EK Constructions Pty Ltd v Zhu

NCAT Appeal Panel|2017-02-27

Overview

On 14 October 2016 the Consumer and Commercial Division of the Tribunal ordered EK Constructions Pty Ltd (EK Constructions) to pay Mr Zhu $22,000 for the cost of rectifying defective building work. The dispute was about the installation of doors and windows at residential premises at Kenthurst NSW. The Tribunal was satisfied that EK Constructions had breached the implied warranty to do residential building work with due care and skill: Home Building Act 1989 (NSW), s 18B(1)(a). The Tribunal found that EK Constructions was not licenced to perform residential building work under the Home Building Act, and rectification work by EK Constructions was not the "preferred outcome": Home Building Act, s 48MA. EK Constructions has appealed to the Appeal Panel on three grounds: 1. the failure of the Tribunal to find that Mr Zhu did not have standing to make the application because he was not a party to the agreement between EK Constructions and Jim Yin Facility Services Pty Ltd (Jim Yin Facility Services); 2. the failure of the Tribunal to provide reasons for the findings relating to the defects at [14] of the decision; (characterised as a breach of procedural fairness); and 3. the failure of the Tribunal to accord any weight to EK Construction's expert evidence or in the alternative to offer EK Constructions the opportunity to apply for an adjournment; (characterised as a breach of procedural fairness).
The first ground relates to the Tribunal's jurisdiction and is a question of law about which EK Constructions has the right to appeal: Civil and Administrative Tribunal Act 2013 (NSW) (NCAT Act) s, 80. We have concluded that Mr Zhu did have standing to make the claim and that the Tribunal had jurisdiction. The second ground, although characterised as a breach of procedural fairness, relates to the adequacy of the reasons for the Tribunal's decision. That too is a question of law: TAG Aviation Pty Ltd v Kirk [2017] NSWCATAP 41. We have concluded that the Tribunal gave adequate reasons for its decision. The third ground is also characterised as a breach of procedural fairness. We have concluded that the Tribunal did not breach the rules of procedural fairness by giving no weight to EK Construction's expert evidence or by not offering EK Constructions the opportunity to apply for an adjournment. EK Constructions did not seek leave to appeal on any other ground: NCAT Act, s 80(2)(b). Consequently, the appeal is dismissed.

Standing of Mr Zhu to make the claim

EK Constructions submitted that the Tribunal made an error of law by hearing the application when Mr Zhu was not a party to the contract for residential building work. According to EK Constructions, the contract was between Jim Yin Facility Services and EK Constructions. Although Mr Zhu is a director of Jim Yin Facility Services, he was not a party to the contract and did not have standing to make the claim.
Neither party provided a full transcript of the hearing before the Member. In the appeal proceedings, each party sought leave to provide fresh evidence that had not been provided at the hearing.
EK Constructions relied on an affidavit from its director, Mr El Khafaji, dated 18 January 2017. Mr Zhu relied on his own affidavit dated 16 February 2017.
Mr El Khafaji's affidavit contained a document from "Jin Yin Facility Services Pty Ltd ABN 12 164 434 379" to EK Constructions dated 8 October 2015 with the title "Work Order". That document relevantly stated: "Please go ahead with your quote…to supply and install, remove and dispose…" doors and windows at the residential premises.
Mr Zhu's affidavit contained a property search showing that he and his wife owned the residential property as joint tenants.
At the hearing of the appeal, EK Constructions also tendered an unofficial transcript of part of the proceedings before the Member. The interaction was between the Member and Mr Zhu's daughter and concerned the fact that the quotations issued by EK Constructions were addressed to "Jin Yin Facility Services" rather than Mr Zhu.
At the hearing before the Tribunal below, the Member asked why the quote for the building work was addressed to Jim Yin Facility Services and not to Mr Zhu. Mr Zhu's daughter, who was his agent at the hearing, explained that Mr El Khafaji, the director of EK Constructions, had done a small job for Mr Zhu's business. She said Mr El Khafaji "had always known us as Jim Yin Facilities under the [address deleted] property which is owned by Mum and Dad". Mr Zhu's daughter went on to say that she had reminded her father that he should separate his residential property from his business activities.
The Tribunal made no specific finding as to the identity of the parties to the contract or as to the basis for any liability of EK Constructions to Mr Zhu. That was an error of law. It can be explained, in part, by the fact that EK Constructions did not tender the 'Work Order' dated 8 October 2015. We have decided to deal with this aspect of the appeal by way of a new hearing and permit relevant fresh evidence to be received on the issue of whether the Tribunal had jurisdiction if Mr Zhu was not a party to the contract: NCAT Act, s 80(3).

