Easy Trades Australia Pty Ltd v The Owners - Strata Plan No. 3844 - [2024] NSWCATAP 194 - NSWCATAP 2024 case summary

NCAT Appeal Panel|2024-08-12

REASONS FOR DECISION

This is an appeal from a decision of the Consumer and Commercial Division of the Tribunal exercising jurisdiction under the Home Building Act 1989 (the 'decision').
In the proceedings at first instance the present respondent (the 'owners corporation') made a claim against the appellant (the 'builder') for compensation in the sum of $138,957.00 which it stated was the cost to demolish and reconstruct an external staircase structure which the builder built under a contract with the owners corporation.
The Senior Member heard the proceedings over two days in October 2023 and March 2024. On 23 April 2024 the Senior Member published a detailed decision in which she found for the owners corporation in the sum of $61,708.68.
The builder appeals from that decision, in time. The appeal is brought pursuant to section 80(2)(b) of the Civil and Administrative Tribunal Act 2013 ('NCAT' Act) which states: 'Any internal appeal may be made - (b) in the case of any other kind of decision (including an ancillary decision) of the Tribunal at first instance - as of right on any question of law, or with the leave of the Appeal Panel, on any other grounds.'
The questions of law that are identified by the builder in its Amended Grounds of Appeal are as follows.

Ground 2

This ground of appeal relates to brickwork. The builder states that the Tribunal erred on a question of law by failing to take into account the following relevant mandatory considerations and also failed to give sufficient reasons as to whether the proposed rectification method propounded by the owners corporation: 1. Would produce conformity with the building contract; and 2. was a reasonable course to adopt.

Ground 3

The Tribunal erred in law at [177] to [180] of its written reasons for decision by applying the wrong principles of law with respect to the builder's claim, specifically that the money order awarded in favour of the owner should be set-off by the unliquidated claim by the builder in the sum of $13,960.72 allegedly outstanding under the building contract.

Further submissions

At the conclusion of the hearing we sought further submissions on Ground 2, which were provided by the parties in the time ordered. The parties agreed that in the event Ground 2 of the appeal is successful, the Appeal Panel may determine the question of rectification, rather than remitting the application for further re-hearing before the Consumer and Commercial Division.

The Senior Member's decision

We have set out below the paragraphs of the decision which we consider are relevant to the Grounds of Appeal raised by the appellant.
The contract between the parties related to the demolition and rebuilding of an existing external staircase in the owners corporation's strata scheme. The contract price was $75,593.00.
The Senior Member found at [58] and [61] that the owners corporation repudiated the contract by prohibiting the builder from accessing the site and the builder accepted the repudiation. At [62] the Senior Member found that as the contract came to an end by reason of the owners corporation's repudiation, it followed that the owners corporation was not entitled to a remedy for works which were incomplete as at the date of the termination of the contract, but that it would still be entitled to a remedy for defective works.
At [64] - [69] of the decision the Senior Member discussed the difference between incomplete and defective work. At [167] - [176] the Senior Member assessed the damages sought by the owners corporation on the basis of the cost of the rectification of defective work, rather than the cost of demolishing and reconstructing the staircase as contended for by the owners corporation.
It is in this context that Ground 1 arises. The substance of this ground of appeal is that the Senior Member erred in finding that there were defects in the staircase, as opposed to finding that there were no deficiencies in the staircase, but the work was incomplete.
Paragraphs [122] - [133] of the decision address brickwork with which Ground 2 is concerned.
The Senior Member referred to the agreement of the parties' experts that there was an inconsistent width and depth of the mortar perpend and that there was cracking of mortar, both of which constituted defective work.
The experts did not agree on the appropriate method to rectify these defects.
There was also agreement between the experts that there was efflorescence staining on the brickwork. There was a disagreement whether the efflorescence staining was defective or incomplete work.
The Senior Member found that the efflorescence staining was caused by defective work, not because the works were incomplete at the date of termination of the contract.
There was a disagreement between the experts about the rectification methodology. The builder's expert's evidence was that the brickwork could be rectified by removing face mortar, cleaning bricks and adding new mortar. The owners corporation's expert's evidence was that the only way to rectify the defect was to demolish and reconstruct the entirety of the face brick balustrade wall.
The Senior Member gave more weight to, and accepted the evidence of the owners corporation's expert. This led her to accept his rectification methodology of rectifying the mortar and efflorescence issues which required the brickwork to be demolished and rebuilt.
Because of this finding the Senior Member found that it was not necessary to consider other defects claimed in connection with brickwork.
The parties agreed that the final $13,960.72 of the contract price of $75,593.00 had not been invoiced by the builder or paid by the owners corporation. At [5] of the decision the Senior Member stated: 'In its application the owner said that it also sought an order that the amount of $13,960.72 (which is the final balance of the contract price) is not yet owing to the builder. The builder has confirmed that it has not invoiced, and has no intention of invoicing that amount to the owner……... there remains a dispute as to whether that amount should be deducted from any amount found to be owed by the builder for incomplete or defective works.'
The Tribunal Member rejected the builder's claim to set off the amount of $13,960.72 against any amount that it was found to be liable for in relation to defective works, because the builder had failed to establish a legal and factual basis for the claim.

