Composition Construction Pty Ltd v Jude and Anna Dias Jude and Anna Dias v Composition Construction Pty Ltd

Background 6.The following background to the dispute is drawn from the evidence provided by both parties. As noted above, the application concerns building works the subject of a contract dated 6 January 2011. The contract is a standard residential building contract, pursuant to which Composition Construction was to demolish an existing dwelling and to construct a new dwelling in accordance with identified plans and specifications. The contract price was $625,000.00 payable by way of progress payments to be made upon completion of defined stages of the building works. 7.Sheets 2 and 4 of the original structural plan forming part of the contract documents refer to a "230 Brick Retaining Wall Off Rock 600". The engineering drawings were done by Mr and Mrs Dias' engineer, Mr Chris Morris of CPM Engineering [CPM]. It is common ground that this plan assumed bedrock at a depth of 600 mm upon which the retaining wall was to be built. 8.Composition Construction started the building works in February 2011. The works undertaken were demolition of the existing dwelling, site clearance, installation of footings and pouring of the slab. Mr and Mrs Dias made the claimed progress payments in respect of these stages of the work, with payments totalling $203,125.00. 9.When excavation works were conducted in June 2011, it emerged that there was no bedrock at 600 mm. This meant that the retaining wall contemplated by the structural plan could not be built. Consequently, in July 2011, CPM issued revised plans [the July 2011 revision] in relation to the retaining walls. The July 2011 revision provided two options for building the retaining walls, "RW2" and "RW2 Alternate". 10."RW2" provided for a shotcrete wall over a cut face secured with bolts or anchors. "RW2 Alternate" provided for a besser block wall set with starter bars sunk 450 mm into base rock. Specifications for drainage systems were also provided. The parties agreed to proceed with "RW2 Alternate" and third-party contractors were invited to provide quotes for that option only. 11.On 30 August 2011, Composition Construction advised Mr and Mrs Dias that it could construct the retaining wall for a fixed price of $55,000.00 plus GST. Mr and Mrs Dias were also advised that the work could be done on a costs plus basis for $45,000.00 to $50,000.00 including GST. On 13 September 2011, Composition Construction provided a proposal to undertake "RW2 Alternate" on a costs plus basis and specified rates for various aspects of the work. On 16 September 2011, Mr Dias agreed to this proposal. While the agreement between the parties in relation to "RW2 Alternate" is not in the form of a signed written variation, the parties agree that the agreement constituted a variation of the original contract and not a separate contract. Composition Construction commenced excavation work for the retaining walls on 21 September 2011. No other work was undertaken between 18 October 2011 and 6 February 2012. 12.The retaining wall constructed by Composition Construction is not in accordance with RW2 Alternate. Rather, it is a sandstone gravity wall. Composition Construction claims that while there are no drawings for this style of wall, it was done with the knowledge and approval of Mr and Mrs Dias and of CPM, with Mr Dias purchasing the sandstone for the wall. Composition Construction states that the RW2 Alternate option could not be constructed because bedrock was not found at the depth contemplated by the engineering drawing for that option. 13.Mr and Mrs Dias state that the decision to construct a sandstone gravity wall was made unilaterally by Composition Construction without reference to them or to their engineer and that the only reference to the wall prior to commencing construction was the request to purchase the sandstone blocks. 14.Between 9 February and 1 March 2012, Composition Construction issued invoices to Mr and Mrs Dias in respect of the retaining wall construction. Mr and Mrs Dias paid Composition Construction a total of $30,481.91 in respect of these invoices. 15.On 2 March 2012 a section of the retaining wall under construction collapsed. A site meeting was held on 5 May 2012. Arising from that meeting, CPM issued a further revised structural plan on 29 May 2012 This plan set out a proposed method of completing the retaining walls taking into account the sandstone gravity wall which had been constructed. Mr and Mrs Dias had reservations about the proposal and sought other opinions. 16.In the meantime, on 11 April 2012, Composition Construction issued invoice 897 which was in the amount of $4,776.00. The following day Mr and Mrs Dias advised that they would not make any further payments until the retaining wall had been completed and certified. Composition Construction issued two further invoices (898 and 899) on 17 April and 23 April 2012 respectively, for sums totalling $10,992.10. These invoices were not paid. 17.On 6 June 2012 Composition Construction suspended works on the basis that Mr and Mrs Dias had failed to pay the invoices. On 4 July 2012 Composition Construction purported to terminate the contract for the same reason. 18.Invoices 897, 898 and 899 form the basis of the claim brought by Composition Construction. Composition Construction also claims payments in relation to a water tank and fencing hire, based on the termination of the contract, plus interest and a 10% builder's margin. 19.As noted above, in their cross-application, Mr and Mrs Dias claim that the purported termination of the contract was not valid. They do so on the basis that invoices 897, 898 and 899 were not payable at the time the claim for payment was made. On the basis of their claim that Composition Construction repudiated the contract, Mr and Mrs Dias claim completion costs. They also claim costs to rectify defective work. In relation to this, the evidence filed by Mr and Mrs Dias states that the slab and the retaining walls require replacement. While Mr and Mrs Dias' total claimed losses exceed $500,000.00, they have submitted to the Tribunal's jurisdictional limit.

