Brendan Jay McAllery and Tracy Catherine McAllery v Alta Building & Developments Pty Ltd

Mr Sheppard as a party to the proceedings 8The Second Further Amended Points of Cross Claim introduced a number of changes to the owners' case against the builder. Importantly, it purported to join Tobias Sheppard as the second respondent to this cross application. No formal order was ever made to name Mr Tobias Sheppard as a party to these proceedings. Nor was any application made before me to name Mr Tobias Sheppard as a party to these proceedings. 9Having reviewed the file relating to HB 10/38289, I note that on 22 August 2011 Mr Sheppard of the builder notified the Tribunal that from that date all correspondence was to be sent to the builder and not to the solicitors that had been representing the builder up to that point. 10There are two possible sources of power for the Tribunal to join a party. The first is section 26(4) of the Consumer, Trader and Tenancy Tribunal Act 2001. The second is section 32 of the Consumer, Trader and Tenancy Tribunal Act 2001. Regulation 26 of the Consumer, Trader and Tenancy Tribunal Regulation 2009 states that: "For the purposes of section 26 (1) of the Act, the classes of proceedings that are prescribed are those in the Residential Parks Division, Retirement Villages Division, Strata and Community Schemes Division, Tenancy Division and Social Housing Division in respect of which 2 or more persons have joint liability." 11Given that these proceedings were commenced in the Home Building Division of the Tribunal, it is clear that the Tribunal has no power to order a joinder of Mr Sheppard under section 26(4) of the Consumer, Trader and Tenancy Tribunal Act 2001 which sub-section provides the Tribunal with power to join parties 'in proceedings to which this section applies' (emphasis added). 12The power of the Tribunal to name Mr Sheppard as a party to these proceedings is in my view contained in section 32 of the Consumer, Trader and Tenancy Tribunal Act 2001 which states that: '(1) The Tribunal may, in any proceedings, make any amendments to any document (for example, an application) filed in connection with the proceedings that the Tribunal considers to be necessary in the interests of justice. (2) Any such amendment may be made: (a) at any stage of the proceedings, and (b) on such terms as the Tribunal thinks fit, but may only be made after notifying the party to whom the amendment relates.' 13So far as I am aware, no order has been made to amend this application to name Mr Sheppard as a respondent in these proceedings and Mr Sheppard has not been notified that the owners case has been amended to include a case against him to the effect that he would be personally liable to pay the owners the sum of $182,391.07 if they were successful in their case against him. 14In proceedings where a party has the benefit of legal representation, as the owners do in this case, in my view it is incumbent on them to make a formal application to name an additional party and to obtain an order from the Tribunal, if they wish to add a party and seek relief against that party. The owners have not taken that step against Mr Sheppard. Merely naming him as a cross respondent in an amended pleading does not operate as an amendment of an application by the addition of a second respondent. I note that on 29 February 2012 the Tribunal granted leave to the owners to file and serve amended points of claim. No order was made granting leave to amend the application to name Mr Sheppard, or any party, as a second respondent. 15However, the proceedings continued on as from 5 June 2012 with the owners' case in application HB 11/04507 being run on the basis of the Second Further Amended Points of Cross Claim. At that point in time, neither the builder nor Mr Sheppard had the benefit of legal representation. 16Given the fact that the parties have proceeded on the basis of the owners' Second Further Amended Points of Cross Claim since June 2012 which pleads a case against Mr Sheppard, reluctantly I am of the view that I should proceed to consider that case against Mr Sheppard, rather than dismiss it on the basis of the owners' failure to obtain an order to amend the application to name Mr Sheppard as the second respondent.

The owners' claim in this application 17The owners' Second Further Amended Points of Cross Claim is the basis for my description of the owners' claim. There are a number of claims made against the builder and Mr Sheppard. However the claim for relief at paragraph 20 of the Second Further Amended Points of Cross Claim does not address each head of claim pleaded. 18The owners' pleaded claim against Mr Sheppard is for misleading and deceptive conduct with respect to future matters and for misleading and deceptive conduct, both of these claims being under the Fair Trading Act 1998. 19The owners also claim against the builder and Mr Sheppard for misleading and deceptive conduct under the Commonwealth Trade Practices Act. 20The owners claim that there was a variation of the contract on 25 August 2009. The claim for relief at paragraph 20 of the Second Further Amended Points of Cross Claim does not address this head of claim although paragraph 8D claims the sum of $3,222.00 in connection with this matter. 21The owners also claim that the builder repudiated the contract, or alternatively that the 'contract ended' when the works reached practical completion on or before 21 December 2009. Damages are not claimed in connection with these issues as the claim for relief at paragraph 20 of the Second Further Amended Points of Cross Claim does not address this head of claim 22The owners have also pleaded a defective works claim against the builder in the sum of $78,612.00. 23The owners also allege that in breach of implied terms the builder has charged the owners $135,744.28 in excess of what is 'reasonable and proper' in relation to variations. The owners' claim for this amount in paragraph 8G. 24The owners also allege that the respondent has charged the owners $145,281.00 in excess of what is 'reasonable and proper' in relation to other work identified in paragraph 8H of the Second Further Amended Points of Cross Claim. 25In paragraph 20 of the Second Further Amended Points of Cross Claim the owners claimed damages against both cross respondents on what was described as the 'First basis' or in the alternative on the 'Second basis'. The First basis sought an order for damages against the second cross respondent in the sum of $182,391.07 pursuant to the Fair Trading Act or alternatively the Trade Practices Act and an order for damages against the builder for defective work in the sum of $78,612.00. 26The Second basis referred to in paragraph 20 of the Second Further Amended Points of Cross Claim is to claim $145, 281.00 against the builder in respect of costs which were allegedly not reasonable and proper and further claims against the builder in the sum of $78,612.00 in respect of costs for defective work. A total of $223,893.00 is claimed under the second basis.

The owners' Trade Practices Claim 27Insofar as the owners at paragraphs 3W to 3Z of the Second Further Amended Points of Cross Claim plead a claim based on the Trade Practices Act, the Tribunal does not have jurisdiction to entertain claims under the Trade Practices Act. The owners' submissions do not address this issue. 28The owners' case under the Trade Practices Act is therefore dismissed on the basis that the Tribunal does not have the jurisdiction to entertain it.

The role of Mr Sheppard 29It seems to me that the first issue that I should consider is the case against Mr Sheppard under the Fair Trading Act and the role in which he was acting in the negotiations for the contract with the owners. The case against Mr Sheppard is based on sections 41 and 42 of the Fair Trading Act 1998 (as amended). 30Mr Sheppard is a director of the builder. He had previously had contact with the owners when a business or company called Mr Benchtops controlled by him carried out work for the owners. Mr Sheppard's evidence is not particularly clear about whether the builder or Mr Benchtops or both of them previously contracted with the owners. In the course of the hearing Mr Sheppard indicated that the builder carried on a business under the name of Mr Benchtops. Mr McAllery stated that his wife suggested to him that they ask Mr Toby Sheppard from Mr Benchtops to provide a quote for their proposed new work which is the subject of these proceedings. 31In any event the evidence of both the owners and Mr Sheppard is that in or about March 2007 Mrs McAllery contacted Mr Sheppard and requested him to prepare an estimate for work at their residence situate at 4 Emperor Place Kenthurst (the 'residence'). The work under consideration was a new sauna, gymnasium, home artist's studio and a covered pergola. Mr Sheppard's evidence was that he prepared an estimate which was sent to Mrs McAllery by an email dated 22 February 2012 which is annexed to her statement. 32The annexures to Mrs McAllery's statement show that she and Mr Sheppard were in email contact with each other regarding the works as from October 2007. It is notable that Mr Sheppard's emails were from Mr Benchtops and naturally Mrs McAllery's emails to Mr Sheppard were to Mr Sheppard personally, but at the email address of Mr Benchtops. 33At paragraph 17 of their written submissions the owners submit that they have made out a case against Mr Sheppard or the builder. The owners do not explain in their submissions precisely how an entitlement has been made out against Mr Sheppard personally.

The basis for proceeding against Mr Sheppard 34The owners misleading and deceptive conduct case against the second respondent is made under sections 41 and 42 of the Fair Trading Act 1987 which were in force at the time of the representations relied upon. 35The basis of the owners' Fair Trading Act claims against the second respondent is the document prepared by him and sent by an email dated 22 February 2008 to Mrs McAllery. This document was described as a spreadsheet costing. The second respondent provided this costing in response to a request from Mrs McAllery to 'prepare an estimate for the cost of constructing a new sauna, gymnasium, home artist's studio and covered pergola' 36The spreadsheet costing was a detailed document made up of 133 items each of which was costed. The total of all items was $297,819.50. GST was not included. There was no mention of profit or overhead. 37It is alleged by the owners that in providing the spreadsheet costing the second respondent expressed an opinion that if he or an entity controlled by him was contracted to perform the works the total cost to the owners would be $297,819.50. It is further alleged that the second respondent did not have a reasonable basis for holding this opinion or had not used a reasonable degree of skill and care as an experienced builder in forming that opinion. In those circumstances it is alleged that the second respondent's expression of the opinion was misleading and deceptive in contravention of 42 of the Fair Trading Act. 38Alternatively it is stated that the same facts as referred to amounted to a representation as to a future matter within the meaning of section 41 of the Fair Trading Act. 39The owners make a case against the second respondent personally, despite the fact that at the relevant time he was acting as a director of the builder, or as a director or owner of Mr Benchtops. 40The High Court decision in Houghton v Arms 225 CLR at 553 is ample authority that such a course is permitted. In Houghton v Arms the High Court held in connection with section 9(1) of the Fair Trading Act 1999 (Vic) that employees were personally liable under section 9 of the Fair Trading Act notwithstanding that they had been acting in the trade and commerce of the corporation and not themselves. 41The case of CH Real Estate Pty Ltd v Jainran Pty Ltd, Boyana Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37, at paragraphs 102 - 105, is to the same effect in connection with section 42 of the Fair Trading Act (NSW). 42On the basis of the authorities referred to in the previous paragraphs, I find that the owners are entitled to mount a case against Mr Sheppard personally despite the fact that at the relevant time he was proceeding as either a director or owner of Mr Benchtops, or as a director of the builder.

