Cappello v Hammond & Simonds NSW Pty Ltd

Supreme Court of NSW|2020-07-29|Before: Ball J, Hammerschlag J

Introduction

These proceedings concern a construction contract entered into on 1 September 2017 (the Contract) by which the first defendant, Hammond & Simonds NSW Pty Ltd (the Builder), agreed on a costs plus basis to undertake renovation work to the ground floor of the plaintiffs' two storey residence in Empire Street, Haberfield in accordance with drawings that had received development approval from the local council.
The proceedings raise the following issues: 1. Whether the Builder validly terminated the contract for non-payment of part of invoice 104 for $156,113.54 and whether (subject to any set-off the plaintiffs might have) it is entitled to recover the balance of that invoice together with the sum of $32,814.71 for work performed but not invoiced before termination of the Contract; 2. Whether the plaintiffs are entitled to damages for delay in completing the building work; 3. Whether the plaintiffs are entitled to recover damages in respect of certain defects and amounts said to have been overcharged by the Builder; and 4. Whether the second defendant, Mr Re, who is a director of the Builder and who supervised the building work, is liable for the damages claimed by the plaintiffs.
The proceedings were commenced on 9 January 2019. On 28 February 2019, the defendants filed a notice of motion seeking to have the proceedings transferred to the New South Wales Civil and Administrative Tribunal. That motion was dismissed by Hammerschlag J on 3 May 2019.
Initially, the plaintiffs were represented by solicitors. However, the first plaintiff, Mr Cappello, represented himself at the hearing. There was no appearance on behalf of the second plaintiff, his wife. No point was taken in relation to her absence and the hearing proceeded on the basis that the case advanced by Mr Cappello was advanced on behalf of both of them.

The Contract

As I have said, the Contract was entered into on 1 September 2017. It was in the form of a Housing Industry Association NSW Residential Building Contract for Works on a Cost Plus Basis. The building work was described in Schedule 5 to the Contract as: DA2017/38.1 Alterations and additions to dwelling The building works are described in detail in the plans and specifications It is common ground that the only plans and specifications that formed a part of the Contract were the plans the subject of the development approval.
Clause 15.2 of the Contract provides: The owner must pay the price of the building works progressively as claimed by the builder. The price of the building works is an amount equal to: (a) the cost of the building works plus; (b) the builder's fee; plus (c) any GST attributable to the supply of the building works at each progress stage, calculated on the value equal to the total of Clauses 15.2(a) and 15.2(b).
The "cost of the building works" is defined to include: (a) the cost of all subcontracts wholly in connection with the building works; (b) the costs of labour and services supplied wholly in connection with the building works by the builder and its employees (this includes the builder's own time on and off the site. See rates below); (c) all fees payable in connection with a legislative requirement; (d) fees for any surveyor, structural engineer, architect or other consultant engaged by the builder; (e) the premiums on all insurances referred to in Schedule 7 and Clause 34; (f) the cost of all building materials including temporary structures, used for the building works and including the cost of cartage; (g) the cost of plant, equipment and services used for the building works; (h) costs to repair, replace or rebuild any damage or loss or defect as a result of any cause not at the builder's risk; (i) any excess for insurance claims by the builder; … The "rates below" were stated to be $100 per hour for the supervisor and any tradesmen. The builder's fee was stated to be 20 percent of the cost of the building works.
Under item 5 of schedule 1 of the Contract, the building works was required to reach the stage of practical completion no more than 26 weeks after work commenced "subject to Clause 17". Clause 17 provides that the Builder is entitled to an extension of time for causes beyond the sole control of the Builder including a number of identified matters, such as variations requested by the plaintiffs and delays in the supply of materials selected by the plaintiffs. The clause sets out a procedure by which the Builder is required to provide written notice of a claim for an extension of time and procedures for dealing with disputes concerning extensions. It is common ground that those procedures were not followed in this case.
Clause 24 deals with termination. It relevantly provides: 24.3 If a party is in substantial breach of this contract the other party may give the party in breach a written notice stating: (a) details of the breach; and (b) that, if the breach is not remedied within 10 working days, that party is entitled to end this contract. 24.4 If 10 working days have passed since the notice of default is given and the breach is not remedied then the party giving the notice of default may end this contract by giving a further written notice to that effect. 24.5 All notices to be given under this Clause must be given by registered post or personally. A "substantial breach" by the owner is defined to include a failure "to pay any amount by the due date".
Clause 28 of the Contract deals with liquidated damages. It provides: 28.1 If the building works do not reach practical completion by the end of the building period the owner is entitled to liquidated damages in the sum specified in Item 10 of Schedule 1 for each working day after the end of the building period to and including the earlier of: (a) the date of practical completion; (b) the date this contract is ended; or (c) the date the owner takes possession of the site or any part of the site. The amount specified in Item 10 of Schedule 1 is "$1.00 per working day calculated on a daily basis". "Working days" is defined to exclude Saturdays, Sundays and public holidays.