Composition Construction 20.In support of its application and in defence of the cross-application Composition Construction relies on a bundle of documents filed in the Tribunal on 6 November 2013 which include: A copy of the contract; A spreadsheet detailing payments made by Mr and Mrs Dias; The original engineering drawings for the building works; The updated engineering drawings for the building works ("RW2" and "RW2 Alternate"). An email dated 13 September 2011 setting out an offer to undertake the "RW2 Alternate" option and setting out costings; Copies of payment claims; Letter dated 6 June 2012 suspending building work; Letter dated 20 June 2012 warning that the contract would be terminated if outstanding invoices were not paid; Letter dated 4 July 2012 terminating the contract on the basis that invoices 897, 898 and 899 had not been paid; Registered post receipts; Further engineer's drawings prepared by CPM dated 20 May 2012; Email and letter from Mr Morris of CPM dated 7 June 2012 and 27 February 2013 respectively; Invoice in the sum of $528.00 from Rent A Fence Pty Ltd; Invoice in the sum of $4,460.00 from Sydney Tanks; Spreadsheet setting out margin calculation; Spreadsheet setting out total claimed losses Certifications of founding to rock and slab by CPM and 21.Composition Construction also relied on oral evidence and submissions made by Mr Emans at the hearing. Composition Construction did not file any expert evidence. 22.Mr and Mrs Dias relied on the following documents: Amended points of defence and cross-claim, dated 21 November 2013; Mr Dias' statement dated 23 September 2013 (referred to in the documents as Exhibit JD1), with 87 attachments; Reports dated 5 June and 13 September 2013 prepared by Mr Greg Beard, Director of Engineering for Core Project Consulting Pty Ltd; Mr Dias' statement dated 21 November 2013 in reply to the material filed and served by Composition Construction; A report dated 26 September 2013 prepared by Mr Anthony Brewster of WT Partnership, a quantity surveyor and 23.Mr and Mrs Dias also relied on written and oral submissions made by Mr Bors.

Jurisdiction 24.I am satisfied that both applications are building claims as defined in s 48(1) of the Home Building Act (NSW) 1989. Both proceedings were commenced in the Consumer, Trader and Tenancy Tribunal [CTTT] when the Consumer Trader and Tenancy Tribunal Act (NSW) 2001 and the Consumer Trader and Tenancy Tribunal Regulation 2009 were in force. As of 1 January 2014 the Consumer Trader and Tenancy Tribunal Act and Regulation were repealed and the CTTT was abolished and replaced by the New South Wales Civil and Administrative Tribunal. As the application was not determined prior to 1 January 2014, the proceedings were incomplete. 25.Transitional provisions in relation to part heard (that is, incomplete) proceedings are set out in Clause 7 of Schedule 1 of the Civil and Administrative Tribunal Act (NSW) 2013. Pursuant to Clause 7(3), the current Tribunal has and may exercise all the functions that the CTTT had immediately before its abolition, and the provisions of the Consumer Trader and Tenancy Tribunal Act and Regulation continue to apply to incomplete proceedings. The applications have therefore been determined in accordance with the transitional provisions of the Civil and Administrative Tribunal Act.

Issues 26.The issues to be determined in these matters are: Did Composition Construction have a valid basis for terminating the contract? Did Composition Construction perform building works which are defective in such a way as to breach the statutory warranties set out in s 18B of the Home Building Act and if so, what should be done to rectify the works? What is the reasonable cost of any required rectification work? Have Mr and Mrs Dias established a claim for damages in respect of completion costs? To what payments, if any, has Composition Construction established an entitlement? Should an order for costs be made?

