Catapult Constructions Pty Ltd v Denison

Breach of Contract or Statutory Warranties

1. The Appellant contends that there was no evidence, or particularisation, of the precise defective work and accordingly the Tribunal ought not to have proceeded on the basis that there was a breach of the contract or the statutory warranties.
2. The Respondent in the Reply to the Appeal identified evidence which supported reasons which were not given by the Tribunal but which support the conclusions adopted by the Tribunal. This included: In the Conclave Agreement of the parties experts dated 10 February 2016 "Defects and Rectification Scope of Work": As to the absent or defective waterproofing: "The experts agree that the south and west elevations walls are defectively waterproofed and require rectification…." As to the collapsed structural supports: "The experts agree that the collapsed structural support requires rectification and the excavated subsoil required stabilising by undertaking the following: 1. Engage a structural engineer to confirm the following. 2. Complete of dry laid stone retaining wall to a suitable height approximately 600mm high the full width of the dwelling. 3. Provide drainage and sediment control behind the wall tp discharge into the spoon drain. 4. Structural engineer to issue an instruction on the structural adequacy and type of the proposed support props and retaining wall."
3. The Appeal Panel accepts that the above references confirm that there was an evidentiary basis for the Tribunal's conclusion as to breach by the builder in both respects. There was other evidence referred to in the Reply to the Appeal which the Respondent submitted provided a further basis for a conclusion that the work was defective.
4. The home building contract was for the construction of a two story extension to an existing residence including a below ground floor level extension including habitable rooms and the construction of masonry piers upon the natural ground adjacent to the masonry wall to provide support for the existing residence. The critical work involved was the excavation for, and construction of a masonry retaining wall on concrete footings, waterproofing of the wall below finished ground level, installation of drainage to remove sub-soil water at the rear of the wall and the erection of brick piers on the existing ground level adjacent to the wall.
5. The Appeal Panel notes that there was abundant evidence that water flowed through the masonry walls which were to have been sealed with a waterproofing membrane. There was no dispute between the parties respective expert witnesses in this regard. The Appeal Panel having reviewed the evidence before the Tribunal concludes that the evidence disclosed that the extent of water flow into the habitable rooms was such that they were not "reasonably fit for occupation as a dwelling". The Tribunal at [123] stated: "…It is abundantly plain, and as conceded by the building consultants for both parties, that there has been a major failure in the building works in relation to waterproofing of the granny flat. "
6. The Appeal Panel understands the difficulty involved in identifying and proving the scope of work required to rectify defective building work when the precise extent and method of carrying out the necessary rectification work may only be established after invasive or destructive investigations. One reason for this difficulty is that the destructive component of the investigation is frequently the initial step in the rectification works. This difficulty often arises in circumstances involving defective work causing water penetration. The Appeal Panel also considers that it ought to be possible to draft an effective work order notwithstanding that it has not been possible to undertake invasive inspections.
7. There appears to have been a concession by the builder that the waterproof membrane had not been installed. Nevertheless the evidence before the Tribunal as to the extent of water entry established that either the membrane was not installed, or that if it had been, then the installation was defective.
8. There was also evidence that the Appellant constructed the brick piers which subsequently collapsed. It seems that the Tribunal accepted that the builder was obliged to maintain the support of the existing residence and both experts agreed that the collapse of the piers constituted a defect, see [14] of the Member's reasons.
9. The Appellant contends that the cause of the water penetration and the collapse of the piers was solely attributable to deficiencies in the engineering documents under the contract and that there was no breach by the builder. The evidence relied upon was a report from a structural engineer, Nicholas Kenyon, in the form of a commentary upon the matters to be addressed in the course of the preparing engineering drawings for water proofing and the possible need for additional investigation of ground conditions to ensure adequate support of building elements such as the brick piers. The commentary did not include any consideration of the concurrent obligations of a builder to ensure competent and effective water proofing and the care required in the course of construction of the elements of buildings, nor the duty of the builder to independently exercise skill and judgement in the construction of the building.