Ground 1

In John Prendergast & Vanessa Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 an Appeal Panel at [13] stated that errors of law would include whether there was no evidence to support a finding of fact. This establishes that Ground 1 raises a question of law. In INA Operations Pty Ltd ATF INA Operations Trust #6 t/as Ingenia Holidays v Shojai [2024] NSWCATAP 162 an Appeal Panel stated at [44(4)]: 'Examples of pure questions of law include: (4) There was no evidence to support a factual finding (Kostas v HIA Insurance Services Pty Ltd (2010) 241 CLR 390; [2010] HCA 23 at [91])
The Senior Member considered this aspect of the proceedings commencing at [91] of the decision. The owners corporation's expert stated that the staircase was defective. However as the Senior Member found, he did not provide an analysis of why the staircase was defective, rather than incomplete. The builder's expert stated that the stairs were incomplete giving reasons for his opinion. The Senior Member found that his position was not convincing. At [103] the Senior Member stated as the expert evidence in relation to this issue was unsatisfactory, it was necessary to examine the other available evidence so as to assess whether the construction of the stairs was incomplete at the date of termination.
The Senior Member considered the contemporaneous correspondence and at [109] came to the conclusion that the construction of the stairs was not incomplete as at the date of completion The Senior Member found that she was satisfied that the issues with the stairs, which had been agreed by the builder, arose from breaches of the statutory warranties in s18B of the HBA and were therefore defects for which the owners corporation was entitled to a remedy.
At [108] and [109] of the decision the Senior Member stated: 'Relevantly none of the proposed work schedules from June 2022 onwards refer to outstanding works to be done to the stairs and none of the correspondence between the parties from at least as early as June 2022 suggests that the builder intended to carry out any further works to the stair construction. For these reasons I find that the works to the construction of the stairs were not incomplete as at the date of completion. I am satisfied that the issues with the stairs agreed by the builders (ie the ponding issue and the inconsistent stair risers) arises from breaches of the statutory warranties in s18B and are therefore defects for which the owner is entitled to a remedy.'
Turning to Ground 1, the appellant contends that the Senior Member erred on a question of law because she made a finding which was not supported by evidence. We refer to the Amended Grounds of Appeal and the following particulars: 1. At (c), at [108] - [109] the Tribunal erred in law in conflating the question of whether the staircase was defective with whether it was incomplete; 2. At (c)i, there was a reference to a finding of the Senior Member that 'none of the correspondence suggests that the builder intended to carry out any further works to the stair construction'. 3. At (c)ii, it was not put to any of the builder's representatives in cross examination that they never intended to carry out further works to stair construction, and this amounted to a lack of procedural fairness; 4. At (c)iii, it was stated that the matter was irrelevant as a matter of law because of three separately stated submissions; 5. At (d) there was no actual expert evidence that the stairs were defective; and 6. At (e) the owners corporation failed to discharge its burden, on the balance of probabilities that the staircase was defective.
At the hearing of the appeal, counsel for the builder stated that she did not press the matters stated in Ground 1(c)i, (c)ii or (c)iii.
The reasons of the Senior Member at [109] identify the basis upon which she found that the concrete stairs were defective. We extract the full paragraph: 'For these reasons, I find that the works to the construction of these stairs were not incomplete as at the date of completion. I am satisfied that the issues with these stairs agreed by the builders (ie the ponding issue and the inconsistent stair risers) arise from breaches of the statutory warranties in S18B and are therefore defects for which the owner is entitled to a remedy. (Emphasis added)
We have had regard to the evidence. It is clear that there was evidence to support the finding that the concrete stairs were defective, namely, the joint evidence of the experts, Mr Xue and Mr Dahrie where they state (at page 217 of the court bundle): 'Non Compliant Concrete Stairs Experts agrees defect. Experts agrees if found to screed stair cost to be $3,242 Experts note tiling for stair is for lay evidence.'
It was also put in submissions at the appeal hearing that the emails referred to by the Senior Member at [107] of the decision were not sufficiently probative to justify the conclusion drawn from them. An application for leave to appeal would be required if the builder intended to pursue those submissions. No such application was made. It was confirmed by counsel at the hearing that the appellant proceeded on errors of question of law only. On that basis there is no necessity for us to consider that submission.
For the reasons stated, we reject this Ground of Appeal.

