Clements v Murphy

NCAT Appeal Panel|2018-02-26

Background

The appellant (the Builder) is a builder who on 14 August 2014 entered into a contract with the respondents (the Owners) for the construction of a home on the Owners' property at Canowindra. The contract price was $327,640.45.
Disputes arose between the parties over claims by the Builder to payments which the Owners disputed. Eventually the Builder served notice purporting to terminate the contract which the Owners treated as a repudiation which they accepted. The Owners commenced proceedings in the Tribunal on 5 February 2016 seeking an order that the Builder complete the contract works or alternatively an order for the payment of the cost of completion which the Owners assessed at $121,266.00.

Tribunal's decision

By a decision dated 19 December 2016 Senior Member Goldstein determined that the Builder had repudiated the contract by serving the Notice of Termination and that the Owners had validly terminated the contract.
There is no appeal from that decision. The Owners' claims for compensation were dealt with at a separate hearing following which, by a decision dated 19 October 2017, the Senior Member ordered the Builder to rectify 15 items of defective work and to pay the Owners the sum of $45,054.79 in respect of incomplete work.

Notice of Appeal

The Builder filed a Notice of Appeal on 17 November 2017. The order for payment and the order for rectification in respect of some defective items were initially stayed on condition the Builder pay the judgment sum into the Owners' solicitors' trust account. The Builder failed to do so and the stay lapsed.
It was accepted by both parties at the hearing of the appeal that the Builder had not rectified the defects, the subject of the orders of 19 October 2017.
Pursuant to s80 of the Civil and Administrative Tribunal Act 2013 (NSW) (NCAT Act) the Builder has a right of appeal on a question of law and may appeal by leave of the Appeal Panel on other grounds. As this is an appeal from the Consumer and Commercial Division of the Tribunal, clause 12 of Schedule 4 to the NCAT Act is applicable. That clause provides that the Appeal Panel may grant leave to appeal only: if the Appeal Panel is satisfied the appellant may have suffered a substantial miscarriage of justice because: (a) The decision of the Tribunal under appeal was not fair and equitable, or (b) The decision of the Tribunal under appeal was against the weight of evidence, or (c) Significant new evidence has arisen (being evidence that was not reasonably available at the time the proceedings under appeal were being deal with).

Grounds of appeal

The Builder's Notice of Appeal identified five grounds of appeal each of which, the Builder asserted, involved a question of law. The Builder also sought leave to appeal on the bases that the decision was not fair and equitable and was against the weight of evidence. The matters identified as the bases for the application for leave to appeal reflected the matters raised as questions of law.
The first two grounds of appeal were not pressed at the hearing. Thus the Builder relied only upon the three remaining grounds of appeal, which were: (3) The Member erred in finding that s 48MA of the Home Building Act 1989 (NSW) does not apply to incomplete work. (4) Further or in the alternative, even if s 48MA does not apply to incomplete work, the Member erred by failing to order the builder to complete the incomplete work, as well as the defective work, in circumstances where the builder would already be on site to rectify the defective work (5) The Member erred in failing to take into consideration the second complying BASIX certificate. It shows that the argument for allowing the costs for the sliding doors due to non-compliance with the BASIX is not applicable as a complying BASIC [sic] certificate was obtained and provided to the Owners. Furthermore, the Member failed to give full consideration to the respondent's variations to the original plan that resulted in non-compliance with the first BASIX certificate.

New evidence

At the hearing of the appeal, the Builder sought to read two further affidavits and tender further material.
One affidavit related to the qualifications of the builder who had provided an estimate of the cost of completion of incomplete work upon which the Owners' expert and the Senior Member had relied in assessing the amount to be awarded to the Owners in respect of the incomplete work. As it clearly could not be said that this affidavit contained evidence which was not reasonably available at the time of the hearing, we did not permit the Builder to rely upon it.
The other affidavit sought to provide an explanation why the Builder had not carried out the rectification work required by the decision below. We permitted the Builder to read that affidavit and allowed some short cross examination of the Builder by Mr Young, who appeared for the Owners.