Misleading and Deceptive conduct 43The spreadsheet costing did not appear out of a vacuum. As at 22 February 2008 the owners had provided the builder with Plan G which consisted of 12 sheets, all of which were dated August 2007. Mrs McAllery provides this evidence in paragraph 19 of her statement. Mr Sheppard is not specific in his evidence about the plans he had when he prepared the spreadsheet costing. I accept Mrs McAllery's evidence that she provided Mr Sheppard with the Plan G set of plans consisting of 12 sheets, as annexed to her statement. 44I find on the evidence before the Tribunal that the builder's spreadsheet costing was based on Plan G consisting of 12 sheets. 45The owners allege that the spreadsheet costing was a representation. I do not doubt that. The owners allege that the second respondent expressed an opinion that if he or an entity controlled by him was contracted to perform the 'works' the total cost to the owners would be $297,819.50 (Emphasis added). The works are defined in the owners Second Further Amended Points of Cross Claim as 'new gymnasium and artists studio (including ancillary works)'. 46The parties have not referred me to any authorities that deal with the issue of a case based on a cost estimate said to be misleading and deceptive in contravention of section 41 or 42 of the Fair Trading Act, or the equivalent of those provisions. As mentioned above as from 22 August 2011 the builder proceeded without legal representation. With respect to the builder and Mr Sheppard, I doubt whether they had the capability to consider the law relating to section 41 or 42 of the Fair Trading Act or cases based on an estimate of construction costs. In considering the issues that arise in these proceedings, I have had regard to the case of Doepel & Associates Architects Pty Ltd v Hodgkinson [2008] WASCA 262 which concerns a budget given by an architect to his client for the construction of a residence. 47At paragraph 99 of her judgement McLure JA stated: 'The first step is to identify what the trial judge decided as to the content of the representation. The terms of a representation must be clearly and unambiguously identified. If that is not done, it is well nigh impossible to make any sensible judgment as to whether the representation is false, misleading or deceptive or whether the representator had reasonable grounds for making it.' 48Insofar as McLure JA states that 'The terms of a representation must be clearly and unambiguously identified', I have difficulty in reaching a similar view of the opinion or representation arising out of the spreadsheet costing as that contended for by the owners, as described in paragraph 45 of these reasons. It is desirable that if I find that the second respondent made a representation relied upon by the owners, that representation be identified as precisely as possible. 49Given my finding that that Mr Sheppard's spreadsheet costing was based on Plan G consisting of 12 sheets, I find that the representation by him to the owners on 22 February 2008 was that if he or an entity controlled by him was contracted to perform the work shown or depicted on Plan G (consisting of 12 sheets), the cost to the owners would be $297,819.50, exclusive of GST. 50Contrary to the owners' characterization of the builder's opinion or representation, I find that Mr Sheppard's spreadsheet costing was not an opinion or representation that if he or an entity controlled by him was contracted to perform the 'works' the total cost to the owners would be $297,819.50. The manner in which the owners' have characterized this representation has an open ended quality to it. Namely, that the cost of $297,819.50 would be the total or final cost of the works without consideration of any changes or other matters that might affect the works. An opinion or representation that has that effect leads to the conclusion that Mr Sheppard or an entity controlled by him would take the risk of holding that cost, whatever occurred, so long as the finished work retained the character of a new gymnasium and artist's studio (including ancillary works). This is in my view quite unrealistic. 51In my view the nature of the representation made by Mr Sheppard in his spreadsheet costing as referred to above was in the nature of a representation regarding a future matter. Section 41 of the Fair Trading Act 1987 as it was on 22 February 2008 therefore applies. That section states: '(1) For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) The onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) is on the person. (3) Subsection (1) shall not be taken to limit by implication the meaning of a reference in this Part to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead.' 52Pursuant to section 41(2) the onus was therefore on Mr Sheppard to establish that he had reasonable grounds for making the representation that I have found arose out of his spreadsheet costing. 53Mr Sheppard's first statement does not deal with this issue 'head on' most probably because it was prepared before the filing of the Second Further Amended Points of Cross Claim. Neither does Mr Sheppard's second statement. In any event Mr Sheppard's evidence is that he prepared the spreadsheet costing on the basis of the drawings that he had at the time. He states at paragraph 25 of his first statement that he had a conversation with Mrs McAllery about this. Mrs McAllery does not deny this conversation in her statement. Importantly as regards this conversation, Mr Shepard's evidence is that he stated to Mrs McAllery that the plans which I have found were Plan G consisting of 12 sheets, didn't have enough detail and that it would be very difficult for him to provide 'an accurate estimate for the costs of construction with any degree of certainty as to the final cost'. 54In paragraph 26 of his first statement Mr Sheppard states that he prepared the spreadsheet costing based on 'the information I had to hand'. I accept Mr Sheppard's un-contradicted evidence in this regard. 55On the basis of Mr Sheppard's evidence that he was of the view that the plans, which I have found were the Plan G set consisting of 12 sheets, didn't have enough detail, that he told Mrs McAllery of this and that he prepared the spreadsheet costing on the basis of the information that he had, I am of the view that he has established that he had reasonable grounds for making the representation which is constituted by his preparation of the spreadsheet costing. To put it another way he prepared the spreadsheet costing on the basis of the design information that he had been given, which he considered to be incomplete, as disclosed to the owners. 56I have also considered the owners' case under section 42 of the Fair Trading Act 1987 which states that: '(1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2) Nothing in this Part shall be taken as limiting by implication the generality of subsection (1).' 57In considering the owners' case under this section of the Fair Trading Act, it is relevant to keep in mind the fact that as I have found Mr Sheppard's spreadsheet costing was not an opinion or representation that if he or an entity controlled by him was contracted to perform the 'works' the total cost to the owners would be $297,819.50. As stated the effect of such a representation would have been that Mr Sheppard or an entity controlled by him would take the risk of holding that cost, whatever occurred, so long as the finished work retained the character of a new gymnasium and artist's studio (including ancillary works). 58I have found that the conduct of Mr Sheppard was to provide a spreadsheet costing which was limited to a GST exclusive cost of $297,819.50 to perform the work shown or depicted on Plan G consisting of 12 sheets. Further I have found that Mr Sheppard's conduct at the time he sent his spreadsheet costing was to speak to Mrs McAllery and to tell her that that the plans didn't have enough detail and that it would be very difficult for him to provide 'an accurate estimate for the costs of construction with any degree of certainty as to the final cost'. 59The owners' case in connection with section 42 is that the spreadsheet costing was misleading and deceptive because according to Mr Sturgess, an accurate cost of the works on the information that Mr Sheppard had at the time was in the vicinity of $388,724.00. 60The spreadsheet costing was in the sum of $297,819.50 exclusive of GST. If one adds GST, the cost is $327,601.45, some $10,400.00 less than the Alan French quote which was provided to the owners before Mr Sheppard sent the spreadsheet costing. In Doepel & Associates Architects Pty Ltd v Hodgkinson McLure JA stated at paragraph 95: 'However, there are some common requirements for the common law and statutory claims. First, ordinarily, the content of a representation will be determined by the express words or conduct relied on together with all relevant contextual matters that shape and inform the meaning of what can be and is communicated to the representee. Secondly, the relevant representation must be objectively capable (as a matter of law) of arising from the matters relied on. In making that assessment regard is had to contextual matters known to the representee. Thirdly, the question of reasonableness is to be tested as at the date of making the representation and not with the benefit of hindsight: Bill Acceptance Corporation Ltd v GWA Ltd [1983] FCA 269; (1983) 78 FLR ' 61In connection with the contextual matters referred to, the following matters are in my view to be considered in that light. First, Mr Sheppard's evidence was that at the time of sending the spreadsheet costing he told Mrs McAllery that the plans didn't have enough detail and that it would be very difficult for him to provide an accurate estimate for the costs of construction with any degree of certainty as to final cost. Secondly, at the time of receipt the spreadsheet costing the owners had another quote (from Alan French) for the same work in approximately the same amount as the spreadsheet costing. There was a variance of $10,400.00 between the two quotes after allowing GST on the spreadsheet costing. 62In these circumstances, I find that it was highly unlikely that the owners were misled into thinking that the spreadsheet costing was a total cost of executing the works. A significant reason for this is the fact that Mr Sheppard effectively told Mrs McAllery that it was not. In addition, the costing spreadsheet was approximately in the same amount as another quote on estimate obtained by the owners. These reasons are sufficient for me to find that Mr Sheppard did not engage in conduct that was misleading or deceptive or that was likely to mislead or deceive.

