ructions Pty Limited (Second Respondent)
Representation: Counsel:
P Newton SC and M Hazan (Appellants)
D P O'Connor (Respondents)
[2]
Solicitors:
Contracts Specialist (Appellants)
Adams & Partners Lawyers (Respondents)
File Number(s): 2022/00174988
Publication restriction: Nil
Decision under appeal Court or tribunal: NSW Civil and Administrative Tribunal
Jurisdiction: Consumer and Commercial Division
Citation: Not Applicable
Date of Decision: 2 June 2022
Before: C Paull, Senior Member
File Number(s): HB 20/15362
[3]
Overview
The appellants, who are the owners of a lot in a strata scheme property in Emu Plains, Sydney, upon which a town house has been constructed, appeal against the dismissal by the Tribunal of the principal part of their claim against the first respondent (the developer) and the second respondent (the builder) of the strata property development.
The claims brought by the appellants included claims for breaches of warranties contained in s 18B of the Home Building Act 1989 (NSW) (HBA), as well as a claim for loss under s 37 of the Design and Building Practitioners Act 2020 (NSW) (DBPA).
The claims under the HBA were dismissed on the basis that the claims fell outside "the ambit" of the provisions concerning claims for breach of warranty. As expanded upon below, this conclusion was founded upon the Tribunal's view that there was no role for the statutory warranties to play in the circumstances of the case, including by reason of the operation of the written contract that the appellants had entered into with the developer to purchase the lot and that the appellants had proceeded to settle the purchase under that contract with notice or assumed knowledge of the deficiencies that were said to be breaches acquired after the purchase contract was entered into.
The claim under the DBPA was dismissed on the basis that Tribunal had no jurisdiction in respect of such a claim.
For the reasons set out below, we have decided that the Tribunal made errors of law in arriving at these conclusions. This has the consequence that the dismissed claims will need to be redetermined on their merits as to the issues concerning whether there were breaches of warranty and duty by one or both of the respondents, whether recoverable loss was sustained and, if so, in what amount.
[4]
The Tribunal's orders
The Tribunal upheld claims for breach of the s 18B (1) (a) warranty concerning due care and skill by each of the respondents in respect of cracked plasterboard, cracked tiles in an ensuite bathroom, hot water heater and shower grout, all of which it identified as minor defects. It made an order against both the developer and the builder that these defects be repaired (Order 1).
However, it otherwise dismissed the appellants' claims against each of the respondents (Order 2), which it summarised as claims that:
1. The internal space of their lot was 20% smaller than provided for in the Council development consent.
2. There was a failure to construct storage space in the attic.
3. An above ground water tank had been constructed instead of a below ground water tank.
4. There was timber decking in the rear courtyard instead of turf.
[5]
Background
Development consent for the strata development was granted in January 2017 (the Development Consent). Condition 1 of the Development Consent was that the development must be implemented substantially in accordance with specified stamped plans approved by the Council. These plans included drawings referenced as AO1 Revision B, in respect of the "Site Plan/Ground", and A02 Revision A, in respect of the "First Floor Plan, prepared by Pre Tech Pty Ltd, dated 30 September 2015.
It was also a condition of the Development Consent that a Construction Certificate be obtained prior to commencing any building works.
The town house purchased by the appellants was one of 15 two-storey townhouses proposed to be built under the proposed strata plan.
The Tribunal made no findings as to what the plans in the Development Consent and the subsequent Construction Certificate contained, if anything, concerning the claims which it dismissed.
On 20 June 2017, the appellants and the developer entered into a contract in respect of the purchase of a town house to be built on Lot 2 to be created under a proposed, then unregistered, strata plan. This contract was referred to by the Tribunal as the "conveyance contract". It contained the standard terms in the 2016 edition of a Contract for the Sale and Purchase of Land in NSW, along with additional clauses (clauses 32 to 56).
Under the standard terms component of the conveyance contract the developer was obliged to do everything reasonable to have the unregistered plan registered within six months after the contract date, with or without any minor alteration to the plan (cl 28.2). If the plan was not registered within that time and in that manner the purchaser could rescind the contract (cl 28).
The conveyance contract also included the following provisions as additional clauses beyond the standard terms component of the contract:
1. "Strata Plan" was defined as the unregistered strata plan, including any bylaws, Section 88B Instrument and/or strata management statement set out in Annexure A. This annexure was marked as "draft" and included 3 pages of drawn plans which were referred to as "DIMENSIONS AND AREAS ARE SUBJECT TO FINAL SURVEY". It was stated that this draft plan had been prepared from architectural plans drawn by Pre Tech Pty Ltd, dated May 2015.
2. Disclosure that the developer had not yet prepared the Strata Subdivision Application and that it had prepared only a draft Strata Plan (cl 35.1).
3. Where the developer prepared the Strata Plan a copy of it and any approval of it would be provided to the appellants and would be incorporated into the contract (where relevant) (cl 35.1.2).
4. The appellants acknowledged that the developer could make alterations to the Strata Plan as may be desirable or necessary to obtain the approval of the Council, other proper authorities or the Registrar General (cl 35.2).
5. At any time prior to notification that the Strata Plan had been registered, the developer could replace any version of the Strata Plan as contained in this contract with a replacement Strata Plan as may be deemed necessary by the developer (cl 35.3).
6. The appellants were obliged not to make any objection, requisition, claim for compensation, delay completion or rescind or terminate because there was a difference or variation between a document, including the Strata Plan, which may be included or added to this contract prior to completion and those registered by the Register General (cl 35.4 (a)).
7. If any alterations, variations or discrepancies were other than minor and detrimentally affected the property, then the appellants could within seven days after receipt of notice of registration of the Strata Plan rescind the contract (cl 35.4 (b)). If such right of rescission was not exercised within the seven day period then the contract remained binding in all respects (cl 35.4 (c)). A minor alteration was stated to include the area of the property sold (excluding any car spaces or garage), if it was decreased by less than 5%, or if it was increased by any percentage (cl 35.5 (e)).