10. The Appeal Panel has considered the commentary relied upon by the Appellant and does not accept that the matters raised were the sole cause of the absence, or defective installation, of the waterproofing or the collapse of the brick piers. The Tribunal also concludes that the commentary could not show that the identified deficiencies were the material cause of the water entry and the collapse of the piers and how the referred deficiencies had anything to do with these consequences.
11. Accordingly, there is no error of law in the finding of the Member that the builder had performed defective work in breach of the statutory warranties in section 18B of the Act notwithstanding the Member's failure to set out with precision section 18B of the Act and the duties of the builder in regard to the statutory warranties owed by the builder to the homeowner (the ambit of such duties being explained by the Appeal Panel in Deacon v National Strategic Constructions Pty Ltd [2017] NSWCATAP 185 at [46]). Even if an error had occurred in the manner in which the reasons of the Member were expressed, the Appeal Panel is satisfied that it made no difference to the outcome on the issue of breach.
12. The Appeal Panel considers that the installation of waterproofing at the rear of retaining walls in a manner which ensures that water does not pass through the wall is a very common activity in the construction industry about which a builder would, and should, have extensive knowledge without the need for advice from an engineer. The Appellant further has not identified what there was in the engineering drawings which caused the builder to fail to install the waterproofing, or to install it incorrectly.
13. The interface between the responsibility of design consultants and the obligations of builders in the course of construction work is illustrated by the later introduced "defenses" under section 18F of the Act. What is clear is that for a defense to succeed there must be, prior to carrying out the work, an enquiry by the builder as to the adequacy of the design and a written instruction to proceed from the consultant. This approach reflects the approach of the common law in relation to negligent design and obligations upon builders to warn if what is proposed is questionable or unbuildable. There was no evidence before the Tribunal of any such approach by the Appellant before proceeding with the particular work. The evidence relied on by the Appellant could not be accepted as establishing that the cause of the water penetration and the collapse of the supports, was the referred speculative criticisms of the structural documents in the commentary, or alternatively that they played any material part in the production of the defective work by the builder.
14. To assess whether the builder was in breach of statutory warranties, the provisions of section 18B of the Act and the associated building regulations need to be considered.
15. Section 18B of the Act relevantly provides: 18B Warranties as to residential building work (1) The following warranties by the holder of a contractor license, or a person required to hold a contractor license before entering into a contract, are implied in every contract to do residential building work: … (a) a warranty that the work will be done in accordance with, and will comply with, this or any other law, … (e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling,
16. The relevant law referred to in sub-section 18B(1)(c) of the Act in 2014, at the time the contract was entered, was the Building Code of Australia (BCA), now also titled the National Construction Code. Evidence that work does not comply with the BCA establishes a basis for the finding that s 18B (1) (c) of the Act has been breached: Deacon v National Strategic Constructions Pty Ltd [2017] NSWCATAP 185 at [46]-[48].
17. The Performance Provisions concerning residential buildings are set out in Volume 2 of the NCC. Subsection 2.1 deals with the Structure and Subsection 2.2 deal with Damp and Waterproofing.
18. Clause P2.1.1 imposes upon those performing building work extensive Performance Requirements primarily focused on stability, including: P2.1.1 Structural stability and resistance to actions (a) A building or structure, during construction and use, with appropriate degrees of reliability, must - (i) perform adequately under all reasonably expected design actions; and (ii) withstand extreme or frequently repeated design actions; and (iii) be designed to sustain local damage, with the structural system as a whole remaining stable and not being damaged to an extent disproportionate to the original local damage; and (iv) avoid causing damage to other properties, by resisting the actions to which it may reasonably be expected to be subjected.
19. The structural work in this instance was described in the contract as: Excavation Includes propping of existing footings and underpinning where necessary. Retaining wall to be built under house to retain existing footings and earth to provide adequate clearance and drainage to bottom floor area.
20. If an element of the structure collapses the manner in which it was built would be a breach of the Performance Requirements, see [29]. The builder who constructed the element will be liable for the breach of statutory warranty in section 18B(1)(c) of the Act. If the cause of the collapse involved a possibly inadequate engineering design then the engineer might have some common law liability to the person who relied upon the design and suffered loss. This however does not absolve the builder from liability for the breach of the statutory warranty as to stability under section 18B(1)(c) and Clause P2.1.1.
