Dafcam Pty Ltd v Babeck; Babeck v Dafcam Pty Ltd

Liability Decision and the Quantum Decision

1. It is uncontested that the homeowners and the builder entered into a residential building contract for the construction of a new dwelling at Coogee, New South Wales and that a dispute arose between the parties in respect of water penetration into the building. The Liability Decision described the alleged defects as falling into three groups: 1. defective installation of waterproofing membranes; 2. defective installation of external balustrades; and 3. failure to install water-stop angles adjacent to the door units in accordance with an Australian standard referred to in the decision.
2. The Liability Decision described the structure of the contract between the parties in terms which do not appear to be in dispute. The Tribunal found that the contract consisted of two parts. The first part provided for a fixed price component subject to amendment in accordance with the terms of the contract of certain trade work identified in preliminary cost estimates referred to in the decision. The second part provided for the execution of works on a cost plus basis.
3. The Tribunal found that clause 1(c)(i) of the contract established the requirement for the work to be carried out in compliance with "BCA, other relevant codes, standards and specifications and conditions of any relevant development consent or complying development certificate and any construction certificate" (par 73 of the Liability Decision).
4. Clause 1(c)(ii) was set out in the Liability Decision and it was found to limit the liability of the builder for failure to comply with clause 1(c)(i) if "the failure relates solely to: 1. a design or specification prepared by or on behalf of the Owner (but not by or on behalf of the Builder):or 2. a design or specification required by the Owner, if the Builder has advised the Owner in advance in writing that the design or specification contravenes Sub Clause 1(c) above".
5. The Tribunal found that water penetration into the premises constitutes a defect which may be redressed under the contractual warranties in clause 1(c)(i) but also contravenes the statutory warranties under s 18 B of the Home Building Act 1989 (the Act) (par 75 of the Liability Decision).
6. The Tribunal referred to clause 15(c) of the contract which, in summarised form, provided that where the homeowner directs and requires the builder to use a particular contractor to do part of the works, the homeowner warrants that the particular contractor to be used has the appropriate skill, ability and expertise to do the work to the required standard. The clause further provided that the builder was not required to warrant the work done by such nominated contractor but will have a duty to advise the homeowner of any concerns the builder has about such work (see par 84 of the Liability Decision).
7. The Tribunal found that the builder had by email dated 10 January 2011 alerted the homeowners to the builder's concern with respect to the "window details of the nominated supplier/installer" (par 86 of the Liability Decision). Further the Tribunal found in par 87 that the homeowners were advised by email of 11 January 2011 by their architects that the architects had concerns such that they did not believe the "profile suites available in PVC include sufficient solutions for window jambs, vertical and horizontal cappings, overflashings, sills and sub-sills needed to resolve the various interfaces around the façade. Specifically the architects referred to the inadequacy of the available profiles to properly waterproof the junctions with other façade elements".
8. In par 88 of the Liability Decision the Tribunal found that by an email of 13 January 2011 the homeowners acknowledged receipt of the architects email and instructed the architect and the builder to proceed with the window and door system which they had selected after "intensive own research on uPVC windows".
9. In par 89 of the Liability Decision the Tribunal found that pursuant to the above "instruction" the system referred to above was installed and that the architect and the builder were instructed to proceed with the homeowners' "chosen supplier/installer".
10. In par 91 of the Liability Decision the Tribunal found that the homeowners had expressly provided a "warranty of buildability" by the cost-plus part of the contract referring to clause 15(c) and in so doing they "have not, in my view, relieved the builder of all responsibility for the works performed by a "nominated subcontractor"".
11. It appears from par 92 of the Liability Decision that the Tribunal found that the nominated subcontractor was "PVC Perfections" and that they were described as a nominated subcontractor rather than a nominated contractor because the builder maintained a measure of care and control of the work carried out and was entitled to a builder's margin.
12. The Liability Decision found that "for the 15(c) exclusion to operate… "PVC Perfection would have to be engaged by the owners as separate contractors with their own HOW insurance and a contract conforming with the Act and writing to affirm the owners intention in relation to their contract with the builder". The Tribunal went on to state that the Tribunal was of the view that the subcontractor was responsible to the builder for its performance and the quality of its work and that if the work was defective then it is to the builder that the homeowner properly turns to for redress (see par 93).
13. In par 98 of the Liability Decision the Tribunal found that the homeowners had "clearly elected to design" by choosing the windows and doors.
14. In par 101 of the Liability Decision the Tribunal found that "the design change to PVC windows and the oral and subsequent email advice are not sufficient to give effect to the statutory defence (referring to the provisions of s 18F and 18 G of the Act) and that [the builder] is therefore responsible for any deficiency in the installation of the PVC doors and windows".
15. In par 103 of the Liability Decision the Tribunal found that it had not been established by the evidence that the "the water penetration and the damages consequent upon that have been entirely or even principally attributable to defects in the water barrier".
16. In par 104 of the Liability Decision the Tribunal found that there was no evidence to support the view that the builder has any responsibility for the manufacture of the windows and that there was no issue between the parties that water had not penetrated the manufactured window units themselves. However the Tribunal made it clear that that conclusion was not the same as saying that no water penetrates the in situ joints of the individual window units and the window and doors joints which were "site constructed".
17. The Liability Decision analysed the competing evidence of expert witnesses who were put forward by both parties. In par 118 of the Liability Decision the Tribunal found that the "the evidence of water penetration through the membranes into the interior of the dwelling far from "conclusively" establishing that membrane failure was the cause of moisture penetration into the dwelling, particularly at the door/window slab junction, in my view, the evidence falls short of establishing that the membrane failure has cause (sic) of the damage to the bamboo flooring".
18. In par 120 the Tribunal went on to say that having "concluded that moisture ingress via the membranes is unrelated to the consequential damage to the bamboo flooring in reasonably close proximity to the doors and windows I have been unable to reference any evidence or submissions identifying the source of the moisture damage to other finishes".
19. In par 121 of the Liability Decision the Tribunal accepted the evidence of the homeowners' expert (Mr McDonald) of "extensive blistering and delamination of liquid membranes" and the Tribunal found that the failure "of the membranes is a breach of the statutory warranties for which the owners are entitled to damages notwithstanding that I am not satisfied that the moisture penetration at the window/door junctions with the flooring has been caused by the membrane failure".
20. In par 122 of the Liability Decision the Tribunal found that the "membranes in each of the areas under consideration, failed to a sufficient degree that replacement was necessary, but I am not satisfied that redesign of the entire membrane systems including ancillary, construction, (hobs, parapets and the like) on each level required complete renewal. I am not satisfied that it was a reasonable course to replace the liquid membranes with more expensive sheet membranes, which could have been an original design option but which was apparently rejected in favour of liquid membranes as being suitable to satisfy the design intention - to allow the dwelling to function until the end of its design life without compromising the structure or the enjoyment of the owners".
21. In par 123 of the Liability Decision the Tribunal recorded that it had accepted the evidence of the homeowners' expert as establishing the presence of "high levels of moisture in the slabs as being sufficient evidence of damage to warrant rectification of the cause. I find that the cause of the high slab moisture levels recorded by Mr McDonald together with the illustrated deficiencies in the detailing of membrane terminations is a failure of the liquid membrane systems and their installation, sufficient to enliven the claim for a breach of the statutory warranties".
22. In par 124 of the Liability Decision the Tribunal recorded that it did not "accept that liquid membranes cannot render the slabs waterproof. It would follow therefore that rectification of the membranes using a "like for like" system is the appropriate rectification and will determine the proper measure of damages. To replace the liquid membranes with high quality sheet membranes, modify the detailing to accommodate that choice constitutes a betterment to which the owners are not entitled as a measure of their rectification costs".
23. The Liability Decision recorded that the homeowners had undertaken rectification work which the builder had submitted was unreasonable. At par 143 of the Liability Decision the Tribunal found that the approach to rectification proposed by the builder was a "logical, practical and cost effective rectification procedure".
24. In par 147 the Tribunal found that the evidence of the homeowners concerning the membrane failure did not establish the "critical causal link to the loss arising from the need to replace part or all of the bamboo flooring". Then in the following par (148) the Tribunal recorded that it had rejected "that membrane failure as the primary cause or even a contributing cause of the water penetration into the interior of the dwelling" but that "it is nevertheless the case that the failure of the paint-on membranes is itself a breach of the statutory warranties, which has resulted in elevated moisture levels in the slabs".
25. In par 149 of the Liability Decision the Tribunal found that there had been a failure of the paint-on membranes and the failure was not confined to the steps or waterproofing set downs but was extensive over the area of the membranes and that warranted removal, rather than patching. The Tribunal accepted the evidence of the homeowners' expert (Mr McDonald) that the membrane thickness was "variable over the affected areas, that there was delamination of the membranes due to the inadequate preparation of the concrete surfaces to which the membranes were to be bonded and that the membranes were extensively blistered".
26. In par 153 of the Liability Decision the Tribunal found that the quantum of the rectification costs claimed against the builder based upon the scope of rectification proposed by the homeowners' expert to be "disproportionate and excessive, compared to the cost of the scope required to rectify the membrane defects".
27. In pars 155 and 156 the Tribunal recorded that it agreed with the submissions of the builder that the work carried out on behalf of the homeowners as rectification was different to and involved a different standard to work of "reasonable quality", and that the work claimed exceeded the contractual standard and the standard required by the s 18B statutory warranties and, finally, constituted "betterment which cannot be recovered by the owners".
28. In par 159 of the Liability Decision the Tribunal recorded that the findings had established an entitlement for the homeowners to damages arising from a breach of statutory warranty but there was "no evidence to base a determination of quantum". That arose because of reservations concerning the opinions and cost estimates provided by the experts.
29. In par 160 the Tribunal recorded that it had found that the builder has responsibility for the cost of rectification for the bamboo flooring "which I find was damaged as a result of defective installation of the windows and doors". Then in par 161 the Tribunal found that the "membranes and associated detailing failed but their failure has not caused, entirely or partially, the emergence of water damage to the bamboo flooring". Then in par 162 the Tribunal found that the damage to the bamboo flooring is attributable to the installer of the flooring who should have been aware of the potential of a sand bed at the waterproofing set down to attract and distribute water to the underside of the bamboo.
30. Given the Tribunals' conclusion that the evidence as to quantum was insufficiently clear to make findings on quantum, the Tribunal invited submissions from the parties.
31. As a consequence of the receipt of submissions, the Tribunal published the Quantum Decision. A summary of that decision appears below.
32. The Tribunal found that the scope of works identified by the homeowners' expert "extended beyond rectification into redesign of some components of the roof works resulting in the rejection of parts of it, including reconstructions of the roof hobs, up-stands and substitution of a different type of membrane system to that nominated in the contract", and was "betterment" (par 6).
33. The Quantum Decision noted that the homeowners had relied upon costs provided to them by the contractor who performed the rectification works and that that "leads me to conclude that its costs are to be preferred provided I can be satisfied that the scope of works reflects the liability found and does not include components of the redesigned roof advocated for" by the homeowners' expert.
34. The Quantum Decision found that the reasonable costs of the damages was $167,444.00 (par 14).
35. It is also necessary to summarise some of the findings made by the Tribunal concerning the admissibility of the evidence given by the homeowners' expert, Mr McDonald. Mr McDonald provided reports which were relied upon dated 17 October 2013, 12 July 2013, 9 March 2014 and 14 October 2013 (par 7 of the Liability Decision).
36. Paragraph 69 of the Liability Decision records that the homeowners served a report prepared by Mr McDonald dated 6 May 2014 (which the Tribunal described as Mr McDonald's third report) which was served after the closing day for evidence leaving the builder no opportunity to reply. The decision records that the objection of the builder was that the report included reference to and a folder of membrane samples taken by Mr McDonald. The report also contained photographic evidence. The Liability Decision records (par 72) that Mr McDonald's report was "admitted to the extent that it assisted comprehension of the matters in issue but its admission was for limited purposes which were subject to cross examination".
37. In par 111 of the Liability Decision the Tribunal stated that Mr McDonald had "compromised his expert standing by accepting engagement to prepare and supervise/inspect the works under rectification". The Tribunal found that Mr McDonald "has allowed himself to be placed in a position where he could not objectively evaluate his evidence, or perhaps more accurately could not be seen to objectively evaluate his opinions in the light of the evidence provided by the other experts".