Damages 63The owners state that in reliance on Mr Sheppard's email of 22 February 2008 and it follows his spreadsheet costing, they did not proceed with an alternative quote from the builder Alan French, alternatively did not enter into a fixed price contract for $400,000.00 with another builder, but entered into the contract with the builder. 64It is unnecessary for me to consider these issues given that I have found that Mr Sheppard did not contravene either section 41 or 42 of the Fair Trading Act. However if I am wrong in my conclusions, I have nonetheless considered the issues set out in the preceding paragraph. 65In considering the question of whether the owners suffered any loss by reason of the conduct or representation from Mr Sheppard, I have had regard to the following statements from Doepel & Associates Architects Pty Ltd v Hodgkinson. 66At paragraph 48, Martin CJ stated: 'The conventional principles applicable to cases of this kind are well established. They establish that a party who has been subjected to misleading and deceptive conduct or negligent misrepresentation is entitled to be put in the position in which he or she would have been but for the breach of statutory or common law duty (Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1). So, where it is established as a fact that a different course of action would have been taken but for the breach of statutory and/or common law duty, the measure of damages is the sum required to put the innocent party, in this case Mr Hodgkinson, in the position in which he would have been but for the relevant breach of duty.' 67At paragraph 128, McLure JA stated : 'The better view seems to be that an unreasonable underestimation of the cost of construction will not ordinarily result in loss or damage if the owner received a building to the value of the construction costs unless there is a finding that the proprietors would have taken a different course to their financial advantage and that such damage was not too remote: Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 13; Warwick Entertainment Centre Pty Ltd v Alpine Holdings Pty Ltd [2005] WASCA 174 [96].' 68Both Martin CJ and McLure JA refer to Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 in connection with the approach to be taken in connection with the assessment of damages for breach of provisions such as sections 41 and 42 of the Fair Trading Act. At page 13 of that decision Mason J., Wilson J. and Dawson J. stated: 'Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation. If that reliance has deprived him of the opportunity of entering into a different contract for the purchase of goods on which he would have made a profit then he may recover that profit on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation. This may well be so if the plaintiff can establish that he could and would have entered into the different contract and that it would have yielded the benefit claimed (cf. Esso Petroleum Co. Ltd. v. Mardon [1976] EWCA Civ 4; (1976) QB 801, at pp 820-821, 828-829; Doyle v Olby (Ironmongers) Ltd at p 167). The lost benefit is referable to opportunities foregone by reason of reliance on the misrepresentation. In this respect the measure of damages in tort begins to resemble the expectation element in the measure of damages in contract save that it is for the plaintiff to establish that he could and would have entered into the different contract. So in the present case if the appellant were able to establish that, but for his reliance on Mr Rainbird's representation, he could and would have entered into policies of insurance containing a disability clause of the kind represented by Mr Rainbird, he might then succeed in obtaining an award of damages equal to the benefits which would have been payable under such policies less the premiums paid or payable in respect of them.' 69From the above passages it is necessary for the owners to establish that they could and would have accepted Mr Alan French's quote and entered into the contract with him or, as pleaded, with another builder for a contract sum of $400,000.00. I also have had regard to the statement by Martin CJ that it must be established as a fact that a different course would have been taken. 70The owners' evidence was that they did not proceed with the Alan French quote because of the receipt of the spreadsheet costing from Mr Sheppard. In paragraph 20 1) of their Second Further Amended Points of Cross Claim under the First Basis, the owners claim the sum of $182,391.07. This amount is calculated as 'being the difference between the amount paid to the first Cross Respondent and the Alan French quote'. 71If I take the total amount alleged to have been charged by the builder of $520,391.07 and deducting from that amount the Alan French 'fixed price' quote of $338,000.00, the calculation yields a balance of $182,391.07 as claimed by the owners. 72The basis for a claim of this nature must be that if the owners had accepted the Alan French quote, which they say they did not accept because of the conduct of, or representation of Mr Sheppard as contained in his spreadsheet costing, their total liability for the work carried out would have been $338,000.00 and they therefore have sustained damages of $182,391.07 by virtue of the fact that they paid the builder $520,391.07 for the work carried out. 73In connection with this aspect of the owners' case Mrs McAllery frankly states at paragraph 11 of her statement she cannot locate the Alan French quote and nor can Mr French. The absence of this quote makes it impossible in my view even to consider whether the owners would have taken a course to their financial advantage, as compared to proceeding in the way they did in signing the contract, if they had accepted the quote. The reason for taking this view is that while a quote may be described as 'fixed price' as it is in paragraph 30 of the Second Further Amended Points of Cross Claim, but not in the owners' evidence, it is essential to be able to consider the terms of the quote to reach a conclusion about whether it actually offered a 'fixed price' of $338,000.00 which sum could not be altered in any circumstances in the course of constructing the work which the builder ultimately carried out. 74While I accept the owners evidence that they would have accepted the Alan French GST inclusive quote of $338,000.00 if they had not received the spreadsheet costing, the evidence just does not establish that the quote was for a fixed price, as pleaded, or would have led to the owners entering into a true 'fixed price' contract with Mr French in relation to the work that has been performed by the builder. 75The result of this finding is that the evidence does not establish to my satisfaction on the balance of probabilities that if the owners had accepted the Alan French quote and proceeded to contract, that their total liability for the work carried out by the builder would not have exceeded $338,000.00. 76The alternative claim in paragraph 3P of the Second Further Amended Points of Cross Claim is that the owners could have in early to mid 2008 entered into fixed price contracts for a cost of 'around $400,000.00 to do the works in accordance with the approved plans'. The basis for this aspect of the owners' case is the evidence of Mr Sturgess in his expert report. 77The particulars to paragraph 3P of the Second Further Amended Points of Cross Claim do not state precisely where in Mr Sturgess' expert report he deals with this issue. In paragraph 3.3 of his executive summary, and at paragraph 20ii of his conclusion, Mr Sturgess states that in his opinion on the basis of the documents available to the builder in February 2008 'a reasonable builder could have concluded that the construction would cost in the order of $388,724' as set out in paragraph 8.3 of his report. 78At paragraph 8.3 of his report, Mr Sturgess calculates the sum of $388,724.00 on the basis of measuring three areas of the works and then costing each area on a (different) per square metre rate. 79What has been established is that in Mr Sturgess' opinion a reasonable builder could have concluded that the construction would cost in the order of $388,724. In reality all Mr Sturgess has done is a valuation exercise. He has then in my view made an assumption that a reasonable builder would have reached the same conclusion as he has. The basis for this assumption has not been addressed. 80There is no evidence at all that a builder would have entered into a fixed price contract for around $400,000.00 with the owners for the work of constructing a new gymnasium, home artist's studio and a covered pergola. 81On this evidence there is no basis for my finding as a fact, that the owners had the opportunity of entering into a fixed price contract for around $400,000.00 whereby a builder would have done the work described above. 82I find on the evidence available that the owners have not made out their claim that as a matter of fact they could and would have at the relevant time entered into a fixed price contract with another builder for a cost of around $400,000.00 to do the works in accordance with the approved plans. What they have done is to show that was a theoretical possibility. 83For the reasons given above, I find that the owners have not made out their case that they have suffered loss and damage as a result of the builder's spreadsheet costing.