21. The Appellant referred in submissions to a statement by McDougall J in Bannister & Hunter v Transition Resort Holdings (No 3) [2013] NSWSC 1943 at [302]: The general rule, in relation to a contract for the performance of building work (and in my view, the same general rule applies to a contract for the performance of engineering work), is that where the builder departs substantially from the specifications, the proprietor's damages are not limited to any diminution in value of the building but, rather, are the cost of making the work conform to the specifications (and any consequential losses). That principle is established by the decision of the High Court of Australia in Bellgrove v Eldridge (1954) 90 CLR 613 at, in particular, 617.
22. This statement does not have any relevance to the alleged absence of liability on the part of a builder to comply with the statutory warranty in section 18B(1)(c) of the Act that the "work will be done in accordance with, and will comply with, this or any other law". The same approach in assessing damages would however apply to the assessment of damages for a breach of statutory warranty. In these proceedings we will not be required to assess damages.
23. Clause P2.2.2 provides: P2.2.2 Weatherproofing A roof and external wall (including openings around windows and doors) must prevent the penetration of water that could cause - (a) unhealthy or dangerous conditions, or loss of amenity for occupants; and (b) undue dampness or deterioration of building elements.
24. Clause P2.2.3 provides: P2.2.3 Dampness Moisture from the ground must be prevented from causing - (a) unhealthy or dangerous conditions, or loss of amenity for occupants; and (b) undue dampness or deterioration of building elements
25. The Appeal Panel concludes that a builder who constructs a wall in the location concerned in a manner which allows water to penetrate the wall will be in breach of these provisions and will be liable for the breach of the statutory warranties imposed under subsection 18B(1)(c) and (e). It is the performance of the work in a manner which is in breach of the relevant law which comprises the breach of statutory warranty.
26. The fact that there was evidence that there was, or may have been, deficiencies in the structural engineering drawings cannot displace the conclusion as to liability on the part of the builder for breach of statutory warranties. The manner in which the wall was constructed by the builder and the absence of, or the defective installation of, the waterproofing installed by the builder was beyond doubt in breach of the provisions of the Building Code of Australia. Such a breach was causative of damage to the Respondent providing a proper basis upon which a building claim could be made. .
27. The Appeal Panel dismisses the Appeal on the primary ground. The second issue in the Appeal involves consideration of the validity and adequacy of Orders 1 & 2, in [4].

Sections 48O and 48MA of the Act

1. The Appeal Panel understands that the issue as to whether a work order under section 48O(1)(c) of the Act should be made was contested before the Tribunal. The Tribunal concluded at [121]: I consider that it is not only appropriate to make an order under s 48MA but that for the reasons provided by the builder it is not possible to make a money order.
2. The Appeal panel considers that the conclusion by the Tribunal is correct, however the Tribunal does not appear to have had the assistance it required in the task of crafting the order. The Appeal Panel, at [19], noted the difficulty involved in defining the scope of rectification work when invasive inspections have not been possible or are only practicable as part of the rectification works.
3. Sections 48MA and 48O of the Act state: 48MA Rectification of defective work is preferred outcome in proceedings. A court or tribunal determining a building claim involving an allegation of defective residential building work or specialist work by a party to the proceedings (the responsible party) is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome. 48O Powers of Tribunal (1) In determining a building claim, the Tribunal is empowered to make one or more of the following orders as it considers appropriate: (a) an order that one party to the proceedings pay money to another party or to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person, (b) an order that a specified amount of money is not due or owing by a party to the proceedings to a specified person, or that a party to the proceedings is not entitled to a refund of any money paid to another party to the proceedings, (c) an order that a party to the proceedings: (i) do any specified work or perform any specified service or any obligation arising under this Act or the terms of any agreement, or (ii) do or perform, or refrain from doing or performing, any specified act, matter or thing. (2) The Tribunal can make an order even if it is not the order that the applicant asked for. (3) Sections 79R and 79T-79V of the Fair Trading Act 1987 apply, with any necessary modifications, to and in respect of the determination of a building claim.