The Home Building Act 1989 (NSW)

The plaintiffs' claim is principally based on the Home Building Act 1989 (NSW) (HBA).
Section 18B(1) of the HBA relevantly provides: 18B Warranties as to residential building work (1) The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work: (a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract, (b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new, (c) a warranty that the work will be done in accordance with, and will comply with, this or any other law, (d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time, (e) … (f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose ….
Section 18G of the HBA provides: 18G Warranties may not be excluded A provision of an agreement or other instrument that purports to restrict or remove the rights of a person in respect of any statutory warranty is void.

Termination

It is convenient to deal first with the Builder's claim that it validly terminated the Contract and is entitled to recover the balance of invoice 104 together with the sum of $32,814.71 for work done but not invoiced.
The facts relevant to the question of termination are not substantially in dispute. On 23 August 2018, the Builder issued invoice 104 for $156,113.54. Mrs Cappello replied to the email enclosing that invoice on the same day saying that, although finalisation of the work was close, it was not complete and that she had told her husband "not to pay anything until all work is completed". The email set out a list of work said to be incomplete.
At some stage - the date is not clear from the evidence - the plaintiffs paid $75,000 in respect of invoice 104, but did not pay the balance. On 10 October 2018, the Builder's solicitors issued the plaintiffs with a notice titled "Notice of Dispute and Notice of Suspension of Works" giving notice of a dispute in relation to the payment of invoice 104 and requesting a meeting to resolve the dispute. A meeting could not be arranged and on 18 October 2018, the Builder's solicitors sent a notice titled "Notice of Breach of Contract" to the plaintiffs by registered post. That notice stated that the plaintiffs were in breach of cl 15.6 of the Contract by refusing to pay the balance of invoice 104 totalling $81,113.54. The notice concluded: You are hereby given Notice pursuant to Clause 24 of the Contract that in the event you fail to rectify the breach within ten [10] working days of the date of this Notice, the Builder may end this Contract
The plaintiffs did not pay the outstanding amount and on 20 November 2018, the Builder's solicitors sent a notice titled "Notice of Termination of Contract" to the plaintiffs by registered post giving notice of termination.
The plaintiffs advance no submissions for why the notice of termination was not effective to terminate the Contract. It plainly was.
In support of its claim to recover the balance of invoice 104 and unbilled work performed before termination, the Builder relied on a report prepared by Mr Michael Sturgess, an expert quantity surveyor. Mr Sturgess gives evidence that he inspected the work and the invoices sent by the Builder and that it was his opinion that a reasonable amount for the work done by the Builder was $555,942.66, which was more than the total of $544,743.92 paid to or claimed by the Builder. In reaching that conclusion, Mr Sturgess identified the scope of works by reference to a number of documents he had been provided and measurements he took during his inspection. He costed that work using Rawlinsons Australian Construction Handbook 2018 (36th Ed, Rawlinsons Publishing) and his own knowledge. He used labour rates of $90 per hour for plumbing and electrical trades and $70 per hour for all other trades.
The plaintiffs take issue with Mr Sturgess's evidence on the basis that his report was prepared on a quantum meruit basis, whereas the Builder's claim was a contractual claim. In making that submission, they rely on the following passage from the judgment of Kiefel CJ, Bell and Keane JJ in Mann v Paterson Constructions Pty Ltd (2019) 373 ALR 1; [2019] HCA 32 at [19]: In circumstances where the respondent has enforceable contractual rights to money that has become due under the contract, there is no room for a right in the respondent to elect to claim a reasonable remuneration unconstrained by the contract between the parties. As Deane J explained in Pavey & Matthews, in such a case there is a "valid and enforceable agreement governing the [respondent's] right to compensation", and there is therefore "neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration". To allow a restitutionary claim in these circumstances would be to subvert the contractual allocation of risk. [Footnote omitted]
To some extent, service of Mr Sturgess's report has created a false issue. Under the terms of the Contract, the Builder was entitled to periodic payments upon presentation of an invoice. It was open to the plaintiffs to contend that those invoices, and invoice 104 in particular, were not payable because, for example, they related to work not covered by the Contract, or the work claimed in the invoice was not done or the amount claimed for the work was not calculated in accordance with the Contract. It was not, however, up to the Builder to prove that the amount it charged was reasonable. In the absence of some defence that invoice 104 was not payable in accordance with the Contract, the plaintiffs are liable to pay it.
The Builder also makes a claim for work done before termination for which it had not yet issued an invoice. That claim is properly a claim for damages arising from the termination. In the normal course of events, the Builder would lead evidence of the additional work that had been done and the amount that it would have been entitled to invoice in accordance with the Contract for that work. Subject to any defence the plaintiffs might have to that claim, the Builder is entitled to recover that amount as damages. But the Builder did not adopt that approach. Instead, it chose to lead evidence concerning the total value of the work assessed on a quantum meruit basis. The question is whether that evidence is sufficient to prove that the Builder is entitled to the amount that it claims. I have reluctantly concluded that it is not. The difficulty is that there is no evidence of precisely what work the Builder did following the work covered by invoice 104 or what amount the Builder would have been entitled to charge for that work in accordance with the Contract. That gap in the evidence cannot be filled by evidence of what a reasonable charge for the whole of the work would be on a quantum meruit basis.
It follows that, subject to any off-setting claim, the Builder is entitled to recover the balance of invoice 104 - that is, $81,113.54.