The Builder's Appeal - Notice of Appeal

1. The notice of appeal was filed with the Tribunal on 7 April 2015. The grounds of appeal described in the notice are summarised as follows: 1. Failure to make findings in relation to grounds of defence raised by the Appellant. Details of this ground of appeal are contained in section 12B(i) of the notice of appeal (where the builder describes the order under appeal as not fair or reasonable); 2. Denial of natural justice. Details of this ground of appeal are contained in section 12B(i) of the notice of appeal (where the builder describes the order under appeal as not fair or reasonable); and 3. Principal findings are against the weight of evidence. Details of this ground of appeal are contained in section 12B(ii) of the notice of appeal.
2. The builder's notice of appeal seeks to have the orders made in the Quantum Decision set aside but the builder proposes that an order be made that the builder is to pay to the homeowners damages in relation to the damage to the bamboo flooring of $13,380.00.
3. The notice of appeal states that the builder does not dispute the findings of the Tribunal that damage to the bamboo flooring was caused by defective installation of the windows and doors and that the builder is liable to the homeowners for the cost of rectification of the bamboo flooring. The builder disputes the finding that the waterproofing membranes and associated detailing failed and that it is liable to the homeowners for the removal and replacement of all of the waterproofing membranes.
4. The first ground of appeal is that the order requiring payment of $167,444.00 as the reasonable cost of the damages determined on the scope of works identified in the Liability Decision is an order which was not fair and reasonable. The Builder submits that the Liability Decision did not deal with the three grounds of defence raised by the builder, namely whether the cause of moisture in the concrete slabs (or on the perimeter of any of the slabs) was caused by: 1. Defective installation (by others) of the roof garden and irrigation system; 2. Defective design and installation of external doors and windows; or 3. Defective installation of external tiling.
5. The builder referred to the admission into evidence of the report of Mr McDonald dated 6 May 2014 and the builder states that the contents of that report appear to have been used by the Tribunal to make findings against the builder to which the builder was not given a reasonable opportunity to respond. Those findings were that the membrane thickness was variable over the affected areas, there was delamination of the membranes due to the inadequate preparation of the concrete services to which the membranes were to be bonded and the membranes were extensively blistered.
6. The builders states that it suffered prejudice by the admission of the above report and the prejudice is illustrated by the oral evidence of a Mr Haramis which indicated the nature of the evidence that the builder may have been able to obtain had it been given an opportunity to have the samples relied upon by Mr McDonald tested in a laboratory. Had such testing occurred the builder would have been able to cross examine the evidence of Mr McDonald more effectively. The evidence of Mr Haramis was to the effect that in relation to samples shown to him he was able to give evidence that the membranes were not defective.
7. A related ground of appeal (the second ground) was that the evidence of the "readings and observations" by Mr McDonald (which were allowed in as evidence to assist an understanding of the alleged defects but not to allow the introduction of additional evidence (par 71 of the Liability Decision)) constituted a denial of natural justice because such evidence was in fact used to make findings against the builder to which they had no opportunity to respond. The builder asserts that the samples of water proofing membrane were produced by Mr McDonald during the hearing when the experts were jointly giving evidence. The builder submitted that its experts had not previously seen the samples.
8. The builder disputes the finding that the waterproofing membranes and associated detailing failed and that it is liable to the homeowners for the removal and replacement of all of the waterproofing membrane.
9. The builder submits that the decision of the Tribunal in relation to the waterproofing membrane should have been as follows: 1. That there was no evidence that the waterproofing membrane had failed other than in some locations at the perimeter of the upper floor terrace; 2. The cause of that failure was the defective installation by the homeowners of a roof garden with irrigation; 3. The failure of the waterproofing could be rectified by patching; 4. The builder has, however, no liability to the homeowners for the costs of that patching.
10. The third ground of appeal is that the Liability Decision was made against the weight of evidence. The builder states that the findings concerning the widespread failure of the membrane, the need to remove and replace all of the waterproof membrane and the liability of the builder for the failure of the membrane was against the weight of evidence for the following reasons: 1. There was no evidence that water had penetrated the slab other than in the small localised areas of the external doors. That failure was due to the defective installation of the windows and external doors; 2. There was no evidence of the alleged moisture penetration to other parts of the building other than in small, localised areas on the upturn on the first floor where the garden abuts the upturn. The evidence was that moisture had entered behind the upturn from the garden, not from the substrate; 3. There was no other evidence that the membranes had failed to perform their function. There was no evidence of any mould or mildew or other signs of water penetration between the first floor, the ground floor balcony or the ground floor courtyard terrace; 4. The evidence of Mr Taylor (an expert for the builder) was that the waterproofing membranes had not failed and were adequate. There was only superficial evidence of failure confined to minor blistering at the perimeters which could easily be rectified; 5. The evidence of Mr Whelan (another expert for the builder) was that there was no evidence to indicate that the membrane had failed and that water was tracking through the slab. He also gave evidence that the cause of the blistering to the slab was occasioned by changes to the roof garden above. His evidence was that the soil of the roof garden significantly raised the water level on the roof to a level above the termination of the waterproofing membrane. The most probable reason why water may have got in behind the waterproofing membrane was because the soil raised the water level of the roof. The blistering in sections of the membrane on the upper floor hob appears to be the result of water tracking in from the garden behind the membrane; 6. The Tribunal did rely on the samples provided by Mr McDonald. This is evident from par 109 of the Liability Decision. However, these samples were taken from only extremely small, unrepresentative areas constituting less than .5% of the membrane surface. The samples were not representative; 7. Mr McDonald gave evidence that there was moisture in the slab caused by membrane failure. He relied on a single humidity test at the door sill of D8 to the court yard as evidence of water penetration and of failure of the membrane. Mr McDonald did not produce evidence of moisture readings taken later and a Jones v Dunkel inference may be drawn; 8. The finding as to the reliability of Mr McDonald (see par 110 of the Liability Decision) is against the weight of the following objective facts: 1. Mr McDonald had a vested interest in finding that there was wide spread failure of the membrane because he had rejected all of the membrane before the remedial work was undertaken and had supported the homeowners' decision to incur the substantial sum of money to undertake removal and replacement of all the membrane; 2. Mr McDonald had a financial interest in the project and his support of the homeowners' decision to expend a substantial sum of money meant that he could not objectively evaluate his evidence or could not be seen to objectively evaluate his evidence in the light of the evidence provided by other experts. This was acknowledged in par 111 of the Liability Decision; 3. Mr McDonald maintained erroneous views on causation and betterment under extensive cross examination: see pars 118, 121, 122, 124, 153, 155 and 156 of the Liability Decision; 4. Mr McDonald did not undertaken any flood testing of any of the waterproofing membranes and therefore produced no direct evidence that any of the membranes were not performing their function of preventing water penetration; 5. In contrast, Mr Haramis conducted flood testing in the presence of one of the homeowners; and 6. Mr McDonald did not identify the locations and the dimensions of the asserted deficiencies in the membrane. In addition he did not provide a photograph, or very few photographs, evidencing blistering. Few photographs were tendered showing only localised blistering or small quantities of water at the perimeter joint of the upper floor consistent with failure caused by defective installation by the homeowners of a roof garden. 1. In addition the Tribunal accepted Mr McDonald's evidence that there was widespread blistering which had resulted from a failure to apply a primer notwithstanding that there was no objective evidence of widespread blistering. Accordingly there was no objective widespread evidence of failure to apply a primer. The assertion of Mr McDonald that the membrane was applied without a primer is contrary to the evidence of Mr Haramis which was to the effect that he had applied a primer; 2. The builder also asserts that the evidence of Mr McDonald concerning defects with respect to the minimum thickness of the membrane was in error or unreliable. The builder asserts that the measurements of Mr McDonald were inconsistent with the findings of Mr Haramis and that an inappropriate standard was used to calculate thickness;
11. The builder submits that the evidence of Mr McDonald concerning the height or length of the membrane upturn was insufficient or unreliable. Mr McDonald gave evidence that the membrane upturn on the upper floor was defective because it was only 90mm above the concrete slab. The builder submits that Mr McDonald had only one photograph in support of this evidence and that he agreed that the height was in fact 170mm in the area of tiling;
12. The builder also submits that the conclusions with respect to Mr McDonald's evidence are against the weight of evidence because:

Ground floor courtyard: 1. Mr McDonald investigated only one 200th of the area of the membrane. There was other evidence in support of the view that the membrane did not peel away, remained intact and that a sample could be removed only by cutting with a knife (referring to the evidence or Mr Haramis and Mrs Babeck); and 2. There was objective evidence from Mr Haramis that the upturn was 150mm.

