Ashton v Stevenson; Stevenson v Ashton

The Conduct of Internal Appeals

1. Internal appeals may be made as of right on a question of law, and otherwise with the leave of the Appeal Panel: s 80(2) Civil and Administrative Tribunal Act 2013 (NCAT Act).
2. In Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 the Appeal Panel set out at [13] a non-exclusive list of questions of law: 1. Whether there has been a failure to provide proper reasons; 2. Whether the Tribunal identified the wrong issue or asked the wrong question; 3. Whether a wrong principle of law had been applied; 4. Whether there was a failure to afford procedural fairness; 5. Whether the Tribunal failed to take into account relevant (i.e., mandatory) considerations; 6. Whether the Tribunal took into account an irrelevant consideration; 7. Whether there was no evidence to support a finding of fact; and 8. Whether the decision is so unreasonable that no reasonable decision-maker would make it.
3. The circumstances in which the Appeal Panel may grant leave to appeal from decisions made in the Consumer and Commercial Division are limited to those set out in cl 12(1) of Schedule 4 of the NCAT Act. In such cases, the Appeal Panel must be satisfied that the appellant may have suffered a substantial miscarriage of justice on the basis that: 1. the decision of the Tribunal under appeal was not fair and equitable; or 2. the decision of the Tribunal under appeal was against the weight of evidence; or 3. significant new evidence has arisen (being evidence that was not reasonably available at the time the proceedings under appeal were being dealt with).
4. In Collins v Urban [2014] NSWCATAP 17, the Appeal Panel stated at [76] that a substantial miscarriage of justice for the purposes of cl 12(1) of Schedule 4 may have been suffered where: … there was a "significant possibility" or a "chance which was fairly open" that a different and more favourable result would have been achieved for the appellant had the relevant circumstance in para (a) or (b) not occurred or if the fresh evidence under para (c) had been before the Tribunal at first instance.
5. Even if an appellant from a decision of the Consumer and Commercial Division has satisfied the requirements of cl 12(1) of Schedule 4, the Appeal Panel must still consider whether it should exercise its discretion to grant leave to appeal under s 80(2)(b).
6. In Collins v Urban, the Appeal Panel stated at [84] that ordinarily it is appropriate to grant leave to appeal only in matters that involve: (a) issues of principle; (b) questions of public importance or matters of administration or policy which might have general application; or (c) an injustice which is reasonably clear, in the sense of going beyond merely what is arguable, or an error that is plain and readily apparent which is central to the Tribunal's decision and not merely peripheral, so that it would be unjust to allow the finding to stand; (d) a factual error that was unreasonably arrived at and clearly mistaken; or (e) the Tribunal having gone about the fact finding process in such an unorthodox manner or in such a way that it was likely to produce an unfair result so that it would be in the interests of justice for it to be reviewed.

The Appeals

1. Both parties have appealed on grounds involving errors of law and also seek leave to appeal on a number of other grounds.
2. The issues involved are not without complexity and the grounds raised in both appeals are interwoven and overlap with considerations arising under other grounds. Some of the grounds appear to involve issues of both fact and law.
3. The Appeal Panel, having reviewed the grounds of appeal and in recognition of the interrelationship between the issues raised in both appeals, has concluded that it is appropriate to grant leave to both appellants, to the extent necessary, and to address the issues in a legally principled sequence. A significant consideration for the Appeal Panel is that the necessity to consider some of the secondary issues will depend on the determination by the Appeal Panel of the initial and more significant questions.
4. The Appeal Panel, apart from dealing with the identified errors of law, will, to the extent necessary, apply the legal principles applicable to applications for leave to appeal to the determination of those grounds of appeal other than errors of law, as explained at [13] to [18].
5. The Appeal Panel as a precursor to identifying the issues summarises the matters raised in the appeals.

AP 18/31090 Ashton v Stevenson

1. In this appeal the Former Owner challenged the followings findings: 1. (a) there was "significant water penetration into the building" in the location of the first floor balcony on the basis that it is was unsupported by evidence and thus involved an error of law. 2. (b) the defect to the external balcony was a "major defect" on the basis that it was unsupported by evidence and as such was also an error of law. 3. (c) the waterproofing to the balcony walls was defective was also unsupported by evidence and thus also an error of law. 4. (d) the defects in the cladding was a defect in waterproofing and was also a "major defect" on the basis that it each finding was unsupported by evidence. 5. (e) the findings as to defects in the cladding were not "fair and equitable" for several reasons including inappropriate weight having been given by the Tribunal to certain experts evidence. 6. (f) the Former Owner was unable to carry out the necessary work at less cost than a money order was also made without evidence. Thus the conclusion at paragraph 208 in the Decision not to make a work order pursuant to section 48O(1) is challenged.