The plaintiffs' claim for delay damages

Work commenced on 4 September 2017. Consequently, absent any extensions, it ought to have been completed by 5 March 2018, whereas work under the Contract was completed in October 2018, approximately seven months late. It is common ground that the Builder made no applications for extensions of time in accordance with the Contract.
The plaintiffs' claim for delay has two components. First, they claim the sum of $370,000, which is said to be the diminution in the value of the property between the time it ought to have been completed (that is, 26 weeks from the date it commenced work) and the time it was in fact completed. Second, they claim general damages for delay and submit that an appropriate figure would be $30,000.
In response to both claims, the Builder contends that the plaintiffs are only entitled to recover $1 per day, in accordance with the contractual provisions relating to liquidated damages. It submits that by making provision for liquidated damages the parties are to be taken to have intended to exclude a right to general damages, relying on cases such as Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49 at [241]; Pigott Foundations Ltd v Shepherd Construction Ltd (1994) 67 BLR 48 at 65-8 and J-Corp Pty Ltd v Mladenis [2009] WASCA 157 at [35] per Newnes JA. To those may be added the decision of the English Court of Appeal in Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30. Those cases establish that, generally, where parties choose to make provision for the payment of liquidated damages they are to be taken as excluding a right to claim general damages. The whole point of a clause providing for the payment of liquidated damages is to avoid the expense and time in quantifying the actual damages flowing from a breach of contract arising from delay in completing the work. That purpose would be seriously undermined if the liquidated damages clause was not interpreted as setting out exclusively the damages that could be recovered for delay.
Accepting that principle, the question remains whether by inserting a nominal amount as the amount payable by way of liquidated damages the parties intended, in effect, to exclude the operation of the liquidated damages clause or whether they intended to exclude a right to claim damages for delay altogether. The answer to that question does not depend on the application of any general principle but on the proper construction of the contract in question.
The plaintiffs make two responses to the Builder's reliance on the liquidated damages clause. First, they submit that, on the proper construction of the Contract, the liquidated damages clause does not provide an exclusive remedy. Second, they submit that if it does, then it is rendered void by s 18G of the HBA.
The question whether the liquidated damages clause provides an exclusive remedy for delay and the question whether, if it does, it is void under s 18G of the HBA were not raised by the Amended List Statement or List Response. However, both issues were addressed in the written submissions without objection. Consequently, it is appropriate to deal with them.
The two questions are tied together. If two interpretations of the liquidated damages clause are available and on one the clause is rendered void by s 18G of the HBA, that is a reason for preferring the alternative interpretation: see Wentworth Shire Council v Bemax Resources Ltd (2013) 278 FLR 264, [2013] NSWSC 1047 at [50] citing Lancashire County Council v Municipal Mutual Insurance Ltd [1997] QB 897 at 906D. That principle has particular application in the present case. The Contract is based on a standard form that has been specifically drafted for use in relation to residential building work in New South Wales and with the HBA and s 18B, in particular, in mind. The standard form contract itself provides that, if the parties do not insert an amount for liquidated damages, then they are to be taken to have inserted the figure of $1 per day. It should not readily be inferred that the drafters of the standard form contract intended to adopt a default position that rendered the provision relating to liquidated damages void. And it should not readily be inferred that the parties to the Contract by making the default position express in their contract intended to achieve a different result from the default position.