Relevant law

The Tribunal has jurisdiction in respect of a "building claim"; Home Building Act, s 48K. "Building claim" is defined under s 48A to include a claim for "the payment of a specified sum of money" … "that arises from the supply of building goods or services whether under a contract or not". The contract in this case was for residential building work. The statutory warranties by EK Constructions (a person required to hold a contractor licence before entering into a contract) are implied in every contract to do residential building work: Home Building Act, s 18. Under s 18B(1)(a), there is an implied statutory warranty that the residential building work performed under the contract or agreement will be done by the builder with due care and skill. If the work is performed without due care and skill, the party to the contract can sue for breach of the warranty implied in s 18B.
Section 18D(1A) extends the statutory warranties to a non-contracting owner: 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. (1A) A person who is a non-contracting owner in relation to a contract to do residential building work on land is entitled (and is taken to have always been entitled) to the same rights as those that a party to the contract has in respect of a statutory warranty. (1B) Subject to the regulations, a party to a contract has no right to enforce a statutory warranty in proceedings in relation to a deficiency in work or materials if the warranty has already been enforced in relation to that particular deficiency by a non-contracting owner. (2) This section does not give a successor in title or non-contracting owner of land any right to enforce a statutory warranty in proceedings in relation to a deficiency in work or materials if the warranty has already been enforced in relation to that particular deficiency, except as provided by the regulations. (Emphasis added.)
Under Schedule 1 to the Home Building Act (definitions) a "non-contracting owner" is defined as follows: non-contracting owner, in relation to a contract to do residential building work on land, means an individual, partnership or corporation that is the owner of the land but is not a party to the contract and includes any successor in title to the owner.

The evidence and findings

Mr Zhu gave evidence that because English is his second language, he relies on employees of the company to communicate with clients. Given that he had previous dealings with EK Constructions, he continued to communicate through employees of his company even though the job was a personal matter rather than a business matter. He instructed an employee of Jim Yin Facility Services, Ms Eileen Yang, to issue a work order dated 8 October 2015. According to Mr Zhu, Ms Yang "did not realise that the work order was in fact for a personal matter and mistakenly issued the invoice on company letterhead and used company funds to pay EK Constructions".
We note that the quote for the building work dated 31 January 2015 identified "Jim Yin Facility Services" as the client.
Other evidence which supports a finding that the contract was between EK Constructions and Jim Yin Facility Services were the tax invoices issued to "Jim Yin Facility Services" and the evidence of various amounts being credited to EK Construction's bank account under the description "Transfer from Jim Yin Facility (and then an Invoice number)".
On the basis of all the evidence we find that the contract was between Jim Yin Facility Services and EK Constructions.
But Mr Zhu was a non-contracting owner of the residential premises where the building work was performed. That finding is based on his statement dated 16 February 2017 saying that the and his wife are joint tenants of the residential property and the Title Search of the property.

Consideration

A non-contracting owner, "is entitled to the same rights as those that a party to the contract has in respect of a statutory warranty": Home Building Act, s 18D(1A). The statutory warranty has not previously been enforced by Jim Yin Facility Services so the exception in s 18D(2) does not apply.
Even though Mr Zhu was not a party to the contract, he is entitled to make a building claim in respect of breach of the statutory warranty under s 18B of the Home Building Act for the work performed by EK Constructions: Home Building Act, s 18D(1A). The Tribunal has jurisdiction to hear and determine that claim.
We consider the other grounds of appeal below.