AP 18/32837

1. In this appeal by the Owner, the principal issue (Grounds 1 to 3) is the finding by the Tribunal that the application was filed more than two years after the relevant residential building work was completed, pursuant to section 3B of the Home Building Act 1989 (the Act). The finding is summarised in paragraphs 62 and 63: 62. Accordingly I find that the respondent has established an earlier date for practical completion for the purposes of section 3B and that therefore the presumption arising pursuant to s3B(3) does not apply in this case. I note that the applicant does not seek to rely upon section 18E(1)(e) and (f). 63. Accordingly the applicant did not commence proceedings before the end of the warranty period in respect of any defect which is not a "major defect" as that term is defined in s18E.
2. The second issue involves findings that certain items, or types, of defective work which, whilst found to be defective, were not a "major defect" within the meaning of section 18E(4) of the Act. This involves "roofing and guttering defects" and "plumbing related defects".
3. Also challenged are the finding that the reasonable cost of rectifying the cladding defects was $31,330.09, and the finding that the appellant had not established that the windows in the eastern side of the building involved a breach of the statutory warranties under section 18B of the HB Act.
4. The allowance for preliminaries is said to be inadequate and the method of assessing quantum were also disputed.

The Issues

1. The Appeal Panel addresses the issues in the following sequence: 1. The Date of Completion under section 3B of the Act 2. The definition of a "major defect" under section 18BE(4) of the Act 3. Were those items found by the Tribunal, "major defects" 4. Ought other defects have been found to be "major defects" 5. Were the 'cladding defects' findings of the Tribunal "fair and equitable" 6. Did the finding as to the Windows an appealable error 7. Quantum Issues 8. Whether a work order ought to have been made.