Did Composition Construction have a valid basis for terminating the contract? 27.Composition Construction purported to terminate the contract on 4 July 2012 because Mr and Mrs Dias had not paid invoices 897, 898 and 899. It is not in dispute that the work to which these invoices relate is the construction of a retaining wall. It is also not in dispute that the construction of the retaining wall referred to as the RW2 Alternate option was agreed to as a variation of the contract and that this variation would be charged on a costs plus basis. 28.Clause 13 of the contract deals with variations. This clause requires variation notices to be signed and dated by both parties. While that did not occur in this case, the email dated 13 September 2011 which Composition Construction sent to Mr Dias does, as also required by Clause 13, set out a description of the work and the price (that is, that the work would be done on a costs plus basis with specified applicable rates). The evidence also confirms that Mr and Mrs Dias accepted the terms of Composition Construction's offer to construct the retaining wall. I therefore find that the construction of the "RW2 Alternate" option constitutes a variation of the contract which was accepted by both parties. 29.Clause 13 states that "Variations shall be subject to the overall conditions of this contract" and that "Any adjustment to the contract price due to an agreed variation will be taken into account at the time of the next progress payment or paid as agreed by the parties". The email which forms the basis for the variation does not specify the credit which would be applied to the contract price in respect of the original retaining wall which was no longer to be built. Nor does it set out any payment schedule in relation to the RW2 Alternate variation. 30.In the absence of an agreement in relation to the payment schedule in relation to the RW2 Alternate variation, I find that Clause 12 of the contract applies. This clause relevantly states: "The owner must pay the contract price by progress payments within 5 business days of the completion of the stages of the work nominated in the schedule of progress payments. The contractor must notify the owner in writing when a stage of the work has achieved completion. A stage of work has reached completion when it has been finalised in accordance with the contract documents and any variations agreed to and is free of apparent defects." 31.It is not in dispute that Composition Construction did not complete the construction of the retaining walls. In accordance with Clause 12, Composition Construction therefore had no entitlement to claim payment in respect of the work involved in building the retaining walls and Mr and Mrs Dias had no obligation to pay the invoices which were issued. The fact that Mr and Mrs Dias paid the initial invoices does not alter my conclusion that they had no obligation to do so because of Clause 12 of the contract. 32.As Composition Construction had no entitlement to claim payment of the invoices, it was not entitled to terminate the contract because invoices 897, 898 and 899 had not been paid. Accordingly, I find that the purported termination of the contract on 4 July 2013 was not valid and constitutes a wrongful repudiation of the contract by Composition Construction. I further find that the repudiation of the contract was accepted by Mr and Mrs Dias.

Did Composition Construction perform any works which are defective in such a way as to breach the statutory warranties set out in s 18B of the Home Building Act and if so, what must be done to rectify the works? 33.The evidence concerning the claim in respect of defective building works relied on at the hearing is set out in the 13 September 2013 prepared by Mr Greg Beard, Director of Engineering for Core Project Consulting Pty Ltd. In this report, Mr Beard states amongst other things that: The change from the concrete blockwork required by the RW2 Alternate option to a sandstone gravity wall constituted "a major structural engineering change" which required "a completely new engineering design in accordance with AS4678-2002 Earth Retaining Structures and not AS3700-2001 Masonry Structures". The standard of work in relation to the retaining and gravity walls is very poor and the works were not completed in a proper and workmanlike manner or in accordance with the plans provided by CPM. In constructing the sandstone wall Composition Construction failed to provide a footing of adequate width or depth, adequate widening at the base of the wall, install adequate drainage, install weep holes, lay sandstone in mortar and failed to bond the stone in both directions. In undertaking excavation works, Composition Construction failed to properly stabilise the neighbouring property, left it unshored, did not provide drainage and left all works uncovered. Composition Construction failed to install a drainage system to divert water in a controlled manner from the retaining walls and the slab. The concrete slab was not completed in accordance with the structural and architectural design, in that there was no evidence that the subgrade had been compacted, significant erosion under the slab has been caused by inadequate surface drainage, no step was provided between the concrete slab and framework and the steel reinforcement is inadequate. Due to the extent of the erosion, significant defects and departure from the specifications, the only viable option for rectification is demolition and reconstruction. 34.Mr Emans defended the claim in relation to defective work by stating that: All work had been completed in accordance with the "issued engineer's detail" and that the most recent drawings show a block sandstone wall. Mr and Mrs Dias told the architect that they wanted a sandstone wall, which was what they were going to get. The slab is not defective. The step was going to be installed later. All work done to date was certified by CPM, who was engaged by Mr and Mrs Dias. 35.I am satisfied that the opinion of Mr Beard in relation to defective work should be preferred to that of Mr Emans. In relation to this, Mr Beard's report is prepared in accordance with the Directions on the Code of Conduct for Expert Witnesses, whereas Composition Construction filed no independent expert evidence and Mr Emans, as director of the respondent, cannot give expert evidence on its behalf. 36.In relation to Mr Eman's assertion concerning the engineering drawings, the drawings which show a sandstone shotcrete drawing were prepared in May 2012, which is after the sandstone wall was partially constructed. There is no persuasive evidence that this wall was approved either by Mr and Mrs Dias or by their engineer prior to its construction. Indeed, the letter from Mr Morris of CPM dated 27 February 2013 which is included in the Composition Construction's evidence states that the builder "decided to use a Shotcrete Gravity Wall using shotcrete with large cut sandstone block". Mr Morris' letter significantly does not state that he had approved this option prior to its construction. Moreover, he had not certified the wall. The wall could not be certified because it was not completed. 37.While I accept that Mr Dias purchased the sandstone blocks, this does not lead me to conclude that the fact that Composition Construction was no longer building "RW2 Alternate" but a wall for which engineering drawings had not been prepared was something about which Mr and Mrs Dias were fully informed and to which they had properly consented. Overall, I find in accordance with Mr Beard's report that the sandstone gravity wall and other retaining walls were not built in a proper and workmanlike manner and in accordance with plans and specifications, in breach of the statutory warranties contained in section 18B(a) of the Home Building Act. 38.In relation to the slab, while I note that it was certified by CPM, I do not conclude from this that it was not defective. I prefer Mr Beard's evidence to that of either Mr Emans or Mr Morris in that regard because it constitutes expert evidence in the form of an expert report. 39.As far as rectification is concerned, in the absence of expert evidence from Composition Construction, I accept Mr Beard's opinion that the only viable option is demolition and reconstruction, both in respect of the retaining walls and the slab.

