order on 12 May 2008 and that it had reasonable cause for not complying before that time. He submits that for that reason the Tribunal should find that TQM is not guilty of improper conduct.
Discussion
Pursuant to section 51(1)(b) of the Act TQM will be guilty of improper conduct if, without reasonable cause, it failed to comply with the requirements of the rectification order.
It is common ground that the rectification order required TQM to complete the specified work by 9 March 2008. It is also common ground that the work was not completed at that date. Clearly there were delays in complying with the rectification order.
I accept TQM's evidence in regard to inclement weather. It is probable that there were few fine days in February and March 2008. However, the relevant issue is whether the delay in completion of the rectification work was reasonable attributable to the inclement weather. In my view it was not.
I accept Mr Foster's evidence in regard to the order in which work should have been undertaken. Item one referred to water ingress from external wall and planter box. Item two of the rectification order stated:
2. Remove soil to planter box and excavate as required to identify source of water ingress to wall. Water proof planter box and wall as required to prevent further water ingress. Make good planter and adjoining areas after excavation and remedial works.
That work was not undertaken until May 2008. I accept Mr Foster's evidence that the work could have been undertaken prior to 9 March 2008, notwithstanding the rainy weather, if a cover had been put in place over the planter box.
TQM adopted trial and error techniques to ascertain the source of the water ingress. This necessarily resulted in delay and would have been unnecessary if Item two of the rectification order had been carried out as directed. In my view that work could have been carried out prior to the period of continuous inclement weather.
I am not persuaded by TQM's explanation for the delay in commencing the rectification work. The rectification order was issued on 11 December 2007 however Mr Sukkar was not assigned to the work until late January 2008. This delay suggests that TQM had adopted a relaxed attitude to compliance with the rectification order. Had it acted earlier, the delay would not have been experienced.
In the circumstances I am not satisfied that TQM had reasonable cause for its failure to comply with the requirements of the rectification order. It follows that TQM was guilty of improper conduct pursuant to section 51(1)(b) of the Act.
The question then arises as to what, if any, action should be taken against TQM in relation to the matter.
As noted in Woolley v Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 127, the purpose of disciplinary action is not to punish TQM, but to protect the public. The purpose, and application, of the sanctions provisions in section 62 of the Act were discussed by Acting Deputy President Handley in Pilipczyk & Anor v Commissioner for Fair Trading [2007] NSWADT 85:
"... it should be noted that the object of sanctions under the legislation is to protect the consumers of home building services and not to punish. However, as the Commercial Tribunal acknowledged in Building Services Corporation v McIlveen (Commercial Tribunal of NSW, unreported, 18 February 1997), at p 29 "[t]he concept of public protection is wide; it embraces fitness, the maintenance of public standards, public confidence and deterrence both of the particular builder and others in the same occupation". Other relevant factors in considering an appropriate penalty were identified by the Fair Trading Tribunal, comprising Judge KP O'Connor, Chairperson, in Director-General, Department of Fair Trading v Cohen [2000] NSWFTT 3 (' Cohen (2000) '), at par 45:
"a) the nature, width and extent of the contraventions
b) the loss or damage and prejudice in consequence of the contraventions
c) the circumstances in which the contraventions took place
d) whether the licensee has been found to have engaged in any similar conduct
e) the presence of fraudulent or dishonest intent and deliberation on the part of the licensee
f) the extent of carelessness or wilfulness of the conduct
g) the efforts made to correct the situation and what measures have been taken by the licensee
h) what consciousness the licensee (a) had (b) displayed, of its obligations under the relevant statute and to the owners
i) the effect upon the licensee
j) antecedents
k) attitude, building history and future compliance
l) the penalty range."
The maximum penalty payable under section 62(c) in the case of a corporation is $50,000. The Department's determination was to impose a penalty of $2,500. The penalty suggests that the conduct was not regarded as trivial. While it is clearly to the lower end of the scale, it is not at the bottom of the scale. It was open to the Department to impose a lesser penalty, to issue a caution or reprimand or to take no action against TQM.
It is not in dispute that the work required by the rectification order was completed by 12 May 2008. In my view it is probable that the loss or damage and prejudice in consequence of that two month delay would have had minimal. The inclement weather and consequential water ingress was mostly prior to 9 March 2008, the specified date for completion. There is no suggestion that TQM disputed its obligation to perform the work. In fact, if the factors identified in Cohen (2000) are considered they are mostly favourable to TQM.
Notwithstanding the views that I have expressed above, I am satisfied that TQM acted in good faith in regard to completion of the work. In the circumstances it is my view that the penalty imposed on TQM is excessive. Nevertheless, I consider that some form of disciplinary action is warranted in the interests of public confidence and deterrence. I consider that a more appropriate sanction than a penalty would be to caution the applicant as permitted by section 62(b) of the Act.
Order
The decision under review is set aside, and in substitution for that decision TQM Design and Construct Pty Ltd is to be issued with a caution in respect of improper conduct in relation to work carried out at 174 Victoria Road, Bellevue Hill.
I hereby certify that this is a true and accurate record of the reasons for decision of the Administrative Decisions Tribunal.
Registrar
Decision last updated: 10 June 2011
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