The Date of Completion under section 3B of the Act

1. The Owner's appeal in Grounds 1 to 3 asserts an error of law in the interpretation and application of section 3B of the HB Act.
2. The finding of the Tribunal at paragraph 58 of the Decision was: 58 However I am persuaded on the evidence before me that the work was completed within the meaning of s3B(2), that is "completed except for omissions and defects that do not prevent the work being reasonably capable of being used for its intended purpose" in May 2014. I reach this conclusion, notwithstanding Mr Ashton's emails, by reason of: 1. The unchallenged evidence of Henrietta Ashton that she had moved into the property on 14 May 2014 and that the work was completed at that date or shortly thereafter; 2. The tax invoices for roofing materials which were included in the respondent's evidence which suggest the roofing work was being carried out in March or April 2014; 3. The evidence of Mr Edwards, which, although he was only able to speak as to the completion of the internal carpentry work, does indicate that that work was completed by May 2014; and 4. The fact that the respondent applied for an Occupation Certificate in May 2014 and that the Council officer wrote to the respondent in July 2014 pointing out discrepancies between the work as completed and the approved plans.
3. The Tribunal considered the evidence and submissions relied upon by the Owner, explained why the contentions were not accepted, and concluded: 62. Accordingly I find that the respondent has established an earlier date for practical completion for the purposes of section 3B and that therefore the presumption arising pursuant to s3B (3) does not arise in this case. I note that the applicant does not seek to rely upon section 18E(1)(e) and (f) 63. Accordingly the applicant did not commence proceedings before the end of the limitation period in respect of any defect which is not a "major defect" as that term is defined in s 18E
4. The issue to be determined is whether the Tribunal made an appealable error. The Owner has focussed upon the suggested unreliability of the Former Owner's evidence.
5. Section 3B of the Act provides: 3B Date of completion of residential building work (1A) This section does not apply to residential building work to which section 3C applies. Note. Section 3C provides for the date of completion of new buildings in strata schemes. (1) The completion of residential building work occurs on the date that the work is complete within the meaning of the contract under which the work was done. (2) If the contract does not provide for when work is complete (or there is no contract), the completion of residential building work occurs on practical completion of the work, which is when the work is completed except for any omissions or defects that do not prevent the work from being reasonably capable of being used for its intended purpose. (3) It is to be presumed (unless an earlier date for practical completion can be established) that practical completion of residential building work occurred on the earliest of whichever of the following dates can be established for the work: (a) the date on which the contractor handed over possession of the work to the owner, (b) the date on which the contractor last attended the site to carry out work (other than work to remedy any defect that does not affect practical completion), (c) the date of issue of an occupation certificate under the Environmental Planning and Assessment Act 1979 that authorises commencement of the use or occupation of the work, (d) (in the case of owner-builder work) the date that is 18 months after the issue of the owner-builder permit for the work. (4) If residential building work comprises the construction of 2 or more buildings each of which is reasonably capable of being used and occupied separately, practical completion of the individual buildings can occur at different times (so that practical completion of any one building does not require practical completion of all the buildings). (5) This section applies for the purposes of determining when completion of residential building work occurs for the purposes of any provision of this Act, the regulations or a contract of insurance under the Home Building Compensation Fund.
6. The parties contended that a number of different dates to be that which was, in fact, the date for completion for the purposes of determining when the limitation periods commenced, see paragraphs 34 to 36 of the Decision. 34. The applicants relied upon the presumptions set out in sub-paragraphs (c) and (d) of sub-section 3B(3). The occupation certificate was issued on 22 September 2015. The owner-builder permit was issued to the respondent on 7 August 2013. The date which was 18 months after that date was 7 February 2015. As that date is earlier than the issue of the occupation certificate, the presumption arising from s 3B(3) is that the work is presumed to have been completed on 7 February 2015. 35. If the respondent is unable to establish that the work was completed at an earlier date, the warranty period in respect of those defects which are not major defects would not have expired until 7 February 2017, by which the time the applicant had commenced proceedings. 36. As noted above, the respondent asserted that the work was completed by May 2014. If that is correct, the work was completed more than two years before the applicant commenced the proceedings, and the proceedings would have been commenced after the end of the warranty period in respect of any defects that are not "major defects" as defined in s18E.
7. The relevant factual background to consideration of this issue is: 1. The Owners exchanged contracts for the sale of the Property on 23 March 2016. 2. The Contract for Sale did not include a Building Report or a Pest Report. 3. The Contract was settled on 24 May 2016. 4. In June 2016 the Owner noticed a water leak in the interior of the property and communicated with the Former Owner. 5. The Owner commenced HB 16/50587 on 20 November 2016.
8. It follows that for the Owner to have commenced the proceedings within the limitation period for a claim concerning defects other than a "major defect", he would have to prove that the residential building work was not completed before 20 November 2014. The alternative to the presumptions in subsection 3B (3) of the HB Act is stated as: "unless an earlier date for practical completion can be established".
9. The Owner in his appeal has sought to challenge the finding by the Tribunal by identifying uncertainty associated with the Former Owner's evidence, including the absence of evidence from her husband.
10. The first date relied upon by the Owner was that under subsection 3B (3)(d), namely 18 months after the owner-builder permit was issued, see the reference in paragraph 34 of the Decision. One aspect of the Former Owner's evidence which was unchallenged was the evidence of her daughter that she moved in to the Property on 16 May 2014 and observed that the renovation of the Property was complete except for a parquetry floor and carpet in the attic.
11. The evidence as to when the last items of work were completed was given by a carpenter and a plumber. In the case of the carpenter his evidence was that the floor was completed during May 2014. The evidentiary challenge faced by the Owner was substantial and, in effect, the task was to prove that the residential building work remained incomplete after 20 November 2014.
12. The events which the Owner relied upon, were those listed in subsections 3B(3)(c) and (d) of the HB Act, respectively, 18 months after the issue of the owner-builders permit, 7 February 2015, and the date of the issue of the Occupation Certificate, 22 September 2015.
13. The Appeal Panel notes that the Tribunal referred to the role of the Council in dealing with the Occupation Certificate application lodged by the Former Owner in mid-May 2014. As to the state of completeness of the residential building work the Appeal Panel considers that the evidence of the Council's understanding at the time the application was made for the Occupation Certificate, is probative and independent.
14. The events involved in the application for, and delivery of, the Occupation Certificate are accordingly of some importance, in particular the correspondence from the Council to the Former Owner.
15. The letter from the Council to the Former Owner on 9 July 2014, in response to the application for the Occupation Certificate, referred to the difference between the approved drawings and the building as completed, or as referred to by the Council officer in a later email, the works "as-built": In the circumstances, it is advised that you will need to contact Councils Planning Unit to resolve the areas of variation with the approved Development Consent and most recent Section 96 approved plans. Following resolution of these matters, the issues In relation to the areas of variation from your approved Construction Certificate will also need to be addressed. Please note that an Occupation Certificate will not be considered until the above matters are satisfactorily resolved, and where amendments to the plans are not deemed to be "substantially the same" as the completed works, that portion of works may be deleted from any future occupation certificate.
16. Apart from the Council's concerns about the inconsistency between the building work as completed and the approved plans, the Council would have needed to be satisfied that the building work was, in fact, completed.
17. If the inconsistency between the work as completed and the approved plans had not been resolved by means of the Former Owner's application to the Council under section 96 of the Environmental Planning and Assessment Act 1979, there may have been a problem in proving "completion". Having reviewed the evidence about the prolonged resolution of this issue, the Appeal Panel concludes that the work as completed was approved by the Council. Thus there was no building work required after mid-May 2014 to ensure compliance.
18. The Appeal Panel considers that the recognition by the Council that such building works as had been built were complete, supports the Tribunal's conclusion, based on the evidence listed in paragraph 58 of the Decision, see [32]. The Appeal Panel also concludes that the Tribunal's analysis of the evidence on this issue was correct.
19. The Owner's appeal on the ground of an error of law in the finding at paragraph 62 and 63, see [32], will be dismissed.