4. Ground of appeal 5 states that the Member: Erred in law in failing to hold that the power under section 48O(c)(ii) of the Act was limited to the making of a work order to "perform" a specified matter or thing be in connection with and established on the evidence to arise from "an obligation" under the Act or the terms of the agreement.
5. The Appeal Panel has addressed the latter part of this ground. The principal part of the ground concerns the problematic requirement that the builder engage engineers to investigate and define the work required to rectify the defect, and then to perform such work.
6. The extent of and the matters which may be addressed under section 48O work orders have been the subject of consideration in a number of Appeal Panel decisions in the Tribunal.
7. In Leung v Alexakis [2018] NSWCATAP 11 ('Leung') the Appeal Panel upheld the making of orders that a previous owner, who performed home building work as an owner-builder, arrange for the performance of specific works, the terms of the orders were: 1. The respondent at her own cost is to engage appropriately qualified and licensed trade persons to demolish the stormwater works the subject of these proceedings and reconstruct them in accordance with the plans of D Mitsopoulos & Associates Plans dated 21 August 2011. 2. All persons who are to carry out the specialist work are to provide written evidence to the Appellants that they are suitably qualified, licensed and insured prior to any works commencing; 3. The respondent is to pay for all costs associated with obtaining any relevant approval/s for the rectification work. 4. The work, the subject of order 1, is to be inspected by Building Certificates Pty Ltd (certifier) at such times and in such manner as is necessary for the certifier to confirm in writing at the conclusion of the work that all work has been done in accordance with order 1 and to enable the certifier to provide all necessary certificates to relevant authorities in conformance with the development approval and other requirements applicable to that work. The costs of the certifier are to be paid by the respondent. 5. The work is to be commenced within 30 days of the date of these orders and is to be completed within 90 days of the date of these orders. 6. Pursuant to Schedule 4 clause 8 of the Civil and Administrative Tribunal Act, 2013 the applicants have leave to renew the proceedings if these orders are not complied with by the respondent within the time specified.
8. The orders of the Tribunal in Leung were more limited, however required the former home-owner / owner-builder to arrange for the performance of defined rectification work.
9. The critical amendments which the Appeal Panel made in Leung ensured that there was less uncertainty in relation to numerous aspects, including provision for: 1. all persons engaged to perform the rectification work provided to the homeowner evidence of their qualifications, licence and insurance prior to commencing work. 2. payment of all costs involved in obtaining relevant approvals for the rectification work by the owner-builder. 3. inspection of the rectification work at times and in a manner necessary for the certifier to be able to certify the correct completion of the rectification work and to provide certificates of compliance for relevant authorities. The costs being met by the owner-builder. 4. the date for commencement and time for the completion of the rectification works. 5. the homeowner having leave pursuant to Schedule 4 Clause 8 of the Civil and Administrative Tribunal Act 2013, to renew the proceedings if the orders were not complied with
10. The Appeal Panel accepts that consideration will need to be given in these proceedings to the form and content of any orders made having regard to the approach of the Appeal panel in Leung.
11. In Little v J & K Homes Pty Ltd [2017] NSWCATAP 84, at [28] the Appeal Panel stated: Alternatively, s 48O(1)(c)(ii) is clearly intended to authorise the making of orders having wider operation than requiring the performance of building work by the builder. That provision would authorise an order that the builder cause specified work to be completed.
12. Further in Howe v NSW Coastal Homes Pty Ltd [2016] NSWCATAP 127 the Appeal Panel, at [21] commented upon the breadth of the discretion of the Tribunal when considering making orders pursuant to section 48O of the Act in terms: Firstly, section 48O of the Home Building Act permits the Tribunal to make a work order to rectify any defective work, but does not require that the Tribunal make such an order. The exercise of that power is a matter of discretion and dependent upon the evidence and findings made by the Tribunal: see for example Jubian v Clark; Clark v Jubian [2016] NSWCATAP 56 at [43]. The power to make such an order against a party, as was made in this matter, relying upon section 48O, was undoubted by the plurality of the Court of Appeal in Italiano v Carbone & Ors [2005] NSWCA 177.