What is the reasonable cost of rectification of defective work?

40.The cost of rectification is dealt with in the report dated 26 September 2014 prepared by Mr Brewster of WT Partnership. I accept that this report constitutes expert evidence. Composition Construction did not serve any expert evidence to refute Mr Brewster's opinion. 41.Mr Brewster has provided detailed costings of the following: The cost of the retaining wall as specified in the original engineering drawings; The cost of the rectification work identified in Mr Beard's report; that is, demolition of the slab and the retaining wall and construction of a new slab and retaining walls; The cost of completing the whole of the work under the contract including the cost of rectification and The cost of completing the whole of the work under the contract excluding the cost of rectification. 42.Mr Brewster's report suggests that there are economies of scale to be derived from having one builder undertake both the rectification work and the completion of the building. Engaging one builder to do so would be consistent with Mr and Mr Dias' obligation to mitigate losses arising from Composition Construction's breach. I have therefore based the calculation of damages in respect of both rectification and completion costs on Mr Brewster's costing of completion work including rectification. The detail of this costing is set out in Appendix 6 of Mr Brewster's report. 43.I am satisfied that Mr and Mrs Dias are entitled to damages in respect of removing the retaining walls and slab and replacing the slab. In relation to this, the evidence before me is that the original external retaining wall could not be built because bedrock was not found at 600mm. This is not in dispute. The evidence also suggests that the RW2 alternate option could not be built because bedrock was not found at the depth required for that option. While Mr Brewster has costed replacement of the retaining walls, I am not satisfied on the evidence before me that the walls specified in either the original drawing or in the July 2011 revision can in fact be built. The details (and therefore the cost) of the retaining walls required for the project are uncertain. I am therefore not satisfied that the cost of building retaining walls should be taken into account in assessing damages for rectification costs. 44.From the figures set out in Appendix 6 of Mr Brewster's report, I find that the cost of demolishing the retaining walls and the slab is $99,713.86 (including a 7.5% margin and GST). The cost of replacing the slab is included in the completion costs set out below.

