Christopher Sheppard and Melanie Sheppard v GMK Developing Services Pty Ltd

Background

1. On or about 20 May 2009 the applicants signed a building contract with the respondent for the construction of a residential dwelling at Balgownie, NSW. Construction commenced in about August 2009 and the date of practical completion was 16 July 2010, the applicants moving into the premises the following day.
2. Several months after moving in the applicants noticed the floorboards in the ground floor rumpus room had developed a "hump". Over the ensuing months, the floorboards continued to deteriorate and the applicants became aware of other issues, including excessive moisture in the sub-floor area. By 2012 the applicants became seriously concerned at the apparent defects in the premises and discussions and meetings were held with the respondent, other contractors who worked on the site or who had inspected the site subsequently to the completion of the work. Some minor rectification works were complete. In the opinion of the applicants, no contractor who worked on the construction of the dwelling appeared to be willing to acknowledge any liability for the obvious defects.
3. Between 2012 and 2014 both parties engaged a variety of experts to give opinions in relation to all defective works, causation and liability for those defective works and the reasonable methods and costs of rectification.
4. These proceedings were eventually commenced pursuant to the Home Building Act 1989 (HB Act).
5. There is no dispute between the parties that the works were residential building works, that the application was commenced within time and that the Tribunal has jurisdiction to hear and determine this claim.

The Issues

1. The parties have filed a number of expert reports including various iterations of a Scott Schedule. By the date of the hearing, the parties relied upon a Joint Scott Schedule completed by Mr Wallace for the applicants, and Mr Bullivant for the respondent. Based on that document, the applicants claim as follows: Item No. Description Applicant's Cost Respondent's Cost 1 Replace damaged timber flooring - water damage $57,463.00 $21,630 2 Deflected flooring in bedroom 2 $11,640.00 $0.00 if builder returns, otherwise agrees liability and quantum 2A Install uni-piers for additional support for flooring $1,470.00 $0.00 - included in 2. 3 Rectify ill-fitting doors $1,660.00 $0.00 if builder returns, otherwise agrees liability and quantum 4 Rectify cement render $7,450.00 $0.00 if builder returns otherwise agree liability, quantum $6,298.00 5 Install sub-floor ventilation $6,720.00 $0.00 if builder returns otherwise agree liability, quantum $5,610.00 6 Remove formwork timber $100.00 $0.00 if builder returns, otherwise agrees liability and quantum 7 Water entry at front $1,430.00 $0.00 if builder returns, otherwise agrees liability and quantum 8 Gaps at tops of windows and sliding doors $310.00 $0.00 if builder returns, otherwise agrees liability and quantum 9 Water stops in bathroom $7,200.00 $0.00 if builder returns, otherwise agree liability in part, quantum $2,125.00 10 Home Owners Warranty insurance $400.00 11 Margin @ 15% $14,376.00 12 Management: inspections x 6 $1,500.00 $1,500.00 13 Total GST included $111,719.00 $52,597.00 if found and builder does not return.

1. Although this appeared to be the beginning point for the parties at the commencement of the hearing, the parties' experts continued to discuss possible further agreements which will be referred to further below.

The Evidence

1. Both parties provided detailed and quite voluminous (but appropriate) documentary evidence.
2. The applicants relied on the following statement and reports: 1. The Contract including architectural plans and drawings, structural engineer's drawings and the Certificate of Construction; 2. Three statements by Christopher Sheppard dated 25 March 2014, 29 May 2014 and 15 October 2014; 3. Expert reports prepared by: 1. Mr Andrew Connor 25 September 2012 and statutory declaration dated 28 May 2014; 2. Mr Neil Wallace reports dated 24 December 2012, 24 March 2014, 02 June 2014 and 17 July 2014. Each of those reports contained a Scott Schedule (updated as Mr Wallace received and considered some of the reports following), the last of which was the basis of the Joint Scott Schedule referred to above; 3. Mr Gerry Swindale of Thrust Floors International Pty Ltd dated 18 February 2014 and an amended quotation dated 03 June 2014; and 4. Mr Ivo Albrecht, engineer, dated 09 July 2014. 1. In addition to the above, Mr Sheppard, Mr Wallace, Mr Albrecht and Mr Swindale also gave oral evidence and were cross-examined.
3. The respondents relied on the following evidence and reports: 1. Statements of Mr Glen Sussman dated 29 April 2014 and 08 September 2014; 2. Letter dated 29 April 2014 from Mr Phil Costar, Area Manager Wollongong for Stoddart Building Products; 3. Letter dated 05 September 2014 from Mr Jim Maloney of Oxley Timber Company; and 4. Reports from Mr Stewart Bullivant dated 07 May 2014, 05 September 2014 (response to Amended Scott Schedule) and 05 September 2014 ("Special Purpose Defects Report"). 5. Mr Sussman and Mr Bullivant also gave oral evidence at the hearing.
4. The parties' documentary evidence was helpfully presented in folders, with an index and numbered pages.