8. The lot was sold subject to various conditions, including the developer completing the works required pursuant to the Townhouse Application (as defined) and the registration of the Strata Plan (cl 36.1(b) and (e).
9. The Townhouse Application was defined as the development application for the Townhouse Development (c 32.1).
10. The developer was obliged "to procure" before completion the construction of the dwelling on the lot sold to the appellants in a proper and workmanlike manner and that the layout of the dwelling was substantially to be as that depicted in the Layout Plan (as defined) (cl 37.1).
11. The Layout Plan was, relevantly, defined as the internal and external layout of the dwelling (with or without changes as permitted under the contract) and as set out in Annexure B (cl 32.1). Annexure B included various drawings by Pre Tech Pty Ltd, including drawings marked AO1 B and AO2 A, but the detail and date of these drawings is illegible in the material we were provided with and there were no relevant findings by the Tribunal about them.
12. Without being required to give any notice to the appellants, the developer could make construction amendments in various circumstances, including as desired by the developer acting reasonably (cl 37.2 (c)(iv)).
It was not the appellants' case that the statutory warranties in s18B were implied into the conveyance contract on the basis that the conditions for that to occur set out in s18B were satisfied. Rather, the appellants contended that they were entitled to the benefit of the statutory warranties against the developer by reason of the operation of 18C of the HBA (see paragraph 19 of the Points of Claim, dated 6 November 2020).
Under the standard terms component of the conveyance contract:
1. The appellants could claim compensation for an error or misdescription in the contract, but this clause did not apply to the extent that the appellants knew the true position (cl 6) and could only be made before completion (cl 7).
2. If the developer did not comply with the contract in an essential respect the appellants could terminate by serving notice (cl 8.2).
3. Anything attached to the contract was part of the contract (cl 20.2).
Between November 2017 and April 2019 the strata scheme was registered and the strata property, including a town house dwelling on the appellants' lot, was constructed.
The construction took place under a written contract between the developer and the builder, dated 21 May 2018, which the Tribunal referred to as the construction contract. There was no issue between the parties that the statutory warranties in s18B(1) of the HBA were implied in this contract, including the warranties in (1) (a) and (c).
Under the construction contract the builder was required to perform the "Works" in accordance with the contract (cl 1). The "Works" were defined to mean the whole of the work to be carried out in accordance with the contract as described in one or more of the documents comprising the "Contract Documents".
The construction contract included as "Contract Documents" the development consent and its accompanying conditions, which were attached as Appendix 3.
In a letter from the developer's solicitor to the appellants' solicitor, dated 15 April 2019, the latter was informed that the Strata Plan had now been registered and a copy of that plan was enclosed.
The Tribunal made no findings as to any differences between the registered Strata Plan and the plans the subject of the Development Consent, the Construction Certificate and the unregistered Strata Plan at the time of the purchase contract concerning the appellants' claims.
The appellants and the developer settled on the conveyance contract in May 2019. This occurred after Mr Deaves, one of the appellants, had inspected the property on 6 and 8 May 2019. No notice to rescind the conveyance contract was given by the appellants prior to the completion of the contract.
[6]
Alleged breaches of s 18B (1)(a) and (c) of the HBA
The appellants alleged that the deficiencies referred to above amounted to breaches of the warranties in s 18B (1)(a) and (c) of the HBA in that they were contrary to the approved plans for the construction of the dwelling set out in the Development Consent and Construction Certificate.
We note that by reason of ss 6, 7E and Part 1 of Schedule 2 (clause 1(1)) of the HBA a contract under which the holder of a contractor licence undertakes to do, in person, or by others, any residential building work is taken to include a term that all plans for work to be done under the contract, including any variations to those plans and specifications, are taken to form part of the contract. Such a contract is also taken to include that an agreement to vary the contract or vary the plans and specifications for work to be done must be in writing signed by or on behalf of each party to the contract (clause 1 (2) of Part One of Schedule 2. Furthermore, the construction contract contained provisions concerning the making of variations, including by the communication of written variation instructions by the Administration Manager, failing which the builder was not entitled to act on the instruction to carry out a variation (clauses 13.1 to 13.4).
The Tribunal made no finding concerning any question as to whether there was any relevant variation of the construction contract.
Nevertheless, in their written submissions on appeal the respondents stated that the appellants' submissions failed to recognise that the construction contract was capable of being varied with respect to the internal floor space and that there was no breach of statutory warranty where the works were performed in accordance with the contract, including any variations that may arise (paragraphs 34, 35, 36, 37 and 38). However, the respondents did not attempt to demonstrate how a relevant, valid variation concerning the plans the subject of the construction contract had occurred such that no breach of the warranty was established or how any such variation meant that there was no breach of the statutory warranty in s18B (1) (c).
As to the relevant "plans", the Tribunal stated that the appellants relied upon the plans that were part of the construction contract and also upon architectural and landscape plans that accompanied the Construction Certificate for the development issued on 15 January 2018: at [33]-[34] of the Tribunal's reasons.
As indicated by the Tribunal (at [13], [27] and [35]-[36]), in response, the developer and the builder denied that provisions of the construction contract concerning building according to plans were applicable and relied upon various provisions of the conveyance contract which regulated the works to be built (as expanded upon below).
[7]
Relevant provisions of the HBA
Section 18B the HBA, relevantly, provides:
18B Warranties as to residential building work
(1) The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work -
(a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract,
…..
(c) a warranty that the work will be done in accordance with, and will comply with, this or any other law,
…..