The definition of "major defect" under section 18B(4) of the Act

1. To understand the context some review of the progressive "reforms" introduced to the legislation is helpful.
2. Prior to 1 February 2012 section 18E of the Act provided: 18E Proceedings for breach of warranties (1) Proceedings for a breach of a statutory warranty must be commenced within 7 years after: (a) the completion of the work to which it relates, or (b) if the work is not completed: (i) the date for completion of the work specified or determined in accordance with the contract, or (ii) if there is no such date, the date of the contract. (2) The fact that a person entitled to the benefit of a statutory warranty specified in paragraph (a), (b), (c), (e) or (f) of section 18B has enforced the warranty in relation to a particular deficiency in the work does not prevent the person from enforcing the same warranty for a deficiency of a different kind in the work (the other deficiency) if: (a) the other deficiency was in existence when the work to which the warranty relates was completed, and (b) the person did not know, and could not reasonably be expected to have known, of the existence of the other deficiency when the warranty was previously enforced, and (c) the proceedings to enforce the warranty in relation to the other deficiency are brought within the period referred to in subsection (1).
3. The Home Building Amendment Act 2011 No 52 (the 2011 Act) made a number of amendments to the Act and the Home Building Regulation. The principal amendment was to section 18E of the Act. The 2011 Act commenced on 1 February 2012 and from that date section 18E provided: 18E Proceedings for breach of warranties (1) Proceedings for a breach of a statutory warranty must be commenced in accordance with the following provisions: (a) proceedings must be commenced before the end of the warranty period for the breach, (b) the warranty period is 6 years for a breach that results in a structural defect (as defined in the regulations) or 2 years in any other case, (c) the warranty period starts on completion of the work to which it relates (but this does not prevent proceedings from being commenced before completion of the work), (d) if the work is not completed, the warranty period starts on: (i) the date the contract is terminated, or (ii) if the contract is not terminated the date on which work under the contract ceased, or (iii) if the contract is not terminated and work under the contract was not commenced the date of the contract, (e) if the breach of warranty becomes apparent within the last 6 months of the warranty period, proceedings may be commenced within a further 6 months after the end of the warranty period, (f) a breach of warranty becomes apparent when any person entitled to the benefit of the warranty first becomes aware (or ought reasonably to have become aware) of the breach.
4. The 2011 Act also introduced a new Part 19 Provisions consequent on the enactment of the Home Building Amendment Act 2011 in Schedule 4 Savings and Transitional provisions of the HB Act (the 2011 Amendments) which included: 109 Proceedings for breach of statutory warranties The amendment made to section 18E by the amending Act does not apply in respect of a contract for residential building work entered into before the commencement of the amendment.
5. The consequence of the 2011 Amendments was that the limitation period within which a building claim based on a breach of a statutory warranty could be brought was reduced from 7 years to 6 years if the breach resulted in a structural defect (as defined in the regulations), and to 2 years for any other case.
6. The consequence of the introduction of Clause 109 in the new Part 19 of Schedule 4 was that if the contract under which the claim arose was entered prior to 1 February 2012, then the 2011 Amendments would not apply to the claim.
7. The Home Building Amendment Act 2014 No 24 (2014 Act) amended the Act to further refine the definition of breaches of statutory warranties and by inserting a new Part 20 Provisions consequent on enactment of Home Building Amendment Act 2014 into Schedule 4 of the Act, (the 2014 Amendments). Included in Part 20 were clauses relating to the amendment to statutory warranties and the time limitations contained in s 18E of the Act. It did not however alter the limitation periods applicable to such claims.
8. The relevant 2014 Amendments to s 18E commenced on 15 January 2015.
9. After the 2014 Amendments s 18E provided that: 18E Proceedings for breach of warranties (1) Proceedings for a breach of a statutory warranty must be commenced `in accordance with the following provisions: (a) proceedings must be commenced before the end of the warranty period for the breach, (b) the warranty period is 6 years for a breach that results in a major defect in residential building work or 2 years in any other case, (c) the warranty period starts on completion of the work to which it relates (but this does not prevent proceedings from being commenced before completion of the work), (d) if the work is not completed, the warranty period starts on: (i) the date the contract is terminated, or (ii) if the contract is not terminated the date on which work under the contract ceased, or (iii) if the contract is not terminated and work under the contract was not commenced the date of the contract, (e) if the breach of warranty becomes apparent