Grounds 3 and 4

Grounds 3 and 4 challenged the decision of the Senior Member to order the Builder to pay the costs of the completion of incomplete work rather than to order the Builder to carry out the incomplete work. These grounds raised the application of section 48MA of the Home Building Act 1989 (NSW) (HBA) which provides: 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.
At [229] of his decision the Senior Member held that section 48MA of the HBA relates to defective work and does not apply in relation to incomplete work.
At [230] to [232] the Senior Member considered the Owners' submission that a work order was inappropriate for "a range of reasons associated with the history of the builder's conduct in relation to the performance of the work the subject of the proceedings". The Senior Member identified that "all told there is a monetary amount of $26,243.92 involved if the rectification work is to be carried out by a separate rectification contractor".
The Senior Member noted that of the 15 defect items which he had found existed, there were eight which he considered to be "relatively simple matters with a rectification estimate of no greater than $700". The Senior Member noted that the remaining items were not, in his view, complicated.
The Senior Member had regard to the expert evidence relating to the defects and found that "in the Scott Schedule in the Owners' expert's report of 24 October 2016, there is an adequate rectification technology which the builder should follow for the 15 defect items".
At [233] the Senior Member held: Having regard to the fact that of the 15 defect items that have either been agreed or found in the owners favour, 8 items are relatively simple with a rectification estimate of no greater than $700.00, that the remaining items are not in my view complicated, coupled with the fact that there is an adequate rectification methodology set out in the owners expert's report of 24 October 2016 for the builder to follow, I have decided that there is no good reason not to implement the preferred outcome set out in section 48MA of the Act.

Ground 3

In support of his submission that the Senior Member erred in law in determining that section 48MA of the HBA did not apply to incomplete as opposed to defective work, Mr Nathan, who appeared for the Builder, submitted that defective work can include incomplete work.
We understand the Senior Member in referring at [229] to "incomplete work" to be using that phrase in the sense commonly used in building litigation; that is, work which a builder was contracted to perform but has not performed, as contrasted with defective work, which is work a builder has carried out but done so defectively.
There may be some room for debate in individual cases as to whether a particular matter complained of is incomplete or defective work. For example, a failure to install handles on kitchen cupboards may be argued to be incomplete work, but may also be characterised as defective work. However, in general terms, a failure to install major building elements such as windows or a roof would clearly constitute incomplete work and could not properly be characterised as defective work.
Mr Nathan submitted that, at common law, a builder had a "right" to rectify work which was defective or incomplete and that section 48MA reflected that entitlement. In support of this submission Mr Nathan referred to the decision of Senior Member Bailey in Master Glass Facades Pty Ltd v Pollak [2017] NSWCATAD 45 at [135] to [137] where the Senior Member stated: 135 The provisions of section 48MA of the HB Act refer to the obligation of the Tribunal when determining a building claim to: have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome. 136 This principle is reflected in the common law by a recognition that apart from having an obligation to rectify, a contractor may have a right to rectify any work which is defective or incomplete: see Diplock LJ in P and M Kaye Ltd v Hosier & Dickinson Ltd [1972] 1 WLR 146, and the concept of temporary disconformity. 137 The right of contractors to exercise an obligation to rectify was addressed in Bellemore, A, "Rectification of Defects by Owner Without Notice to Contractor", (2001) 17 BCL 325. Such a right may arise by reason of the terms of the contract, or on the basis of an obligation to mitigate. In this instance I find that the election by the Respondent to exclude the Applicant from having access to rectify and complete is the real proximate cause of the costs incurred and not any breach on the part of the Applicant.
We note that the decision of Senior Member Bailey was the subject of an unsuccessful appeal to an Appeal Panel (Pollak v Master Glass Facades Pty Ltd [2017] NSWCATAP 203) but the Appeal Panel did not have reason to comment on this part of the decision.
In our view it is clear from the authorities and articles cited by Senior Member Bailey (in particular pages 164 to 166 of the opinion of Lord Diplock in P & M Kaye Ltd v Hosier & Dickinson Ltd [1972] 1 WLR 146) that the common law "right to rectify" referred to by the Senior Member only arises prior to practical completion or during the defects liability period; that is, while the contract remains on foot.
There is no suggestion in either Lord Diplock's opinion or in Mr Bellemore's article that a builder has a right to complete incomplete work after a contract has been terminated. Prior to practical completion, a builder is clearly entitled to complete any incomplete works. In a sense, the concept of incomplete work is meaningless prior to practical completion. By definition, before building works have achieved practical completion, there will be work remaining to be performed.
We do not find the decision in Master Glass Facades v Pollak to be of assistance in construing section 48MA in this case.
The parties also referred us to the decision of an Appeal Panel in Leung v Alexakis [2018] NSWCATAP 11. In that case the Appeal Panel considered in some detail a number of issues relating to section 48MA. However that decision did not involve consideration of whether the term "defective residential building work" in section 48MA includes incomplete work.
Mr Nathan pointed to the statement in Leung at [109] that section 48MA: "should not be construed in a manner that otherwise limits the power of the Tribunal to make orders in connection with building claims".
We accept that it is appropriate to approach the construction of s 48MA on the basis that it is not intended to limit the power of the Tribunal to make orders in connection with building claims. However, we do not consider that that proposition assists in the resolution of the question whether or not the terms "defective residential building work or specialist work" and "defective work" in s 48MA extend to work which is not defective but simply not completed.
We agree with Senior Member Goldstein that s 48MA is not intended to apply to work which is incomplete and which cannot be characterised as defective work. We consider that such a construction is consistent with the object of the section as set out Kurmond Homes v Marsden [2018] NSWCATAP 23 at [31] to [32], where the Appeal Panel rejected a submission that a builder's conduct in unrelated transactions, namely other building projects in which it had been involved, was not a relevant consideration in determining what orders should be made: 31. … in our view, the language of s HB Act does not indicate such exclusion or modification. Our reasons for this view are as follows: 1. While the Tribunal is required to have regard to the principle of the "preferred outcome" s 48MA does not expressly exclude consideration of a builder's licence history. 2. There is no necessary intention disclosed by the HB Act, in s 48MA or otherwise, by which it might be inferred such an exclusion was to operate: 3. Reference to extrinsic material, including the Second Reading Speech for the Home Building Amendment Act, 2014 (by which s 48MA was enacted), does not support such an implication. In this regard, as referred to by the Tribunal in Leung at [132], the Minister for Fair Trading said on 6 May 2014: (1) A homeowner should not to be permitted to unreasonably refuse a builder access to a building site to rectify defective work; (2) s 48MA was intended to ensure that, at least, "builders" who were liable to a person for defective work, should be able to return to carry out necessary rectification work if they are willing; and (3) the amendments were to "further support the timely and cost-effective resolution of disputes". 32. In relation to this last point, the Minister made clear s48MA was to operate as a preference, not an absolute right. It was to prevent unreasonable refusal of a homeowner to permit access to a building site to a builder who was willing to carry out rectification work.
Where a building contract has been terminated prior to completion of the work by reason of the builder's repudiation, it would be unusual for the Tribunal to direct the builder to return to complete the work. In our view, on its true construction, s 48MA does not require the Tribunal to consider that that should be the preferred outcome.