Ground floor northern terrace: 1. Mr McDonald found the whole (27sqm) of the membrane had failed based on his investigations of only 0.22% of the area. There was no evidence of any investigation by Mr McDonald as to the remaining 99.78%. There was no objective evidence to support the alleged failure of the waterproofing. There was uncontested objective evidence to the contrary namely the flood test of Mr Haramis. Mr McDonald acknowledged that there would have been no water ingress at the doors if the water - stop angle had been installed and the membrane terminated at the finished floor level.

First floor roof garden and terrace: 1. Mr McDonald found the whole (60sqm) of the membrane had failed based on his investigation of only 0.8% of the area. There was no evidence of any further investigation by Mr McDonald as to whether the remaining 99.2% of the membrane was defective. There was uncontested objective evidence to the contrary namely the invasive examination undertaken by Mr Haramis which revealed the limited area of blistering which diminished quickly to nil at 500mm from the western hob and the membrane was fully bonded. In respect of the upturn there was no objective evidence to support the assertion of Mr McDonald that the upturn height was insufficient. The builder submits the objective evidence was that the height of the upturn on the upper floor was between 150mm to 170mm and that an upturn of 150mm was appropriate; and 2. After the builder had left the site, the homeowners installed a rooftop garden, including an irrigation system, to a height of 180mm according to Mr McDonald or higher but without an edge restraint, a gravel drain, edge protection of the upturn and protection of the drainage outlets, thereby allowing water from the garden to go over and behind the membrane upturn causing the blistering observed by Mr McDonald. Mr McDonald failed to undertake any water tests of the membrane on the first floor to test the validity of his conclusions that the membrane had failed.

1. The builder further submits that the findings of the Tribunal in relation to the membrane were also against the weight of the evidence of the water proofer, Mr Haramis. The builder submits that the Tribunal has made an error in disregarding the evidence of Mr Haramis: see par 56 of the Liability Decision. In that paragraph the Tribunal stated that it had disregarded the opinion evidence in pars 67, 68 and 69 of Mr Haramis' affidavit relating to the waterproofing installation. The builder submits that those paragraphs do not give opinion evidence, rather, those paragraphs give evidence only of fact.
2. The builder submits that the evidence of Mr Haramis was to the following effect: 1. The membrane in the area exposed by Mr McDonald did not peel away as claimed by Mr McDonald and to obtain a test square of membrane he had to cut it out with a knife and use a knife to lift it off the concrete slab. Mrs Babeck was present and saw that; and 2. There was no evidence to suggest that the remaining membrane was not still intact.
3. The evidence of Mr Haramis is that he found in relation to the waterproofing membrane to the ground floor balcony that: 1. The membrane sample he obtained was more than the minimum required thickness; 2. The top surface of the tiling was slightly above the top of the waterproofing upturn in the open drain running across the front of the balcony for its entire length; and 3. The moisture level on top of the hob in that area was 59.5%
4. Similarly the evidence of Mr Haramis is that he found in relation to waterproofing to the first floor terrace that: 1. In the limit exposed area the membrane was blistering at the cross over of the waterproofing upturn and the render; 2. Blistering diminished quickly to nil at 500mm from the western hob; 3. The membrane was fully bonded when tested by others, presumably Mr McDonald.
5. The builder made further submissions concerning the evidence under cross examination of Mr Haramis and submits that Mr Haramis was an experienced and licensed water proofer who undertook the work in a proper and workman like manner.
6. The builder refers to the conclusion of the Tribunal, based upon the evidence of Mr McDonald that the widespread failure of the waterproofing membrane meant that removal and replacement of all waterproofing membrane was required. The builder submits that that finding was against the weight of evidence, that patching is common practice in the construction industry and that patching of membrane is used in the construction process as part of staged completion of liquid membrane applications. Mr McDonald acknowledged that patching may be undertaken in the circumstances he identified and whether patching is appropriate depends on a number of factors.
7. The builder refers to the assertion by Mr McDonald that a patch repair would not have been able to achieve a bond between old and new membrane and submits that that is based upon a reference which has nothing to do with adhesion between old and new membrane.

The builder's submissions

1. The builder filed detailed submissions with the Tribunal on 17 November 2015. Given the fact that these submissions repeat some of the grounds already contained in the notice of appeal we will described the effect of the submissions in summary form in the following paragraphs.
2. The builder submits that the Tribunal failed to deal with three significant grounds of defence raised by the builder in relation to the claimed defective external waterproofing membrane. The builder describes this failure as raising questions of law.
3. The builder refers to the findings in par 123 of the Liability Decision that the cause of the high slab moisture levels recorded by Mr McDonald together with the illustrated deficiencies in the detailing of membrane terminations is a failure of the liquid membrane systems and their installation. The builder submits that Mr McDonald agreed when giving oral evidence that the moisture readings he obtained could indicate the external doors and windows were leaking (T1 p.108.49 to p.109.2). The builder's defence that the moisture readings made by Mr McDonald were of moisture caused by water penetration due to the defective design and installation of the external doors and windows was articulated by the builder in its points of defence but the reasons of the Tribunal do not refer to that defence and do not assign reasons for rejecting the defence. This was so notwithstanding: 1. That the Tribunal found that the external waterproofing membrane was not even a cause of the internal water penetration which damaged the internal bamboo flooring and other finishes (par 118 of the Liability Decision); 2. The oral evidence of Mr McDonald that the readings he took of moisture, including of moisture in the concrete slab, could indicate the external doors and windows were leaking (T1 p. 108.49 to p.109.2); 3. The oral evidence of Mr McDonald that water would radiate through the concrete in all directions based on capillary action and saturation levels (T2 p.37.32 to .43); 4. Mr McDonald, in the course of giving oral evidence drew a flow path for the water which contrary to his assertion that the external waterproofing membrane had failed, did not pass through the external waterproofing membrane; 5. The uncontested evidence that Mr McDonald did not undertake any flood testing of any of the external waterproofing membranes; 6. The uncontested evidence of Mr Haramis that he conducted a flood test in the presence of Mrs Babeck which disclosed no failure of the external waterproofing membrane; 7. The uncontested evidence of Mr Haramis that Mr Haramis subsequently attended the site after it had been raining and noted that although the ground floor balcony had been exposed to rain there was no evidence of leaks below it; and 8. The uncontested evidence that only a fraction of 1% of the area had been tested;
4. The builder submitted that the defence that any moisture on the perimeter of the first floor concrete slab was caused by the defective installation by others of the roof garden and irrigation system was articulated by the builder but the reasons of the Tribunal do not refer to that defence and do not assign reasons for the rejection of that defence. This submission deals with aspects of the evidence which supported the defence. This included the submission that the only photographs of water penetration of the concrete was along the perimeter of the first floor and that there was no photographic evidence of water penetration of the concrete in the other areas in issue, namely the ground floor court yard and the ground floor northern terrace. Further the only photographs of blistering of the external waterproofing membrane were of the first floor near the edges of the hob. There was no photographic evidence of the asserted wide spread blistering over either the first floor or the ground floor areas.
5. Accordingly, the builder submits that the reasons contained in the Liability Decision do not enable the builder to see the extent to which its defence has been understood and dealt with by the Tribunal.
6. The third aspect of the builder's defence concerned defective installation of the mortar screed topping over the waterproofing membrane. The builder submits that the findings of the Tribunal do not make it clear whether the findings were based in part on the statement of Mr McDonald that he had found mortar screed topping imbedded in the external waterproofing membrane. Mr McDonald produced at the hearing some samples of external waterproofing membrane upon which he relied to support his opinion that the external waterproofing membrane had failed. Those samples were shown to Mr Haramis at the hearing and Mr Haramis stated that the first of the samples shown to him was not a sample of defective waterproofing membrane but rather a sample of such membrane with screed topping attached to it. The builder denied that it was liable for any loss and damage from mortar screed topping being imbedded in the external membrane because the installation of the mortar screed topping was undertaken by others. That defence was articulated at the hearing but the reasons do not refer to the defence. Accordingly the builder submits that no reason for the rejection of that defence has been articulated. It was an important defence because it relates to one of the grounds relied upon by Mr McDonald to justify his recommendation to remove and replace all of the external waterproofing membrane.
7. The builder's submissions then turn to the admission into evidence of the report of Mr McDonald dated 6 May 2014. That report was admitted into evidence over the objection of counsel for the builder and was admitted for a limited purpose which has been described earlier in these reasons. However, the builder submits that the findings and observations contained in the report appear to have been used by the Tribunal to make findings against the builder to which it was not given a reasonable opportunity to respond. Those findings were that the membrane thickness was variable over the affected areas, there was delamination of the membrane due to the inadequate preparation of the concrete surfaces to which the membranes were to be bonded and the membranes were extensively blistered. The builder submits that the contents of the report had therefore been accepted by the Tribunal as evidence and for a purpose other than that for which the report was admitted. That is, it is submitted, impermissible as a matter of law (Nominal Defendant v Smith [2015] NSWCA 339 at pars 46 and 85). The builder then makes submissions concerning the prejudice suffered by the builder by the admission of the report as illustrated by the evidence of Mr Haramis. That evidence has already been summarised.
8. The next question of law concerns the admission into evidence of the readings and observations by Mr McDonald during the remedial works. Paragraph 71 of the Liability Decision stated that the readings and observations by Mr McDonald taken during the construction of the remedial works were permitted to the extent that they "assisted an understanding of the alleged defects, but not to allow the introduction of additional evidence". Paragraph 72 of the Liability Decision stated that Mr McDonald's third report was admitted "to the extent that it assisted comprehension of the matters in issue but its admission was for limited purposes which were subject to cross examination". The builder submits that the readings and observations of Mr McDonald appear to have been used by the Tribunal to make findings against the builder.
9. The next question of law raised by the builder concerns the admission into evidence of samples of external waterproofing membrane. Notwithstanding the limited purpose for which the samples were allowed to be tendered the samples were used, so the builder submits, to make findings against the builder to which it was not given an opportunity to respond. The builder submits that par 109 of the reasons in the Liability Decision is evidence of the use of the samples. Accordingly the builder has suffered a prejudice and the evidence of Mr Haramis indicates the nature of the independent expert evidence the builder may have been able to obtain had it been given the opportunity to have the samples examined and tested.
10. The builder's submissions then deal with the builder's argument that the liability decision was not fair and equitable being a ground of appeal for which leave is required. The builder submits that there was a failure by the Tribunal to address substantial, clearly articulated arguments relying upon established facts and that the decision did not refer to the defences raised by the builder. These defences are those referred to earlier. Further the builder submits that it was not fair and equitable to allow the admission of Mr McDonald's report of 6 May 2014. The builder also submits that it was not fair and equitable to allow the admission of the readings and observations of Mr McDonald or the samples of external waterproofing membrane.
11. The builder submits that the decision was not fair and equitable in that the reasons given by the Tribunal were inadequate. The asserted inadequacy relates to the following: 1. The reasons make no reference to the oral evidence of Mr McDonald that the moisture readings he obtained could indicate that the external doors and windows were leaking; 2. The reasons acknowledge that Mr Taylor criticised the testing by Mr McDonald but did not give any reason why the Tribunal did not accept that criticism; 3. The Tribunal did not explain why the absence of moisture of the slab soffits did not defeat the assertion that waterproofing membrane had failed; 4. The reasons did not explain why the Tribunal did not accept the uncontested evidence of Mr Haramis; 5. The reasons did not explain why the Tribunal accepted the evidence of samples taken from extremely small, unrepresentative areas as warranting removal and replacement of the whole of the membrane; 6. The reasons did not explain why the Tribunal accepted the evidence of Mr McDonald of widespread failure of the external waterproofing membrane when Mr McDonald did not identify the location and dimensions of the asserted deficiencies and failed to produce photographic evidence; and 7. The reasons did not explain why the Tribunal did not accept the evidence of Mr Taylor that patching is used in the construction process as part of the staged completion of liquid membrane application.
12. The builder submits that there was a substantial delay in the delivery of reasons. The hearing was conducted in June 2014, following which submissions were filed and served. Oral submissions were made on 15 September 2014 with the reasons being published on 10 March 2015. The builder submits that the Appeal Panel is entitled to infer error from the manner in which the testimony of Mr McDonald and Mr Haramis has been addressed in the reasons including a failure to refer to factors which may appear to the Appeal Panel to be significant (see Nominal Defendant v Smith at par 11).
13. The submissions then deal with the argument that the reasons were against the weight of evidence. In substance these submissions repeat the submissions forming part of the notice of appeal referred to earlier.
14. The builder submits that the acceptance by the Tribunal of the credibility of Mr McDonald is erroneous as it is inconsistent with incontrovertible facts or uncontested testimony, and is contrary to compelling inferences. The builder submits that the Tribunal's finding by which it accepted the credibility of Mr McDonald was inconsistent with the finding, in relation to the issue of betterment, that Mr McDonald could not be seen to objectively evaluate his opinions in the light of the evidence provided by the other experts because he had a financial interest in the project and had supported the homeowners' decision to expend a substantial sum of money on what the Tribunal found to be a redesign and specification by him of the waterproofing system originally installed.
15. By reason of the matters referred to above the builder submits that the Appeal Panel is obliged to accept that a substantial miscarriage of justice may have occurred.
16. The builder further submits that if the Appeal Panel finds that leave to appeal is required then in the light of the submissions, the Appeal Panel ought to grant leave to appeal because the matters the subject of the submissions involve errors that are plain, readily apparent and are essential to the Tribunal's decision, and not merely peripheral. Alternatively the Appeal Panel should grant leave because the Tribunal has gone about the fact finding process in such a way that it is likely to produce an unfair result so that it would be in the interest of justice for it to be reviewed. The builder's submissions then identify the findings of fact which were central to the decision of the Tribunal. The submissions then compare those findings to facts which the builder submits are contrary to the findings. For example, the builder refers to the evidence of Mr McDonald concerning moisture readings in concrete slabs which evidence the builder says is inconsistent with the finding by the Tribunal that the failure of the external waterproofing membrane was not a cause of water penetration. The builder also refers to the finding that although Mr McDonald took 8,000 photographs there was no photographic evidence of the widespread blistering.
17. The builder submits that the Tribunal's reliance on the evidence of Mr McDonald in relation to widespread failure of the external waterproofing membrane is inconsistent with his finding that Mr McDonald had allowed himself, by reason of his support of the homeowners to expend a substantial sum of money on removal of all the external waterproofing membrane and replacement of it in accordance with his design and specification, to place himself in a position where he could not be seen to objectively evaluate his opinions in light of the evidence provided by the other experts.
18. The builder concludes his submissions by stating that the builder seeks the following orders: 1. That the orders challenged on appeal be set aside; 2. The claim of the homeowners in relation to the external waterproofing membrane be dismissed. In the alternative the claim of the homeowners in relation to the external waterproofing be remitted to the Tribunal for a new hearing by a differently constituted Tribunal; 3. The builder is to pay to the homeowners damages in relation to the damage to the bamboo flooring.