By virtue of s 18C of the HBA, the appellant, as the immediate successor in title to the developer, was entitled to the benefit of the warranties in s 18B "as if" the developer had done the building work under a contract with the appellant. Section 18C provides:
18C Warranties as to work by others
(1) A person who is the immediate successor in title to an owner-builder, a holder of a contractor licence, a former holder or a developer who has done residential building work on land is entitled to the benefit of the statutory warranties as if the owner-builder, holder, former holder or developer were required to hold a contractor licence and had done the work under a contract with that successor in title to do the work.
(2) For the purposes of this section, residential building work done on behalf of a developer is taken to have been done by the developer.
By virtue of s 18D of the HBA, the appellant, as a successor in title to the developer, had the right to enforce the warranties in s 18B against the builder. Section 18D, relevantly, provides:
18D Extension of statutory warranties
(1) A person who is a successor in title to a person entitled to the benefit of a statutory warranty under this Act is entitled to the same rights as the person's predecessor in title in respect of the statutory warranty.
Defences in respect of proceedings for breach of a statutory warranty are set out in s 18F. No issue concerning these defences arose on appeal.
Section 18G of the HBA provides that any provision of an agreement that purports to restrict or remove the rights of a person in respect of any statutory warranty is void.
On appeal, no issue was raised about the appellants' entitlement to sue the developer for breaches of warranties in s 18B of the HBA in respect of work carried out by the builder and to sue also the builder in respect of any such breaches. These entitlements arose because of the operation of ss 18C and 18D of the HBA (in this regard, the Tribunal's conclusion to this effect concerning s 18C, plainly, should have also included a reference to s 18D: see at [17], [18] and [6] of the Tribunal's reasons).
[8]
Relevant provisions concerning the claim under the DBPA
Section 37 of the DBPA provides:
37 Extension of duty of care
(1) A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects -
(a) in or related to a building for which the work is done, and
(b) arising from the construction work.
(2) The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land.
(3) A person to whom the duty of care is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law.
(4) The duty of care is owed to an owner whether or not the construction work was carried out -
(a) under a contract or other arrangement entered into with the owner or another person, or
(b) otherwise than under a contract or arrangement.
The appellants' claimed that both the developer and the builder were persons who carried out construction work within the meaning of s 37 (1) of the DBPA, that each owed a duty of care to them as prescribed by that section and that each had breached that duty of care causing loss to the appellants (Points of Claim, 6 November 2020 at [35]-[41]).
The loss claimed by the appellants in respect of these causes of action was framed as being "in an amount exceeding $38,946.78 (inclusive of GST)", with supporting particulars. This was the same loss as was alleged in respect of the breach of statutory warranties claim.
The following provision of the HBA is relevant to the question whether the Tribunal had jurisdiction to determine the claim under the extended duty of care provided for in the DBPA.
Section 48K in Part 3A of the HBA, relevantly, provides:
48K Jurisdiction of Tribunal in relation to building claims
(1) The Tribunal has jurisdiction to hear and determine any building claim brought before it in accordance with this Part in which the amount claimed does not exceed $500,000 (or any other higher or lower figure prescribed by the regulations).
…..
(5) The fact that a building claim arises out of a contract that also involves the sale of land does not prevent the Tribunal from hearing that building claim.
…..
The appellants' claim did not exceed $500,000.00.
Section 48A, relevantly, contains the following definitions for the purpose of Part 3A:
building claim means a claim for -
(a) the payment of a specified sum of money, or
(b) the supply of specified services, or
(c) relief from payment of a specified sum of money, or
(d) the delivery, return or replacement of specified goods or goods of a specified description, or
(e) a combination of two or more of the remedies referred to in paragraphs (a)-(d),
that arises from a supply of building goods or services whether under a contract or not, or that arises under a contract that is collateral to a contract for the supply of building goods or services, but does not include a claim that the regulations declare not to be a building claim.
…..
building goods or services means goods or services supplied for or in connection with the carrying out of residential building work or specialist work, being goods or services -
(a) supplied by the person who contracts to do, or otherwise does, that work, or
(b) supplied in any circumstances prescribed by the regulations to the person who contracts to do that work.
[9]
The Tribunal's decision
It seems clear enough that the Tribunal found that the appellants, as successors in title to the developer, were able to enforce any breach of the warranties in s 18B against each of the developer and the builder: at [15]-[18] of the reasons.
Having so concluded, the Tribunal framed, as a first issue, whether the appellants had established that the issues concerning internal floor space, the attic, the water tank and the rear courtyard deck fell "within the ambit" of the statutory warranties in s 18B, as distinct from the question whether a breach of the statutory warranties in respect of these issues had been established: at [23] (2) and (3), [56], and [74] of the reasons.
The reasoning of the Tribunal with respect to this first question, principally, appears in the context of the issue concerning the internal floor space: at [27]-[58].
First, the Tribunal appeared to ask itself the question whether the reference in s 18B (1) (a) to a warranty that the work would be done in accordance with the plans and specifications "set out in the contract" applied to the plans set out in the conveyance contract or to the plans set out in the construction contract: at [30].
The Tribunal did not answer this question directly, although it would seem to be implicit in its reasoning outlined below and from the fact that it did not address the issue whether what was built conformed with the plans in the construction contract, that it did not regard these latter plans as relevant.
However, in any event, in our opinion, incorrectly, the Tribunal came to the conclusion that the warranty in s 18B (1) (a) was inapplicable to whatever were the relevant plans given the terms of the conveyance contract and the appellants' decision to proceed with notice or assumed knowledge of the relevant deficiencies.
In this regard, the reasoning of the Tribunal included the following:
35 Most importantly, there is the conveyance contract which curiously, as the respondents point out, is not addressed in the [appellants'] written submissions.
36 Clearly this conveyance contract is of significant relevance and I accept the respondents' submission that it is the "nexus of the home owner's claim against the respondents".
…..