Inadequate reasons

EK Constructions submitted that the Tribunal gave inadequate reasons for its finding at [14] that: For the reasons set out in the preceding three paragraphs, the tribunal accepts on the basis of the Applicant's Report, that the work has the defects set out at pages 4, 5, 6, 7 and 8 of the Applicant's Report that require remediation.
The reasons set out in [11], [12] and [13] were as follows: [11] The representative claimed to be licensed under the Act to perform the work and produced a licence to the Tribunal numbered 298600C. While the representative has a current carpenter's licence at present that licence is shown in the relevant records of home building licence holders (the Records) to have a start date of 12 July 2016 and end date of 11 July 2017. The Representative did not hold any licences until 12 July 2016 and the records show that the Respondent has never held a licence under the Act. [12] Both the Applicant and the Respondent tendered documents purported to be expert reports. (a) the Applicant's expert's Report (the Applicant's Report, which is at tab 2 of the Applicant's documents) prepared by Mr GJ Cousens is undated but states that he inspected the Premises on 16 July 2016. The Applicant's Report sets out the basis of Mr Cousens' opinion and his qualifications, including that he has held a builder's licence under the Act since 1998. The Applicant did not deny or challenge the Respondent's assertion that Mr Cousens was an employee of the Applicant. Mr Cousens, in evidence, acknowledged that he worked for the Applicant. In the Applicant's Report, Mr Cousens acknowledged that the Report was prepared in accordance with Schedule 7 of the Uniform Civil Procedure Rules which he had read and agreed to be bound by. In both the Applicant's Report, at page 9, and in his evidence to the Tribunal, he confirmed that he did not pursue any issue where the gap widths were less than 5 mm as such are aesthetic issues that require only redecoration. Mr Cousens also in evidence made reference to section 6.2 of the applicable Australian standard AS 2047 - "Windows and external glazed doors in buildings.' (b) The Respondent's expert's Report (the Respondent's Report, which is at tab 2 of the Respondent's documents) prepared by Mr Bill Alamein and dated 16 September 2016, is in the form of a letter addressed to the Registrar. It does not make reference to the Schedule last mentioned nor to NCAT Procedural Direction 3 Expert Witness 7 February 2014. Contrary to the requirement of the Schedule and direction last mentioned, this Report advocates for the Respondent and does not impartially Report observations and opinions or the basis on which the same were made. This document is of limited probative value. [13] The video evidence provided by the Respondent is of limited probative value. It purported to show how the observations made in the Applicant's Report were deficient. It did not. To refute the observations made in the Respondent's Report required more input than a video of the animated use of a spirit level, tape measure, the recording of the works and the operation of a door. Both the Respondent's Report and other evidence needed to demonstrate an objective and considered appraisal of the work. Considered appraisal in this context being the assessment by an impartial mind with qualifications and experience necessary to opine upon the work or to put forward evidence refuting the Applicant's claims that is of probative value.
The Tribunal has a common law duty to write reasons which are adequate: Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 279. Adequate reasons include a reasoning process which is "understandable and preferably logical as well": Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430 at 443-444.
Section 62 of the NCAT Act provides that: (1) The Tribunal (including when constituted as an Appeal Panel) is to ensure that each party to proceedings is given notice of any decision that it makes in the proceedings. (2) Any party may, within 28 days of being given notice of a decision of the Tribunal, request the Tribunal to provide a written statement of reasons for its decision if a written statement of reasons has not already been provided to the party. The statement must be provided within 28 days after the request is made. (3) A written statement of reasons for the purposes of this section must set out the following: (a) the findings on material questions of fact, referring to the evidence or other material on which those findings were based, (b) the Tribunal's understanding of the applicable law, (c) the reasoning processes that lead the Tribunal to the conclusions it made. (4) Nothing in this section prevents the Tribunal from giving oral reasons or a written statement of reasons for a decision it makes even if it has not been requested to do so by a party.
In TAG Aviation Pty Ltd v Kirk [2017] NSWCATAP 41 the Appeal Panel summarised the relevant principles at [28]: 28.The nature and extent of the reasons required are variable, depending on the circumstances of the particular case, Collins v Urban [2014] NSWCATAP 17 at [57]. However, the reasons should be sufficient to enable an aggrieved party to exercise any rights of appeal: see for example the cases referred to in Collins v Urban [2014] NSWCATAP 17 at [49] ff. Generally, the duty to give reasons, both under s 62(2) of the NCAT and generally at common law, includes the requirement for Members to state their understanding of the applicable law and the reasoning processes that led the Tribunal to its conclusions, see for example s 62(3)(b) and (c).
EK Constructions accepted that the Tribunal's reasons referred to the evidence at [11] - [13], but submitted that the reasons did not set out the findings on material questions of fact as required by s 62(3)(a) of the NCAT Act. One finding of fact that was not made was said to be whether the windows and doors had the defects claimed.
The Tribunal found at [14] that the building work had the defects set out at pages 4, 5, 6, 7 and 8 of the Applicant's Report. That was a finding on a material question of fact which referred to the evidence on which the finding was based. Those reasons were adequate.
EK Constructions also submitted that the Tribunal failed to explain in sufficient detail how it arrived at the conclusion that the works had defects that required remediation. The lack of detail meant that the parties were unable to tell whether the Tribunal had made an error of law in reaching its conclusion.
Having accepted the evidence as to the defects in the Applicant's Report, the Tribunal also impliedly accepted the expert evidence that, apart from aesthetic issues, those defects required remediation and the cost of rectifying them was $22,000.00. Those findings were consistent with the well established principles set out in Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613. The Tribunal also explained why it accepted the Applicant's Report and gave little or no weight to the Respondent's Report. The reasoning process was adequate.

