Champion Homes Sales Pty Ltd v Commissioner for Fair Trading

Background

1. The builder has been at all relevant times the holder of a contractor licence under the Home Building Act 1989 (NSW).
2. On 27 September 2017, the Commissioner decided that the builder was guilty of improper conduct on two grounds. These grounds were that it breached the statutory warranty under s 18B(1)(a) of the Home Building Act that work be done with due care and skill and in accordance with the plans and specifications set out in the contract: 1. for works carried out at an Eastlakes property; and 2. for works carried out at a Kyeemagh property.
3. The Commissioner relied upon s 51(1)(c) of the Home Building Act, which provides, relevantly, that a holder of a contractor licence who is authorised by the contractor licence to contract to do residential building work or specialist work, is guilty of improper conduct if the holder breaches a statutory warranty. The Commissioner (referred to in the Home Building Act as "the Secretary") also relied upon s 56(c) of the Home Building Act which provides that the Secretary may take disciplinary action under s 62 against the holder of a contractor licence on the ground that the holder is guilty of improper conduct.
4. The Commissioner, being satisfied that a ground on which disciplinary action may be taken against the builder had been established in relation to the builder, made a determination requiring the builder to pay to the Commissioner, as a penalty, an amount of $3,000, pursuant to s 62(c) of the Home Building Act.
5. This decision was upheld on an internal review.

Jurisdiction

1. Section 83B(3)(a) of the Home Building Act relevantly provides that a person aggrieved by a decision made by the Secretary under Part 4 (Disciplinary proceedings) to impose a penalty may apply to the Tribunal for an administrative review under the Administrative Decisions Review Act 1997 (NSW) of that decision.
2. The Tribunal has jurisdiction to review the decision to impose a penalty upon the builder pursuant to s 9(1) of the Administrative Decisions Review Act and ss 28 and 30 of the Civil and Administrative Tribunal Act 2013 (NSW).

Eastlakes property

1. The Eastlakes property was constructed by the builder between about 2008 and 2010. The disciplinary action in respect of the Eastlakes property arose out of a complaint that water was entering through the balcony causing staining to the ceilings in the garage and ground floor hallway and that other water damage had occurred.
2. A Fair Trading inspector, Mr Christy, reported that "the flashing and waterproofing under the sliding door has failed" and that it needed to be re-waterproofed. The Commissioner acknowledges that the evidence "is ambivalent" as to when or how the failure in the waterproofing membrane occurred. However, the Commissioner concludes that it is clear from the evidence that the builder breached the statutory warranties and is therefore guilty of improper conduct.
3. The builder's main case in relation to the Eastlakes property is that the Commissioner wrongly attributed to it responsibility for work done by a licensed waterproofer it had engaged.
4. Mr Stomo, for the builder, contended that the disciplinary provisions in the Home Building Act serve a different purpose from the statutory warranties, namely protection of the public. He submitted that the Commissioner's delegate had wrongly conflated the builder's contractual obligation to the owner with the disciplinary provisions of the Home Building Act. He said that, for disciplinary purposes, one had to consider what a prudent builder would undertake in order to carry out its obligations under the contract. A prudent builder would engage the services of a licensed waterproofer to do waterproofing work (as the builder had done). Mr Stomo submitted that, for the purposes of the disciplinary provisions, if there was a failure of waterproofing, it should only be "sheeted home" to the principal contractor if it could be shown that the contractor did something affecting the integrity of the waterproofing.
5. The builder submitted that the builder should be able to rely upon the expertise of certain tradespersons such as electricians and waterproofers. In this case, the waterproofer had issued the builder with a certificate indicating that the work was carried out in accordance with the usual building practices associated with the provision of waterproofing to external areas. Mr Stomo said that this was analogous to the case of a solicitor who engaged an expert for the purposes of litigation. He said that it could not be concluded that the solicitor did not exercise due care and skill because the expert did not come up to proof. In the same way, it was submitted, the builder should not be subject to disciplinary action because of the work of a licensed waterproofer, engaged by the builder.
6. The builder submitted that, on the Commissioner's interpretation of the legislation, it was subject to strict liability in relation to the conduct of another tradesperson. It said this vicarious liability tended to have a punitive effect, rather than being protective. The builder's submissions were to the effect that it was inappropriate to import strict liability into the statutory warranties, when referring to them for the purposes of the disciplinary provisions, and to hold the builder responsible. Rather, there should be different criteria for breaches under a statutory warranty when considering such breaches for disciplinary purposes. Whilst a builder will always be liable to a consumer, whether or not the builder should be disciplined is a different matter.