41 The respondents submit that the [appellants] knew the "as built" dimensions of the internal floor space prior to settlement, pointing to the [appellants'] solicitor's letter, sent to them prior to settlement, with the final registered strata plan.
42 The respondents also point to the [appellants'] initial reluctance but eventual concession, in oral evidence, that there was a final inspection prior to settlement. This, the respondents submit, defeats the [appellants] case, particularly as there is no issue and certainly no issue raised, as to any latent defects.
43 These are very persuasive submissions.
44 The conveyance contract makes it quite clear that the floor space dimensions provided for in that document are not final and there is scope for some variation.
45 The conveyance contract was a contract for the sale of the [appellants'] lot is identified and characterised in that contract, subject to certain rights of the respondents to make some changes and subject to certain rights of the [appellants] to rescind the contract or claim compensation in accordance with the contract.
46 The conveyance contract provides the [appellants] with remedies (Clauses 6 and 7) of which they chose not to avail themselves.
47 The conveyance contract made it clear that the strata plan at the time of the contract exchange was only a draft.
48 The conveyance contract allowed for rescission in some instances and allowed for minor variations (cl 35). I pause here to note that the [appellants'] expert evidence was less than persuasive as to the exact discrepancy in size between what was provided for and what was built.
49 Further, as the respondents submit, the [appellants] through their solicitors' actions in forwarding them the final registered plan prior to settlement and by way of their final inspections prior to settlement, must be assumed to have been on notice of the matters of which they now complain and in respect of which they nevertheless elected to proceed under the conveyance contract.
50 True it is that the [appellants] have the benefit of the HBA Statutory Warranties (pursuant to a "deemed" contract under s 18C) that the work will be done "in accordance with the plans and specifications set out in the contract and in accordance with.. (the) law" (s 18B(1) (a) and (c)). However, the legislature cannot, in my view, have intended that benefit apply where the [appellants] willingly came to be title holders under a conveyance contract that provided for flexibility in the floor space dimensions; a conveyance contract that provided remedies which the [appellant] chose not to act upon; and where the [appellants] settled on that contract having been alerted to matters of which they must be assumed to have been on notice, given their solicitors correspondence forwarding them the floor space dimensions as built and given their pre-settlement inspections.
51 It is trite to say the HBA is a beneficial statute and that the conveyance contract cannot operate to deprive homeowners of the benefits of that statutory protection.
52 This can be clearly seen in the case of the minor defects referred to above, being the very matters at which the statutory warranties are aimed. Namely, protection to ensure diligent, legal, proper and workmanlike building work.
53 Whether the internal floor space falls within this ambit is doubtful.
54 As already stated, the conveyance contract made specific provisions in relation to the internal floor space and provided certain flexibility to the respondents in relation to that floor space. The conveyance contract afforded the applicant's protection by giving them certain legal remedies if the final outcome varied or differed from what was provided for in the contract.
55 Yet the applicants chose to complete the conveyance contract and chose not to avail themselves of contractual redress, when they must be assumed to have knowledge of the floor space "as built" prior to settlement, having been in possession of the final floor plan and having made final inspections.
56 It is not, in my view, feasible that in these circumstances the ambit of s 18B (1) (a) statutory warranty is intended to extend to the floor space ratio as an "after the event" option.
57 I find therefore that the [appellants] must fail on this issue.
58 In light of this finding is not necessary to deal with the other issues raised by the parties.
…..
[Addressing the water tank, rear courtyard decking and attic issues]
69 None of the above matters are addressed in the conveyance contract to the detailed degree of which the floor space ratio is addressed and these matters may not have been matters that allowed the [appellants] release from the conveyance contract.
70 Nonetheless, they are all matters that arise under the conveyance contract in matters where, if constituting breaches, as the [appellants] allege gave them the right to seek redress from the respondents under the conveyance contract.
71 Over and above this and where I have the greatest difficulty with the [appellants] case, however, is that these matters (as in the case of the internal floor space) are matters of which the [appellants] must be assumed to have had notice prior to settlement.
72 Although under there "deemed" s 18C contract the applicants have the protection of the HBA Statutory Warranties, it is difficult to accept that the legislature intended this protection to extend to the applicants when they must be assumed to have been in full knowledge, at the very least from the time of their final inspection, of the matters now complained of and yet elected to proceed with the conveyance contract.
73 Thus the same reasoning I applied in considering the internal floor space applies here. Namely, providing for a "deemed" contract incorporating the HBA Statutory Warranties, the legislature seeks to protect homeowners so as to safeguard the quality, standard, legality and certainty of the building work. It is questionable that the legislative intent is to extend such protection where the [appellants], at the very least from the time of their final inspection, were aware of these matters yet proceeded with the conveyance contract and then turned to the HBA Statutory warranties as an after the event, option.
74 Accordingly, I am not satisfied that the applicants have proven that these matters fall within the ambit of the HBA Statutory Warranties.
75 As such their claim must fail and it is not nest through to consider the further issues raised by the parties.
There were no findings by the Tribunal as to the precise basis upon which the appellants could have obtained redress and as to the nature of that redress under the conveyance contract before settlement in respect of each of the alleged deficiencies. Nor were there any findings by the Tribunal that the appellants had actual knowledge of such deficiencies before settlement of the contract. We pause to note that it is, at least, far from clear how rights concerning errors or misdescriptions were applicable in the circumstances.
As to the claim in respect of s 37 of the DBPA, the Tribunal stated that the Tribunal was a legislative creature which could only operate within the powers specifically extended to it under statute and that the appellants had shown no satisfactory link to establish any specific jurisdiction bestowed upon the Tribunal under the DBPA: at [22] of the reasons.