13. The Appeal Panel recognises that there has been no decision of which it has been made aware requiring a builder, under an order pursuant to section 48O(1)(c)(i) or (ii) of the Act, to engage engineers to investigate and advise as to the work required, let alone an order requiring the builder to, in effect, have the responsibility of determining what rectification work is required or how it is to be performed.
14. The Appeal Panel does not consider that the terms of the Orders, insofar as the builder is required to engage geotechnical and structural engineers to provide advice as to the means by which the rectification of the water penetration and structural instability should be undertaken, are appropriate.
15. Subsection 48O(1)(c)(i) refers to an order to "do specified work" or "perform any specified service" or "any obligation". The subsection also limits the subject matter of an order to one which arises "under this Act or the terms of any agreement".
16. The engagement of engineers to advise as to the means of providing "effective waterproofing" and the "prevention of water ingress" to the walls does not readily fall under the definition of any "work, service or obligation" arising under the Act of the contract.
17. Subsection 48O(c)(ii) refers to an order to "do or perform" …"any specified act, matter or thing", which appears to permit a wider category of actions which might be the subject of an order. Any such order would however have to be based upon some liability to undertake the action on the party who is required to comply. There would need to be some nexus between the necessity for action and a legally enforceable duty to act. There does not seem to be any such nexus involved in the terms of the Orders insofar as they require the builder to engage engineers to advise as to the means of rectification.
18. Although the Tribunal has wide powers under section 48O of the Act to "determine" a building claim by way of making an order that "specified work" or "specified services" be performed by the builder, an order that a builder engage experts and rectify work in accordance with the recommendations of such experts engaged by the builder should not be made unless the Tribunal identifies a proper basis for such an order. The Tribunal must clearly articulate how such an order is a practical and certain resolution of the dispute to put the homeowner in the position the homeowner should have been had the builder performed its obligations under the contract, particularly if the homeowner has not provided evidence in regards to the manner of rectification of the defect(s).
19. If it is considering such an order, rather than making an alternative order such as adjourning the proceedings so that the homeowner can obtain evidence regarding a scope of works to rectify the breach by the builder, the Tribunal must be very cautious to avoid any perception that the homeowner in Tribunal proceedings only has to prove that defective work by the builder has occurred, and that it then becomes the responsibility of the builder to establish how to rectify the defect, including the builder engaging expert evidence in that regard. The evidentiary onus remains on the homeowner to prove both breach (i.e. what is the defective work) and the method of rectification (so that the Tribunal can make an appropriate work order for rectification of the defective work; or if a work order is not the preferred outcome, assess damages according to the principles set out in Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613). However, in the circumstances of this matter, there was some evidence (as discussed below) before the Tribunal regarding an appropriate scope of works to rectify the defect.
20. The discretion to make work orders under section 48O of the Act is required, under subsection (3), to have regard to the provisions of the Fair Trading Act 1987 which require that the exercise of discretion is fair and equitable to both parties, see Leung and Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23.
21. The Appeal Panel considers that the discretion to make a work order is also subject to requirements of certainty, practicality and enforceability. The terms of the orders made by the Appeal Panel in Leung, see [46] are an example of such an approach.
22. The Appeal Panel notes that the Tribunal when referring to submissions by the homeowner as to the claim by the builder for the cost of an engineering design by a company ADC, stated: She states ADC re-designed the western wall because the builder refused to construct the original design. The builder then refused to build the ADC design and commissioned a further design from NiTma. Further Mr Leggatt conceded in cross-examination that he failed to follow the NiTma design as he did not install waterproofing to the rear of the wall.
23. The Appeal Panel understands that the NiTma design of the retaining wall, was included at page 206 of the Appeal Bundle (the NiTmA Drawing), and accordingly it depicts what was the last iteration of what was to be constructed at the western wall. Further it would seem that the southern wall, to the extent that it served as a retaining wall, was required to have waterproofing (tanking) applied to the wall and the edge of the floor slab as shown on the NiTmA Drawing.
24. On the basis that the NiTma design was that which the builder was required to construct the Appeal Panel considers that this design could form the basis for a work order to address the defective work causing water penetration to the habitable rooms in the lower floor area.