What is the correct approach to the imposition of liability for a breach of statutory warranty in the disciplinary context?

1. I do not accept the builder's argument that the Home Building Act requires a different approach to the statutory warranties, when they are being considered for the purposes of the disciplinary provisions, from the approach to be taken when they are considered as contractual provisions. Section 51(1)(c) clearly provides that a holder of a contractor licence is guilty of improper conduct if the holder breaches a statutory warranty. There is no basis for reading down the words "breaches a statutory warranty" or giving a different meaning to "breach" in s 51 to that which applies in Part 2C ("Statutory Warranties") of the Home Building Act (for example, in ss 18BA and 18E). A statute should be construed as far as possible to give the same meaning to words which occur in different parts of the statute, unless there is good reason to do otherwise: see, for example, Craig Williamson Pty Ltd v Barrowcliff [1915] VLR 450 at 452; Queensland v Forrest [2008] FCAFC 96; (2008) 168 FCR 532 at [41].
2. The builder's submission that the statutory warranty provisions and the disciplinary provisions of the Home Building Act have different purposes, and that a lower standard of liability for breach of a warranty should therefore apply in the disciplinary context, should not be accepted. As the Commissioner submitted, both sets of provisions are concerned with protection of the public. Whilst the form of protection in each is different, this does not provide the Tribunal with a justification for reading the words differently in the two contexts.
3. It is not the case, as the builder contends, that the Home Building Act imposes strict liability upon a builder in relation to the work of subcontractors. Section 18F of that Act provides defences to an action for breach of a statutory warranty. None of those defences apply in the circumstances of this case. There is also a defence to a complaint that a holder of a contractor licence has been guilty of improper conduct by breaching a statutory warranty if the holder "proves to the satisfaction of the Secretary that the holder did all that could reasonably be required to ensure that a nominated supervisor for that work would exercise such degree of control over the doing of the work as would be necessary to prevent the occurrence of the improper conduct" (Home Building Act, s 51(3)).
4. The inclusion of limited defences to an action for breach of statutory warranty, and a complaint of improper conduct by breaching a statutory warranty indicate that the legislature has considered the degree of liability a holder of a contractor licence should be subject to, and has provided accordingly.
5. It should also be recalled that a finding that the holder of a contractor licence is guilty of improper conduct under s 51 of the Home Building Act, or another provision in Division 1 of Part 4, is only the starting point. This provides a ground for disciplinary action under s 56(c). The taking of such action is discretionary. If the Commissioner "is satisfied that any ground on which disciplinary action may be taken against the holder of an authority has been established in relation to the holder," the Commissioner has a range of options, including to "determine to take no further action against the holder" (Home Building Act, s 62(a)). There is thus ample provision to respond appropriately to breaches of a statutory warranty where the degree of fault, on the part of a builder, is minimal.

Did the builder breach the statutory warranty?

1. The Commissioner took disciplinary action against the builder on the basis of an allegation that the builder failed to install a sill flashing at the rear door of a balcony or alternatively failed to turn the balcony waterproofing membrane up the sill, permitting water ingress into the property.
2. There is no dispute that there were water leaks at the Eastlakes property.
3. The builder had submitted to Fair Trading that the leaks were caused by the owner installing security camera cabling. In another area of the house, it was suggested that the leaks could have been caused by broken roof tiles or the installation of a television antenna on the roof.
4. The opinion of the Fair Trading inspector, Mr Christy, was that this was not the case. He said that the leaks were not caused by cabling, due to the distance of the stains to the ceiling from the cable. His opinion was that the water leaks were due to a failure of the waterproof membrane to the balcony. In relation to the cracked roof tiles, they had been sealed by the builder, but this had not rectified the leak. The antenna was unlikely to have caused the leak, as the contractor would most likely have accessed that part of the roof from another direction.
5. Mr Christy's opinion is supported by expert reports prepared for other Tribunal proceedings and I accept it.
6. The builder relied upon letters from David Hall of David Hall Building Appraisals Pty Ltd, who provided an opinion that the cabling could have been the cause of the leak. Mr Hall did not visit the site and does not set out his qualifications. Accordingly, I give this opinion little weight.
7. The builder also relied upon a warranty from Smithy's Contracting Pty Ltd that the waterproofing membrane would provide a waterproof barrier for ten years when applied in accordance with the manufacturers written instructions. This does not provide evidence that it was, in fact, applied in accordance with those instructions.
8. The Commissioner submits that one possible cause of the leak is that the membrane was installed incorrectly or, alternatively, that it was damaged because of the builder's subsequent tiling. I consider that the evidence establishes that it is more probable than not that the builder was responsible for the leak, and that it was caused in one of the ways referred to above.
9. I also consider that it is more likely than not that the builder failed to exercise due care and skill in relation to supervision of the waterproofing, or supervision of the tiling. Whilst waterproofing is a specialist trade, as the builder submits, the builder still has a responsibility to check the work of the waterproofer to ensure that it has been done properly. As the expert report of Awesim Building Consultants stated, the upturn on the waterproofing was only 20mm and it should be a minimum of 100mm. This is something well within the builder's expertise to check.
10. The builder accepted that it "might be true" that it would be responsible for the failure of the membrane as between it and the owner, but disputed that it was responsible for the purposes of the disciplinary provisions. As indicated above, I do not consider that a different approach applies to determining breach for the purpose of those provisions. It is noted that the builder consented to orders requiring it to rectify problems caused by water damage at the Eastlake property in separate Tribunal proceedings. This is, in essence, an admission of responsibility.
11. I consider that the evidence supports the conclusion that the builder failed to exercise due care and skill in relation to the waterproofing membrane, thereby breaching the statutory warranty in s 18B(1)(a).