Ground 4

Section 48O of the HBA provides: (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.
We accept that s 48O would have allowed the Senior Member to order the Builder to complete the incomplete work. However, for the reasons set out above, s 48MA does not make such an order the preferred outcome. We do not consider the Senior Member erred in failing to make an order pursuant to s 48O that the Builder complete the incomplete work.
The determination of the appropriate remedy pursuant to s 48O, once circumstances warranting a remedy have been established, is a discretionary decision. As such it is susceptible to challenge on appeal only on the bases outlined in House v R (1936) 55 CLR 499 at 504-505: The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution, for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.
We do not consider any of those bases have been established in this case. Once it is recognised that, after termination of the contract, the Builder did not have a right to return to complete the contractual works, and that s 48MA did not operate to create a preference for the making of orders that the Builder carry out the incomplete work, there is no basis upon which it could be said that the Senior Member erred in law in awarding compensation in respect of the incomplete work and not making orders that the Builder carry out that work. Nor could it be said that the decision not to make such orders was not just and equitable or was against the weight of evidence.

Ground 5

Mr Nathan conceded that Ground 5 does not raise a question of law. Accordingly the Builder requires leave to rely upon this ground.
At [15] of his decision Senior Member Goldstein identified the scope of work which the Builder was required by the contract to carry out. The Senior Member determined that, pursuant to the contract, the Builder was obliged to comply with the conditions of the development consent, which referred to a number of documents including the first BASIX certificate. The Senior Member held that: "all work shown, described or depicted in these documents [including the BASIX certificate] formed part of the scope of the work to be carried out and completed by the builder."
The Senior Member found, at [88] to [95], that the BASIX certificate required the installation of double glazed windows and that the Builder was liable for the cost of replacing the sliding glass doors to the dining and rumpus rooms as they were not double glazed and therefore did not meet the requirements of the BASIX certificate.
Mr Nathan submitted that, because the building had subsequently been certified as complying with BASIX requirements, including in relation to energy efficiency, the double glazing could not be said to be necessary.
This submission fails to acknowledge that the Senior Member found that the contract required the Builder to meet the requirements of the original BASIX certificate and that that certificate required that the doors be double glazed.
The contract did not merely require the Builder to obtain a BASIX certificate, it required the installation of the features identified on the original BASIX certificate. Those features included double glazing.
The second BASIX certificate, which was obtained by the Builder after the contract had been terminated, did not relieve the Builder from the obligation to build in conformity with the contract, including by supplying double glazed doors.
We consider that the Senior Member's findings in relation to the glass doors are correct. We are not persuaded that the findings are not just and equitable or are against the weight of evidence.
Accordingly, the application for leave to appeal must be refused and the appeal dismissed.