[10]
The nature of the appeal
Under s 80 of the Civil and Administrative Tribunal Act 2013 (NSW) (NCAT Act), a party may appeal as of right to the Appeal Panel in an internal appeal on any question of law. In respect of any other grounds, in the case of an appeal from the Consumer and Commercial Division of the Tribunal, as this is, the appellant must satisfy the Appeal Panel that leave to appeal should be granted pursuant to clause 12 of Schedule 4 of the NCAT Act.
[11]
The grounds of appeal
In further amended grounds of appeal lodged on 11 October 2022 (leave was granted to rely on these grounds on 14 October 2022), the appellants raised both alleged errors of law and alleged errors of fact in respect of which leave to appeal was sought.
In view of our decision on this appeal, it is unnecessary for us to examine all of the grounds of appeal (some 14 grounds were raised).
The relevant grounds of appeal make it clear that the appellants contended that the Tribunal erred:
1. In concluding in [50], [56], [72], [73] and [74] that the legislature did not intend the statutory warranties to apply in the circumstances it referred to, namely that the conveyance contract gave the appellants a right of redress and that the appellants must be assumed to have notice or knowledge of the deficiencies about which they complain before completion (see Grounds 4, 5, 6, 8 and 9).
2. The Tribunal erred in finding that it lacked jurisdiction to determine the appellants' claim with respect to the DBPA (see Ground 13).
These grounds raised errors of law, as was developed in the appellants' written submissions. The first grounds we referred to raise a question of law as to the proper construction of ss 18B (1), s 18C and s18D leading to contentions that the Tribunal, by focusing upon the conveyance contract, directed itself to the wrong issue and took into account an irrelevant consideration: see Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 at [13]. Ground 2 raised a question of law as to the jurisdiction of the Tribunal in which it was contended that the Tribunal erred in law in failing to ask itself the right question, namely whether the claim fell within the jurisdiction of the Tribunal to determine a "building claim" as conferred by s 48 K of the HBA.
Furthermore, in answer to the respondents' contention that the Tribunal's decision was an orthodox application of the decision in Allianz Australia Insurance Ltd v Waterbrooke at Yowie Bay Pty Ltd [2009] NSWCA 224 (Allianz) (see further below), the appellants contended that it was not and that the ratio decidendi of that decision did not apply in the current case. This raised a question of law as to whether the Tribunal had applied the wrong principle and failed to direct itself to the right question.
[12]
The appellants' submissions
With respect to first grounds of appeal we referred to, the appellants' written and oral submissions included that:
1. Having found that the appellants had standing and the Tribunal had jurisdiction, the Tribunal was required to determine whether there were breaches of the relevant statutory warranties and whether loss had been suffered.
2. However, in this regard the Tribunal asked itself the wrong question by introducing an anterior issue as to whether the appellants' claims fell within the ambit of the statutory warranties, a question which involved it examining an irrelevant consideration, namely the operation of the conveyance contract and failing to ask itself the right questions concerning the operation of ss 18C and 18D in respect of which the content of the construction contract had to be examined. As to this, the appellants relied upon aspects of the decisions in Owners Corporation Strata Plan 64757 v MJA Group Pty Ltd (2011) NSWCA 236 (MJA Group); Robinson v Hindmarsh Construction Australia Pty Ltd [2021] NSWCATAP 51 (Robinson) and Baron Corporation Pty Ltd v Owners of Strata Plan No 69567 [2013] NSWCA 238 (Baron Corporation).
3. Wrongly, the Tribunal relied upon the conveyance contract to restrict or remove the appellants' rights in respect of the statutory warranties.
4. The decision in Allianz did not apply because the appellants had not entered into the conveyance contract with full knowledge of the deficiencies at that time as the dwelling was yet to be constructed. Furthermore, the Tribunal did not make any findings that the appellants had actual knowledge of the deficiencies.
With respect to the second ground of appeal we referred to, it was submitted that a claim for economic loss under s 37 of the DBA fell within the definition of a building claim under s 48K of the HBA in respect of which the Tribunal was granted jurisdiction to determine. The decision of the Appeal Panel in The Owners SP 92648 v Binah Constructions PL [2021] NSWCATAP 68 (Binah) was relied upon.
[13]
The respondents' submissions
The submissions from the respondents included that the Tribunal's decision was a correct application of the orthodox principle set out in Allianz.
The respondents' written submissions, included the following:
19 In answer to the entirety of the appellants' claim the respondents argued in their closing submissions at [73]-[81] that;
"73. The law in NSW is that if a successor in title purchased a building with knowledge of patent defects caused by breaches of the implied warranties by the builder, it would suffer no loss. The purchase price would reflect the known state of the building and the purchaser would get what it bargained for.
74. The Court of Appeal held as much in Allianz Australia Insurance Ltd v Waterbrooke at Yowie Bay Pty Ltd [2009] NSWCA 224. The majority concluded at [110] when they refer to loss alleged to have been caused by a breach of the implied warranties:
"… A successor in title who acquires a building in full knowledge of its defects suffers no loss from the existence of those defects. In those circumstances the builder's breach of statutory warranty could not be said to have diminished the successor's assets nor increase its liabilities. Any adverse impact to the successor's financial position, and any lost to the successor, would result from the successor knowingly and deliberately paying more for the building that it was worth…'
75. The short point is that the homeowners knew the as built dimensions and everything else about the property prior to settlement.
76. At RCB [9] Mr Attard gives evidence that his solicitors sent the homeowners, prior to settlement, the final registered strata plan. A copy of that letter is at HCB [172]. At HCB [176] the final plan shows an as built courtyard space of 22m2. This space is reflective of what was actually built. Put bluntly, the homeowners cannot say they expected anything else.
77. All the dimensions shown in the final strata plan are as built.
78. The homeowners inspected the property before they settled.
79. Rodney Deaves in his sworn statement dated 12 November 2020 deposes that the homeowners did not pre-inspect the property, see paragraph 10, HCB [357].