Have Mr and Mrs Dias established an entitlement to damages in respect of completion costs and if so, what is the reasonable amount of damages to which they are entitled? 45.As I am satisfied that Composition Construction repudiated rather than validly terminated the contract, I find that Mr and Mrs Dias are entitled to damages in the form of completion costs. 46.I accept the completion costs assessed by Mr Brewster in his report with two exceptions. Firstly, part of the contract works involved demolishing an existing dwelling and site clearance. There is nothing in the evidence to suggest that Composition Construction did not undertake this aspect of the work. Mr Brewster has assessed the value of this work at $12,790.00. I am satisfied that this is a reasonable value to attach to this work and I find that the sum of $15,124.17 (which includes 7.5% margin and GST) should be deducted from the completion cost assessment. I am satisfied that any further site clearance necessitated by the demolition works is adequately covered by the cost of the demolition work. 47.Secondly, as noted above, I am not satisfied that the cost of the retaining walls should be included in the completion costs, as I am not satisfied that the retaining walls can in fact be constructed in accordance with either CPM's original drawings or the July 2011 revision. Mr Brewster has calculated the cost of the 190mm retaining wall (RW2) option at $8,622.79 (including 7.5% margin and GST) and the 1900 mm block retaining wall below the upper level slab at $16,506.38 (including 7.5% margin and GST). The estimated cost of retaining walls therefore equals $25,129.17. I am satisfied that this sum should be deducted from the completion costs. 48.I find that the completion costs are $930,782.00 (the total estimated construction cost set out in Appendix 6 of Mr Brewster's report), less $15,124.17 (the estimated cost of demolishing the existing dwelling and clearing the site clearance), less $25,129.17 (the estimated cost of constructing the retaining walls), less $99,713.86 (the estimated cost of demolishing the retaining walls and slab found as rectification damages above). The total completion costs are therefore $790,814.80. 49.The contract price was $625,000.00. From that amount a sum should be deducted in respect of the cost of the original retaining wall. In Appendix 4 of his report, Mr Brewster estimates the cost of this retaining wall at $4,251.09. In the absence of expert evidence from Composition Construction refuting this estimate, I accept that it is reasonable. The adjusted contract price after the variation removing the original 230 Brick retaining wall off rock is therefore $620,748.91. 50.It is not in dispute that Mr and Mrs Dias paid $203,125.00 of the contract price. This leaves a balance of $417,623.91 to be paid under the contract, which must be credited in favour of the builder. However, Mr and Mrs Dias also paid $30,481.91 in respect of the retaining wall variation which was not constructed in accordance with the plans and specifications and in respect of which they received no benefit. I am satisfied that they should be given a credit in respect of this sum. 51.I find that the damages in respect of completion costs (including the cost of replacing the concrete slab) equal $403,672.80, being the completion costs of $790,814.80, less the outstanding adjusted contract sum of $417,623.91 plus the sum paid in respect of the retaining walls.

To what payments, if any, has Composition Construction established an entitlement? 52.Composition Construction claims $26,244.23, consisting of unpaid invoices interest and margin in relation to the retaining wall variation, the cost of fence hire and water tanks. 53.I am not satisfied that Composition Construction has established an entitlement to any payment in respect of the retaining wall variation, as the work was not done in accordance with plans and specifications, was defective and incomplete. 54.In relation to the claim in respect of fence hire and the supply of water tanks, these formed part of the contract works and the costs are accounted for in the credit for the balance of the contract price calculated in respect of completion costs damages. 55.As Composition Construction has not established a basis for an order in its favour, its application has been dismissed.

Conclusion 56.In summary, I find that Mr and Mrs Dias have established a claim for damages in the following amounts: Damages in respect of completion costs (including replacement of concrete slab, but not including the cost of constructing retaining walls): $403,672.80 Damages for defective work (that is, removal of defective retaining walls and slab): $ 99,713.86 Total: $503,386.66 57.As this exceeds the Tribunal's jurisdictional limit of $500,000.00, an order has been made in the sum of $500,000.00.

Costs 58.As noted above, this application has been determined under the transitional provisions of the Civil and Administrative Tribunal Act. This means that the issue of costs is to be determined in accordance with s 53 of the Consumer Trader and Tenancy Tribunal Act and in Clause 20 of the Consumer Trader and Tenancy Tribunal Regulation. Clause 20(4) of the Regulation states that in any proceedings in respect of which the amount claimed or in dispute is more than $30,000.00, the Tribunal may award costs "in such circumstances as it thinks fit". The amount claimed in this case exceeds $30,000.00. The Tribunal therefore has a wide discretion in relation to making an order for costs. 59.The purpose of making a costs order is to provide compensation to the party in whose favour the order is made for the expense the party has been put to in prosecuting or defending legal proceedings. In general terms, a party who is successful is entitled to an order for costs in its favour, subject to certain limited exceptions generally involving misconduct on the part of that party. (See, for example, Latoudis v Casey (1990) 170 CLR 534 and Oshlak v Richmond River Council (1998) 193 CLR 72) 60.Mr and Mrs Dias have been successful in these proceedings. There was no misconduct during the proceedings which would preclude them from being awarded costs on the usual basis. An order for costs in their favour has been made accordingly. K Rosser Senior Member Civil and Administrative Tribunal of New South Wales 24 April 2014 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: 24 July 2014