Second Basis of Claim 84I will proceed to consider the owners' case against the builder on the Second basis, the first aspect of which is a claim for $145, 281.00 in respect of costs which were allegedly not reasonable and proper. 85The basis for this claim is the implied terms which are pleaded at paragraph 5 of the Second Further Amended Points of Cross Claim. 86The builder did not plead in response to the Second Further Amended Points of Cross Claim. However, it did plead to the Amended Points of Cross claim dated 7 April 2011 which contains an earlier version of paragraph 5. The builder's Points of Defence are at Annexure TS 59 of Mr Sheppard's statement dated which is exhibit 1. 87The builder denies the implied terms pleaded in paragraph 5(a) and (b) and otherwise admits the warranties implied into the contract pursuant to section 18B of the Home Building Act 1989. 88The builder has not responded to the most contentious of the implied terms pleaded, for the first time, in paragraphs 5 (d), (e) and (f) of the Second Further Amended Points of Cross Claim, namely that: (a)costs incurred by the builder would be reasonable and proper; (b)the owners would not be liable for any costs that were not reasonable and proper; and (c)costs charged by the builder which were not reasonable and proper would be reimbursed to the owners. 89Clause 17 of the contract states that the 'Owner must pay to the Builder the cost of the works a set out in Schedule 1 Part A together with the fee set out in Schedule 1 Part B.' 90Schedule 1 Part A of the contract states what the cost of the works includes. This description is set out in 9 sub-paragraphs. 91Schedule 1 Part B of the contract which is titled 'NOMINATED LUMP SUM' provides that 'The Owner will pay to the builder a fee of $45,000.00plus GST'. 92Clause 3(d) of the contract states: 'Apart from any terms implied by Statute, the whole of the terms, conditions and warranties of this Contract are set out in the Contract, drawings and specification (as set out in Schedule 3) and will not and are not in any way varied or affected by reference to any prior negotiations, stipulations or agreement, whether written or verbal.' 93Following a discussion during submissions about the above clause, counsel for the owners was kind enough to forward to the Tribunal copies of the decision of the High Court in Hart v Macdonald (1910) 10 CLR 417 and a copy of the decision of her Honour Justice Bergin in Insight Oceania Pty Ltd v Philips Electronics Australia Pty Ltd [2008] NSWSC 710. 94In Hart v Macdonald the contract contained a term similar to clause 3(d). Issacs J. stated: 'This action is brought for breach of an implied contract to commence and carry on the manufacture of butter so as to pay for a dairying plant, which was agreed to be supplied under a written agreement consisting of a tender and an acceptance, and to recover the price of the plant. The agreement contains this provision: "It is to be understood that there is no agreement or understanding between us not embodied in this tender and your acceptance thereof." It was urged that this provision excluded implications. But that is not so. It excludes what is extraneous to the written contract: but it does not in terms exclude implications arising on a fair construction of the agreement itself, and in the absence of definite exclusion, an implication is as much a part of a contract as any term couched in express words.' 95In Insight Oceania Pty Ltd v Philips Electronics Australia Pty Ltd the contract between the parties also contained a term similar to clause 3(d) of the contract. Bergin J. stated at paragraph 158 of her judgement: 'The defendant submitted that the plaintiff's claim that there are implied terms must fail because clause 5.1 of the Agreement provides that it is the "entire agreement and understanding between the parties on everything connected with the subject matter of the Agreement". In my view clause 5.1 does not mean that there are no implied terms, rather it means that it is the entire Agreement with whatever express and/or implied terms there may be within it: Hart v MacDonald [1910] HCA 13; (1910) 10 CLR 417, per Griffith CJ at 421 and Isaacs J at 430.' 96The terms considered in Hart v Macdonald and in Insight Oceania Pty Ltd v Philips Electronics Australia Pty Ltd were similar, but not identical to clause 3(d) of the contract. In particular clause 3(d) of the contract states 'Apart from any terms implied by Statute, the whole of the terms, conditions and warranties of this Contract are set out in the Contract'. 97In Hart v Macdonald Issacs J. said of the term that was relied upon to exclude implied terms; 'It excludes what is extraneous to the written contract: but it does not in terms exclude implications arising on a fair construction of the agreement itself, and in the absence of definite exclusion, an implication is as much a part of a contract as any term couched in express words.' 98The issue is whether clause 3(d) has in terms excluded implications. The clause recognises that terms are implied by Statute and then goes on to state that apart from those terms 'the whole of the terms, conditions and warranties of this Contract are set out in the Contract'. In my view, the recognition of terms implied by Statute does not carry with it the meaning that only those implied terms are recognised and that all other implied terms are excluded. 99In my view the phrase 'the whole of the terms, conditions and warranties of this Contract are set out in the Contract' includes implied terms, as Issacs J. stated 'an implication is as much a part of a contract as any term couched in express words.' 100In BAE Systems Australia Ltd v Cubic Defence New Zealand Ltd [2011] FCA 1434 Besanko J stated at paragraph 65: 'I recognise that the terms of clause 1.4 of the Subcontract are different from the terms of the clause considered by the High Court in Hart v MacDonald. Nevertheless, assuming for the purposes of argument that the prevention principle and the duty of cooperation may be excluded by express words of a contract, those words would need to be very clear before a court held that that result had been achieved. The words of clause 1.4 are not so clear as to achieve that result. It seems to me that clause 1.4 precludes reliance on representations, statements, advices or information extraneous to the contract, but not implied terms of the nature alleged by the applicant.' 101The words of clause 3(d) of the contract are not in my view specific enough to exclude the implication of the terms sought by the owners. 102The owners have referred to the case of Onesteel Manufacturing Pty Ltd v United KG Pty Ltd [2006] SASC 119 in support of the terms that they state ought to be implied. 103In Onesteel Manufacturing Pty Ltd v United KG Pty Ltd Debelle J. was concerned with a Target Estimate Contract which he stated was a 'variant of a cost plus contract'. Debelle .J considered in great detail, including a comprehensive review of the relevant authorities, whether a term ought to be implied into that contract that only 'direct actual costs that have been reasonably and properly incurred' could be recovered by the contractor. 104At paragraph 36 of his judgement Debelle J. stated: 'As a matter of general principle and ordinary commercial common sense, it is quite obvious that, in the absence of a clear expression to the contrary, a provision in a building contract which entitles the contractor to be reimbursed for costs incurred will be subject to an implied term that the cost will be reasonably and properly incurred. In the absence of such a provision, the building owner has an entirely open-ended obligation or, looking at the other side of the coin, the contractor has been handed a blank cheque. Such a contract would put a premium on inefficiency and extravagance. There would be no proper accountability for incompetent or unnecessary work. There are, I think, compelling reasons why it is proper to imply a term that Reimbursable Costs should be reasonably and properly incurred.' 105I agree with the reasoning of Debelle J. as referred to above and find that a term is to be implied into the contract as contended for in paragraph 5(d) of the Second Further Amended Points of Cross Claim. However, I find that there is no basis for the implication of the terms set out in paragraphs 5(e) and (f) of the Second Further Amended Points of Cross Claim. These terms go, in my view, to the consequences of a breach of the term referred to in paragraph 5(d). In that sense they are not necessary in order to give business efficacy to the contract. 106I have decided that the contract does contain an implied term that costs payable by the owners should be reasonably and properly incurred. As stated above, the owners claim $145,281.00 in respect of costs which were not reasonable and proper under the Second basis in paragraph 20 of their Second Further Amended Points of Cross Claim. I will now consider the detail of that claim. 107In paragraph 8H of their Second Further Amended Points of Cross Claim, the owners allege that the builder overcharged them in respect of the following items which total $145,281.00: a)Preliminaries - $19,338; b)Concrete Slab, stairs and paved area - $47,011; c)Retaining wall - $21,652; d)Carpentry roof and wall - $22,449; e)Pergola carpentry and columns including breezeway roof - $12,831; and f)Tiling $22,000.00. 108I will proceed on the basis that the costs to which the owners refer in paragraph 20 of their Second Further Amended Points of Cross Claim are those particularised at paragraph 8H, as referred to above. 109The owners bear the onus of proving on the balance of probabilities that the builder has claimed for costs which were neither reasonable nor proper. 110To establish that a builder under a cost plus contract has claimed costs that were not reasonable and proper will in my view require an owner to identify the item of work for which the builder has claimed the cost of, and further to identify the respects in which the costs claimed by the builder were not reasonable and proper. This process will most probably result in the Tribunal reaching a conclusion about what is or was the reasonable and proper cost of the item of work in question. To establish these matters before the Tribunal will ordinarily require expert evidence. 111In their written outline of final submissions, the owners submit that Mr Sturgess gives evidence of the reasonable and proper costs of the job and that his evidence should be accepted in full. Mr Michael George Sturgess from the company Australian Cost Planners Pty Ltd prepared a report on behalf of the owners which is dated 4 June 2012, exhibit H in the owners' case 112The owners have not referred to the precise places in Mr Sturgess's report where he has given evidence in support of the matters pleaded in paragraph 8H of the Second Further Amended Points of Cross Claim. In paragraph 10.3 of his report Mr Sturgess identifies trades that he says 'exhibit significant costs over runs'. The trades that he identifies, with the exception of 'Structural Steel' and 'Landscaping and Retaining Walls', correspond to the trades or work items set out in paragraph 8H of the Second Further Amended Points of Cross Claim. 113Mr Sturgess' report is not un-contradicted. The Further Statement of Mr Tobias Sheppard on behalf of the builder which was undated, but is exhibit 3 in these proceedings addresses Mr Sturgess' report in paragraph 22. The builder's expert Mr Austin does not address the owners' allegations in connection with the items of work referred to above, namely that the builder's charges for this work were in part, neither reasonable nor proper. Mr Austin's undated report which is exhibit 7 in these proceedings does not address these issues despite the fact that paragraphs 10 and 11 of his report address other aspects of Mr Sturgess' report. 114In paragraph 10.4 of his report, in relation to preliminaries, Mr Sturgess states that 'the actual cost incurred for preliminaries are excessive'. The owners' claim $19,338.00 in relation to preliminaries. Mr Sheppard states that the preliminaries costs 'are not excessive'. 115In paragraph 10.5 of his report, in relation to Concrete Slab, stairs and paved area, Mr Sturgess states that the final cost of concrete works 'is excessive'. The owners claim $47,011.00 in relation to the Concrete Slab, stairs and paved area. Mr Sturgess elaborates on this conclusion in paragraph 10.6 of his report. In relation to this item Mr Sturgess states that in his opinion there has been a cost overrun because the builder made a decision to undertake this work on an hourly basis rather than sub-contract the work to Lotus Concretors Pty Ltd who had provided a lump sum quote for the work in the sum of $36,190.00. The total claimed by the builder for carrying out this work on an hourly basis was according to Mr Sturgess, $84,217.00. The reasoning of Mr Sturgess in connection with this item is that in carrying out this work on hourly rates, the builder charged approximately $48,000.00 more than would have been incurred had this work been contracted out. 116In response in his Further Statement, Mr Sheppard states that the costs are not excessive. He states that the actual costs represent the detailed nature of the engineering requirements and that the costs of the slab achieved the best use of site labour. 117In paragraphs 10.7 and 10.8 of his report, in relation to the retaining wall, Mr Sturgess states that the final cost of the retaining wall is excessive against both the builder's original estimate and his own estimate. The owners claim $21,652.00 in relation to the retaining wall. 118In response Mr Sheppard states that Mr Sturgess's estimate of the work to the retaining wall is a gross under-estimate. 119In paragraph 10.9 of his report, in relation to Carpentry roof and wall, Mr Sturgess states that the final cost of carpentry works is excessive against both the builder's original estimate and his own estimate. Mr Sturgess elaborates on this conclusion in paragraphs 10.11and 10.12. The owners claim $22,459.00 in relation to Carpentry roof and wall. 120In relation to this item, Mr Sturgess has stated that the final cost incurred by the builder in carrying out this work was $61,407.00. He states that the builder's estimate of this work was $21,559 and that he estimated the cost of carrying out this work at $38,958.00. Mr Sturgess states that in his opinion the cost overrun was caused by the builder's decision to carry out this work on hourly rates rather than sub-contracting it. He states that the reason for this statement is his own experience and is also based on the labour:materials ratios published in Rawlinsons Australian Construction Handbook 2008 at page 702. Rawlinsons states that for the carpentry trade there is a typical ratio of 55% onsite labour to 45% material supply prices. In annexure B to his report Mr Sturgess calculates that the actual cost of materials for this item of work totalled $17,552. Based on this cost Mr Sturgess calculates that a total cost of $39,004 for this work would be comprised of actual material costs of $17,552, being 45% of the total and a calculated labour cost of $21,452 being 55% of the total. 121In response Mr Sheppard states that Mr Sturgess' estimate of $38,958 is grossly low. He also states in response to Mr Sturgess' point about sub-contracting that the best outcome was to keep the builder's foreman and labourer fully occupied. He states that if all trades were sub-contracted the foreman and labourer would not have been fully occupied. Mr Sheppard also states that Mr Sturgess has not taken into account the heavier structure of the roof, walls and the associated steel cantilevered beams and the construction of the steel portal frame. 122In paragraphs 10.13 and 10.14 of his report, in relation to Pergola carpentry and columns including breezeway roof, Mr Sturgess states that the final cost of this work is excessive against both the builder's original estimate and his own estimate. The owners claim $12,831.00 in relation to Pergola carpentry and columns including breezeway roof. 123In response, Mr Sheppard states that Mr Sturgess has not taken into account the handling and erection of the steel structure required to support the pergola and the handling and erection of the concrete columns. 124In paragraph 10.16 Mr Sturgess states that tiling totalling $22,000.00 was deleted from the contract works, but there was not a credit included in the builder's scott schedule claim. 125In response, Mr Sheppard states that while there was no tiling, there was an extra requirement for a polished slab with associated formwork, finishing and grading to allow for drainage falls. 126With respect, the reasoning provided by Mr Sturgess is not persuasive. If work is deleted from the contract works, the consequence will be a reduction in the contract price. The owner will not be charged for the deleted works. Mr Sturgess does not state that there was no reduction in the contract price. Further, there is no evidence that despite the deletion of tiling totalling $22,000.00, the builder claimed for and was paid for this item, thereby entitling the owners to a refund of money paid for work that was not performed. There is no reason why there should be, as Mr Sturgess suggests, a credit given to the owner for tiling in the builder's scott schedule claim, which in this case is for variations claimed by the builder. I have had regard to the builder's scott schedule. It does not claim for tiling or work carried out in lieu of tiling. If it did, then in that case, one would expect to see a credit for the original contract work omitted and replaced by the variation. 127Mr Sturgess has provided details of why he is of the opinion that the builder has charged for costs that were neither reasonable nor proper in relation to Concrete Slab, stairs and paved area and Carpentry roof and wall. 128For the remainder of the items which the owners state that the builder has claimed costs that were neither reasonable nor proper, Mr Sturgess has stated either that the actual cost, or the final cost is excessive. This conclusion is stated to be based on his opinion and experience. 129For the remainder of the items referred to, Mr Sturgess has provided no reasoning process or details to identify the respects in which the costs claimed by the builder were, in relation to the items of work or the trades that he has identified, not reasonable or proper. What he has done is to prepare an estimate himself of the cost of the items of work or trades referred to. By a comparison of that estimate with the final cost, he reaches a conclusion that because the actual or final cost exceeds his estimate, it is for that reason not reasonable and proper. 130Although Mr Sturgess's evidence has been admitted into evidence, there still remains the question of the weight that is to be given to it. 131In considering that question I have had regard to the decision of the Court of Appeal in the case of Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705. In particular, I have had regard to paragraph 85 of Heydon JA's (as he was then) judgement where his Honour states: '85 In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of "specialised knowledge"; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be "wholly or substantially based on the witness's expert knowledge"; so far as the opinion is based on facts "observed" by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on "assumed" or "accepted" facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of "specialised knowledge" in which the witness is expert by reason of "training, study or experience", and on which the opinion is "wholly or substantially based", applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ's characterisation of the evidence in HG v R (1999) 197 CLR 414, on "a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise" (at [41]).' 132In the course of his judgement, commencing at paragraph 80, Heydon JA refers to a number of decisions of Anderson J in the Supreme Court of Western Australia. In Pownall v Conlon Management Pty Ltd (1995) 12 WAR 370 at 389-90 his Honour Anderson J. stated; 'Expert opinion is to be judged like any other evidence. It must be comprehensible and reach conclusions that are rationally based. The process of inference that leads to the conclusions must be stated or revealed in a way that enables the conclusions to be tested and a judgment made about the reliability of them. This requirement is not satisfied by evidence from an expert which says, in effect: 'I have examined the costings and estimates made by others and on the strength of my own expertise and experience in the field I believe them to be reasonable.' Such a forensic device overlooks the most important rule that it is for the court to judge the reliability of evidence given in support of the case. If an opinion relies on facts that must be proved or assumptions that must be verified, it is to the court that they must be proved and verified, not to the expert witness.' 133At paragraph 81 of his decision, Heydon JA refers to another decision of Anderson J: 'In Bollock v Wellington (1996) 15 WAR 1 at 3 Anderson J said: "Before an expert medical opinion can be of any value the facts upon which it is founded must be proved by admissible evidence and the opinion must actually be founded upon those facts ..." He then said at 3-4, citing Steffen v Ruban: "As with any other evidence, expert opinion must be comprehensible and the conclusions reached must be rationally based. A court ought not to act on an opinion, the basis for which is not explained by the witness expressing it ... None of these requirements is satisfied, when all that the medical expert says is 'I have examined this patient and from what I know about plant operation I think he can drive a D10 bulldozer on production work'." He also said at 4, citing Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370 at 390: "Unless the process of inference by which an opinion is reached is expressed in a manner which permits the conclusions to be scrutinised and a judgment made as to its reliability, the opinion can carry no weight." 134I have taken these statements by Heydon JA and Anderson J into account when considering the weight to be given to the expert evidence in this case 135I have also had regard to the statement of Branson J. in Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd [2002] FCAFC 157 where her Honour states at paragraph 7 that the passage of Heydon JA quoted above might be regarded as 'counsel of perfection'. While that may be one view of Heydon JA's judgement, I am of the view that what is said in the passages quoted from Heydon JA and Anderson J is compelling in so far as they state an expert's conclusions must be 'rationally based', and that 'The process of inference that leads to the conclusions must be stated or revealed in a way that enables the conclusions to be tested and a judgment made about the reliability of them' and further 'the expert's evidence must explain how the field of "specialised knowledge" in which the witness is expert by reason of "training, study or experience", and on which the opinion is "wholly or substantially based", applies to the facts assumed or observed so as to produce the opinion propounded'. 136In the instances of Concrete Slab, stairs and paved area and Carpentry roof and wall Mr Sturgess has, albeit briefly, set out a reasoning process which leads to and supports his conclusions that the costs incurred by the builder were excessive, which I understand to mean, neither proper nor reasonable. This reasoning process has been described above in the discussion of the evidence relating to these items. 137Where Mr Sturgess has provided a reasoning process to support his conclusion one is able to understand the basis for his opinion and also to critically assess the reasoning relied upon. The obvious benefit of being able to do so contrasts with the instances where Mr Sturgess has not provided that reasoning process. In those instances Mr Sturgess states a conclusion that costs are excessive because actual costs exceed estimated costs. 138I have stated above that the owners bear the onus of proving on the balance of probabilities that the builder has claimed for costs which were neither reasonable nor proper. 139The owners are obliged to call sufficient evidence to raise an issue about whether or not the builder has claimed for costs which were neither reasonable nor proper so as to entitle me to find in their favour on this head of claim. 140In connection with the amount of $19,338.00 claimed in connection with Preliminaries, I find that the evidence of Mr Sturgess which is un-supported by an adequate reasoning process and is denied by the builder is not of sufficient weight to satisfy me that the owners are entitled to recover the sum claimed because the builder's claims for preliminaries were neither reasonable nor proper. I dismiss this item of the owners' claim. 141In connection with the amount of $21,652.00 claimed in connection with the Retaining wall, I find that the evidence of Mr Sturgess which is un-supported by an adequate reasoning process is also not of sufficient weight to satisfy me that the owners are entitled to recover the sum claimed because the builder's claims in relation to the Retaining wall were neither reasonable nor proper. I dismiss this item of the owners' claim. 142In connection with the amount of $12,831.00 claimed in connection with the Pergola carpentry and columns including breezeway roof, I find that the evidence of Mr Sturgess which is un-supported by an adequate reasoning process, which is denied by the builder and stated not to have taken into account relevant work, is not of sufficient weight to satisfy me that the owners are entitled to recover the sum claimed because the builder's claims in relation to the Retaining wall were neither reasonable nor proper. I dismiss this item of the owners' claim. 143In connection with the amount of $22,000.00 claimed in connection with Tiling, I find that the evidence of Mr Sturgess is not adequate to satisfy me that the owners are entitled to recover the sum claimed. As stated the owners have not produced evidence that despite the deletion of tiling totalling $22,000.00, the builder claimed for and was paid for this item, thereby entitling them to a refund of money paid for work that was not performed. Mr Sturgess' reasoning that the owners are entitled to a credit in the builder's scott schedule is not persuasive for the reason set out above, namely that a scott schedule for variations, which does not deal with the subject in issue, is not the place for recording deductions or omissions from the contract with the associated credit against the contract price. Further, the builder's evidence suggests that the tiling was replaced by a polished slab with associated formwork, finishing and grading to allow for drainage falls. The builder's scott schedule does not claim for that work. If it did, then in that case one would expect to see a credit for the original contract work omitted and replaced by the variation. 144In connection with the amount of $47,011.00 claimed in connection with Concrete Slab, stairs and paved area, I find that the evidence of Mr Sturgess which is supported by the reasoning process that I have referred to above is sufficient to satisfy me that the builder's claims in excess of the quote received from Lotus Concretors Pty Ltd wall were neither reasonable nor proper. The builder's evidence stating that the costs of the slab achieved the best use of site labour does not in my view provide an adequate basis for proceeding in that fashion, if it is a more costly outcome than sub-contracting the works to achieve a more cost efficient outcome. For these reasons I will find in the owners' favour on this item of their claim. 145In connection with the amount of $22,459.00 claimed in connection with the carpentry roof and wall, the evidence is more finely balanced. Mr Sturgess relies upon Rawlinsons which gives a ratio of onsite labour to material costs. Mr Sheppard states that Mr Sturgess has failed to take into account the heavier structure of the roof, walls and the associated steel cantilevered beams and the construction of the steel portal frame. Mr Sheppard does not elaborate on this. He does not explain how the factors that he has identified resulted in the costs, specifically labour costs, charged for this work being reasonable and proper. 146Mr Sheppard of the builder also states in response to the suggestion that this work ought to have been sub-contracted, that the builder carrying out the work itself was the best outcome so far as keeping its own labour occupied was concerned. I am not persuaded that this approach sits comfortably with the implied term as found. As stated, this approach does not in my view provide an adequate basis for proceeding in that fashion if it results in a more costly outcome than sub-contracting the works to achieve a more cost efficient outcome. 147I prefer the evidence of Mr Sturgess in connection with this item. The builder's position is not sufficient to persuade me that I ought to accept it and dismiss this head of claim. In particular, the builder's position that carrying out the work itself was the best outcome so far as keeping its own labour occupied is at odds with the term that has been implied. The builder keeping its own labour occupied cannot be justified if the result is excessive and avoidable cost to the owners. I will find in favour of the owners in connection with this item.