Builder's oral submissions

1. Counsel for the builder submitted that there are four questions of law that arise in the appeal.
2. The first question of law concerns the submission that the Tribunal failed to deal with three grounds of defence that were raised by the builder. One of those grounds was the failure to consider the causes of water penetration into the slab. The second concerns the failure to consider the roof garden and irrigation system. In particular the submission concerns the failure of the Tribunal to consider the change from a gravel, free draining roof to a roof garden with an irrigation system. Counsel submitted that there was evidence from a Mr Rosen, Mr Haramis and Mr Whelan the effect of which was that the introduction of the roof garden had consequences for the efficacy of the waterproofing membrane. Counsel also submitted that the only evidence put forward by the homeowners was the evidence of Mr McDonald who prepared three reports. The first report did not deal with the roof garden but the second report did. Counsel submitted that Mr McDonald appeared to be completely oblivious to the change in design of the roof garden.
3. Counsel submitted that, although the Liability Decision identified in par 42 that the builder had submitted that the source of water penetration was the result of defective installation by the homeowners of a roof garden, that issue was not subsequently addressed in the Liability Decision or at all.
4. Counsel submitted that another ground of appeal was the failure by the Tribunal to consider the causes of the water penetration. The builder had submitted that blistering of the membrane had been caused by the change from a gravel roof to a rooftop garden but the Tribunal did not consider what was the cause of the water penetration into the slabs. In par 103 of the Liability Decision the Tribunal found that it was not established by the evidence that the water penetration and the damages consequent upon that have been entirely or even principally attributable to defects in the water barrier. This aspect of the builder's defence was not restricted to the rooftop garden but related to all levels of the building. Counsel drew attention to par 118 of the Liability Decision in which the Tribunal found that the evidence fell short of establishing membrane failure has caused damage to the bamboo flooring. But then the Tribunal stated in par 120 that it had concluded that moisture ingress via the membranes was unrelated to the consequential damage to the bamboo flooring. Counsel submitted that there was an inconsistency between the findings in pars 118 and 120. Then in par 121 the Tribunal found that there was extensive blistering and a failure of the membranes. The Tribunal then stated in par 122 that the membranes in each of the areas under consideration failed to a sufficient degree that replacement was necessary. However, these findings do not deal with the cause of the failure. In par 123 the Tribunal stated that it accepted Mr McDonald's tests establishing the presence of high levels of moisture in the slabs. Counsel submitted that the problem with that conclusion was that the test of the high levels of moisture in the slabs were all taken right next to the windows and doors. They were immediately adjacent to the windows and doors and there was no consideration as to whether the fact that the windows and doors were leaking constituted the cause of the problem.
5. Counsel for the builder then turned to the objection concerning the admission of the third report of Mr McDonald. That report was served on 6 May 2014 in accordance with directions made on 11 March 2014. The report was directed to be a report in reply, namely in reply to the report of the builder's expert (Mr Taylor) which was required to be filed by 8 April 2014. The objection taken is that the report of Mr McDonald was not limited to a report in reply but raised new issues not previously raised. Counsel submitted that the McDonald report gave evidence of what Mr McDonald saw, what he did or inspected and what he tested in October 2013 while rectification work was being undertaken. As the Liability Decision states, that report was admitted on a limited basis. However, counsel submitted that the report was in fact used to make findings concerning the extent of blistering and delamination - see par 121 of the Liability Decision. There was no evidence of extensive blistering in the earlier reports of Mr McDonald.
6. Counsel also made comment about par 109 of the Liability Decision. The Tribunal had stated that it was notable that Mr McDonald "did not select from his 8,000 photographs, some, which illustrate the extent of damage to the membranes". Counsel said that that implied criticism of Mr McDonald was not taken any further by the Tribunal. In the same paragraph it is stated that Mr McDonald provided samples which were admitted over the objection of the builder. Counsel submits that there were no samples.
7. Further, in respect of the evidence of Mr McDonald, par 111 of the Liability Decision stated that Mr McDonald had compromised his expert standing by accepting an engagement to prepare and supervise/inspect the works under rectification and in circumstances where he had a financial interest in the project. The Tribunal concluded that Mr McDonald could not objectively "evaluate his evidence, or perhaps more accurately could not be seen to objectively evaluate his in the light of the evidence provided by the other experts" (par 111).
8. Turning back to the production of samples by Mr McDonald during his evidence, counsel says that Mr Haramis did not accept Mr McDonald's conclusions but that his evidence (the evidence of Mr Haramis) was not accepted.
9. Counsel for the builder then turned to a critique of par 149 of the Liability Decision. That paragraph found that there had been a failure of the "paint on membranes". Counsel submitted that there was no finding as to the cause of the suggested failure. The paragraph also found that the failure was extensive over the area of the membranes. Counsel submitted that there was no evidence of extensive failure other than what Mr McDonald stated he observed.
10. In addition par 149 of the Liability Decision stated that the Tribunal accepted Mr McDonald's evidence that the membrane thickness was variable over the affected areas. Counsel for the builder submitted that the thickness of the membrane was not a relevant issue. Counsel submitted that the earlier reports of Mr McDonald show that the waterproofing membrane complied as to thickness. Those reports show that seven tests had been undertaken of which five passed the test but in the third report Mr McDonald records a further twenty seven tests which the builder did not have an opportunity to address.
11. The upshot of the builder's submissions in respect of the third Mr McDonald report was that issues were raised and relied upon, which the builder was unable to deal with, and that the builder was thereby unfairly prejudiced.