Legislation

1. The application was filed on or about 20 December 2013, prior to the commencement of the Civil and Administrative Tribunal on 1 January 2014. Pursuant to Schedule 4 of the Civil and Administrative Tribunal Act 2013 (CAT Act), a claim commenced before the establishment day (1 January 2014) and were not finally determined before the establishment day, are "pending proceedings". The Schedule recognises two types of pending proceedings: "part heard proceedings" and "unheard proceedings". The former refers to proceedings which the existing (that is, former) Tribunal had begun to hear the proceedings but had not determined them. "Unheard proceedings" are defined as "pending proceedings that had not been heard before the establishment day …". Because of the definition of "part heard proceedings", the definition of "unheard proceedings" effectively means proceedings commenced before the establishment day which had not begun to be heard by the former Tribunal.
2. These proceedings, in which the hearing had not commenced before the establishment day, are therefore "unheard proceedings". Clause 7 of Schedule 4 relevantly states: 7 Pending proceedings before existing tribunals transfer to NCAT (1) Unheard proceedings in an existing tribunal are taken, on and from the establishment day, to have been duly commenced in NCAT and may be heard and determined instead by NCAT. … (3) For the purposes of subclauses (1) and (2): (a) NCAT has and may exercise all the functions that the relevant existing tribunal had immediately before its abolition, and (b) the provisions of any Act, statutory rule or other law that would have applied to or in respect of the proceedings had this Act and the relevant amending Acts not been enacted continue to apply.
3. That is, these proceedings are taken to have been commenced in and are to be determined by this Tribunal applying the NCAT legislation. This is not in dispute between the parties.

Submissions

1. The applicants provided a written outline of submissions before the hearing commenced. This document set out a brief background and the relevant NCAT legislation, section "18E Proceedings for Breach of Warranties" of the Home Building Act 1989 (HB Act) as well as Regulation 71 of the Home Building Regulation 2004 (HB Regulation), in each case in the form of the legislation at the relevant time. It was submitted on the basis of that legislation that there is a limitation period of 7 years applicable to this claim and the legislation does not differentiate between structural or non-structural defects.
2. The applicants submit that the genesis of this dispute concerns the discovery of damage occurring to timber flooring (laid by the applicants' own contractor) in the Rumpus Room. The applicants state that the damage was caused by excessive moisture from the sub-floor area and that the respondent consistently denied and denies responsibility, on the basis that the likely cause and entry point of the water is from tiling works conducted on a first floor balcony, again by contractors appointed by the applicants.
3. The submissions go on to describe the gradual discovery of other alleged defective works and the appointments of a number of experts to conduct inspections and provide expert reports. The applicants also summarise the nature of the respondent's responses in the Joint Scott Schedule.
4. The applicants assert that the respondent alleges the applicants failed to mitigate their loss. The applicants refute this allegation with reference to previous authority. The applicants submit that this "duty" to mitigate does not entail a requirement that the applicants were required to minimise their loss, but rather that they may not recover losses attributable to their own unreasonable conduct. The applicants are referring in these submissions to an offer made by the respondent and not accepted by the applicants, stating that it was "a vacuous and empty offer", more properly characterised as "an attempt by the Respondent to minimise its exposure to damages".
5. The applicants also submit that this is an appropriate matter for an order pursuant to s 48O of the CAT Act that the builder should not be permitted to return to the premises but that a money order should be made, relying on the alleged conduct of the builder, once complaints were made, in that regard.
6. The applicants' solicitor also made some brief oral submissions at the conclusion of the hearing. These concentrated on: 1. The main issue being the lack of sub-floor ventilation; 2. That it is the builder's responsibility to construct a watertight dwelling, not that of the tiler or waterproofer; 3. The lack of a proper basis for the costings of Mr Bullivant, who it is alleged simply took the costs from the original installers; 4. In relation to the bathroom, that the waterstops not being visible is a defect, that the proposed rectification works by the builder's expert are not reasonable (removing only one row of tiles) and that it is not the role of the homeowner to tell the builder how to construct waterstops; 5. Finally, the applicants reiterate their submission that in these proceedings a monetary order is appropriate.
7. The respondent's written submission, or rather "Statement in Response" is very brief. It does no more than list 5 of the items in the Joint Scott Schedule with a statement that the respondent "is prepared to attend the premises" and attend to the rectification works, that the respondent disputes the estimates in the Scott Schedule and that the respondent intends to call Mr Sussman and an expert to be advised.
8. The respondent's solicitor also made some brief oral submissions at the conclusion of the evidence: 1. There are certain exclusions from the Contract: 1. Floor coverings; 2. Waterproofing; 3. Tiling of the balcony; 1. The lack of any evidence from the above contractors; 2. The respondent was not in control of the whole job; 3. Refers to Swindale's evidence in relation to causes; 4. It was the duty of the flooring installer to make inquiries as to sub-floor ventilation; 5. If the applicants want to pull up tiles in the bathroom and find that the waterstops are in fact there, then that is not the responsibility of the builder; 6. The applicants must give the respondent a reasonable opportunity to rectify defects; 7. In relation to the "hiatus" between November 2011 until December 2012, asks: what could the builder do?; 8. If the builder returns there is no real prejudice to the applicants, whereas there is "enormous prejudice" to the respondent if he is required to pay another contractor(s); and 9. The costings of Mr Bullivant should be accepted as he is a qualified Quantity Surveyor.