Section 18B(1)(d) implies into the Contract a warranty that the work will be completed within the time stipulated in the Contract. In my opinion, a provision of a contract which limits a party to claiming nominal damages for a breach of that warranty has the effect of restricting the rights of that person in respect of such a warranty since it substitutes for a substantial right for its breach a nominal one. It is therefore void under s 18G.
It follows from what I have said that the better interpretation of the liquidated damages clause is the one that avoids that consequence. On that interpretation, the liquidated damages clause in this case should not be interpreted as providing an exclusive remedy for delay. Rather, by specifying the amount of liquidated damages at $1 per working day, the parties intended not to provide for a substantive right to claim liquidated damages and intended instead to leave the plaintiffs a right to claim damages they could prove they had actually suffered. The position, of course, may well be different if the clause had provided for the payment of a substantial amount by way of liquidated damages.
In my opinion, the plaintiffs' claim for diminution in the value of their property is nonetheless misconceived. That case as put in Mr Cappello's affidavit evidence was that on 18 January 2019 a proposed acquisition notice was given by Roads and Maritime Services of the compulsory acquisition without compensation of the substratum of their house for the purpose of constructing a tunnel and roadway as part of the WestConnex project. Mr Cappello says that for several months before the notice was given, Roads and Maritime Services had posted maps showing the location of the proposed tunnel and that after the publication of those maps "selling our house became more difficult". He says that if the work had been completed by March 2018 "our house could have been sold by June 2018 and we could have avoided most of the drop in the market and the loss caused by the compulsory acquisition …". In support of that case, the plaintiffs served an expert report from Mr Vincent Romeo, a valuer, who expresses the opinion that the current market value of the property "Inclusive of tunnel affectation" is $2,850,000 and "Exclusive of tunnel affectation" is $3,220,000. That report appears to have been prepared for the purpose of a claim for compensation under Part 3, Division 4 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW), since the conclusion of the report is that the plaintiffs are entitled to compensation of $370,000 under the provisions of that Act.
There are a number of difficulties with this claim.
First, it is difficult to see that Mr and Mrs Capello have suffered any loss. That is so for at least two reasons. One is that they have not sold the property. Any loss they may suffer has not been crystallised and may be eliminated by future movements in the market. The other is that if there has been a diminution in the value of their property, they are entitled to recover the amount of that diminution in accordance with the Land Acquisition (Just Terms Compensation) Act 1991 (NSW).
Second, Mr and Mrs Cappello would only be entitled to claim any diminution in the value of their property from the Builder if the loss they suffered was not too remote a consequence of the Builder's delay. The test of remoteness is normally stated in terms reflecting the test adopted by the Court of Exchequer in Hadley v Baxendale (1854) 9 Ex 341 at 354; (1854) 156 ER 145 at 151, which requires either that the loss arise "naturally, ie, according to the usual course of things" from the breach or that it "may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it".