80. Subsequently Mr Deaves recants this statement. In his 20 April 2021 statement he deposes that he went through the property twice on 6 May and 8 May 2019 and advised the respondents as to defects. As such the homeowners knew of the water tank, the decking, the attic space and the size of the courtyard prior to settlement, and, decided to settle in any event at the agreed price.
81. If the homeowners would have any chance of making out the above damages claim they would have to show the defects were latent. A latent defect is a defect that could not have been discovered by a reasonably thorough inspection. They advance no such case. Even if they did the matters alleged are on any view of open (it) patent and not latent defects."
20. The respondents argued that the appellants knew the condition of the property prior to purchase and did not argue a case of latent defects at hearing.
21. It should further be noted that in relation to the alleged attic space defect the respondents argued that the plan simply did not provide for an attic space in any event, see respondents closing submissions at [55]-[62]. This appeared to be conceded by the appellants expert, see transcript 23 March at page 91.
22. Further in answer to the entirety of the claim the respondents relied upon the standard form contract for sale of land as between the parties. Specifically, the respondents pleaded clauses 6, 7, 35.1, 35.2, 35.4, 37.2, 47.2 & 47.4 of the contract for the sale of land.
23. The respondents ultimately argued that the contract for the sale of land specifically prohibits claims for alleged misdescription after settlement at [86]-[91] of the respondents closing submissions;
"86. The homeowners were provided with a registered strata plan… pursuant to clause 35.1 of Contract for Sale..
87. The first respondent was permitted to make changes to the strata plan pursuant to clause 35.2 of the Contract for Sale…
88. Pursuant to clause 35.4 of (the) Contract for Sale, the homeowners were entitled rescind the contract for sale and purchase within 7 days and any failure to exercise recission was then to become binding in all respects,…
89. The first respondent was entitled to make construction amendments to the works without giving any notice to the homeowners pursuant to clause 37.2 of (the) Contract for Sale…
90. Pursuant to clause 7 of the Contract for sale, the appellants had a right to make a claim (including a claim under clause 6) prior to settlement for the changes in the dwelling they purchased however failed to do so,…
91. In addition to the above, the appellants gave warranties as to conducting their own independent enquiry and independent advice pursuant to clause 47 of the Contract for Sale,…
…..
25. In summary the tribunal found against the appellants on two bases;
I. They knew the true dimensions of the property prior to settlement and also knew that the turf had been replaced with decking, that the water tank was above ground that there was no attic storage prior to settlement. They chose to settle in any way and as such cannot now seek to rely on the statutory warranties. This is the orthodox position as outlined in Allianz Australia Insurance Ltd v Waterbrook at Yowie Bay Pty Ltd.
II. The contract for sale provided a contractual remedy for any claimed misdescriptions or defects and the appellants chose not to avail themselves of those remedies and settled any way.
In oral submissions Mr O'Connor, who appeared for the respondents, emphasised the following points:
1. In essence, the Tribunal found that the appellants knew about the alleged deficiencies before they settled and applying the Allianz decision the practical outcome is that they cannot proceed with their claim.
2. Although the language used by the Tribunal about notice and knowledge could have been tighter, reading the reasons as a whole and without an overly keen eye for error, the Tribunal did, in substance, find that appellants had actual knowledge of the deficiencies before settlement. This was in a context where the alleged deficiencies were plain. Certainly, this was the case with the water tank and use of timber decking instead of turf.
3. As to the issue concerning the attic, the Tribunal had made a finding of fact that there were no plans for a storage area to be built in the attic.
[14]
Consideration - breach of HBA statutory warranties claim
In the Allianz decision, Ipp JA, with whom Hodgson JA agreed, applied the causation principle outlined in the judgement of Mahoney JA in Alexander v Cambridge Credit Corporation Ltd (1987) NSWLR 310 (Alexander) (at 361) to deny a successor in title's claim against a builder's insurer in circumstances where the successor in title had purchased a patently defective property due to breaches of the statutory warranties: see, in particular, at [103]-[111] .
That principle is (as set out at [104] of Allianz):
Notwithstanding that a defendant's act or omission has a causal connection with the damage of the person aggrieved, no liability arises if an independent intervening act or event in conjunction with the defendant's act or omission has brought about the plaintiff's damage and the intervening act or event can be treated in a practical sense as the sole cause of the damage.
The principle applies to a plaintiff who knowingly and deliberately decides to act in a way that causes himself or herself injury.
Ipp JA stated at [110]-[111] of Allianz:
110 In my opinion, applying the same reasoning, a successor in title who acquires a building in full knowledge of its defects, suffers no loss from the existence of these defects. In those circumstances, the builder's breach of statutory warranties could not be said to have diminished the successor's assets, nor increased its liabilities. Any adverse impact to the successor's financial position, and any loss to the successor, would result from the successor knowingly and deliberately paying more for the building that it was worth. The loss would be caused by the successor's own decision to purchase at the agreed price.
111 The observations in [110] are predicated on the "full knowledge "of the defects and being not only knowledge of the existence of the defects but also knowledge of their significance. A party may know of the existence of defects (because they are patent), but may not appreciate-even acting reasonably-that major expenditure would be required to remedy them.
Earlier in his reasons (at [98]-[99]), in construing the meaning of "loss" with respect to the statutorily required insurance, Ipp JA had considered the intent of the consumer protection legislation with respect to both a successor in title who acquires a patently defective building from a developer at a price that reflects the value of the defective building plus the cost of rectifying the defects and a successor in title who acquires a patently defective building from a developer at a price that reflects only the value of the defective building. In each case, he considered that it would not fall within the legislative intent of consumer protection that the successor should recover from the builder. In the first case, he considered that the notion that the legislature intended the HBA to bring about a situation where a developer could receive more for the sale of its property than the property was worth was not in accord with the policy of the legislation. In the second case, he also did not consider this fell within the policy of the legislation because by being able to recover the cost of rectifying the defects from the insurer the successor would make an unearned profit at the expense of the insurer.