within the last 6 months of the warranty period, proceedings may be commenced within a further 6 months after the end of the warranty period, (f) a breach of warranty "becomes apparent" when any person entitled to the benefit of the warranty first becomes aware (or ought reasonably to have become aware) of the breach. (2) The fact that a person entitled to the benefit of a statutory warranty specified in paragraph (a), (b), (c), (e) or (f) of section 18B has enforced the warranty in relation to a particular deficiency in the work does not prevent the person from enforcing the same warranty for a deficiency of a different kind in the work ("the other deficiency") if: (a) the other deficiency was in existence when the work to which the warranty relates was completed, and (b) the person did not know, and could not reasonably be expected to have known, of the existence of the other deficiency when the warranty was previously enforced, and (c) the proceedings to enforce the warranty in relation to the other deficiency are brought within the period referred to in subsection (1). (3) The regulations may prescribe defects in a building that are not (despite any other provision of this section) a major defect. (4) In this section: "major defect" means: (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. Note: The definition of "major defect" also applies for the purposes of Section 103B (Period of cover). "major element" of a building means: (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.
10. The 2014 Amendments added Clause 120 within Part 20 of Schedule 4 of the Act (cl 120) which provides: 120 Application of Part (1) This Part prevails to the extent of any inconsistency with any other provision of this Schedule. (2) Regulations made under clause 2 of this Schedule have effect despite any provision of this Part.
11. The 2014 Amendments also inserted Clause 121 into Part 20 of Schedule 4 of the Act (cl 121) which provides that: 121 General operation of amendments (1) Except as otherwise provided by this Part or the regulations, an amendment made by the amending Act extends to: (a) residential building work or specialist work commenced or completed before the commencement of the amendment, and (b) a contract to do residential building work or specialist work entered into before the commencement of the amendment (including a contract completed before that commencement), and (c) a contract of insurance entered into before the commencement of the amendment, and (d) a loss, liability, claim or dispute that arose before the (e) an application for a licence or certificate that is pending on the commencement of the amendment. (2) However, an amendment made by the amending Act does not apply to or in respect of: (a) proceedings commenced in a court or tribunal before the commencement of the amendment (whether or not the proceedings were finally determined before that commencement), or (b) a claim made before the commencement of the amendment under a contract of insurance (whether or not the claim was finalised before that commencement).
12. The consequences of the 2014 Amendments, which commenced on 15 January 2015, were first to redefine the nature of a defect to which the 6-year limitation period applied as being a major defect rather than a structural defect. The new definition refers to serious problems which impact upon habitability and use of the building and to its potential destruction. The amendments, nevertheless, did not change the breach of statutory warranty limitation periods.
13. The introduction of Clauses 120 and 121 to Schedule 4 make it clear that the 2014 Amendments apply to work undertaken, and contracts entered into, prior to their introduction, and limit the consequences of the 2014 Amendments for proceedings commenced and claims made prior to their commencement.
14. Subsection 18E(2) of the Act, whilst permitting multiple proceedings, and possibly the amendment of existing Home Building Applications, to include additional claims based upon a further breach of a statutory warranty ("the other deficiency"), does not extend the limitation period for the additional claims.
15. The jurisdiction of the Tribunal to hear and determine residential building claims is provided in s 48K of the Act. Section 48K relevantly provides: 48K Jurisdiction of Tribunal in relation to building claims (1) The Tribunal has jurisdiction to hear and determine any building claim brought before it in accordance with this Part in which the amount claimed does not exceed $500,000 (or any other higher or lower figure prescribed by the regulations). (3) The Tribunal does not have jurisdiction in respect of a building claim relating to goods and services that have been supplied to or for the claimant if the date on which the claim was lodged is more than 3 years after the date on which the supply was made (or, if made in instalments, the date on which the supply was last made). (7) The Tribunal does not have jurisdiction in respect of a building claim arising from a breach of a statutory warranty implied under Part 2C if the date on which the claim is lodged is after the end of the period within which proceedings for a breach of the statutory warranty must be commenced (as provided by section 18E).
16. Section 48K of the Act differentiates between building claims which are based on breaches of statutory warranties, and other categories of building claims.