25. The Appeal Panel has not been able to ascertain what alternative definitions of the rectification work necessary to ensure stability in the support of the existing sections of the building, however considers that an order could be drafted which required the support system be installed in compliance with the NCC, see [29-32].
26. The other items of work in the Orders made by the Tribunal, 3 - Installation of a compliant termite protection system and 4 - Rectification of the balcony balustrade are not the subject of Appeal. These Orders remain in effect however the performance of the work has been stayed pending the outcome of this Appeal. Accordingly the Appellant will be required to perform some rectification work. The work involved in compliance with Order 3 is likely to be performed concurrently with any work included in the amended orders. This is a compelling reason for careful consideration of the amendments which are to be made to the Orders under Appeal.
27. The Appeal Panel concludes that the grounds of appeal regarding breach of s 18B of the Act should be dismissed, but that the appeal should be upheld in part in respect of the ambit of the orders made by the Tribunal. The Appeal Panel considers that the terms of the amended orders should be addressed by the parties and orders will be made for submissions to address such amendments. The Appeal Panel has set out below the type of order that may be appropriate.
28. The Appeal Panel concludes, on the basis of the Retaining Wall details on the NiTmA Drawing, that the amended orders pursuant to section 48O(c) of the Act may need to include reference the following matters regarding a potentially appropriate work order : The Appellant shall execute the following rectification work generally in accordance with NiTma Project 1658S drawing 3 of 4 dated 13 October 2014 (the NiTmA Drawing): As to the scope of work: (The Rectification Works) (1) Excavate behind the western and southern retaining walls to the base of the concrete footings. (2) Install compliant temporary shoring in the course of excavation. (3) Install waterproofing (tanking) to the internal face of the footing and retaining walls to the full height of the unexposed surface of the retaining walls. (4) Install subsoil AG drainage behind the full length of retaining walls at the base of the excavation discharging at external ground level of the northern end of the western retaining wall. (5) Install a compliant termite protection system at the granny flat level. (6) Rectify all defects in the balcony balustrade to a workmanlike standard and in compliance with the NCC or BCA as appropriate. (7) Back-fill behind all retaining walls and seal the external surface as shown on the NiTmA Drawing. (8) Install underfloor structural supports for the existing timber framed residence which comply with Clause P21.1 of the NCC. (9) Clean up and remove all unused excavated material. As to the performance of the Rectification Work: (10) The Appellant is to pay for all costs associated with obtaining any relevant approval/s for the rectification work. (11) The Respondent is to provide sufficient and appropriate access to the site to enable the Appellant to perform the Rectification Work. (12) The Rectification Work, the subject of subparagraphs 1 to 8, is to be inspected by XXXXXX Pty Ltd (certifier) at such times and in such manner as is necessary for the certifier to confirm in writing at the conclusion of the work that all work has been done in accordance with subparagraphs 1 to 8, and to enable the certifier to provide all necessary certificates to relevant authorities in conformance with the development approval and other requirements applicable to that work. (11) The costs of the certifier are to be paid by the Respondent. (12) The performance of the Rectification Work is to commence within XX days of the date of these orders and shall be completed within XX days. Non-Compliance and Renewal of Proceedings (13) Pursuant to Schedule 4 Clause 8 of the Civil and Administrative Tribunal Act, 2013 the Respondent has leave to renew the proceedings if these orders are not complied with by the Appellant.

Orders

1. The Appeal Panel makes the following orders including orders for the filing of submissions as to the terms of the Orders to be made by the Appeal Panel. 1. Appeal allowed in part. 2. Costs of the appeal reserved. 3. Within 21 days of the date of the decision, each party to file and serve a proposed scope of works; proposed work order; and any written submissions in regards to the proposed work order to reflect the findings of the Appeal Panel in these proceedings. 4. The submissions under Order 3 are to also address; 1. The orders to be made as to the orders of the Tribunal which have been stayed, and 2. Whether the Appeal Panel should proceed to make final orders, including orders as to any application and submissions as to costs, without conducting a further hearing.

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: 28 June 2018