Ground 2 - Bellgrove v Eldridge and lack of reasons

We are satisfied that Ground 2 relied upon by the builder, namely that the Senior Member failed to apply the correct legal principles relevant to assessing damages for the rectification of a building defect, raises an error on a question of law for which leave is not required. We are also satisfied that a ground of appeal which asserts a failure to provide sufficient reasons raises a question on an error of law for which leave is not required.
We have referred to the passages of the decision in which the Senior Member decided the method of rectification on the basis that she gave greater weight to the owners corporation's expert, and accepted his evidence that the only way to rectify the defect was to demolish and reconstruct the entirety of a face brick balustrade wall.
The builder's submission is that the Senior Member fell into error by failing to consider the question of the preferred method of rectification by applying the authorities that she had referred to at [69] of the decision, including the High Court decision in Bellgrove v Eldridge [1954] HCA 36, (1954) 90 CLR 613. The builder developed this ground of appeal by submitting that the decision in Bellgrove v Eldridge required the Tribunal Member to consider first, what work was required to be undertaken to produce conformity with the contract; and secondly, would proceeding with that work be a reasonable course to adopt.
The owners corporation's submissions of some 62 paragraphs seem to suggest that there were multiple issues with defective brickwork, not all of which are mentioned in the decision, but that all of the issues which were agitated, together, justify the order made, namely, to demolish and reconstruct the entirety of a face brick balustrade wall.

The correct test

We accept the builder's submission that when considering which of the competing rectification options should be accepted in order to rectify defective work, a Tribunal Member should adopt the approach laid down in Bellgrove v Eldridge and make findings whether a rectification methodology would first, produce conformity with the contract and, secondly, whether that rectification methodology would be a reasonable course to adopt (our emphasis).
The Tribunal Member did not make her determination by considering the test set out in Belgrove v Eldridge, there was no consideration as to which method of rectification would be a reasonable course to adopt. Instead she made her determination based on which expert's evidence should be afforded greater weight and therefore accepted. We have come to the conclusion that in determining the method of rectification in that way, the Tribunal Member fell into error.
We are satisfied that this ground of appeal must succeed . However, although an error on a question of law is established, we decline to set the order aside.

Reconsideration

We raised with the parties at the hearing what course should be adopted if the appellant were successful on Ground 2 of the appeal. The parties agreed that the Appeal Panel should redetermine the issue, rather than remit the application to the Consumer and Commercial Division for a rehearing on the question of rectification of the staircase alone.
In order to give finality to the parties in respect of the brickwork dispute, we have decided to exercise all the functions of the Tribunal at first instance and to determine which of the experts rectification methodologies would produce conformity with the contract and would be a reasonable course to adopt, based on the same evidence that was before the Tribunal and assisted by the parties' recent submissions as referred to at [9] above.
We proceed in this manner in reliance on ss81(e) and 81(2) of the NCAT Act.
The builder also submits that its appeal against the Tribunal decision in connection with brickwork should be upheld on the basis that the Tribunal's reasoning was inadequate. In our view the Tribunal's reasoning process was adequate in explaining the basis upon which the Senior Member came to the conclusion that the owners corporation's expert's rectification methodology was to be preferred. As we have found, those reasons disclosed an error of law because they revealed that the Tribunal did not engage with the applicable principles under Belgrove v Eldridge. In our view written reasons for decision will not be inadequate for the sole reason they disclose an error on a question of law.
We reject this ground of appeal.