Defective work 148The owners claim for defective work in paragraphs 8A and 8B of the Second Further Amended Points of Cross Claim. The reports of Arruga Building services dated 4 March 2012, exhibit J, Mr Sturgess, exhibit H and Mr Ross Brown were relied upon. 149The defects claimed by the owners are identified in clause 8A. The owners also prepared a scott schedule in relation to these defects. An experts' conclave was held in connection with these defects. However the conclave did not produce a consensus of views regarding the defects. 150Mr Young's report, otherwise known as the Arrunga Building Services Pty Ltd report, (the 'Arrunga report') is the basis for the owner's defects case. In paragraphs 14 and 15 and in Annexure F of his report, Mr Sturgess costs the rectification of the defects referred to in Mr Young's report. Unfortunately I must observe that Mr Young's report is often of very little assistance in providing an understanding of the owners' case on defects. The concern with the report is that Mr Young does not state whether the builder has failed to comply with a drawing, a provision of a specification such as the notes on Taylor and Herbert drawing SO1, a provision of the BCA or accepted good and proper workmanship and then identify the respects in which the builder has failed to comply. 151Mr Austin's undated report which is exhibit 7 responds to the Arrunga report. Mr Sheppard's second statement which is exhibit 3 also responds to the the Arrunga report. 152The defects alleged by the owners are set out below. I will consider each of them in turn and make a finding about whether the owners' complaints are upheld or dismissed.