Applying that test, the loss is plainly too remote. It was not a natural consequence of the delay. Nor was it in the contemplation of the parties at the time they signed the Contract. Mr Cappello does not contend that the risk of acquisition was present at the time they signed the Contract. Despite suggestions by Mr Cappello to the contrary, it is plain that the house was being renovated with the intention that he and his family would continue to live in it after the renovations were completed. That is evidenced by the detailed consideration both he and his wife gave to particular aspects of the renovation and the frequent suggestions they made for improvements. One example is an email Mr Cappello sent to Mr Re on 28 March 2017 in which he says that he was not sure what he wanted in the kitchen, made some suggestions and concluded "I am sure that you will have some great suggestions as I have been waiting a long while for this kitchen!'". Another example is a text message Mr Cappello sent Mr Re on 17 December 2017 saying that he and his wife "have a slight dilemma as rethinking about the fireplace" and asking for its installation to be postponed until the following year. These are not the sentiments of someone keen to see the work completed as quickly as possible so that the property could be sold. And despite statements in his affidavit evidence to the contrary, Mr Cappello accepted in cross-examination that he never told the Builder that he intended to sell the property once the renovations were completed.
The plaintiffs submit that no test of remoteness applies in this case because their claim is based on s 18B of the HBA, not on contract. I do not accept that submission. Section 18B implies certain warranties into the Contract. Breach of those warranties is a breach of contract. Therefore, the normal principles applicable to breach of contract apply.
Third, and in any event, I am not satisfied that the acquisition of the substratum below the house has brought about a diminution in its value. It is not clear from Mr Romeo's report how he has reached the conclusion that the acquisition of the substratum will decrease the value of the property by $370,000. He refers to "[n]egative buyer sentiment relative to surrounding subterranean tunnel infrastructure" and quotes a number of real estate agents who have expressed that sentiment. However, he makes no attempt to compare actual sales both before and after the location of the tunnel was announced of properties affected by the tunnel and those that are not. Nor, for example, does he attempt to compare the effect on prices of properties above other tunnels. Without a comparison of that type, it is not possible to say whether any diminution in values is a result of the tunnel or of other factors. Moreover, he says elsewhere in his report: We note the WestConnex development to increase negative buyer sentiment during the construction phase, however, once complete, the WestConnex development is considered to bring positive sentiment due to the close proximity to upgraded road and rail infrastructure. That suggests that any diminution in value is at most temporary. Finally, the evidence given by Mr Romeo is contradicted by expert valuation evidence given by Mr David Bird. Mr Bird is critical of Mr Romeo's report because Mr Romeo has failed to identify any market evidence that would support his conclusion about the effect of the tunnel on prices. I accept that criticism.
In certain circumstances, courts will award damages for physical inconvenience resulting from a breach of contract: see, J D Heydon, Heydon on Contract, Law Book Co, 2019, citing Hobbs v London and South Western Railway Co (1875) LR 10 QB 111 at 122. In this case, the plaintiffs continued to live on the first floor of their home during the renovations. The evidence of the inconvenience is scant. Mr Cappello says that he, his wife and son had to live on the first floor, that they could not park their cars in the garage or driveway or have access to the rear garden and that they had to live with dust and noise. But it is not possible to say from the evidence how significant those inconveniences were. Elsewhere, Mr Cappello says that both he and his wife work full time. The likelihood is that most of the work was undertaken when they were not present. Moreover, although the Builder did not make any formal applications for extensions of time, it is apparent that Mr and Mrs Cappello were responsible for a substantial part of the delay because of changes they requested or wanted to consider. Taking those matters into account, I do not think that this is an appropriate case for the award of general damages.
It follows that the plaintiffs are only entitled to claim $1 per day as damages for delay in completion of the building work. Assuming that work was completed on 11 October 2018, that amount is $152.