Renewal

Mr Young, who appeared for the Owners, submitted that, in addition to dismissing the appeal, the Appeal Panel should make a money order in respect of the items of rectification ordered by the Senior Member which the Builder had not carried out.
We do not consider that that course would be appropriate in this case. The Builder led evidence to explain his failure to complete the rectification work. Mr Young cross-examined him and submitted that the Builder's explanation should not be accepted. We consider that the factual issues raised are not appropriate for determination on an appeal.
Clause 8 of Schedule 4 to the NCAT Act provides: 8 Renewal of proceedings in respect of certain Division decisions (1) If the Tribunal makes an order in exercise of a Division function in proceedings, the Tribunal may, when the order is made or later, give leave to the person in whose favour the order is made to renew the proceedings if the order is not complied with within the period specified by the Tribunal. (2) If an order has not been complied with within the period specified by the Tribunal, the person in whose favour the order was made may renew the proceedings to which the order relates by lodging a notice with the Tribunal, within 12 months after the end of the period, stating that the order has not been complied with. (3) The provisions of this Act apply to a notice lodged in accordance with subclause (2) as if the notice were a new application made in accordance with this Act. (4) When proceedings have been renewed in accordance with this clause, the Tribunal: (a) may make any other appropriate order under this Act or enabling legislation as it could have made when the matter was originally determined, or (b) may refuse to make such an order. (5) This clause does not apply if: (a) the operation of an order has been suspended, or (b) the order is or has been the subject of an internal appeal.
It may be questioned whether it would ever be appropriate for an Appeal Panel to treat an appeal as an application to renew proceedings. However we need not determine that issue as it is, in our view, clearly not appropriate in this case. There are contested factual issues which could not be properly resolved on the basis of the brief cross examination of the Builder which we permitted on the appeal.
Nothing we have said should be construed as denying the Owners' entitlement to apply to the Consumer and Commercial Division for renewal of their application if the Builder has not completed the work required by the Senior Member's orders. However we do not make any comment as to whether the Builder's explanation for his failure to complete the work should be accepted or as to whether, if the Builder's explanation is accepted, it is sufficient to justify the grant of further time to carry out the work and the refusal of a money order.

Costs

As the Builder challenged the money order made by the Senior Member on the basis that he should have been given the opportunity to complete the works, the amount in issue on the appeal is at least the amount of the money order; that is, $45,000. By virtue of Rules 38 and 38A of the Civil and Administrative Tribunal Rules 2014 (NSW), where the amount in issue in the proceedings at first instance and on the appeal exceeds $30,000, we need not find there are special circumstances before we can make an order in relation to the costs of the appeal.
As the appeal has been dismissed the usual order would be that the Builder should pay the Owners' costs.
We are minded to make that order. However the parties sought the opportunity to make submissions concerning costs if they sought an order other than that proposed by the Appeal Panel.
We note that both parties have indicated that they consent to the question of costs being determined on the papers and without a hearing.
Accordingly we will order that, unless either party files written submissions within 14 days of delivery of this decision seeking a different order, the Builder is to pay the Owners' costs of the appeal as agreed or assessed. In the event either party does file submissions, the other party may within a further 14 days file submissions in response. If submissions are filed in accordance with the above orders, the question of costs will be determined on the papers and without a hearing pursuant to s50(2) of the NCAT Act.

Orders 1. Application for leave to appeal refused 2. Appeal dismissed 3. Either party may file written submissions within 14 days seeking an order in relation to the costs of the proceedings. 4. If either party files submissions in accordance with order (3), the other party may file submissions in response within a further 14 days. 5. If submissions are filed in accordance with orders (3) and (4) the question of costs will be determined on the papers and without a hearing pursuant to s50(2) of the Civil and Administrative Tribunal Act. 6. If no submissions are filed in accordance with orders (3) and (4), the appellant is to pay the respondents' costs of the appeal as agreed or assessed. 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: 20 June 2018

Home Building Act 1989(NSW)ss 48MA, 48O

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Cited By (19)