Respondents' (homeowners) reply and submissions

1. We will summarise the submissions of the homeowners first contained in the reply and subsequently in the homeowners' submissions.
2. The homeowners state that the defences raised by the builder were in fact dealt with by the Tribunal.
3. Referring to the builder's submission that the expert's report of 6 May 2014 raised new issues, the homeowners say that the first report of Mr McDonald raised these issues. The first report (made available a year prior to the hearing) addressed the question of inadequate thickness of the membranes and blistering. The particular paragraphs of that report dealing with inadequate thickness and blistering were detailed in the homeowners' submissions attached to the reply.
4. The reply also states that there was no injustice by reason of admitting samples of the failing membrane into evidence. The homeowners submitted that the admission was granted with the explicit right for the appellant to make submissions which protected the appellant's right. Further, the homeowners submit that the Tribunal has not based its findings on any of the grounds on the basis of the samples.
5. The reply states that there is no basis for the Appeal Panel to conclude that the decision under appeal was not fair and equitable.
6. The reply then turned to the appeal ground to the effect that the decision was against the weight of evidence.
7. The homeowners are critical of the builder's submission that there was an absence of evidence that the failure of the membrane was widespread. The homeowners say that there was no evidence from the builder that the membrane did not fail. The homeowners say that without an "investigative inspection (i.e. the removal of the surface - mostly tiles - above the waterproofing membrane) there cannot be any evidence that the membrane did not fail as the membrane was not visible with the bare eye without the removal of the structure above the membrane". In the absence of evidence there is no decision against the weight of evidence and this aspect of the appeal must fail.
8. The homeowners then deal with the builder's argument that patching was sufficient to fix the failing membrane and that the builder should not be liable for the removal and replacement of the membrane. The homeowners submit that the decision of the Tribunal was not against the weight of evidence as the expert relied upon by the Tribunal came to a different conclusion.
9. The homeowners submit that the appeal should not be upheld because it has been filed outside the time required by r 25 of the Civil and Administrative Tribunal Rules 2014 (Rules). The builder was notified of the decision on 11 March 2015 and the homeowners say that the time for lodgement of the appeal expired fourteen days later namely 24 March 2015. The appeal was lodged on 7 April 2015. We can deal with this point quickly. The argument appears to have been based upon a misunderstanding by the homeowners, namely that the appeal period is fourteen days. It is in fact twenty eight days: see r 25(4)(b) and (c) of the Rules.
10. We will now deal with the homeowners' written submissions.
11. The homeowners state that the builder's assertion that the Tribunal failed to deal with significant grounds of defence is inaccurate. The Tribunal in fact dealt with the significant grounds identified by the builder.
12. However, insofar as it is said by the builder that the Tribunal did not deal with the change in use of the roof garden or the issue concerning defective tiling, the homeowners acknowledge that the Tribunal did not deal with these issues other than in par 42 of the Liability Decision. That paragraph mentions the fact that the builder has submitted that the source of the water penetration was the result of defective installation of the roof garden and irrigation system and other matters. The homeowners say that once the Tribunal had made its overall findings about the cause of the water ingress, namely that the water ingress resulted from "defective membranes", it was not necessary to then go through and exclude other defences relied upon by the builder. In other words, once a finding had been made as to the cause of the water ingress that finding operated by implication as an exclusion of other potential causes. This also applies to the assertion that the Tribunal failed to deal with defective tiling, i.e., once the Tribunal made the finding that the water ingress was caused by the defective membranes that excluded any finding that the water ingress was caused by an event that occurred later in time.
13. The homeowners submit that the works about which the builder complains (the installation of a roof garden and external tiling) occurred after 20 December 2011 (that is after practical completion) and that the membranes had been installed earlier so that the finding that the cause of the water ingress, namely defective membranes, which occurred earlier in time effectively excludes subsequent events as constituting causes.
14. The submissions of the homeowners then turn to the question of whether there has been a denial of procedural fairness by reason of the Tribunal accepting the third report of Mr McDonald. The homeowners' submission is that the third report was contemplated by the directions made on 11 March 2014 and was therefore not a report which would have taken the builder by surprise. To the extent that the evidence in the report was not evidence in reply to the builder's expert, then the appropriate course was to bring that fact to the attention of the Tribunal by means of an application for an adjournment of the proceedings. Instead all the builder did was to adopt the "half way" approach of complaining about the alleged prejudice. In any event, the homeowners submit that there was, as is recorded in pars 157 and 158 of the Liability Decision, a meeting of experts on 9 May 2014 which resulted in a joint conclave report. This represented, according to the homeowners' submissions, an opportunity afforded to the builder's witnesses to respond constructively to Mr McDonald's evidence, which they failed to take up.
15. The homeowners submit that insofar as the builder's appeal is based upon the argument that the decision is against the weight of evidence it is necessary for the builder to overcome the requirements set out in the decision of the Tribunal in Collins v Urban [2014] NSWCATAP 17. In particular it is necessary for the builder to be able to establish that the evidence in its totality preponderates so strongly against the conclusion found by the Tribunal at first instance that it cannot be said that the conclusion was one that a reasonable Tribunal could reach. The homeowners submit that when one considers the criticisms made by the builder of the evidence of Mr McDonald, it is also necessary to take into account the finding made in par 110 of the Liability Decision by the Tribunal that the reports of Mr McDonald were "thorough" and that he gave oral evidence in an "authoritative manner and maintained his views under extensive cross examination". This was a favourable credit finding as to the reliability of Mr McDonald's evidence. In addition, the fact that the Tribunal made mention of the separate role that Mr McDonald had in supervision of the works under rectification gives added support to the finding as to Mr McDonald's reliability because it was made notwithstanding the other role played by Mr McDonald.
16. The homeowners' submissions conclude by stating that the appeal should be dismissed with costs.

Builder's reply

1. The builder filed a "response to reply" namely submissions responding to the homeowners reply to appeal and then subsequently filed submissions in reply to the homeowners' submissions. It is not necessary to summarise the effect of these documents.

Homeowners' oral submissions

1. We will now summarise the oral submissions made by the solicitor for the homeowners at the hearing of the appeal.
2. The solicitor submitted that the builder did not argue at first instance that the water penetration was caused by the homeowners' change of design of the rooftop garden except peripherally. The solicitor took us to the submissions of the builder at first instance where the change in design to the rooftop garden was argued. The solicitor submitted that there had been failures of lamination on all three of the levels and that the builder had submitted that the roof failure was due to the roof garden but the failure of the membranes on other levels was due to some unspecified cause.
3. The solicitor submitted that the Tribunal did in fact appropriately deal with the issue of the change in design to the rooftop and specifically referred to pars 42, 49, 148 and 149 of the Liability Decision. Those paragraphs make it clear that the Tribunal was aware of the builder's argument (par 42) and of the homeowners' expert's opinion of the need to replace the membrane at a number of levels (par 49). The findings in pars 148 and 149 are clear in finding that there was a failure of the paint on membranes, that the failure was extensive over the area of the membranes warranting removal rather than patching, the membranes were variable in thickness, that there was delamination due to inadequate preparation. The solicitor submitted that these findings necessarily excluded other causes which the builder had raised such as the change in the design of the roof. Accordingly, the solicitor submitted that the Tribunal had sufficiently dealt with this aspect of the builder's defence.
4. The solicitor then turned to make submissions about the Tribunal's findings in pars 103 and 123 of the Liability Decision. The solicitor submitted that the finding in par 103 that the water penetration was not caused by defects in the "water barrier" was intended to refer back to the claim in relation to the windows which was dealt with from pars 97 onwards. In par 123 the Tribunal clearly found that the moisture levels had occurred through a failure of the liquid membrane systems and their installation.
5. The solicitor then referred to the complaint made by the builder that the expert report served on 6 May 2014 contained fresh evidence in chief which had taken the builder by surprise. The solicitor pointed out that the builder had not complained shortly after the receipt of that report in early May 2014. Rather, the builder did nothing until the first day of the hearing at first instance (11 June 2014). Accordingly, the solicitor submits that there was no denial of natural justice because even if there was evidence in chief (which was disputed) it was not open to the builder to sit on its hands for a period and then try and preserve this point for an appeal.
6. The solicitor for the homeowner then submitted that the homeowners disputed that the third report of Mr McDonald mentioned extensive blistering for the first time. The solicitor referred to the report from Mr McDonald dated 12 May 2013 which contained the following: The waterproofing membrane installation which I examined in all external locations where water penetrations to the internal floating floor under the door sub-sill frames has occurred, and the external rooftop garden are examples of some of the worst practices in the application of a liquid fully bonded waterproofing membrane that I have investigated for some time. The workmanship is so poor I recommend the Waterproofing Contractor be reported for defective waterproofing to the Office of Fair Trading and that a review of this Contractor's License be undertaken by the Licensing Branch for disciplinary action.

Builder's submissions in reply

1. Counsel for the builder in reply made submissions concerning the contents of the reports of Mr McDonald. He said that in Mr McDonald's first report there is no reference to membrane blistering. In the second report blistering was identified at the three sites where Mr McDonald opened the membrane up. Two of them were in corners next to the parapets and the builder said that was caused by the roof garden. In the third case there was some blistering. This concerned the first floor terrace. Mr McDonald made no comment about blistering in the ground floor courtyard or in the northern terrace. Counsel submitted that the case changed substantially in the third report.
2. In response to the submission that the change of use to the rooftop was only a peripheral issue at first instance, Counsel stated that the builder had always raised that issue and the evidence of Mr Haramis and Mr Whelan dealt with the issue. Counsel submitted that blistering was not an issue in the courtyard or the northern terrace until the final report of Mr McDonald of 6 May 2014.
3. Counsel then took the Appeal Panel to the builder's submissions in reply and we will summarise the effect of those submissions in the following paragraphs.
4. The homeowners had asserted that the builder has raised a new and further ground of appeal, namely the failure to give adequate reasons. The builder acknowledges that that ground is not expressly raised in the notice of appeal dated 7 April 2015 but says that that ground is a subset of the failure to deal with the three grounds of defence. Alternatively, if the Appeal Panel does not accept that failure to give adequate reasons was incorporated in the notice of appeal, the builder requests that leave be granted to include the failure to give adequate reasons as a reason why the decision is not fair and reasonable.
5. The builder submits that the claim of the homeowners was at all times that internal water damage had been caused by the failure of external waterproofing membrane or, in the alternative, by defective installation of windows and doors. The claim was never for the cost of rectification of defective external waterproofing membrane in the event that it did not cause the internal water penetration. The builder submits that the homeowners' point of claim was only concerned with internal water penetration of their home and the points of defence of the builder was only concerned with internal water penetration of the homeowners' home. The builder submits that the homeowners at no stage articulated to the builder prior to 6 May 2014 that the case to be met by the builder might include a claim in the alternative that the builder was liable for the cost of removal and replacement of all the external waterproofing membrane and associated structures even if the external waterproofing membrane was found not to have caused the internal water penetration of their home. The builder submits that the case of the homeowners was closed on the basis that it was concerned only with internal water penetration of the homeowner's home. The evidence served by the homeowners on 6 May 2014 (the report of Mr McDonald) included evidence in chief to which the builder had no opportunity to reply. There was a denial of natural justice arising from the denial of the opportunity to reply to Mr McDonald's evidence and there was a similar denial of an opportunity to respond in relation to samples of external waterproofing membrane produced by Mr McDonald whilst giving oral evidence in June 2014.
6. Although there was a meeting of experts on 9 May 2014 that did not constitute an adequate opportunity to deal with Mr McDonald's report. Mr Taylor (the builder's expert) had an inadequate opportunity to respond to the new material in Mr McDonald's report.
7. The homeowners assert that the builder should have sought an adjournment of the hearing. That assertion is misleading and without substance as such an application would have been doomed to fail giving the following facts: 1. The Tribunal reluctantly adjourned the hearing on 11 March 2014 on the application of the builder over the vigorous objection of the homeowners; 2. The homeowners were adamant, notwithstanding that neither was to give evidence that the hearing had to be heard before they left Australia on or about 24 June 2014; 3. The Tribunal accordingly directed on 11 March 2014 that the matter be listed for hearing for two days after 6 May 2014 and before 23 June 2014; 4. The Tribunal also directed on 11 March 2014 that documentary material that is not provided in accordance with these directions may not be able to be relied upon at the hearing; 5. On 9 April 2014 a notice of hearing was issued by the Registry notifying the parties that the matter had been listed for hearing on 11 and 12 June 2014; 6. The homeowners objected by letter to the Registrar dated 29 April 2014 to lay evidence served by the builder a few days late but still seven weeks prior to the hearing and notwithstanding that the evidence relied only on documents passing between the parties during the course of the project; and 7. Accordingly, Counsel for the builder objected to the admission of the report at the conclusion of the opening of the hearing and the objection was also raised in the written submissions of the builder. Counsel also objected at the hearing to the admission of samples of the external waterproofing membrane produced for the first time during the hearing.
8. Counsel for the builder made further submissions in reply and asserted that the reasoning in the Liability Decision displayed an inadequacy of reasons. The Tribunal accepted the evidence from Mr McDonald on some aspects but rejected his evidence on other aspects. Why that occurred was inexplicable.
9. Counsel for the builder then referred to aspects of the third report of Mr McDonald which Counsel submitted constituted new evidence. This new evidence appears from par 15.9 of the report. Similarly from par 17.8 onwards there is reference to new evidence not in the earlier reports. Similarly, Counsel for the builder submitted that par 12.7 of the third McDonald report contained reference to further inspections producing further evidence of defective waterproofing.