Were the Defects found by the Tribunal, "major defects"

1. The Tribunal found that there were "major defects" associated with "waterproofing" in the manner in which a balcony had been constructed and in the manner in which wall cladding had been installed.

Proving that a defect is a major defect

1. The Appeal Panel in Vella v Mir [2019] NSWCATAP 28 at [44] explained the sequence of the analysis by a Tribunal in assessing a breach of warranty claim. In Vella the issue of whether the limitation defence under s 18F of the HB Act was a jurisdictional issue. 44. Generally speaking, when deciding whether the Tribunal has jurisdiction to hear and determine a statutory warranty claim the Tribunal must: (1) Decide when the statutory warranty period starts; that is (generally) the date on which the work was completed: see s 18E(1) and s 3B (unless the building work is in a strata scheme, in which case s 3C applies in respect of completion date); (2) If a statutory warranty has previously been enforced, decide whether s 18E(2) applies; (3) Decide whether each of the claimed defects is in a major element of a building as defined in the note to s 18E(4); (4) Decide whether each of the claimed defects in a major element is a major defect as defined in s 18E(4); (5) Decide whether the application has been made in time by reference to the date on which the statutory warranty period commenced, the date on which the statutory warranty period will end (or the date on which it ended) and the date on which the application to the Tribunal was lodged.
2. The definition in Section 18E (4) of the HB Act is: "major defect" means: (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, ……….
3. The redefinition of the category of an item of defective work for which the longer limitation period is to apply, from a 'structural defect' to a 'major defect' involves considerably more than the mere difference in the definition.
4. The first step in the analysis is that the defect must be part of a "major element" of a building. The definition of "major element" includes "waterproofing". This inclusion does not, however, mean that any, or all, defects involving an imperfection in the system of waterproofing of a building is a "major defect".
5. The extent to which a defect in the waterproofing system of a residence impacts on habitability or the integrity of the building needs to be proved by the proponent of a "major defect". This was addressed in Panchal v Jones t/as Oz Style Homes [2018] NSWCATD 238: 87. The defect does not need to be shown to make the habitation or use of the building (or part of it) impossible, but it must be such that the habitation or use of the building (or any part of it) cannot be for its intended purpose. 88. There are many instances in which water penetration into a building diminishes the amenity and use of the building. The impact of the defect and the extent of its interference with the intended use will vary. The definition suggests that the impact of a defect in the waterproofing upon the capacity to inhabit or use the building for its intended purpose must be shown to be significant. 89. In some respects the impact upon the capacity to inhabit or use the building will depend upon the magnitude of the problem. 90. The evidence before the Tribunal, including videos, disclosed the extent and widespread impact of the water penetration in the two residences.
6. The consequences of the defect must be shown to have, or to probably have, a proven consequence for the habitation, or use, of the building, or to the integrity of the building. This is a matter for evidence which must be adduced to prove all of the elements required to establish a "major defect".
7. Subsection 18E(4)(a)(i) requires that there be a proven, or probable, inability to inhabit, or to use the building. This requires proof of something more than inconvenience. To prove that a defect has caused either of the consequences there has to be evidence as to the actual impact. In the absence of such evidence the claim will fail. The Appeal Panel considers that the evidentiary onus cannot be satisfied by speculation or assumption.
8. The possible consequences of the defect, defined in subsections 18E(4)(a) (ii) and (iii) are at the high end of consequences, or impacts upon a building. The reference to "destruction of the building or any part of the building" does not connote a minor potential process of deterioration. The reasonably presumed legislative intention is that there must be evidence of a real possibility of destruction, not merely incidental damage or superficial deterioration. These elements also need to be established by probative evidence of what the impact has actually been, or what it probably will be. Evidence from the occupants or users of the building would be necessary to establish these elements of the claim.
9. To establish, or prove, the probability of the destruction of the building, or any part of a building, must involve more than a speculative, or pessimistic, assessment of possibilities. The proponent of a "major defect" should be required to prove that the defect will have the prescribed consequence, or that it probably will have the prescribed consequence.
10. As noted in Vella, at paragraph 49, there needs to be evidence that the consequences are imminent or probable, and that expert evidence may assist in that analysis, but is not conclusive. 49. Expert evidence is clearly relevant to whether a claimed defect is in a major element of a building and whether it meets the definition of a major defect in s 18E(4). However, it is not determinative of the issue.
11. The Appeal Panel notes that one of the defects identified by the principal expert for the Owner was that the drainage outlet in the balcony floor could not cope with a surge of rainwater and there was no provision of an overflow spitter pipe. This suggests that the defect which may have caused the rainwater entry, which stained the ceiling, was something less than a "major defect".
12. In Vella, the Appeal Panel had to consider whether the evidence of an expert witness had adequately addressed the causation required to establish a "major defect". This Appeal Panel accepts that expert evidence as to the required causation may be of assistance to a Tribunal, however concludes that such expert evidence has to rise above speculation and suggestions as to possibilities.
13. Evidence about the inability to inhabit or to use a building are exclusively matters requiring evidence of the facts which diminish the ability to inhabit or to use of the building. In these proceedings the evidence of the consequences of the water leak from the balcony does not extend beyond photographs of some marks on the ceiling below the balcony.

The balcony

1. The Tribunal commented at [66] that "the evidence of the water penetration is limited", and noted that the only evidence from which it could be assumed that water had penetrated was two stains on the ceiling below the balcony. The Tribunal noted at [75]: Although it is impossible to determine whether the water stains visible in the living room were caused by water penetration from the balcony, I am satisfied that the balcony was not constructed in accordance with the relevant standards.
2. Further at [82] the Tribunal although recognising the inadequacy of the evidence concluded: As noted above, although the evidence of water penetration was scant, I am satisfied that there has been significant water penetration into the building as a result of the defective balcony and that if the defects are not rectified that water penetration is likely to recur…."
3. The difficulty which the Tribunal faced was the absence of probative evidence that the water penetration, evident by stains on the ceiling, was caused by some identified defect and further that the water penetration actually created any of the consequences in s18E (4) of the HB Act. The Appeal Panel understands that there was no evidence of heightened moisture content readings within the stained areas of the ceiling. Such evidence is frequently relied upon in proving water penetration.
4. The Appeal Panel is concerned that there was no evidence from the Owner as to the actual extent of water penetration which occurred, or as to the frequency of the occurrences, if there was more than one. The nature and frequency of the occurrence of water penetration and the probability of further events are considerations which the Tribunal was unable to address.
5. Further there was no evidence as to the impact which the possibly occasional incapacity of the balcony drainage to deal with the accumulation of rainwater in particular unidentified weather events. The only evidence of water penetration and the prescribed consequences was the stains on a ceiling below the balcony.
6. The expert evidence appears not to have been based on actual evidence of what occurred and was substantially prepared on the basis of assumptions as to the nature and extent of the defects and the possible consequences.
7. Before the presumption by expert witnesses of future consequences when considering whether there is a major defect, there needs to evidence on which assumptions can properly be drawn.
8. Speculation as to the unknown extent of the problem is not a proper basis for a conclusion that a defect amounts to a major defect.
9. The conclusion by the Tribunal at paragraph 82, see [80], that there was "significant" water penetration was unsupported by any evidence as to what in fact occurred.
10. The Appeal Panel concludes that the finding in [82] was not open to the Tribunal on the limited evidence before it as to the extent and frequency of the water penetration, and as to the actual impact which such water penetration as did occur, had in fact caused.
11. The Former Owner's Appeal on Grounds 1 and 2 AP in AP 18/31090 will be allowed.