Brickwork - mortar and efflorescence

We will now consider the brickwork dispute. We do so on the basis of three folders of documents filed in the appeal by the appellant which we are satisfied are limited to the documents filed at first instance. We have also been provided with the transcript of the proceedings at first instance.
It is not disputed that the Tribunal correctly found that there was an inconsistent width and depth of the mortar perpend and cracking of mortar, and that there was also efflorescence staining on the brickwork.
In a hand-written note of a meeting between the experts, they agreed the non-compliant brickwork issue. They also agreed on the quantum of Mr Xue's methodology at $31,899.00 and on the quantum of Mr Dahrie's methodology at $4,262.00.
The evidence of the owners corporation's expert Mr Xue was provided first. In connection with the mortar perpend, inconsistent depth of the mortar bedding and efflorescence, Mr Xue stated there were no other options to rectify the defects identified other than for the demolition and reconstruction of the entirety of the face-brick balustrade wall with solid pressed bricks.
The evidence of the builder's expert, Mr Dahrie, was set out in a report dated 10 August 2023. Mr Dahrie stated that he agreed with Mr Xue's opinion regarding the mortar joint bedding and the perpend not being 'within the allowance specified by AS3700-2018'. Mr Dahrie's rectification methodology was expressed as follows: 'While a practising structural engineer has certified the structural integrity of the stairs, Easytrades has also offered to repoint the stairs, therefore the owners is to allow for builder to complete works on site and repoint stairs. Pointing refers to the finish of the mortar joints in the masonry structure. Repointing refers to renewing the pointing which provides a more uniform finish and aid in the prevention of water ingress.'
In connection with efflorescence, Mr Dahrie's rectification solution was to seal the brickwork with a hydrophobic sealant after the repointing of the brickwork.
As identified, the Tribunal was required to consider whether the rectification options of both experts would first, produce conformity with the contract. The contract was in evidence annexed to Mr Furnell's affidavit. The contract was in the form of a NSW Government Home Building contract for work over $20,000. Clause 1 dealing with Contract documents referred to Wayne Visagie Quote # 20354 dated 12 October 2021. Apart from that document, which did not refer to the way in which the work would be carried out or the standards that would be observed, the contract did not refer to plans, specifications or any other relevant documents going to the qualitative requirements with which the work was to conform.
The quote to which we have referred stated in connection with brickwork and the brick balustrade: 'Supply and install new brickwork and brick balustrade to match previous as close as possible'
Clause 9 of the contract set out the statutory warranties to be observed by the builder as are found in s18B(1) of the Home Building Act, the most relevant of which is: 'The work will be done with due care and skill and in accordance with the plans and specifics set out in the contract.'
We find that Mr Xue's rectification solution of demolition and reconstruction of the entirety of the face-brick balustrade wall with solid pressed bricks would produce conformity with the contract in that the work that was quoted, as referred to above, would be re-done with due care and skill in accordance with clause 9(a) of the contract. We infer that as part of that process the work would comply with AS3700-2018 in connection with perpend thickness and depth of mortar bedding, thus satisfying the warranty for work to be done with due care and skill.
We are not persuaded that Mr Dahrie's rectification solution of repointing the brickwork and then sealing it with a hydrophobic sealant would produce conformity with the contract. In particular we are not persuaded that repointing the brickwork would produce compliance with AS3700- 2018 in connection with perpend thickness and depth of mortar bedding, in satisfaction of the warranty for work to be done with due care and skill and therefore conformity with the contract.
We find that the builder has failed to establish that the rectification methodology of its expert will produce conformity with the contract. If conformity with the contract is not established, there is no necessity to consider whether or not Mr Dahrie's rectification methodology is reasonable.
Nonetheless in determining the matter ourselves as stated at [47] above we must decide whether Mr Xue's demolition and rebuild methodology was a reasonable course to adopt.
In Bellgrove v Eldridge the High Court recognized that rectifying defective work would in some cases requires demolition stating at [5] and [6] of the decision (at page 618): 'But the work necessary to remedy defects in a building and so produce conformity with the plans and specifications may, and frequently will, require the removal or demolition of some part of the structure. And it is obvious that the necessary remedial work may call for the removal or demolition of a more or less substantial part of the building. Indeed - and such was held to be the position in the present case - there may well be cases where the only practicable method of producing conformity with plans and specifications is by demolishing the whole of the building and erecting another in its place. In none of these cases is anything more done than that work which is required to achieve conformity and the cost of the work, whether it be necessary to replace only a small part, or a substantial part, or, indeed, the whole of the building is, subject to the qualification which we have already mentioned and to which we shall refer, together with any appropriate consequential damages, the extent of the building owner's loss. (at p618) The qualification, however, to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt. No one would doubt that where pursuant to a building contract calling for the erection of a house with cement rendered external walls of second-hand bricks, the builder has constructed the walls of new bricks of first quality the owner would not be entitled to the cost of demolishing the walls and re-erecting them in second-hand bricks. In such circumstances the work of demolition and re-erection would be quite unreasonable or it would, to use a term current in the United States, constitute "economic waste".
The High Court decision in Bellgrove v Eldridge was considered in the High Court decision in Tabcorp Holdings Pty Limited v Bowen Investments Pty Limited [2009] HCA 8 (12 February 2009). There, the Court discussed reasonableness as referred to in Bellgrove v Eldridge. The Court stated at [17] footnotes excluded: 'The example which the Court' (in Bellgrove v Eldridge) 'gave of unreasonableness was the following: "No one would doubt that where pursuant to a building contract calling for the erection of a house with cement rendered external walls of second-hand bricks, the builder has constructed the walls of new bricks of first quality the owner would not be entitled to the cost of demolishing the walls and re-erecting them in second-hand bricks." That tends to indicate that the test of "unreasonableness" is only to be satisfied by fairly exceptional circumstances.'
An example of such exceptional circumstances was stated to be closely aligned with a party 'merely using a technical breach to secure an uncovenanted profit' as referred to by Oliver J. in Radford v De Froberville [1977] 1 WLR 1262 at 1270
Having regard to the above authorities, we find that the adoption of Mr Xue's demolition and rebuild methodology was a reasonable course to adopt. This methodology ensured that after demolition the brickwork would be carried out in accordance with AS3700-2018. We find that it is not an exceptional circumstance for the owners corporation to have the face brick balustrade wall reconstructed with due care and skill in accordance with AS3700-2018.
As a result we find that the builder's appeal against the Senior Member's decision at [175] to find in favour of the owners corporation in the sum of $31,899.00 for 'Defective brickwork net cost' must be dismissed.