The claim for defects and overcharging

The plaintiffs' claim for defects and overcharging has two components. First, relying on an expert report prepared by Mr Anthony Capaldi, the plaintiffs claim amounts in respect of various items of defective work or in respect of what are said to be unnecessary costs. The Builder served a report from Mr Steven Nakhla in response to the report from Mr Capaldi. In accordance with Uniform Civil Procedure Rules 2005 (NSW) r 31.24(1)(c) and 31.26 the experts met and prepared a helpful joint report setting out each item in respect of which a claim was made and the experts' respective positions in relation to each item. It is convenient to deal with each item they identified in their joint report.

Item 1

This item relates to the pouring of a new internal ground floor slab which incorporated a step down from the hallway to the kitchen which would have the effect of increasing the ceiling height from 2.6m to 2.7m. It appears from a text message sent by Mr Cappello to Mr Re on 24 September 2017 that it had been agreed that the slab would be replaced. In that text message, Mr Cappello suggested that the height of the slab be decreased to increase the ceiling height. According to evidence given by Mr Re, he and Mr Cappello discussed Mr Cappello's text message on 25 September 2017. During that discussion, Mr Re said that he told Mr Cappello that the change would involve additional costs. Mr Cappello replied "I agree with your approach and trust your judgment". Mr Cappello denies that conversation. However, there can be no doubt that the floor height was dropped at Mr Cappello's suggestion.
Mr Capaldi expresses the view that the plaintiffs are entitled to recover $22,039.36 in respect of this item. That amount is said to be the additional costs associated with lowering the floor. It is claimed on the basis that the dropping of the floor height was inconsistent with the plans and an error by the Builder that involved a breach of the warranty implied by s 18B(1)(a). In my opinion, that assumption is incorrect. The dropping of the floor height resulted from a request from Mr Cappello. In my opinion, the plaintiffs are estopped from asserting that the work was not done in accordance with the plans. Consequently, nothing should be allowed in respect of this item.

Item 2

This item relates to inadequate support and corrosion protection to three internal columns. Mr Capaldi allows $1,557 to rectify this defect.
At the time Mr Nakhla inspected the premises, it appears that two of the columns had been covered so that they could not be inspected without an invasive inspection. On that basis, Mr Nakhla only allows for the cost of repair of one column - that is, $519.
It appears the difference between the experts arises from the fact that Mr Capaldi inspected the columns at an earlier stage than Mr Nakhla. Mr Capaldi's evidence is that he observed the fault with all three columns. It is likely that the three columns would have been constructed in the same manner. For that reason, I think it is appropriate to allow $1,557 in respect of this item.

Item 3

This item relates to what is said to be inadequate falls in the southern alfresco concrete slab and transition. Mr Capaldi originally allowed $16,998.40 for this item. However, he revised that figure down to $4,374.
It appears that the problem with the falls in the alfresco concrete slab arises from the decision to drop the internal slab to increase the internal ceiling height.
Again, this item is not a defect. Rather, the cost of $4,374 is the additional cost incurred by the Builder in over-excavation that had to be undertaken before pouring the alfresco slab because of the drop in internal floor levels. Mr Capaldi accepted that this claim could not be maintained if the internal floor level had been dropped on instructions. In view of that concession, nothing should be allowed for this item.

Item 4

This item relates to oversized stormwater pits. Mr Capaldi allows $3,360.80 in respect of this item. That amount does not relate to the cost of rectifying any defect, but rather is said to be the wasted costs in constructing oversized stormwater pits.
According to Mr Re, on 22 November 2017, he met with Mr Jim Mitsopoulos, the hydraulics engineer, Mr Nat Tiano, the architect, and Mr and Mrs Cappello. The meeting followed a conversation between Mr Re and Mr and Mrs Cappello on 20 November 2017 in which Mr Cappello had expressed some concern about a particular drainage issue. At the meeting on 22 November 2017, Mr Mitsopoulos suggested that a trench could be cut into the concrete to address that issue. Mr Re said that that solution would be unacceptable to Mr and Mrs Cappello. Mr Re's evidence is that Mr Mitsopoulos suggested the stormwater pits as an alternative solution. Mr Cappello agreed with that solution.
Mr Cappello does not dispute Mr Re's account of the meeting. It appears, therefore, that the pits were installed on instructions from Mr Cappello. On that basis, no allowance should be made in respect of this item.

Item 5

This item relates to the cost of moving a sewer stack, which Mr Capaldi quantifies at $555.
The location of the sewer stack was not shown on the drawings. The Builder originally located the stack on the southern wall of the house. According to uncontested evidence given by Mr Nakhla, that was the logical place to locate the stack.
According to Mr Re, on 11 November 2017 he met with Mr and Mrs Cappello. During that meeting, Mrs Cappello said that she thought that the stack was unsightly and wanted it moved.
Mrs Cappello did not give evidence. Mr Cappello denied that he instructed the Builder to place the stack where it was originally. However, he does not deny that his wife requested that it be moved.
As I have said, the original location of the stack was not a defect. It was moved at the request of Mrs Cappello. In those circumstances, nothing should be allowed for this item.