The cladding defects

1. The Former Owner appeals from the findings of the Tribunal at paragraph 177 and 179 concerning the cladding defects: 177. Mr Karsai asserted that the defects relating to the cladding were major defects. The respondent submitted it was not a major defect. The defects are clearly a defect in waterproofing and, in my view. whether or not they have had to date any significant impact in terms of water penetration, it is likely that they will in due course, both by reason of the encouragement of condensation on the inside of the sarking and by reason of water penetration through joints in the sarking and where the sarking has been installed behind the apron flashing, lead to deterioration and the structural failure of the internal timber wall framing. 179. Accordingly I conclude that the defects in the cladding are major defects and the Tribunal has jurisdiction to hear and determine the applicant's claims in respect of the cladding.
2. The Former Owner's appeal on grounds 3 and 4 challenges the finding that the defects in the cladding installation was a defect in the waterproofing and was also a "major defect". The primary grounds are that the findings are unsupported by evidence and as such involve an error of law.
3. The Former Owner also seeks leave to appeal on the basis that the Tribunal's findings were not "fair and equitable" and involved giving undue weight to the evidence of Mr Karsai.
4. The Former Owner's submissions repeat the extensive challenges raised before the Tribunal as to the reasons why the evidence of Mr Kasai should not be accepted and repeated the objections to the tender by the Owner of a new report by Mr McGill on the last day of the hearing, said to be for the purpose of "shoring up" Mr Karsai's evidence.
5. The background uncontroversial facts, which the Appeal Panel considers have some relevance to this aspect of the Former Owner's appeal are: 1. The cladding installation was completed in February - March 2014. 2. The hearing took place in early November 2017 and 8 February 2017. 3. An invasive inspection was conducted just prior to the hearing on 8 February 2018. 4. There was no evidence adduced at the hearing of water penetration through the cladding since the completion of the works in 2014. 5. There appears to be no evidence of moisture build up behind the cladding when the hearing was conducted, or in the report of Mr McGill dated 2 February 2018.
6. The evidence which the Tribunal relied upon was that of Mr Karsai in particular his evidence that the identified cladding installation defects "will inevitably, in time, lead to moisture penetration into the building".
7. The Appeal Panel is concerned that the Tribunal has reached this conclusion as to what might occur in the future, notwithstanding the absence of evidence that at any time in the four years since the completion of the building works in 2014, water penetration had in fact occurred, and no evidence of moisture build up during the invasive inspection on 30 January 2018.
8. If the thesis that "in the future" moisture might build up within the cladding installation, which might cause a problem, is to be made out, then the proponent of the thesis ought to have supported the thesis by some evidence that moisture had accumulated when the opportunity was presented in January 2018. Further the proponent would need to have a cogent and reasoned explanation of the process that would explain the causation. The mere assertion of causation without reasoned explanation is insufficient.
9. Whilst buildings are not immune from change or progressive deterioration, the means by which an installation which had survived, apparently impervious to water for four years, was asserted to have the potential to deteriorate to the point of destruction would need cogent and reasoned evidence to explain the process.
10. As with the problems which the Tribunal had to deal with when considering the inadequacy in the evidence about water penetration onto a ceiling from the balcony, see [81], the Tribunal was not assisted with evidence of how the consequences of the cladding defects would, or were likely to, lead to water penetration in the future,
11. This evidentiary vacuum necessitated the acceptance by the Tribunal of an unexplained possibility for a causation of the type listed in s 18E (4) of the HB Act.
12. The Appeal Panel concludes that the Tribunal was in error in the manner alleged by the Former Owner in reaching the conclusions at 177 and 179 of the Decision.
13. The Former Owner's Appeal on Grounds 3 and 4 in AP 18/31090 will be allowed.

Ought other Defects to have been found to be Major Defects

1. The Owner has appealed from the findings at paragraph 137 of the Decision that the roofing and guttering defects were not a "major defect" and at paragraph 161 that the plumbing-related defects were not a "major defect".