Notice of appeal

1. The homeowners filed an appeal on 2 October 2015. The notice of appeal stated the following grounds of appeal: 1. The Tribunal erred in law in failing to award the homeowners the full costs of remediation of the works the subject of the proceedings; 2. The Tribunal erred in law in finding that the remediation works undertaken by the homeowners to remedy the builder's breach of contract involved a betterment; 3. In the alternative to ground two, if the Tribunal was correct in finding that the remediation works involved a betterment, the Tribunal erred in law in failing to find that any betterment arose as the result of reasonable efforts by the homeowners to mitigate the effects of the respondent builder's breach of contract, and thereby erred in failing to find that the full costs of the remediation works were recoverable in accordance with the principle in Banco De Portugal v Waterlow & Sons Pty Ltd [1932] AC 452; 4. In the further alternative to ground two, if the Tribunal was correct in finding that the remediation works involved a betterment, the Tribunal erred in law in relying upon the betterment as a basis for discounting the damages which were payable to the homeowners.
2. The homeowners submit that the orders that the Tribunal should make are as follows: 1. That order one of the orders made by Member Briggs be varied by deleting $167,444.00 and inserting $216,559.00 in its stead; 2. An order that Dafcam pay the costs of this appeal; 3. Such further or other order as the Appeal Panel shall see just.

Reply to appeal

1. The reply to appeal states the following: 1. All four grounds for the appeal set out in paragraph 5B of the Notice of Appeal are denied by the Respondent. 2. In answer to the whole of the Notice of Appeal, the Respondent states that it is an abuse of process for the following reasons: (a) The appeal is based on the finding of the Tribunal that the claim of the Appellants involved betterment. However that finding was made by the Tribunal on 10 March 2015 (See paragraphs 122, 124, 150, 153, 155, 156 and 164 of the Reasons for Decision dated 10 March 2015 and paragraph 6 of the Reasons for Decision dated 4 September 2015). The finding of betterment was not made on 4 September 2015. The Notice of Appeal however only seeks amendment of order 1 made 4 September 2015 (See paragraph 5A of the Notice of Appeal). (b) The Appellants stated in section 2 of their Reply dated 21 April 2015, to the Notice of Appeal dated 7 April 2015 filed and served by the current Respondent, inter alia, "The (current Appellants) generally accept the Original Orders even though those are not entirely in their favour". (c) Order 1 made on 4 September 2015 is for the full amount claimed by the Appellants in response to the orders made by the Tribunal 10 March 2015. (See paragraphs 3 and 5 of the attached copy of the Appellants' submissions dated 31 March 2015 as to calculations of damages, page 10 of the attachment to those submissions and paragraphs 5 and 11 of the Reasons for Decision dated 4 September 2015). (d) Order 1 made on 4 September 2015 is for an amount greater that the Tribunal Member anticipated would be presented to him by the parties in response to the orders he made on 10 March 2015 (See paragraph 8 of the Reasons for Decision dated 4 September 2015). 3. The Respondent opposes the orders sought by the Appellants in paragraph 5C of the Notice of Appeal. In addition, the Respondent seeks the following orders: (a) The Notice of Appeal be dismissed. (b) The Appellants pay the Respondent's costs of the appeal on an indemnity basis or, in the alternative, a party and party basis.
2. Attached to the Notice of Appeal is a copy of the homeowners' submissions filed 31 March 2015 in which the homeowners claim damages of $167,444.00.
3. The reply also submits that the homeowners' appeal should have been filed within 28 days of the publication of the Liability Decision (dated 10 March 2015) but was in fact filed several months later.

Homeowners' submissions with respect to homeowners' appeal

1. The homeowners submit that the Tribunal made an error of law in reducing the damages sought by the homeowners on the basis that the rectification work proposed by the homeowners involved an element of betterment. In making such a finding, the Tribunal made an error of law because the onus was on the builder to establish that the costs of rectification claimed by the homeowners were unreasonable. The Tribunal failed to appreciate the nature of this onus and accordingly failed to find that the evidence led by the builder did not discharge the onus.
2. In addition the homeowners assert that the Tribunal failed to provide adequate reasons and that this inadequacy constitutes an error of law.
3. The amount awarded by the Tribunal in favour of the homeowners was $167,444.00 but if no discount for betterment had been applied the amount awarded would have been $216,559.00. The homeowners submit that a number of items included in the Scott Schedule were removed from the calculation of damages based upon the erroneous finding of betterment.
4. The homeowners also submit that the appeal has not been filed out of time as asserted by the builder.
5. The homeowners submit that the Tribunal had an obligation to give adequate reasons explaining why items were excluded from the calculation of damages. The homeowners submit that the Quantum Decision does not disclose adequate reasons and if the Tribunal was applying the principle set out in the decision of Bellgrove v Eldridge [1954] HCA 36 then it was necessary for the Tribunal to disclose that that was the principle being applied. That included explaining the basis on which some of the claims for rectification were rejected.
6. In the present case if the contract had been performed, the homeowners would have obtained building works which were free from defects. The appropriate measure of damages was the cost of rectifying the defects. The reasons expressed in the Quantum Decision do not appear to demonstrate an understanding of the heavy onus which was upon the builder to establish a basis for paying in damages less than the cost of the rectification work which had been identified in the Scott Schedule. The homeowners submit that the "Bellgrove qualification" should be applied only in unusual circumstances.
7. The homeowners submit that the innocent party to a contractual breach enjoys the benefit of doubt when carrying out rectification work. The onus of proof to justify rectification efforts is not with the innocent party, but instead with the party in breach and it is for the party in breach to show that the claimant has failed to mitigate its loss. The party in breach must demonstrate by admissible evidence the detail of how the rectification work can be performed effectively and sustainably for lesser costs. This is particularly the case, as here, where the innocent party has outlined via an expert what the rectification work will consist of and also invited the party in breach the undertake to rectification work.
8. The homeowners submit that although they were required to act reasonably, they were not required to act in the best interest of the builder and the Tribunal was in error in finding to the contrary at par 138 of the Liability Decision. In that paragraph the Tribunal found it to be the case that the homeowners had acted only in their own interests and had no regard for the interests of the builder in their decision to proceed with "the full scope of works". The Liability Decision also relied upon a quotation from White & Carter v McGregor [1962] AC 413 at 431 where the Court said that a party ought not be allowed to penalise the other party by taking one course when another is equally advantageous to him. The homeowners submit, referring to a number of cases, that the Tribunal was in error in its approach to the assessment of damages.
9. The homeowners submit that in circumstances where performance had not been obtained and where there was a pressing need to ensure that the homeowners' home was free from water ingress a piecemeal replacement of the damaged membranes was inadequate and constituted a doubtful remedy.
10. The homeowners submit that the Tribunal also fell into error by purporting to rely on the decision of Hodgson JA in Tyco Australia Pty Ltd v Optus Networks Pty Ltd & Ors [2004] NSWCA 333 at par 261 - see par 151 of the Liability Decision. The Tribunal referred to a statement made by Hodgson JA to the effect that a claimant is not able to recover more than the replacement cost of an asset which could have been replaced. The homeowners submit that this is not a case where the homeowners were left with an enduring asset which was of greater value than the asset which had to be replaced. After the rectification of the defects, the homeowners were left with a water tight property which is what the builder had contracted to provide. There was no evidence referred to by the Tribunal to support the proposition that the homeowners' home had increased in value because of the works which needed to be undertaken in response to, and to rectify, the builder's breach of contract.
11. Accordingly, the homeowners submit that by treating cases concerning defective building works as being analogous to cases concerning the replacement of physical assets, the Member has fallen into error. This was not a case in which, as in Tyco Australia Pty Ltd v Optus Networks Pty Ltd & Ors, the homeowners replaced old computers with new computers. Instead, the homeowners replaced a house which was not watertight with a house which was watertight.
12. The homeowners also submit that the Tribunal fell into error in relying on the decision in Smail v D.L Starbuck Pty Ltd [1971] VR 449 at 454 in which the Court stated that a claimant may not recover as damages the cost of executing work significantly different from the original contract work. The homeowners submit that the facts of that case were entirely different from the facts in the present proceedings.
13. In these proceedings, the homeowners relied upon the expert's opinion of Mr McDonald. His opinion was that the scope of works outlined by him and which was conducted was necessary.