Item 6

This item relates to the cost of replacing the coaxial data cabling installed by the Builder with a different type of cabling.
The type of cabling to be installed was not specified. There is no evidence that Mr or Mrs Cappello gave any instructions in relation to the type of cabling. There is no suggestion that the coaxial cable that was installed was inappropriate. For those reasons, no allowance should be made for this item.

Items 7 and 8

Item 7 relates to patching the ceiling in the gym, which had not been sanded or painted at the time the Contract was terminated. Item 8 relates to the fact that window sills to the east and west elevations had not been completed with installation of a polished stone at the time the Contract was terminated. Mr Capaldi allows an amount of $538 for item 7 and an amount of $926 for item 8.
The experts accept that both these items relate to incomplete work and would not be recoverable if the Builder was entitled to terminate the Contract when it did.
I have found that the Builder was entitled to terminate the Contract when it did. Consequently, no amount should be allowed for these items.

Item 9

This item relates to a gap in the kitchen wall. The experts agree that this is a defect and that $80 should be allowed to rectify this item.

Item 10

This item relates to the cost of replacing gas pipes connected to the hot water system. Originally, the Builder installed a 12mm diameter copper pipe to service two instantaneous gas hot water systems. It appears that those pipes had to be replaced with pipes of a greater diameter to ensure adequate gas flow to both units at the same time. Mr Capaldi allows $1,299 as the cost of installing the initial pipe.
The thickness of the gas pipes was not specified. The Builder also submitted that there was no evidence that the pipes had to be changed. I do not accept that submission. In his report, Mr Capaldi expresses the view that the unused 12mm copper pipe is to be removed. It is reasonable to infer that he observed both sets of pipes.
In my opinion, it is reasonable to infer that the original 12mm pipes were inadequate.
In this case, there appears to have been a breach of the warranty implied by s 18B(1)(b) and (f) of the HBA, since the original pipe was not suitable or reasonably fit for the purpose for which it was installed. On that basis, the plaintiffs are entitled to recover $1299 in respect of this item.

Item 11

This item related to leaking gutter joints. The experts agreed in their joint report that no amount should be allowed for this item.

Item 12

This item relates to the installation of flashings on bi-folding doors. Mr Capaldi estimates the costs of rectifying this defect at $2,968.
I accept that this is a defect. Mr Nakhla suggested that the absence of flashings was not a defect and that water ingress was unlikely because there is a substantial step down of approximately 100mm where the doors are located and that the doors are located on the higher side of the step down. The Builder submitted that this should be regarded as incomplete rather than defective work.
I do not accept either of those contentions. It appears that the current step down exists because the space outside the doors has not yet been tiled. I accept Mr Capaldi's evidence that the absence of flashings is a defect because the doors will need to be removed to correct it. The flashings ought to have been included at the time the doors were installed and additional costs will be incurred in removing them.
For this reason, I accept that $2,968 should be allowed in respect of this item.

Item 13

This item relates to the cost of obtaining a plumbing certificate, which the experts agree is approximately $900.
The experts were provided with a plumbing certificate produced by MRW Plumbing Group Pty Ltd dated 16 November 2019. Mr Capaldi's position is that that certificate is not adequate because it was not issued by the plumber who did the work.
The plaintiffs were unable to point to any requirement that the certificate had to be issued by the person who did the work. In my opinion, no allowance should be made for this item.

Item 14

This item relates to the additional cost of installing a second floor waste in the butler's pantry. Mr Capaldi estimates the cost at $948.
The Builder submits that the second floor waste was installed on the instructions of Mr and Mrs Cappello in anticipation of future renovations. There is, however, no evidence of those instructions. Consequently, an allowance of $948 should be made for this item.

Item 15

This item relates to the water service to the butler's pantry. The experts agree in their joint report that no allowance should be made in respect of this item.

Item 16

This item relates to internal air-conditioning ducting to part of the premises. It is Mr and Mrs Cappello's position that the Builder did not install part of the ducting and that, as a consequence, ducts had to be run externally and boxed in. Mr Capaldi allows an amount of $4,000 for that work.
There are no drawings specifying where air-conditioning droppers were to be located. There is no evidence that Mr or Mrs Cappello gave any instructions to the Builder on the location of droppers. In those circumstances, no allowance should be made for this item.