Control Joints to be installed in brickwork in accordance with engineer's drawings 153The amount claimed in connection with this item is $7,467.00. 154The Arrunga report says no more than, control joints have not been installed in brickwork in accordance with paragraphs 11 and 12 of the Stuctural Masonry section of engineer's drawing SO1. It is also said that cracking exists to the external verandah concrete at the corner near the steps as shown in photograph 1 of the report. That photograph shows cracking to a concrete paving slab. The report also states that shrinkage cracks exist in various locations on verandah 2 and to the floor inside the art studio. Photographs are referred to. 155As stated above, the owners are obliged to call sufficient evidence to raise an issue about whether or not the builder's work is defective as claimed by them so as to entitle me to find in their favour on the items of defective work relied upon. 156The only explanation to be got from paragraphs 1 - 3 of the Arrunga report is that the engineer's drawings have not been followed. Reference to cracking does not in itself establish, in my view, that work is defective. A more thorough analysis is required before a conclusion can be reached about whether a crack is a defective. In particular, evidence of crack width is essential. 157The contact provides at Schedule 3 (c) that the engineer's drawing SO1 is a contract document. 158Mr Austin deals with this claim in paragraph 8.1.2 of his report. He states that the requirement to provide control joints on drawing SO1 relates to strip footings and extruded bricks. There may well be such a requirement on drawing SO1, but as general proposition I do not accept Mr Austin's evidence. Paragraphs 11 and 12 of the Structural Masonry section of engineer's drawing SO1 plainly refer to masonry walls and brickwork. 159Mr Sheppard's second statement deals with this issue at paragraph 1. This paragraph seeks to explain why it was not necessary in Mr Sheppard's opinion to incorporate control joints. He refers to a letter from the engineer's Taylor and Herbert. This letter confirms that the control or movement joints were not installed but states that 'growth appears to have been constrained despite the movement joints not being installed.' 160Section 18B(a) of the Home Building Act 1989 states that the following warranty is implied into the contract: 'the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract,' 161I find that the owners have made out their case that the builder has breached the implied warranty set out above by not complying with paragraphs 11 and 12 of the Structural Masonry section of engineer's drawing SO1. 162Mr Sturgess has assessed the costs of the installation of control joints in item 1 of annexure F of his report as $6,330.50. This assessment is un-contradicted and is accepted by me. I find for the owners in the sum of $6,330.50 on this item.

Cracking in External Verandah Concrete 163The owners have also claimed for cracking in the external verandah concrete at the corner near the steps and for shrinkage cracks in various locations on verandah 2 and to the floor inside the art studio. 164In my view the Arrunga report does not establish that the items referred to are defects, or are caused by any builder's breach of contract. Mr Austin's evidence is that the cracks are less than 1mm wide and therefore are not defects. I prefer Mr Austin's evidence in connection with cracking. This aspect of the owners' defects claim is therefore rejected.

Weep holes to be installed in bricks at the time of brick laying 165The amount claimed in connection with this item is $9,340.00. 166The Arrunga report states that weepholes were installed after the brickwork was laid and are by reason of that, a deception to give the appearance of the existence of weepholes. There is said to be a non-compliance with the Building Code of Australia '(BCA'), although the specific provision(s) of the Code relied upon is not identified. 167Mr Austin deals with this claim in paragraph 8.2 of his report. He states that the walls are single skin masonry and because they are painted, they do not require weepholes. Mr Austin relies upon sections 3.3.4.12 and 3.3.4.3 of the BCA. 168Having regard to the competing evidence on this defect item as referred to above, I am not satisfied on the balance of probabilities that the builder breached the BCA on the issue of weepholes. I prefer Mr Austin's evidence as it provides a view of the position under the BCA which is on the evidence available, most probably correct. 169This aspect of the owners' defects claim is therefore rejected.

Adequate overflow pipes to be installed in and around water tank 170The amount claimed in connection with this item is included in the item 'Adequate drainage for the works and the adjacent tennis courts to be installed' as referred to below. 171The Arrunga report states in connection with this head of claim no more than 'Insufficient overflow pipes have been installed to the tank at the end of the building' with the result that there is overflowing. 172This evidence may well be correct, but it does not establish that there has been a breach of the contract by the builder. 173Mr Sheppard's un-contradicted evidence is that the tank in question was not installed by the builder. 174The owners' evidence does not establish that this work was carried out by the builder under the contract, and if it was, that there has been a breach of any contractual condition, a requirement of a drawing or a specification provision. 175This aspect of the owners' defects claim is therefore rejected.

Drainage to be installed to drain water from behind retaining wall including clean out pit 176The amount claimed in connection with this item is included in the item 'Adequate drainage for the works and the adjacent tennis courts to be installed' as referred to below. 177Paragraph 6 of the Arrunga report deals with this head of claim albeit it does not explain the claim clearly. The complaint seems to be that water 'exits' behind the retaining wall. The Arrunga report states that this water should, but does not, discharge into a pit from where it may be piped to storm water drainage. Mr Young's evidence is that there has been non-compliance with AS 3500.3.2003. 178In response Mr Austin deals with this claim in paragraph 8.6 of his report. He states that it is not mandatory that water should be removed from behind a wall by sub-soil drains. He states that drainage behind a wall can be provided either by sub-soil drains or by weep holes and refers to the Taylor and Herbert General Notes SO1 where at the heading 'Foundations and Earthworks' reference is made to drainage issues. 179Mr Sheppard's second statement deals with this issue at paragraph 5. Mr Sheppard describes the work that he carried out to provide a drainage system behind the retaining walls. He further states that he intended to connect what I describe as the retaining wall drainage system to the courtyard drainage system. Mr Sheppard's evidence is somewhat unsatisfactory in that he states at paragraph 5 that he discovered in March 2009 (when the builder was working on site) from the plumbing contractor that the pipes had not been connected. He later states that the plumbing contractor, Mr Wallace of Plumbtec, under the supervision of the owners was responsible for carrying out this work at a time when the builder had left the site. 180In the section of these reasons dealing with the 'Adequate drainage for the works and the adjacent tennis courts to be installed' I have made a finding of fact regarding whether or not Mr Wallace connected drainage pipes from behind the retaining wall. The result is that a finding has been made in the owners' favour in that head of claim. 181The result is that the owners will be successful on this item of claim.

Large paving blocks are loose 182The amount claimed in connection with this item is $3,329.00. 183The Arrunga report deals with this issue in a most unsatisfactory way at paragraph 7. The complaint appears to be that large paving blocks are loose in areas close to small storm water sumps at the base of the retaining walls. This state of affairs is said to be caused by water coming from the base of the retaining wall during rain. Mr Young states that he has been told of this 'cause'. Mr Young's conclusion is that if a sub-soil drainage line had been installed in a tradesman-like manner, then water would not discharge and cause the damage. 184Mr Young has not done anything to ascertain whether or not a sub-soil drainage line had been installed. 185In response Mr Austin deals with this claim in paragraph 8.7 of his report. He sees the issue in terms of the laying of the blocks, not in connection with sub-soil drainage issues. 186Having regard to the unsatisfactory nature of the evidence relating to this alleged defect, I find that the owners have not produced adequate evidence to satisfy me that the builder was in breach of the contract in connection with this item. This item of the owners' claim is, therefore, rejected.

Reinforcing steel to be properly treated and sealed 187The amount claimed in connection with this item is $583.00. 188In response Mr Austin deals with this claim in paragraph 8.8 of his report. He states that the defect is agreed as well as quantum. 189I will find in the owners' favour in connection with this item.

Cracking and blistered bagged render 190The amount claimed in connection with this item is $264.39. 191In response Mr Austin deals with this claim in paragraph 8.9 of his report. He states that the defect is agreed as well as quantum. 192I will find in the owners' favour in connection with this item

Plasterboard wall sheeting 193The amount claimed in connection with this item is $6,462.00. 194The Arrunga report deals with this issue in paragraphs 9, 10 and 11 by stating that the plasterboard sheeting has not been installed in accordance with the manufacturer's recommendations which are reproduced in part on page 5. Mr Young states that 'the back of the plasterboard has been cut with a knife and bent to form the internal corner'. Mr Young does not state how it is that he has come to this conclusion. The main point made is that the method of installation does not give a solid corner, but instead gives a 'hollow' corner. Illustrations of these corners are at page 5 of the Arrunga report. The result is according to Mr Young, cracked corners in numerous locations, as illustrated in two locations. In addition, Mr Young states that plasterboard has not been fixed to all studs and that one third of the wall sheeting vibrates between the wall sheeting and the studs, indicating a lack of fixing. 195In response Mr Austin deals with this claim in paragraphs 8.10 and 8.11 of his report. He criticizes the logic used in the Arrunga report and states that he has carried out a simple test that indicates that at least one corner was solid. 196Mr Austin also states that he saw only three cracks and that they are within the tolerances described in the Guide to Tolerances. Mr Austin does not expressly state that he measured the cracks. In connection with plasterboard not being fixed to all studs, Mr Austin states that he pushed the wall sheets in a number of places without noticing undue movement. He further states that the work was carried out in September 2009, after the builder had left the site. The facts to support this conclusion are not stated. Mr Austin states a total rectification cost of $846.52. How this cost is reached is not explained. 197Mr Sheppard addresses this claim in paragraph 9 of his further statement. He states that when the plasterboard was being carried out the builder did not have a supervisor on site. Invoices said to be from the plasterers are attached to his statement. The invoices are basic and do not describe the work that has been carried out. They are of no evidentiary value. The inference to be taken from paragraph 9 of Mr Sheppard' statement is that the fixing of the plasterboard took place after the builder left site and was the responsibility of the owner. Mr Sheppard says that he had no opportunity to supervise the work alleged to be defective. Mr Sheppard also states that cracks have been created by incorrect fixing of equipment to walls. He estimates the time to rectify the cracks as thirty minutes. 198The builder relied upon the evidence of Mr T. Thomas whose affidavit was exhibit 6. Mr Thomas states that he was not on site when the plasterboard sheeting was affixed. In paragraph 11 of his affidavit he states that he did the preparatory work for the fixing of the plasterboard sheeting. 199I find that as part of the agreement between the parties on 25 August 2009 there was an arrangement that, as stated by Mr Mcallery, the builder would organise the trades and that the owners would pay them direct. On this basis I find that the owners did not enter into direct contracts with sheeting contractors, thereby relieving the builder for responsibility for that work. 200The expert evidence in connection with this item conflicts. Overall, and having regard to all of the evidence on this issue, I am satisfied that the owners experts have provided satisfactory evidence to establish the defect and the costs to rectify it. 201I will find in the owners' favour in the sum of $6,462.00 in connection with this item.