Giles JA, in dissent in Allianz, considered at [13]-[21] that:
13 Bringing a successor in title into the picture, the successor in title ordinarily could also recover damages for breach of warranty from the person doing the work. Allianz accepted that, where the defect was not reasonably visible at the time of acquisition, the successor in title could recover the cost of rectifying the defect as loss arising from the breach of warranty. I agree, and it follows that in such a case the intervening event of acquisition of the dwelling would not deny or preclude that the loss arose from the breach of warranty. Thus consumer protection would extend to the successor in title, as the owner of the defective dwelling, who would be protected by recovery of the cost of rectifying the defect.
14 In my opinion a successor in title's loss arising from breach of warranty would not change if the defect was reasonably visible at the time the successor in title acquired the dwelling.. The successor in title would still have a defective dwelling, and would still be exposed to the cost of rectifying the defect in order the dwelling be put into the condition in which it would have been in if the warranty at been complied with. There would still be loss arising from breach of warranty, within s 99 (b) of the Act.
…..
18 Acquisition of the dwelling is an additional event, but it is not one that changes the statutory contractual basis of recovery for breach of warranty. On the contrary, it is precisely what the Act adopts in conferring on a successor in title rights of the predecessor in title in respect of the statutory warranty. Acquisition of the dwelling is a qualifying factor, not a disqualifying factor, and the legislature has not differentiated between acquisition where a defect is reasonably visible and acquisition where it is not.
19 There is no sufficient reason why the person doing the residential building work should be relieved from liability if the defect due to non-compliance with the warranty was reasonably visible at the time of acquisition. The reasonable visibility would not eliminate the person's breach and its consequences. Nor would relief from liability foster consumer protection, and incentivation properly to do residential building work….
20 Treating the acquisition of the dwelling with actual or constructive knowledge of the defect as the causal link would make protection of the successor in title as consumer a complex matter, and one in which the consumer may well not be protected.
21 Reasonable visibility of the defect as the criterion for recovery by the successor in title would be the beginning of a morass of factual enquiry, alien to consumer protection. It's theoretical justification, for which Allianz argued, is that when the successor in title acquired the dwelling the actual or constructive knowledge of the defect would be reflected in the purchase price. In many cases that would be contrary to the facts….
We note that in Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd [2017] NSWCA 27, Bathurst CJ stated (at 151) that there was much to be said for the view taken by Giles JA, although it was not necessary to consider whether the case had been correctly decided.
In any event, we do not agree that the Tribunal's decision is an application of the majority decision in Allianz, let alone a correct application of that decision. This is because:
1. The Tribunal did not analyse the matter by reference to any causation principle. Indeed, it makes no reference to the decision in Allianz.
2. In contrast to the situation in Allianz, there were no patent defects in existence at the time when the appellants signed the contract for sale of the property.
3. The consumer protection policy concern was different to that in Allianz. It could not be said that knowledge of the defects would have been reflected in the purchase price, or that the successor in title would obtain an unearned profit or that recovery for the successor in title would encourage a situation in which a developer could achieve a contract price that was more than the property was worth.
4. The Tribunal did not apply a test of "full knowledge" of the defects, but instead applied a test of notice or assumed knowledge.
The Tribunal appears to have applied a limitation to the scope of the statutory warranty provisions in s 18B, s18C and s18D of the HBA that was not founded upon the terms of any legislative provisions or case authority, and which did not apply the effect of the statutory warranty provisions, which create new stand-alone rights, as confirmed by case authority. Instead, the Tribunal gave an unwarranted pre-eminence to the conveyance contract.
As to such case authority, it is sufficient to refer to the following passages to illustrate the effect of these statutory provisions, albeit that the decisions address different situations to those involved in this appeal.
In MJA Group to which we have referred above, Young JA said (at [36]), in reasons with which Allsop P and Macfarlan JA agreed:
In my view, her Honour was correct in her ruling on this question. Additionally to her own reasons, it seems to me that the whole structure of the Home Building Act ss 18B to 18E is that the developer is in a notional contractual relationship with the Owners' Corporation and the contract made by the developer with the builder is what is being looked at as to the content of that notional contract.
These remarks were adopted by the Appeal Panel in Robinson at [20]-[21].
In Baron Corporation Barrett JA, with whom McColl JA and Young JA agreed, stated at [12]-[13] and [47] and [49]:
12 The effect of s 18C, construed in the light of s 3A, is that a person who, by virtue of the latter section, is regarded as a "developer" who was done residential building work on land is fixed with a liability to the person's "immediate successor in title", that liability being commensurate with the entitlement the section creates, that is, to the benefit of the statutory warranties with respect to the work "as if" the developer was required to hold contractor licence and had done the work under a contract with the successor in title.
13 Thus, a "developer", although it did not in fact carry out building work, is liable to its immediate successor in title as if it had done the building work under a contract with the successor and thereby incurred the burden of the statutory warranties by virtue of the statute's importation of those warranties into a contract between the developer and the successor.
….
[Then, concerning the successor in title and the builder]
47 Nor, in my opinion is it correct to say that the Act of 2010 caused Baron [the owner of the land] to be in a contractual relationship (or something equivalent] with Baseline [the builder]. As far as the statutory warranties were concerned, s 18D (1A) caused Baron to have "the same rights as those that" Metro had [the party supplying development services to Baron]. There was thus an attribution to Baron of rights identical with those of Metro, as distinct from a vesting or assignment of Metro's rights. The section left existing rights with Metro and created identical rights in Baron, so that both Metro and Baron had the rights. The process of attribution did not give rise to any contractual or like relationship. It merely enabled Baron to assert against Baseline, as a matter of statutory entitlement, rights identical with those that Metro could assert against Baseline as a matter of contractual entitlement under a contract incorporating the warranties implied by statute.