Consideration and Determination

1. I propose to consider the individual items claimed and the evidence of each party in regard to each item. I note that during the hearing the parties' experts held further discussions in order to attempt agreement on various items. They handed to me a 2-page document setting out in summary form the results of those discussions and I propose to consider that document after I conclude my itemised determinations just mentioned. These determinations are based on the summaries included in the Joint Scott Schedule, referring to other evidence where necessary.
2. I need to make a further general comment initially: for most items claimed, Mr Bullivant for the builder gives as his first recommended course of action that the builder return to rectify certain defects and on that basis Mr Bullivant makes no allowance for costs. However, he then offers an alternative in the form of an opinion as to whether he agrees with Mr Wallace as to the method of rectification and the reasonable cost of that rectification. The parties also provided strong submissions on the issue of the builder returning to complete rectification works. I proceed below to discuss the liability and cost of each item of work I find is required, and then I will discuss and determine the s 48O issue as to whether a work order or a monetary order should be made, pursuant to the HB Act.
3. According to the architectural drawings, the lower floor of the premises are comprised of three bedrooms (labelled 2 to 4), a study, laundry, bathroom and a large rumpus room at the rear on the north side of the house. Bedroom 3 extends further to the rear and immediately outside the rumpus room and next to bedroom 3 is what is described as "a covered outdoor BBQ area". The covering of that area is formed by what is described as a "veranda" which is outside the family room (above the rumpus room) and the dining room (above bedroom 3). It is not important but I would characterise the veranda as a balcony. In any case, it is agreed that the "floor" of the veranda was waterproofed and tiled by contractors appointed by the applicants.
4. There is no issue between the parties as to damage to the timber floor of the ground floor rumpus room (although there may be issues as to the extent of such damage) nor that the damage is the result of water saturation. The main issue between the parties, as it appears, is whether the source of the water is from lack of sub-floor ventilation (according to the applicants) or from failed waterproofing or poor tiling of the first floor veranda (according to the respondent) or some combination of all those factors. In addition, the applicants' experts suggest the flashing at the roof level is poorly done by the respondent and that may also be a source of water ingress.
5. In cross examination, Mr Sheppard was questioned as to the applicants' failure to provide any statements or other evidence from the tiler and the waterproofer. Mr Sheppard did not give much detail about this but did suggest he did not consider it was their responsibility; rather it was a roofing issue. In my opinion the expert evidence available to him (whether or not I find that evidence is persuasive) is sufficient to explain and support his decision. Furthermore, I note that the builder also refers to conversations with these contractors, or at least with the waterproofer, and so the same issue could be raised in that regard: why did the builder not obtain statements from either the tiler or the waterproofer, there being no property in witnesses. On balance, I find the issue as to whether water was leaking from the upstairs veranda is to be decided on the expert evidence, including photographs and the history of water leaks.
6. I am impressed by the evidence of Mr Bullivant in relation to the roof flashing at the relevant area. His reports, particularly his first report, cover this issue in detail with many supporting and clear photographs which he uses to demonstrate his opinions. Mr Bullivant also noted there were no signs of water in the ceiling space. I find that the roof flashing was completed to a workmanlike standard. However, that does not seem to be end of this issue. Both parties in their statements refer to "a hole" which was either left by the builder/roofer (according to the applicants) or was not there when the roof was completed (according to the respondent). I cannot resolve that issue, but I am satisfied on the basis of comments in both Mr Sheppard's statements and Mr Sussman's statements that the tiler or the waterproofer, but probably both, did make some repairs either in the middle of 2012 or in December 2012 (the evidence is unclear) which appears to have consisted of blocking up "the hole" or other gaps with silicone, after which there were no complaints of water ingress from the veranda. In my opinion, the balance of all that evidence is that the respondent is not liable for water ingress from the upstairs veranda and that part at least of the damage to the rumpus room floor came from that source. I note in regard to this issue that although the applicants criticise Mr Bullivant's first report as being based on photographs rather than an inspection, I am satisfied that Mr Bullivant did at a later time undertake inspections and his opinions did not change.
7. I also find that the evidence of the parties establishes clearly that the particle board underlay to the timber flooring, at least in the rumpus room, had a high moisture content, even to the extent of free water on top of the board. On the basis of Mr Wallace's evidence, especially in his first report, I find that the sub-floor ventilation does not comply with the Code and is ineffective in keeping the sub-floor areas reasonably dry. In particular I note Mr Wallace's opinions in relation to the amount of ventilation required for that area. I find that the only practicable method of sufficiently ventilating the sub-floor area is to install mechanical ventilation. I note Mr Bullivant agrees with that approach (as an alternative to his first recommendation).
8. In relation to the uneven flooring on the ground floor including deflected flooring in what is described as bedroom 2 (although elsewhere in the evidence there is reference to the affected room being the study - however in my opinion this does not affect the outcome, the cause being clear on the expert evidence and the parties experts' in agreement), I find that the report of Mr Olbrecht is accepted by both parties' experts and that rectification works recommended are also accepted, as is the cost. The remaining issue, as with many other items, is whether the builder should return to complete this work at no cost to the applicants. I am not satisfied that additional "uni-piers" (item 2A) are required based on the engineer's report and do not allow that item.
9. In relation to items 3, 4, 6, 7 and 8 I find the experts agree in relation to existence of the defect, liability and, except for item 4, cost. The only issue is to decide whether the builder should return to complete the work.
10. Mr Bullivant, in his reports, agrees there is a defect in relation to the water stops in the bathroom but not in regard to the shower recesses (item 9). The result is that the experts have greatly differing opinions as to the cost of rectification. I am not satisfied the applicants have demonstrated a problem with the shower recesses and I note in that regard Mr Bullivant, during his inspection, tested the shower recesses for water flowing into the rest of the floor area. I accept Mr Bullivant's evidence in that regard, and his costing for this item.
11. I now refer to the settlement discussions between the experts during the hearing, mentioned above. The document handed to me is as follows: Item 1 If found. Agreement reached that the value of work required will be $22,000.00 Item 2 Ditto $11,640.00 Item 2A Work will be included in item 2 $0.00 Item 3 As per item 2 $1,660.00 Item 4 As per item 2 $6,874.00 Item 5 Ditto $6,165.00 Item 6 Ditto $100.00 Item 7 Ditto $1,430.00 Item 8 Ditto $310.00 Item 9 Member to determine $0.00 HOW insurance Member to determine $0.00 Builder's margin agreed at 15% $0.00 Project management costs agreed $1,500.00 Total $51,679.00