Homeowners' oral submissions

1. The solicitor for the homeowners amplified on the above submissions at the appeal hearing. He submitted that the fact that additional work was required in this case to make good the breach of contract did not give the homeowners anything more valuable in any appreciable way and there was no evidence that they obtained a waterproof house which was any more valuable than that which they ought to have had but for the breach.
2. The solicitor for the homeowners acknowledged that the homeowners' expert, Mr McDonald had recommended the sheet membrane method, rather than the liquid membrane method as the method for recertification. It was acknowledged also that the sheet membrane method was more expensive than the liquid membrane method. However, the solicitor for the homeowners submitted that the choice made by the homeowners was not unreasonable and unless until the Tribunal found that it was unreasonable the principles in relation to mitigation flow from the decision in Banco De Portugal v Waterlow & Sons Pty Ltd and the other cases referred to in the written submissions. He submitted that the engagement of Mr McDonald was not unreasonable and the application of his recommendation was also not unreasonable.
3. The solicitor for the homeowners also submitted that the fact that the Liability Decision referred to the proposition that insofar as the work carried out as rectification by the homeowners is different, and involves a different standard, from that which the contractual standard requires then the consequence is that the homeowners have achieved betterment which cannot be recovered by them. The solicitor submitted that there was no consideration in the Quantum Decision as to how the work which the homeowners authorised was substantially different work. The difference in value between the work which they undertook and the value of the work which the Member found as appropriate was less than $40,000.00.

Builder's submissions in response to homeowners' submissions

1. The builder submits that the homeowners' appeal was filed out of time. It was filed on 2 October 2015 and should have been filed within 28 days of the publication of the Liability Decision, namely within 28 days from 10 March 2015.
2. The basis for the builder's submission is that the Liability Decision was an ancillary decision (as defined in the Civil and Administrative Tribunal Act 2013 (NCAT Act)) and that the Rules require an appeal with respect to any decision (including an ancillary decision) to be filed within 28 days - see r 25(4)(c) of the Rules. Here the Liability Decision was an ancillary decision preliminary to the Quantum Decision which determined the proceedings by ordering the builder to pay the homeowners $167,444.00. The builder submits that various statements or findings in the reasons contained in the Liability Decision were ancillary decisions preliminary to the final decision contained in the Quantum Decision.
3. The builder submits that the principle cited in Toy v Registrar of Companies of NT [1985] FCA 237 which refers to a long standing principle that appeals lie against orders, not against reasons is not relevant to the Tribunal. This is because the Toy v Registrar of Companies of NT case concerned an interpretation of the Federal Court Act which gives to that Court jurisdiction to determine appeals from "judgments". The Federal Court Act defines "judgment" to mean a "judgment, decree or order". This is to be contrasted with the appeal provisions relating to the Tribunal. Those provisions are concerned with appeals from "general decisions, ancillary decisions and interlocutory decisions". The NCAT Act defines a decision to include the making of an order or declaration. A decision under the NCAT Act would include decisions or findings in the reasons.
4. The builder also submits that even if the decision in Toy v Registrar of Companies of NT is applicable it is relevant that that case held that "findings" which determine the rights or obligations of a party to the proceedings may be the subject of an appeal. In this case there were findings in relation to betterment and those were findings which determined the rights or obligations of the parties.
5. The builder notes that the homeowners have not sought an extension of time, pursuant to s 41 of the NCAT Act, in which to file and serve the notice of appeal. Were such an application to be made, the builder submits that an extension of time should not be granted. The opposition to granting an extension of time is based upon a number of considerations. Firstly, the delay in filing the Notice of Appeal is six months. Secondly the homeowners have given no reason for the delay other than to submit that there has been no delay. The real reason the homeowners have filed the appeal six months late is that they changed their minds having initially decided not to appeal but then deciding that they would appeal.
6. The builder also submits that the Appeal Panel ought not to exercise its discretion in favour of the homeowners because to do so would be to reward their abuse of process in filing the notice of appeal given the following: 1. The order made by the Tribunal in the Quantum Decision that the builder pay the homeowners $167,444.00 is the full amount claimed by the homeowners in their submissions dated 31 March 2015 as to the calculation of damages; 2. The basis of the appeal is inconsistent with the case the homeowners put before the Tribunal and the homeowners are by the appeal improperly, to the disadvantage of the builder, seeking to take advantage of indulgences the Tribunal granted to them which avoided the whole of their claim for the cost of removal and replacement of the external waterproofing membrane being dismissed. This submission is described further in the following paragraphs; 3. The homeowners are unable to demonstrate that strict compliance with the time limit for filing and serving an appeal will cause an injustice to them given their prospects of success on their appeal, if they are granted an extension of time, would be poor. Their prospects would be poor because of the reasons given in the Liability Decision concerning betterment and if the order remains that the builder pay the homeowners $167,444.00 the homeowners will receive the amount their remedial builder has calculated is the amount of its charges after deduction of the charges in respect of betterment.
7. The builder's submissions then turn to the substantive issues raised by the homeowners in their appeal.
8. The builder submits that the Tribunal found in favour of the homeowners to the effect that the homeowners were entitled to damages in respect of defective external waterproofing membrane even though it was not a cause of internal water penetration of the house and that such a claim had not been pleaded or otherwise articulated. By making such a finding the Tribunal granted an indulgence to the homeowners because without such a finding the proceedings brought by the homeowners in respect of the external waterproofing membrane would have been dismissed. The Tribunal gave to the builder an opportunity to submit calculations in relation to the Tribunal's findings on liability and that such an order involved granting a further indulgence to the homeowners. The builder submits that the homeowners' Notice of Appeal is accordingly an abuse of process as the homeowners are improperly, to the disadvantage of the builder seeking by the appeal to take advantage of indulgences the Tribunal granted to them to increase the amount of damages recoverable by them in circumstances where the whole of their claim for damages in respect of the removal and replacement of the external waterproofing membrane would have failed but for those indulgences.
9. The builder submits that the assertion of the homeowners that the reasons contained in the Liability Decision do not disclose the basis as to why the Tribunal reduced the damages claimed is without foundation. The reasons with respect to betterment are contained in pars 122, 124, 125 and 127 of the Liability Decision.
10. The builder refers to the homeowners' submission that the reasons should disclose why the costs of rectification claimed by the homeowners were so unusual or unreasonable as to justify reduction of the amount claimed by them. The builder states that such a test is a misstatement of the principle contained in Bellgrove v Eldridge and in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8. Rather, the test is that the work undertaken must be necessary to produce conformity with the contract and must also be a reasonable course to adopt. The builder submits that pars 122, 124 and 125 of the Liability Decision expressly deal with the method of rectification adopted by the homeowners and that it is clear that the homeowners did not undertake a like for like rectification but rather achieved a better outcome.
11. The builder submits that the amount awarded by the Tribunal to the homeowners is the amount they claimed in full after the deduction, by their remedial builder, of the amounts in his charges which relate to betterment. There has been no failure of fact finding by the Tribunal in that regard and there has been no injustice to the homeowners. Accordingly there has been no error of law by the Tribunal upon which the homeowners can rely.
12. The builder takes issue with the homeowners' submissions that the Tribunal's reasons with respect to the calculation of damages and reduction for betterment were inadequate. The builder states that the Tribunal's reasons were clear and showed that the Tribunal took the view that the homeowners' conduct was unreasonable: see pars 138 and 139. The builder referred to the reference in par 138 of the Liability Decision to the principle cited from White & Carter v McGregor and the builder submitted that the reference to that principle by the Tribunal was entirely proper.
13. The builder submits that the homeowners' submissions concerning the decision in Tyco Australia Pty Ltd v Optus Networks Pty Ltd & Ors are misleading and without substance. The builder submits that that case stated the basic principle which is that the plaintiff is to be entitled to be compensated for its loss and no more. The case stated a principle of general application and the case was not limited to damage to personal property as asserted by the homeowners.
14. The builder also submits that the homeowners' submission with respect to the decision in Smail v D.L Starbuck Pty Ltd are also misleading and without substance. The builder submits that the submission of the homeowners that the defendant in Smail v D.L Starbuck Pty Ltd was found not liable because the reconstruction of work in that case involved the completion of a completely different project is without substance. The builder submits that the actual decision was to the effect that the defendant would have liability only for the cost of remedying, including replacing the original work and not the cost of an entirely different work. In par 150 the Tribunal referred to Smail's case and extracted the following quotation: A claimant may not recover as damages the cost of executing work significantly different from the original contract work. The builder submits that that principle was correctly applied by the Tribunal.
15. The builder then makes submissions concerning the evidence of Mr McDonald. The builder submits that Mr McDonald was not a person upon whom the Tribunal could rely for expert evidence.
16. Finally, the builder's submissions state that the Appeal Panel ought to dismiss the homeowners' appeal and order that the homeowners pay the costs of the builder on an indemnity or in the alternative a party and party basis.

Builder's oral submissions in the homeowners' appeal

1. The following paragraphs summarise the effect of the submissions made by Counsel for the builder in the homeowners' appeal.
2. Counsel for the builder referred to the following paragraphs in the Liability Decision: 122, 124, 125, 153, 154 and 155. Counsel essentially supported the finding made by the Tribunal. Counsel also pointed out that it is unnecessary for this appeal to be decided by the Appeal Panel if the Appeal Panel were to decide that the proceedings should be remitted to be heard again at first instance.
3. Counsel for the builder then made submissions concerning the assertion that the homeowners' appeal had been filed out of time. Counsel submitted that the Liability Decision contained a number of orders. One of those orders was for the respondent to pay the applicant damages. Counsel conceded that such an order was an order that is not capable of execution. Counsel submitted that the result of the Quantum Decision was not an order but rather a statement to the effect that the reasonable cost of the damages determined on the scope of works identified in the Liability Decision should be $167,444.00.

Homeowners' oral submissions in reply

1. The solicitor for the homeowners made submissions concerning the assertion that the homeowners' appeal was out of time. He submitted that after the builder's appeal had been filed the Tribunal listed that appeal for directions. The directions which were made were that the appeal should not proceed until final orders had been made. The solicitor stated that the homeowners had indicated that there was nothing to appeal against because no decision had been made. In addition, an application for a stay which had been made by the builder was refused because there was nothing to stay. The solicitor submitted that there is a long strand of authority that says that appeals lie against judgments and orders and that they did not lie against reasons. The solicitor further submitted that the outcome of the Liability Decision was not a decision or were not decisions for the purposes of the NCAT Act. The solicitor also submitted that par 166 of the Liability Decision made it clear that the Tribunal had not made final orders at the stage of the issue of the Liability Decision.
2. Finally, the solicitor acknowledged that there had been no application for time for the lodgement of the appeal to be extended but he submitted that time ought to be extended in the event that the Appeal Panel was of the opinion that the appeal had been filed out of time.