…..
49…. All that that Act relevantly did with respect to statutory warranties was to create in Baron retrospectively a statutory entitlement as against Baseline coextensive with the contractual entitlement (as to statutorily implied warranties) already enjoyed by Metro as against Baseline.
As to the respondents' contention in respect of the claim concerning the lack of a storage area in the attic and that the Tribunal found that there were no relevant plans for such an area, we disagree that there was any such finding. The respondents relied upon paragraph [66] of the reasons. However, that paragraph contains no such finding. All it says is that:
66 Turning to the attic, the parties' experts agree that the area on the roof space makes no provision for storage.
This was what the appellants complained about but the Tribunal made no finding as to whether this was contrary to any relevant plans.
[15]
Consideration - jurisdiction to determine DBPA
In the Binah decision, a decision to which the Tribunal appears not to have been referred, the Appeal Panel found that a claim for alleged breach of duty owed to a successor in title under the DBPA arguably falls within, at least, sub-paragraph (a) of the definition of "building claim" in s 48A(1) of the HBA (referred to above): see at [7] of the decision.
At the hearing of the appeal, the respondents, correctly in our opinion, did not develop any submissions in opposition to the ground of appeal concerning absence of jurisdiction to determine the claims under the DBPA. Incorrectly, in their written submissions they had said that there was no appeal against the Tribunal's lack of jurisdiction conclusion.
In our opinion, the claims brought against each of the respondents under the DBPA do fall within this provision since these were claims for a "specified sum of money" and arose from a "supply of building goods or services whether under a contract or not…".
Hence, in our opinion, the Tribunal does have jurisdiction to determine these claims, being a jurisdiction conferred by s 48K of the HBA.
In so concluding, we have, of course, made no findings as to such matters as to whether the developer is a person who "carries out construction work" within the meaning of that term in s 37 (1) of the DBPA and whether the matters complained about were "defects" within the meaning of that section.
[16]
Outcome
In view of the important disputed questions of fact in respect of which the Tribunal made no findings it is not feasible for us to proceed to determine the proceedings on the merits and the proceedings must be remitted to the Tribunal for redetermination. At the hearing of the appeal, the appellants accepted that this should be the outcome of a successful appeal.
In their Notice of Appeal and written submissions the appellants sought an order that the proceedings be remitted to a differently constituted Tribunal. The respondents raised no objection to such an order in their Reply to Appeal or in their written and oral submissions.
We consider that such an order is in the interests of justice in this case, including its appearance, in accordance with the approach to be taken to the making of such an order as set out by the Appeal Panel in Chapman v Nicolosi (No 2) [2023] NSWCATAP 73 at [16]-[24]. As to this, we consider that the adverse view expressed by the Tribunal about the appellants' expert evidence concerning the internal floor space issue (at [48]) of the reasons very much favours the making of such an order. In addition, it might reasonably be perceived that the Tribunal has formed a firm and general view about the merits of the appellants' case, which is adverse to the appellants, in its expression of the conclusions (without a proper foundation) that they were not entitled to the protection of the statutory warranties regime in the HBA (at [50], [72] and [73]).
[17]
Costs
If successful on the appeal, as they have been, the appellants sought orders that a costs order made against it by the Tribunal on 15 September 2022 in respect of the proceedings at first instance be set aside and that the respondents be ordered to pay the costs of the appeal and the costs of the proceedings at first instance.
It is common ground that the question of costs both on appeal and at first instance should be determined by the ordinary principles concerning costs and that the provision in s 60 (2) of the NCAT Act concerning the need for special circumstances warranting an order for costs was not applicable in circumstances of this case because the proceedings fell within the terms of Rule 38 (2) (b) of the Civil and Administrative Tribunal Rules 2014 (NSW).
Accordingly, in view of the appellants' success on the appeal it would seem to us to follow that the respondents should be ordered to pay the appellants' costs of the appeal.
We were not provided with the costs order and reasons for decision in respect of the costs order made on 15 September 2022 (this decision came after the commencement of this appeal). Nevertheless, we understand it to have been made against the appellants in light of the respondents' substantial success in the hearing at first instance. In these circumstances, it would seem that this costs order should be set aside. It would also seem that the question as to what order, if any, should be made in respect of the costs of the first instance in substitution for the costs order that should be set aside should also be remitted to the Tribunal, differently constituted, for redetermination.
Accordingly, we will make these orders for costs but we will reserve liberty to the parties to apply (with submissions) within 14 days of the publication of these reasons for any order varying these costs orders given that we have not had the benefit of any submissions of the parties about the costs orders that should be made in the light of this decision on appeal and in light of the reasons for decision concerning the costs order made on 15 September 2022.
[18]
ORDERS
For the above reasons, we order as follows:
1. The appeal is allowed.
2. Order 2 of the orders made by the Tribunal on 2 June 2022 is set aside.
3. The claims the subject of Order 2 of the orders made by the Tribunal on 2 June 2022 are remitted to the Tribunal, differently constituted, for redetermination according to law.
4. The appellants' costs of the appeal are to be paid by the respondents.
5. The costs order made by the Tribunal on 15 September 2022 is set aside.
6. The question as to what order for costs, if any, is to be made in substitution for the costs order made on 15 September 2022 is remitted to the Tribunal, differently constituted, for redetermination.
7. (7) The parties have liberty to apply to vary the costs orders made in (4), (5), and (6) within 14 days from the date of publication of these reasons, accompanied by written submissions in support of any such application.
8. (8) Each party is to provide submissions in reply to any such written submissions within 14 days of the receipt of such submissions.
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: 31 March 2023