1. I made a note on that document during the hearing that in relation to items 2 to 8 inclusive, "liability accepted". I note that there are some additional agreements in relation to quantum over the agreements already noted in the Joint Scott Schedule.
2. It is now necessary to consider whether the respondent should be ordered to return to the premises to complete the agreed rectification work, or whether it is appropriate to make a money order, or some combination of both.
3. The HB Act states: 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) The provisions of sections 9-13 of the Consumer Claims Act 1998 apply, with any necessary modifications, to and in respect of the determination of a building claim.
4. I note first (for the sake of completeness only) that neither party suggests s 48MA "Rectification of defective work is preferred outcome in proceedings" applies in these proceedings, that section only commencing in January this year.
5. In their initial written submissions the applicants assert that the reason a money order should be made is because there are obvious and serious defects and at all times, at least until about October 2014, there was a refusal by the builder to admit such defects and a refusal to rectify such defects. At the conclusion of the hearing, Mr Galvin submitted again in relation to this issue, relying on the written submissions and suggesting there is no explanation as to how and why the respondent should be permitted to return to the premises.
6. In reply, the respondent, in oral submissions, stated that the respondent must be given an opportunity to rectify the defective works and there is no reason why the Tribunal should prevent the respondent returning, noting that the respondent has arranged for sub-floor rectification works. Also, it is submitted that if the builder returns there is no real prejudice to the applicants whereas there is "enormous" prejudice to the builder if he is ordered to pay some other contractor.
7. In exercising my discretion in relation to the appropriate orders to make pursuant to s 48O of the HB Act, I consider the following issues: 1. I am not persuaded by the applicants' arguments that the respondent's reluctance to accept liability and return to rectify defects until a late stage in these proceedings is a reason for making a money order. The respondent is entitled to assert its opinions as to liability, particularly where proceedings have commenced or appear likely to commence. That is, I find it equally reasonable for a builder to either deny liability where that may be a rational position, or to attempt a compromise settlement, where that is a rational position. 2. In this case, the respondent did take a certain stance in relation to some of the items claimed and I have found the respondent was not liable in some items, particularly with regards to the roofing works. That was therefore reasonable behaviour for the respondent to adopt. 3. Once the parties had obtained their expert evidence prior to the hearing, the respondent, while maintaining its legal position that it was not liable (which itself is quite reasonable with a hearing approaching), did offer to return and complete certain works, and to reconsider whether it was liable for other works: see the respondent's brief written submissions. 4. Apart from the main dispute (at least in monetary terms) involving the water ingress/sub-floor ventilation/floor timber damage, the remaining items are relatively straightforward, although nevertheless serious, particularly the bowing of the timber joists and associated floor deflection. It cannot be submitted (and of course it has not been submitted) that the respondent's work was so obviously incompetent or negligent that it should be permitted to return to perhaps compound the defects. 5. The applicants have made it quite clear through their statements that they have essentially lost faith in the respondent, especially because they assert the respondent's failure to accept liability has resulted in their new home not being properly completed for several years. No doubt that is sufficient explanation for their impatience and irritation, but I am not satisfied it is sufficient reason of itself to order the respondent to make a monetary payment. 6. The scope of the works required is in my opinion sufficiently clearly set out in the various expert reports, including those of Mr Wallace, Mr Bullivant, Mr Swindale and Mr Olbrecht, as to make an appropriate work order, the contents of which are sufficiently clear as to enable the parties to assert the works are complete or not, or are to a satisfactory standard or not. 7. There is no real difference in convenience, as far as I can determine on the evidence before me, between the builder returning to rectify the works or the applicants or the respondent being required to engage alternate contractors. In fact, on further consideration in that regard, it would appear there would be less additional disruption and effort if a work order was made rather than a monetary order.
8. On balance, I find the appropriate order is that the respondent return to rectify certain works and in relation to other items to make a monetary payment. The work order is as follows: Item No. Description 2 Deflected flooring in bedroom 2: repair according to the scope of works recommended by Mr Wallace and Mr Olbrecht 3 Rectify ill-fitting doors according to the scope of works recommended by Mr Wallace 4 Rectify cement render according to the scope of works recommended by Mr Wallace 5 Install sub-floor ventilation according to the scope of works recommended by Mr Wallace 6 Remove formwork timber according to the scope of works recommended by Mr Wallace 7 Water entry at front according to the scope of works recommended by Mr Wallace 8 Gaps at tops of windows and sliding doors according to the scope of works recommended by Mr Wallace 9 Water stops in bathroom according to the scope of works recommended by Mr Bullivant