Jurisdiction

1. The builder's appeal was filed in April 2015 (after the Liability Decision but before the Quantum Decision) but the builder's submissions and the submissions of the homeowners' were not filed until after the publication of the Quantum Decision. The builder's appeal arises out of the reasoning contained in both decisions. Under the NCAT Act an appeal lies in respect of a decision of the Tribunal as defined in s 32 of the NCAT Act and may be made by virtue of the provisions of s 80 of the NCAT Act. That section provides that in the case of a decision (other than an interlocutory decision) an appeal against a decision of the Tribunal at first instance lies as of right on any question of law, or with leave of the Appeal Panel on any other grounds. In addition, in respect of first instance decisions of the Consumer and Commercial Division cl 12 of Sch 4 regulates the grounds upon which leave may be given. That clause in summarised form provides that an Appeal Panel may grant leave only if the Appeal Panel is satisfied that the appellant may have substantial miscarriage of justice because: 1. The decision of the Tribunal under appeal was not fair and equitable, or 2. The decision of the Tribunal under appeal was against the weight of evidence, or 3. Significant new evidence has arisen (being evidence that was not reasonably available at the time the proceedings under appeal were being dealt with).

Merits of the builder's appeal

1. One of the grounds of appeal in the builder's appeal is that the Liability Decision failed to make findings concerning three grounds of defence raised by the builder. One of the grounds of defence was that the roof garden and irrigation had been defectively installed at the request of the homeowners by persons other than the builder causing moisture to appear on the first floor concrete slab.
2. In considering the merits of this submission it is necessary to refer to the reasoning contained in the Liability Decision. That decision essentially said: 1. The evidence fell short of establishing that water penetration was caused by membrane failure (par 118 - 120); 2. There was extensive blistering and delamination of the membranes (par 121); 3. There were high levels of moisture in the slabs caused by a failure of the membranes and their installation (par 123).
3. The finding by the Tribunal of membrane failure caused in part by installation required the Member, in our view, to consider whether the membranes were adversely affected by the installation of the rooftop garden and irrigation.
4. In our view, the reasons do not address whether the change of use in the roof played a role in the finding that the slabs contained high levels of moisture and contributed to the finding of blistering and delamination of the membrane. We reject the homeowners' submission that it was not necessary for the Tribunal to explicitly deal with this defence given that the Tribunal had found that the water ingress resulted from defective membranes. In our view although the Tribunal did find that the membranes were defective it remained necessary for the Tribunal to consider whether any aspect of the defectiveness of the membranes was caused by the introduction of the rooftop garden. It could be argued that the finding of blistering and delamination necessarily excluded the possibility that the rooftop garden contributed to the defectiveness of the membrane. However, in our view, such a conclusion is speculative and not necessarily inevitable. This is particularly so where on the builder's submissions the evidence of Mr Rosen, Mr Haramis and Mr Whelan touched upon the effect of the rooftop garden on the efficacy of the membrane.
5. The second ground of defence which the builder submits was not the subject of the findings by the Tribunal concerned the defective design and installation of external doors and windows. The defence included the argument that the moisture readings made by Mr McDonald were of moisture caused by water penetration due to the defective design and installation of the external doors and windows. If the defence had found favour with the Tribunal it would not have, in our view, assisted the builder because of the Tribunal's finding that the builder was liable for any deficiencies of the doors and windows.
6. The third defence concerned the builder's submission that there had been defective installation of the mortar screed topping over the external waterproofing membrane by persons other than the builder. Samples of external membrane were produced at the hearing by Mr McDonald to show mortar screed topping embedded in the membrane. In our view, this defence should have been subject to findings by the Tribunal because, if the Tribunal had found that the installation of the mortar screed topping had adversely affected the efficacy of the membrane the Tribunal may have not concluded, as it did, that the membrane had failed and was extensively blistered.
7. We now refer to the builder's submission that the Tribunal had denied the builder natural justice by allowing into evidence the report of Mr McDonald dated 6 May 2014. That report (also known as the third McDonald report) was admitted over the builder's objections "to the extent that it assisted comprehension of the matters in issue but its admission was for limited purposes which were subject to cross examination" (par 72 of the Liability Decision). In our view, the statement that that report was admitted for "limited purposes" is difficult to understand as those purposes were not stated unambiguously. To the extent that one purpose was for the stated purpose of assisting "compression of the matters in issue" such purpose is tantamount, in our view, to saying that the report was to be treated as offering persuasive or probative evidence. In other words, in our view, the qualification proposed by the tender of the report did not amount to a tangible restriction on the way it was to be used.
8. We agree with the builder's submission that the finding in par 121 of the Liability Decision of extensive blistering and delamination appears to be based upon evidence contained in the third McDonald report. The Tribunal appeared to recognise that the builder had no opportunity to reply to the report - see par 69. The report was not limited to the report itself - it included a folder of membrane samples and photographs. Some photographs were put forward by Mr McDonald to illustrate the extent of damage to the membranes (see par 109 of the Liability Decision).
9. The Tribunal found that Mr McDonald had allowed himself to be placed in a position where he "could not objectively evaluate his evidence" (par 111) because he had a conflict of interest in that he had been retained by the homeowners to prepare and supervise the rectification works. The Tribunal clearly had reservations about Mr McDonald's evidence having regard to the conflict and to the "evidence provided by the other experts" (par 111). The Tribunal found that Mr McDonald had supported the homeowners' decision to spend money on a "redesign and respecification of the waterproofing system originally installed".
10. In our view, the Tribunal's concerns with Mr McDonald's evidence were significant and added to the need for caution in admitting the third McDonald report or, once admitted, for the builder to have had an appropriate opportunity to respond to those parts of the report which constituted new evidence as opposed to evidence in reply.
11. A critical finding by the Tribunal was that the "failure of the membranes was extensive over the areas of the membrane" and that "removal" rather than "patching" was warranted (par 149). We are concerned that the evidence in support of those findings was not contained in the earlier McDonald reports in sufficient detail to enable the builder to have had notice, prior to the third report, that that was the homeowners' case.
12. The homeowners submitted that the builder had not provided evidence that the membranes had not failed. In our view, the builder was not obliged to provide evidence that the membranes had not failed. Nor do we accept the homeowners' submission that the builder should have objected to the content of the third report at the conclave meeting of experts (which we understand occurred a few days after service of the third report) or apply to have the hearing adjourned.
13. The homeowners took the Appeal Panel to Mr McDonald's earlier report of 12 May 2013 as evidence that extensive blistering had always been reported by Mr McDonald. The particular paragraph we were taken to is very highly critical of the workmanship concerning the application of the membrane but the extent of the problem is not stated and is arguably limited to the area expressly mentioned namely "under the door sub-sill frames" and "rooftop garden".
14. The Tribunal has an obligation to afford procedural fairness and a breach of such obligation constitutes an error of law: see Holley v Evatt [2014] NSWCATAP 72. The builder's submissions effectively made this point, namely that the third McDonald report has been used to make findings of fact and has been used for a purpose beyond that for which the report was admitted. We agree that that is impermissible as a matter of law: see Nominal Defendant v Smith.
15. In our view an injustice has arisen because the Tribunal admitted the third McDonald report with a qualification on its admission, which is ambiguous and the Tribunal made findings which rely upon the report, and which findings go beyond a reasonable understanding of the qualification.
16. We are of the view that the builder's appeal should be upheld and that there should be a new hearing based upon the evidence already adduced save that the builder should have an opportunity to put on evidence in reply to the evidence contained in the third McDonald report. Accordingly, we propose to remit the proceedings back to the Consumer and Commercial Division for a rehearing before a differently constituted Tribunal. We will not make any order restricting the evidence to that already filed because it may be the case the parties may need to find new experts if a previous expert is no longer available. We will leave decisions concerning restrictions on fresh evidence to the Tribunal to be made at a future directions hearing.
17. Our reasons for deciding to make the order described above are twofold: 1. The Tribunal did not in our view deal with and make findings about two of the defences raised by the builder; and 2. The use of the third McDonald report to make significant findings was a denial of natural justice and denied to the builder a fair hearing.
18. The builder's appeal deals with other grounds, and particularly deals at length with the ground that the decisions under appeal were against the weight of evidence. In view of our decision referred to above, it is not necessary to deal with that or the other grounds raised by the builder.

The homeowners' appeal

1. Given our decision concerning the builder's appeal it follows in our view that it is not necessary to consider the grounds of appeal raised in the homeowners' appeal as the Tribunal will be obliged by these reasons to rehear the proceedings. The homeowners' appeal essentially dealt with whether the assessment of damages was flawed. Following a rehearing it will be necessary for the Tribunal to include as part of its decision an assessment of damages in the event that the homeowners are successful. The formal order will be that this appeal is dismissed.

Costs

1. As the builder's appeal has been successful it is appropriate in our view to consider whether the builder's costs of the appeals should be paid by the homeowners.
2. When these appeals were filed the relevant provision concerning costs of an appeal were governed by s 60 of the NCAT Act. That section provides that each party should pay its own costs but that the Tribunal may award costs "only if it is satisfied that there are special circumstances warranting an award of costs". Section 60(3) requires the Tribunal to consider, in determining whether there are special circumstances warranting an award of costs, to have regard to the matters listed in that subsection. One of the considerations to be considered is the "nature and complexity of the proceedings". In our view, these proceedings were of significant substance and were complex. Both parties engaged legal representatives. The length and breadth of the submissions demonstrate the complexity of the proceedings. We find that there are special circumstances in these proceedings by reason of the nature of the proceedings and their complexity and that it is appropriate that the builder's costs of both appeals be paid by the homeowners.

Orders

1. The Appeal Panel makes the following orders: 1. Appeal AP 15/27974 is upheld; 2. Appeal AP 15/55371 is dismissed; 3. The orders made on 10 March 2015 and on 4 September 2015 in proceedings HB 13/45811 are set aside; 4. Application HB 13/45811 is remitted to the Consumer and Commercial Division to be reheard before a differently constituted Tribunal; and 5. The builder's costs of both appeals are to be paid by the homeowners in an amount as agreed, or failing agreement as assessed under the relevant legislation. 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: 02 September 2016