Roofing and Guttering Defects

1. The finding as to the roof and gutter defects, that the claims were not brought within the statutory warranty period was at paragraph 137: 137 I find that the defects in the roofing and guttering which the respondent conceded and those which I have found exist are not major defects and accordingly I find that the claims in respect of those defects were not brought within the warranty period and the Tribunal does not have jurisdiction to hear and determine the applicant's claim in respect of those defects.
2. The Tribunal noted at paragraph 129 that the critical consideration for the Tribunal was whether there was evidence which proved that the roofing and guttering defects caused, or probably would cause, any of the consequences listed in subsection 18E (4)(a) of the HB Act.
3. As with a number of the issues raised by the Owner before the Tribunal there was insufficient evidence to establish the required causation. The mere possibility for the extensive defects in the roofing and guttering works would cause or permit water penetration to the Property did not establish that the defects did, or were likely to, have the prescribed consequences.

Plumbing-related defects

1. The finding as to the plumbing-related defects, that the claims were not brought within the statutory warranty, period was at paragraph 161: 161. I am thus not persuaded that any of the "plumbing related" defects are defects in a major element of the building. ' Accordingly the applicant's claim in respect of those defects is brought outside the warranty period and the Tribunal does not have jurisdiction to hear and determine the applicant's claim in respect of those defects.
2. The principal difficulty faced by the Owner was the mistaken reliance on a contention that the "plumbing works" by some means fell within the definition of "waterproofing".
3. The Appeal Panel does not accept that there was any appealable error in the manner in which the Tribunal dealt with these issues.
4. The Owner's appeal on grounds 6 to 10 in the Notice of Appeal will be dismissed.

Were the "cladding defects" findings "fair and equitable"

1. In the light of the Appeal Panel conclusions at [99] this issue does not need to be considered.

The finding as to the windows

1. The Owner appeals from the finding at paragraph 190 in the Decision that there was insufficient evidence to establish a breach of a statutory warranty in relation the windows in the eastern wall of the property: 190 In the absence of specific details of Mr Karsai's moisture measurements I do not find Mr Karsai's evidence sufficient to persuade me that the windows are leaking or that the window installation is defective. Accordingly I find the applicant has not established a breach of s 18B in relation to the construction of the windows in the eastern side of the building.
2. The inadequacy in the evidence of Mr Karsai as to the defects associated with the windows was explained by the Tribunal over a number of paragraphs. The Tribunal at paragraph 189 described the evidence of Mr Karsai as being "somewhat speculative".
3. The Appeal Panel, having examined the evidence, to the extent that it is possible, considers that the Tribunal was correct in the assessment of Mr Karsai's evidence.
4. The Owner's appeal on ground of appeal 12 is dismissed.

Quantum issues

1. In the light of the Appeal Panel's conclusions as to the whether the cladding defects, and the roofing and guttering defects there is no necessity to address the issues of quantum.

Work Order Conclusion

1. There is no necessity to address this issue having regard to the conclusions of the Appeal Panel as to the absence of liability of the Former Owner for the balcony defects, and the cladding defects.

Conclusions

1. The Appeal Panel's conclusions as to the appeals are summarised:

As to AP 18/31090 1. The Appeal on grounds 1, 2, 3, and 4 are allowed. 2. Order 1 in the Decision is to be set aside and an Order made for payment by the Respondent to the Appellant of any amount paid under the Order 3. There is no necessity to make findings in relation to the other grounds of appeal.

As to AP 18/32837 1. The Appeal on grounds 1, 2, 3, 4, 5, 6, 7, 9, 10, and 12 are dismissed. 2. There is no necessity to make finding in relation as to grounds 8, 11, 13, and 14

1. The Appeal Panel considers that it is important for those proponents of a finding that a particular defect, or category of defects, in residential building work is a "major defect", to carefully adduce evidence to prove the separate elements identified in section 18E (4) of the Home Building Act 1989.
2. Evidence of the impact upon the inhabitability or use of the building, referred to in subsection 18E (4)(a)(i), will rarely be a matter for expert evidence and more often will be matter of fact, not opinion.
3. The engagement of expert witnesses to opine on the existence, or otherwise, of the elements of a "major defect" should be undertaken carefully, particularly when dealing with the proof of causation of the consequences referred to in subsections 18E (4)(a)(ii) and (iii) of the HB Act.

Orders

1. In AP 18/31090: 1. The appeal on grounds 1, 2, 3 and 4 allowed. 2. Set aside Order 1 in the Decision and the Respondent is to immediately pay to the Appellant any amount paid under the Order.
2. In AP 18/32837: 1. Appeal on Grounds 1, 2, 3, 4, 5, 6, 7, 9, 10, and 12 are dismissed.
3. As to costs in both appeals 1. Any application for costs of these appeal proceedings is to be filed and served within 14 days of publication of these orders and any response to the costs application to be filed and served within 14 days thereafter. 2. Within a further 28 days thereafter the costs applicant and the costs respondent are to file and serve three copies of submissions and paginated documents on which they rely.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 March 2019