Adequate drainage for the works and the adjacent tennis courts to be installed 202The amount claimed in connection with this item is $51,256.00. As stated above, the amounts claimed in the Arrunga Report in connection with adequate overflow pipes to be installed in and around water tank and drainage to be installed to drain water from behind retaining wall including clean out pit are said to be included in this particular head of claim. 203The owners rely on a report from Mr Ross Brown of Neville Brown and Associates Pty Ltd dated 27 February 2012 in support of this claim. Mr Brown does not rely on the Arrunga Report insofar as his report covers the same issues as those dealt with in the Arrunga Report relating to drainage. 204I accept Mr Brown as an expert competent to give opinion evidence about hydraulic and drainage issues. 205Mr Lloyd Austin's undated report which is exhibit 7 responds to Mr Brown's report. 206In connection with this head of claim I have had regard to the evidence of Mr Sheppard contained in paragraphs 97 to 125 of his first statement which is exhibit 1 and in paragraphs 10 - 21 of his Further Statement which is exhibit 3. I have also had regard to the evidence of Mr McAllery at paragraphs 51 - 56 of his statement. Mr Grant Wallace gave a very brief statement which I have taken into account as well as his evidence in the Tribunal. I have also had regard to the evidence of Mr Sheppard and Mr McAllery in the Tribunal. 207The scope of Mr Brown's report is stated to be 'those issues relating to internal stormwater drainage services proposed to have been installed to service the recent developed portion of the site and the upstream tennis court areas'. 208Mr Brown's executive summary identifies that in his opinion the installation of stormwater drainage in 100mm diameter UPVC was insufficient to provide an adequate system of stormwater drainage to remove water from gutters and drainpipes. In addition he states that the connection of the tennis court drainage to the drainage system installed for the new gymnasium and artist's studio, 'placed a further load on the already inadequate stormwater drainage system'. 209Mr Brown at paragraph 12.7 recommends the removal of existing stormwater drainage and the installation of new stormwater drainage piping in accordance with a sketch attached to his report. 210Mr Brown also identifies another issue at paragraph 13 of his report, namely a failure to install adequate subsoil drainage piping connected to the stormwater drainage system. 211This is said by Mr Brown to be a failure to install the subsoil drainage in accordance with Australian Standard 3500.2 2003 Part 3, 7.4 and as shown on the engineering drawings 071106, SO3, SO4 & SO5. Details of the alleged failure to install the subsoil drainage as shown on the engineering drawings 071106, SO3, SO4 & SO5 are not provided. 212Mr Brown states that 'No clearout for maintenance was evident during the course of my inspection. The location of the specified subsoil line investigated was unable to be accessed'. The Arrunga Report states 'it is possible drainage has not been installed'. 213The consequences of such a failure to install the subsoil drainage is said by Mr Brown to be erosion and water staining of pavers in the area joining the retaining wall/stairs and the patio area between the gymnasium/studio and office building. 214The rectification solution to this issue is stated by Mr Brown to be the installation of either a spoon drain or a grated drain at the base of the sandstone wall. 215Mr Brown has costed his proposed rectification work to total $51,256.00. That amount may be split into a stormwater drainage cost of $27,119.00 exclusive of preliminaries, mark-up and GST and a subsoil drainage cost of $5,303.00 exclusive of preliminaries, mark-up and GST. Mr Brown does not address the cost of rectification of the defect items referred to in the Arrunga report, namely adequate overflow pipes to be installed in and around water tank, and drainage to be installed to drain water from behind retaining wall including clean out pit. I will take it in the absence of submissions on this point, that if Mr Brown's report and rectification solution is accepted by me, that rectification solution will address the two items referred to. 216Mr Brown's report raises three issues as follows; a)alleged incorrect sizing of installed 100mm drainage pipes; b)the connection of the tennis court drainage to the drainage system installed for the new work ;and c)alleged failure to install the subsoil drainage in accordance with Australian Standard 3500.2 2003 Part 3, 7.4 and as shown on the engineering drawings 071106, SO3, SO4 & SO5. 217In response Mr Austin states a number of issues which may be summarised as follows: a)the builder did not carry out the stormwater drainage; b)the drainage work carried out since the builder left the site is not the builder's responsibility; c)the owners have raised the ground level to the northern side of the 'building' to form a dam and thereby have prevented the water from draining away; and d)Mr Brown's costs estimate is excessive. 218The matters referred to in (a) and (b) above are not properly matters upon which Mr Austin can give evidence. Lay evidence will be required to establish the matters in (a) and (b). 219As regards stormwater drainage, Mr Austin on behalf of the builder states in paragraph 9.3 of his report that the stormwater work that the builder was required to do was shown on an architectural drawing E.P/100 Sheet 6, which I note was referred to in the contract. This work was to connect roof water draining from the new building to rainwater tanks to be provided by the builder. 220Mr Sheppard's evidence is that there was a variation to this plan as described in paragraphs 98 to 104 of his first statement. 221I accept the evidence of Mr Austin as to the contractual requirement shown on architectural drawing E.P/100 Sheet 6. I also accept the evidence of Mr Sheppard in paragraphs 98 to 100 of his first statement regarding the variation to the absorption trench. The relevance of that variation to the matters in issue seems doubtful. 222Architectural drawing E.P/100 Sheet 6 is silent on the dimension of the piping to the overflow tanks. Neither Mr Brown nor Mr Austin have referred to the engineer's drawings as referred to in the contract in connection with the issue of the diameter of stormwater piping. Mr Shepard states that he relied upon 'the plumbing contractor' in connection with the 'specifications and design of the drainage line'. Mr Wallace who was called on behalf of the owners has stated that he was employed by the builder. I accept his evidence. I find that Mr Wallace was the builder's subcontractor in connection with plumbing and drainage work and therefore the plumbing contractor referred to by Mr Sheppard. In that context it would not be unusual for the builder to rely upon its subcontractor in connection with the 'specifications and design of the drainage line' as stated by Mr Sheppard. However, clause 15(b) of the contract provides that 'subcontracting does not relieve the Builder from any of his obligations or liabilities under this Contract.' 223Clause 1 of the contract sets out the builder's obligations which include the statutory warranties set out in section 18B of the Home Building Act and also its obligations as to quality. 224The first issue in connection with this head of claim is whether or not the builder was in breach of the contract in using 100mm drainage pipes. The owners rely on Mr Brown's report to establish that it was. 225Mr Brown's report is highly technical with no obvious reasoning process. I have found it very difficult to follow. Paragraph 11 deals with Selection of Design Criteria. Mr Brown states that he has used 20 year Average Recurrence Interval design criteria to determine the minimum adequate pipe sizes in order to comply with AS 3500.3.2 1998. Mr Brown then prepares a table at paragraph 11.1.2 which is titled 'Pipe Sizing Utilising the Rational Method' which shows, among other things pipe diameter size at 225.00 mm, except in two instances where 150mm pipe is stated. There is no reference to the 'Rational Method', except in Annexure E. The Rational Method is a means of estimating 'peak discharges for small drainage areas'. It seems to me that Mr Brown's report contains a contradiction. Mr Brown states that he has used 20 year Average Recurrence Interval design criteria to determine the minimum adequate pipe sizes, but his table at paragraph 11.1.2 is based on the Rational Method. 226Mr Brown was not called as a witness, which is unfortunate as he may have been able to explain his report and his reasoning process with greater clarity. 227After considering Mr Brown's report, I think the position may be summarized as being that a table has been prepared by him showing pipe sizes of generally 225.00 mm diameter size. There is no plain English explanation of how the table has been prepared or how the 225.00 mm diameter size has been arrived at. As a result of this table, as there is no other mention of 225.00 mm diameter pipe, Mr Brown states that there has been a failure to install adequately sized stormwater drainage. As a result Mr Brown recommends the removal of existing stormwater drainage and the installation of new stormwater drainage piping in accordance with a sketch attached to his report his report. 228An issue with this report is that Mr Brown's reasoning and analytical process is disjointed to such an extent that it is not possible to allow me to scrutinise the process by which he reaches the conclusion that a pipe size of 100 mm was inadequate and that a pipe size of 225mm is necessary, thereby justifying the rectification method recommended by him. 229As a result of my observations about Mr Brown's report, I do not give it a great deal of weight. 230Mr Sheppard responds to Mr Brown's report as does Mr Austin. So far as Mr Sheppard's statement is concerned, I note that Mr Sheppard is not a hydraulic engineer and has no obvious experience in drainage issues. As he says himself, he relied upon the advice of his subcontractor in connection with the 'specifications and design of the drainage line'. In considering Mr Sheppard's evidence I have not taken into account any opinion evidence that he has given on this head of claim. 231Mr Austin's report at paragraphs 9.1 to 9.7.1.2 is of some assistance, but is also argumentative in part and in those parts, of no evidentiary value. Importantly, Mr Austin does not address the critical issue of whether or not 100mm pipework was adequate for use in the drainage aspect of the work to be performed under the contract. 232The builder's evidence does not address the first issue that I have to decide under this item of claim which I have described above as 'alleged incorrect sizing of installed 100mm drainage pipes'. The only evidence that I have is Mr Brown's report which I have described above together with my perception of its shortcomings. I accept that Mr Brown has technical reasons to support his conclusions and that he has given serious consideration and analysis to the subject matter of his report. I also note that section 28(2) of the Consumer, Trader and Tenancy Tribunal Act states that I am not bound by the rules of evidence. 233In these circumstances and on the evidence available on this issue, I am satisfied, having regard to all of the evidence on this issue that the builder's use of 100mm diameter piping was inadequate. 234As a result of my findings above, I have reached the conclusion that the contract was silent on the dimension of stormwater piping and that the decision of the builder to use 100mm diameter piping was its own, despite the fact that it relied upon its subcontractor's advice. The use of 100mm piping was on the basis of Mr Brown's evidence in breach of clause 1 of the contract because the drainage work was not reasonably fit for the specified purpose. I take the view that since the builder was fully aware of the fact that the work under the contract was to be used for residential purposes, it knew the purpose for which the works were required, namely to provide an adequate and efficient drainage disposal system. 235In connection with the second issue, namely the connection of the tennis court drainage line to the tank overflow lines, Mr Sheppard states in his Further Statement that at the time the work was carried out the builder was not on site and that the work was carried out 'at the instigation of the plumber or at the direction of the' owners. This paragraph of Mr Sheppard's statement is not contradicted by Mr McAllery. 236Mr Grant Wallace's statement states, as indicated above, that he was a subcontractor to the builder and that he was directed by Mr Sheppard of the builder to extend a drainage line that he was working on to 'pick up drainage overflow from the tennis court'. The tennis court was being constructed adjacent to the work that the builder was carrying out under the contract, but was excluded from the contract. 237There is a conflict of evidence about whether or not the builder connected the tennis court drainage line to the tank overflow line. The owners submit that the evidence of Mr Wallace should be preferred to that of Mr Sheppard. 238I have had regard to Mr Wallace's evidence in the Tribunal when he gave evidence by telephone. Mr Sheppard cross-examined him. My impression of Mr Wallace was that he did his utmost to assist the Tribunal. When he was not sure about the subject that he was being asked about, he said so. When he was able to give a direct answer, he did so. I gained the impression that he gave truthful answers and that he was not really aware of the specific issues or disputes between the parties. He had no reason to, or basis for, crafting an answer to any particular question. 239Mr Wallace confirmed his evidence that that he was directed by Mr Sheppard of the builder to extend a drainage line that he was working on to 'pick up drainage overflow from the tennis court'. He stated that all the work was done at the same time when the excavation was being done. 240I accept Mr Wallace's evidence in preference to Mr Sheppard's evidence and find that the builder did connect the tennis court drainage line to the drainage system that was being installed by the builder as part of the work that was being carried out under the contract. 241The third and final issue under this head of claim is described above as failure to install the subsoil drainage in accordance with Australian Standard 3500.2 2003 Part 3, 7.4 and as shown on the engineering drawings 071106, SO3, SO4 & SO5. 242Mr Brown deals with the subsoil installation issue at paragraph 13 of his report. He states that there has been a failure to install subsoil drainage piping connected to the stormwater drainage system. 243Mr Austin responds to this subject at paragraph 9.8 of his report. He agrees that a spoon drain should be provided at the base of the sandstone wall. He states that this was unfinished work when the builder left the site. Mr Austin does not address the relevant issue of whether there was in fact a failure by the builder to install subsoil drainage piping connected to the stormwater drainage system, as stated by Mr Brown. 244Mr Sheppard also deals with this subject at paragraphs 13 - 20 of his Further Statement. He states that there is a fully functioning drainage system installed behind the retaining walls, but Mr Grant Wallace did not connect it. He states that the issues complained of is caused by water draining directly into the soil. Mr Sheppard also states that the spoon drain suggested 'would not be required if the drainage system' provided by the builder 'was connected as intended' 245The owners have not produced evidence of an actual failure to install subsoil drainage. Mr Brown states that 'No clearout for maintenance was evident during the course of my inspection. The location of the specified subsoil line investigated was unable to be accessed'. The Arrunga Report states 'it is possible drainage has not been installed'. It appears that no excavation was carried out to ascertain whether or not the subsoil drainage was installed. 246Mr Wallace was asked about this subject when he gave his evidence. He stated that although he could not recall the precise details of how it was done, he connected the drainage pipe that came under the retaining wall to one of the pits, which I will assume formed part of the courtyard drainage. Later in answer to a question from Mr Sheppard, Mr Wallace stated that he was not clear on whether a drainage pipe under the retaining wall was connected or not. Having had careful regard to all of Mr Wallace's, evidence I find that his evidence was that he did connect the drainage pipe that came under the retaining wall. This finding is made despite his statement that he was not clear on whether a drainage pipe under the retaining wall was connected or not. I think that the answer to this question was given after he had made it clear that he did connect the drainage pipe that came under the retaining wall and the answer was associated with his evidence that he could not recall the details of the connection. 247Given the finding that I have made, it is not clear why there is alleged 'erosion of paving support, water staining and contribution to the flooding of the surrounding paved covered area.' as stated in section 13.2.1 of Mr Brown's report. 248Mr Austin agrees that a spoon drain should be provided at the base of the sandstone wall. Mr Sheppard states that the spoon drain suggested 'would not be required if the drainage system' provided by the builder 'was connected as intended. Since I have found that the drainage system was connected, Mr Sheppard's ground for objection to the spoon drain falls away. 249The state of the evidence in relation to this topic is somewhat unsatisfactory. However, there seems to be a consensus that a problem does exist with the drainage to the courtyard area or as Mr Brown describes it, the 'surrounding paved covered area'. There is also a consensus that a spoon drain is required. 250Despite my criticisms of Mr Brown's report, and in the absence of compelling evidence to the contrary, I will find in the owners' favour in connection with this head of claim. 251Mr Austin is critical of Mr Brown's costing. Mr Austin's estimate of the cost of the work is $20,000.00 - $25,000.00. 252I have reviewed Mr Brown's costing. I disallow the sum of $2,100.00 in the preliminaries for the preparation of a defects report. I cannot see that a defects report would be relevant to rectification work particularly when $3,200.00 is allowed for design and documentation of the rectification work. 253I allow the owners $48,715.81 in connection with this head of claim.