Item 17

This item relates to the cost of installing a channel drain along the retaining wall adjacent to the southern alfresco patio. According to Mr Capaldi, the need to install the channel drain arises from the inadequate fall from the doors leading to the patio and the size of the patio (68sqm). Mr Capaldi allows $6,991.50 for this work.
The Builder takes issue with whether this work is necessary and points to a certificate issued by MRW Plumbing Group Pty Ltd stating: To whom it may concern I Mitchell weir director of Mrw plumbing Group Pty Ltd installed Stormwater Drainage in ground to the AS 3500 Australian standards plumbing code of practice.
It is doubtful that this certificate is adequate to establish that the drainage is adequate. However, in my opinion, this item should not be regarded as a defect. The inadequate fall arises from the dropping of the internal floor on instructions from Mr Cappello. If the drain needs to be installed because of the inadequate fall, that should be seen as a consequence of that instruction rather than a defect. For those reasons, I would allow nothing for this item.
The experts agree that an additional 10 percent should be allowed on any defects for preliminaries, 25 percent should be allowed for a builder's margin and 10 percent should be allowed for GST.
It follows from what I have said that the plaintiffs are entitled to recover the sum of $6,852 in respect of the items dealt with by Mr Capaldi and Mr Nakhla. To that needs to be added 10 percent for preliminaries, 25 percent for a builder's margin and 10 percent for GST, making a total of $10,363.65.
The second claim in respect of overcharging is for wages charged by the Builder, including wages charged for Mr Re of $49,700.00, for "Abdul" of $11,585.00, for "Ali" of $13,720.00 and for "John D" of $10,497.50. The plaintiffs say that they are entitled to recover those amounts because no wage records for those persons were produced by the Builder in respect of those persons in response to notices to produce.
It is difficult to understand this submission. It seems clear that the four persons identified were the four employees of the Builder who worked on the job. Each invoice contained a breakdown of the number of hours each employee worked on the job on each day covered by the invoice and the rate that was charged for that work ($100 per hour). Under the terms of the Contract, the Builder was entitled to charge the costs of labour provided by the Builder and its employees at that rate. Payment of the invoices was not conditional on proof that the employees had been paid. In my opinion, there is no merit in this submission.

The claim against Mr Re

It is said (correctly) that Mr Re held a "contractor licence" as referred to in s 18B of the HBA and that he worked on the job. Consequently, the plaintiffs submit that s 18B applies to him. It is difficult to understand this claim. Section 18B does not impose a direct obligation on any person who holds a contractor licence. Rather, it implies into a contract between a person who holds such a licence (or is required to hold such a licence) and the person for whom the work is carried out the warranties set out in s 18B(1). There was no contract between Mr Re and the plaintiffs. The contract was between the Builder and the plaintiffs. Consequently, it is only the Builder who could be liable for the breaches of warranty.

Conclusion and orders

It follows from what I have said that the plaintiffs are entitled to recover $10,363.65 in respect of their claim for breach of the warranties implied by s 18B(1) of the HBA and $152 as liquidated damages. On the other hand, the Builder is entitled to recover $81,113.54 in respect of its outstanding invoice. The first two amounts should be set off against the third, with the result that the Builder is entitled to judgment in the sum of $70,597.89. There is no reason why interest should not be payable on that amount at Court rates from the date the Contract was terminated (20 November 2018) to the date of judgment. That amount is $5,912.79, making a total of $76,510.68.
The Builder stated at the conclusion of the hearing that it wanted an opportunity to make submissions on costs. There is no reason why those submissions should not be in writing.
Accordingly, the orders of the Court are: 1. Judgment for the first defendant in the sum of $76,510.68. 2. Order that the proceedings against the second defendant be dismissed; 3. Direct that (a) the defendants serve and provide to my Associate written submissions on the question of costs not exceeding 5 pages by 14 August 2020; (b) that the plaintiffs serve and provide to my Associate any submissions in response not exceeding 5 pages by 21 August 2020; (c) that the defendants serve any provide to my Associate any submissions in reply not exceeding 1 page by 26 August 2020; (d) the question of costs be determined on the papers.

Amendments 07 August 2020 - Formatting on coversheet 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: 07 August 2020

At a glance

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Judgment (25 paragraphs)

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Legislation Cited (3)

Cases Cited (7)

Cited By (15)