Kyeemagh property

1. The builder constructed a two-storey house at Kyeemagh between about 2007 and 2011.
2. A report by Mr Christy in 2015 identified a number of issues, including leaks to the laundry ceiling, water penetrating the bottom of various doors, tiles delaminating, a water leak from the edge tiles on the front entry portico and leaking in the garage. Mr Christy made the following comment in his report: "Inspection of garage revealed that there were areas where water staining and external water has entered the garage causing damage to the plasterboard ceiling. It is my opinion that the builder has not installed the flashings to the roof correctly, and that a metal cap over the parapet wall should also have been installed as water is penetrating the top of the parapet and entering the garage through the crack in the parapet, resulting in water entering the garage."
3. The Commissioner took disciplinary action against the builder on the basis that the flashing used on the roof of the Kyeemagh property above the garage was not an over flashing, as required by the Building Code of Australia at the time, and that the builder failed to install a metal cop over the parapet wall.
4. The builder contended that there was insufficient evidence that the builder did not exercise due care and skill. Mr Stomo submitted, for the builder, that it was not necessary for a garage to be watertight. He also said there was a lack of evidentiary material as to the particular course to be taken in relation to the capping to the flashing at the parapet and whether or not that would alleviate the problem. In that sense, he submitted, Mr Christy's conclusions were speculative.
5. A letter to the builder from the Group General Manager of Melrose Fascia, Gutter & Roofing South Pty Ltd provides the opinion that the garage roof did not leak and that the extreme weather conditions between 20 and 22 April 2015 could have caused a possible leak. It appears to be common ground that the garage did, in fact, leak. There does not appear to be any basis for the opinion that the weather conditions caused the leak, other than speculation. The qualification and experience of the author of the letter are not provided. I give it little weight.
6. I accept the Commissioner's submission that a Class 10 building (the garage) attached to a Class 1 building (the residence) is required to be waterproofed. It was not waterproofed correctly. This was the builder's responsibility. Relying upon the report of Mr Christy, which I accept, I find that the builder should have taken steps to ensure that the garage was watertight. Providing capping to the flashing at the parapet is one step which could have been taken. Using an over flashing is another. I do not consider the opinion that such steps should have been taken to be speculative. The failure to waterproof the garage effectively and the failure to take these or other equivalent steps to ensure it was watertight establishes, in the absence of any reasonable explanation, that the builder did not supervise the job with due care and skill.
7. I find that the builder accordingly breached the warranty in s 18B(1)(a) of the Home Building Act.

Appropriate sanction

1. The builder submitted, in oral submissions, that there was no reason for a caution. It does not appear to me that the Commissioner did caution the builder. In any event, a caution is not a decision the Tribunal has jurisdiction to review: see Home Building Act, s 83B; Home Building Regulation 2014 (NSW), cl 71.
2. The Commissioner has power to impose a penalty on a corporation of up to $50,000 (Home Building Act, s 62(c)). I am satisfied that a penalty of $3,000 for two breaches is proportionate to the seriousness of the conduct, and at the lower end of an appropriate range. Neither party submitted that the penalty should be higher. In these circumstances, I consider that the Commissioner's decision is the correct and preferable decision (Administrative Decisions Review Act, s 63(1)).

Orders

1. I make the following order: 1. The respondent's decision to require the applicant to pay to the respondent, as a penalty, an amount of $3,000, is affirmed.

---

    ​

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: 19 July 2018