Owners' claim for $135,744.28 254In the section of these reasons which describes the owners' claim, I refer to the owners' claim in paragraph 8G of the Second Further Amended Points of Cross Claim that, in breach of implied terms, the builder charged the owners $135,744.28 in excess of what is 'reasonable and proper' in relation to variations. 255The owners' rely in the report of Mr Sturgess to support this head of claim. 256Mr Sturgess deals with this head of claim in section 12 of his 4 June 2012 report which addresses the builder's scott schedule claims in HB 10/38289 where a total of $145,099.08 is claimed for variations. The builder's scott schedule consists of 17 items of claim which are addressed in section 12 of Mr Sturgess' report. Mr Sturgess expresses the opinion at paragraph 12.7 of his report that 'the value of variations against items 1 -17 of the Builder's Scott Schedule totals $9,584.12' (sic). 257In paragraph 12.4 of his report Mr Sturgess calculates his valuation of variations as $9,354.80 and incorrectly states this amount as $9,584.12 in paragraph 12.4 of his report. It follows from this expression of opinion that variations claimed by the builder to the value of $135,744.28 are in dispute ($145,099.08 - $9,354.80 = $135,744.28). However this is a completely different matter to stating that the owners have overpaid variations and an amount of $135,744.28 is payable to them as is pleaded in paragraph 8G of the Second Further Amended Points of Cross Claim. 258In my view this head of the owners' claim is misconceived and on that basis is dismissed.

Claim for $3,222.00 on the basis of Variation of the Contract 259The basis of this head of claim is that there was a meeting on site between Mr McAllery and Mr Sheppard representing the builder on 25 August 2009. It is alleged by Mr McAllery that at this meeting certain matters were discussed and agreed in connection with the amounts that the builder would charge for the work remaining to be carried out. The owners also allege that at this meeting it was agreed by Mr Sheppard on behalf of the builder that the original builder's fee of $45,000.00 would not be increased. 260The conversation between Mr McAllery and Mr Sheppard was heard by Mr Mclean who was working for Mr McAllery in the area of the premises where the conversation in issue took place. Mr McLean has provided a witness statement in these proceedings in which he corroborates Mr MacAllery's version of the agreements reached at the meeting. 261Mr McAllery and Mr Sheppard have also given evidence about this meeting and what was said. 262Mr Sheppard had the opportunity to cross-examine Mr Mclean. I was impressed by Mr Mclean being a careful and honest witness. I accept his evidence and that he has not prepared a statement and given evidence for the purpose of conferring a benefit on his employer. 263Mr Mclean in his evidence states that an element of the agreement reached at this meeting was that Mr Sheppard 'would complete his project manager's role without any increase in his original fee' and if costs over-ran the estimates set out on a spreadsheet printed out at the meeting, those costs would be absorbed by the builder. 264Annexure A to Mr McAllery's statement which is exhibit A is a spreadsheet of costing which has been initialled by Mr McAllery and Mr Sheppard (the 'spreadsheet'). I find that the spreadsheet was printed and initialled at the meeting. 265The owners Second Further Amended Points of Cross Claim alleges that contrary to the agreement, the builder overcharged in relation to the items of painting, plastering and paving as shown on the spreadsheet. 266I have reviewed the spreadsheet. In relation to painting it shows cash required to complete of $6,725.00. In relation to plastering it shows cash required to complete $8,673.00. In relation to paving it shows cash required to complete of $9,050.00. 267In paragraph 5A iii) of their Second Further Amended Points of Cross Claim the owners allege that the amounts to be charged by the builder for the above items were in relation to painting, $7,835.00, in relation to plastering, $8,673.00 and in relation to paving $9,404.00. Mr McAllery's statement does not support that allegation. He refers only to the spreadsheet, the relevant details of which are set out above. 268In paragraph 8C of their Second Further Amended Points of Cross Claim the owners allege that they were charged amounts in excess of the amounts agreed in relation to these items, namely $12,873.00 in relation to painting, $9,298.00 in relation to plastering and $9,772.00 in relation to paving. 269The owners do not identify the evidence to sustain their allegations of paying amounts in excess of the amounts agreed for these items at the 25 August 20009 meeting. Mr McAllery does not address this issue in his statement. Nor does Mr Sturgess address this issue, so far as I can ascertain, in his report. The owners do not address the issue in their final written submissions. I have not been referred to the evidence which would establish this aspect of the owners' case. 270I dismiss this head of the owners claim on the basis that no evidence of loss has been proved.

Conclusion 271I have found in the owners favour in connection with the following items. Claim for amount not reasonably and properly incurred Concrete Slab, stairs and paved area $47,011.00 Claim for amount not reasonably and properly incurred Carpentry roof and wall $22,459.00 Defective work Control Joints in accordance with engineer's drawings $6,330.50 Defective work Reinforcing steel $583.00 Defective work Render $264.00 Defective work Plasterboard wall sheeting $6,462.00 Defective work Inadequate Drainage $48,715.81 Total $131,825.31

272The owners are entitled to an order that the builder must pay the sum of $131,825.31 to them within 21 days of the date of this order.

Costs 273The parties are at liberty to make a costs application in these proceedings. 274Any costs application must be lodged in the Tribunal and served on the costs respondent within 21 days of the date of this order either attaching or referring to the documents relied upon in support of the application. 275The costs respondent will have 21 days after the date it receives the application referred to above to lodge in the Tribunal and serve on the costs applicant its submissions, if any, in response to the costs application, such submissions either attaching or referring to the documents relied upon. 276The cost applicant will have 14 days after the date it receives the cost respondent's submissions to lodge in the Tribunal and serve on the costs respondent its submissions, if any, in reply, such submissions either attaching or referring to the documents relied upon. 277The Tribunal will determine any costs application on the basis of the submissions and attached documents lodged in the Tribunal. D Goldstein Senior Member Civil and Administrative Tribunal of New South Wales 24 June 2014 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: 04 September 2014