Ground 3 - Set off

We are satisfied that Ground 3 relied upon by the builder that the Senior Member failed to apply a set off to the damages found in favour of the owners corporation, raises an error of law for which no leave is required.
In its submissions the builder described its claim as an equitable set off. The set off was described as a claim for damages arising from the owners corporation's repudiation of the contract. More specifically it is asserted that the builder would have completed the contract works thereby becoming entitled to the final payment of $13,960.72. The builder's submissions also refer to the legal requirements for claiming an equitable set off.
At [23] above we referred briefly to the way in which the Senior Member addressed the builder's claim to deduct the sum of $13,960.72. The builder submits that at [180] of the decision the Senior Member fell into error by applying a wrong principle of law when she found that the builder failed to establish a factual and legal basis for the set off it was claiming.
The Senior Member referred to this at [180] of the decision when she stated: 'However, the builder has not explained the legal basis for its assertion that the $13,960.72 should also be deducted from the rectification costs, nor how the facts support its position. If, for example ….. Similarly, if the builder had successfully made a claim for loss of profits resulting from the owner's repudiation, then it would have been appropriate to deduct the amount from the rectification costs. However, a bare assertion that the monies should be deducted will not, without more, suffice. The builder needed to establish a legal and factual basis for this claim. It has not done so.'
The Senior Member did not find that the builder did not have an entitlement to claim an equitable set off. However she did find that the claim which was to be set off had to be more than a bare assertion and had to have a basis, both legal and factual.
A finding that the owner's corporation repudiated the contract and that the repudiation was accepted by the builder was made at [61] of the decision. At that point the contract was not capable of future performance. In those circumstances contrary to the builder's submission in this appeal, which was not put to the Senior Member, there was no possibility of the builder completing the contract works thereby becoming entitled to the final payment of $13,960.72. Nonetheless the builder would in those circumstances be entitled to claim damages for the loss of profit that it would have earned on the balance of the contract price, had it completed the works. The Senior Member recognized that when in the passage extracted above, she stated: 'Similarly, if the builder had successfully made a claim for loss of profits resulting from the owner's repudiation, then it would have been appropriate to deduct the amount from the rectification costs.'
We find that no such claim was made by the builder at first instance. We reject the builder's submission that after the acceptance of the repudiation, it had the right to set off the unclaimed balance of the contract price from any amount found in the owners corporation's favour. At best it had the right to claim the profit on that amount, that it would have earned had it completed the works.
We can discern no error on the part of the Senior Member when she rejected the builder's set off claim.
We reject this Ground of Appeal.

Orders

For the reasons set out above we make the following order: 1. Appeal dismissed.

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: 04 October 2024

Easy Trades Australia Pty Ltd v The Owners - Strata Plan No. 3844

At a glance

Court

Decision date

Source

Judgment (14 paragraphs)

Parties

Cases Cited (7)