1. The above works are to be completed within 60 days of the date of these orders except where an extension of time is reasonably required because of inclement weather or other reasons not within the control of the respondent.
2. If the original home owners warranty insurance does not apply to the above works the respondent is to arrange such insurance prior to commencing the works.
3. In relation to item 1, replace damaged timber flooring to the ground floor of the premises, the respondent is ordered to pay the amount of $22,000.00 to the applicants within 60 days of the date of these orders plus the cost of home owners warranty insurance for those works if the original home owners warranty insurance does not apply.
4. In the event that the builder does not complete those works or does not complete some of them or does not complete some or all of them to the reasonable satisfaction of the applicants in accordance with paragraph 35 above, the applicants may renew the proceedings to seek a money order based on the following findings (amended as appropriate depending on which items may not be completed or completed satisfactorily): Item No. Description Amount Allowed 1 Replace damaged timber flooring - water damage $22,000.00 2 Deflected flooring in bedroom 2 $11,640.00 2A Install uni-piers for additional support for flooring $0.00 3 Rectify ill-fitting doors $1,660.00 4 Rectify cement render $6,874.00 5 Install sub-floor ventilation $6,165.00 6 Remove formwork timber $100.00 7 Water entry at front $1,430.00 8 Gaps at tops of windows and sliding doors $310.00 9 Water stops in bathroom $2,125.00 10 Home Owners Warranty insurance $400.00 Subtotal $52,704.00 11 Margin @ 15% $7,905.60 Subtotal $60,609.60 12 Management: inspections x 6 $1,500.00 13 Subtotal $62,109.60 GST $6,210.96 Total $68,320.56

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: 07 July 2015