Respondent's submissions

The final ground of appeal was that the Tribunal gave no weight to the expert report tendered by EK Constructions. EK Constructions characterised this ground as a breach of procedural fairness. The submission, as we understand it, was that the expert evidence was deficient in some respects and the Tribunal should have given EK Constructions a short adjournment to allow it to remedy those deficiencies. That was said to be necessary because EK Constructions was not represented by a lawyer, but by its director Mr El Khafaji.
The reasons for decision make it clear that at the hearing Mr Zhu sought leave to amend his claim by increasing the damages for the cost of rectification from $5,500.00 to $20,000.00 plus GST (i.e. $22,000.00). The Member said that he would only grant leave to amend if Mr El Khafaji consented. If Mr El Khafaji opposed the amendment, the Member indicated he would not amend the claim and Mr Zhu would have to either go ahead with the claim for damages of $5,500.00, or withdraw the proceedings under s 48I (2) of the Home Building Act and recommence the proceedings later. Mr El Khafaji consented to Mr Zhu's application to amend so that the proceedings could be dealt with at the hearing. EK Constructions did not ask for an adjournment to provide further expert evidence.
There is no breach of procedural fairness involved in considering evidence and then giving it little or no weight. Nor is the Tribunal obliged to offer a party an adjournment to improve on their expert evidence: Cameron v Ozzy Tyres Pty Ltd [2016] NSWCATAP 70 at [84]. Failure to offer an adjournment, even where no adjournment is sought, may constitute a denial of procedural fairness in certain circumstances: Italiano v Carbone [2015] NSWCA 177; Tiwari v Champion Homes Sales Pty Ltd [2016] NSWCATAP 73 at [4].
We are not satisfied that, in the circumstances of this matter, the failure of the Member to invite EK Constructions to apply for an adjournment so that it could fortify its case with further expert evidence is a denial of procedural fairness. EK Constructions had been given a reasonable opportunity to provide expert evidence that was expressed in an impartial manner.
Nor are we satisfied that the Tribunal gave inadequate reasons for its conclusion. The first reason for giving the evidence little or no weigh was that the expert had not complied with the Civil and Administrative Tribunal Expert Code of Conduct. Depending on the circumstances, that can be a legitimate basis for according a report little or no weight: Radcliffe v Tile Rescue Pty Ltd [2015] NSWCATAP 160 at [5] and [12]). Secondly, and more significantly, the Member was not satisfied that the opinion of EK Construction's expert was impartial. The report advocated for one party, rather than expressing an impartial view. In those circumstances it was open to the Member to give significantly reduced weight or no weight to that evidence.
No error of law has been established and this ground of appeal has not been made out.
EK Constructions did not seek leave to appeal on grounds other than a question of law, so it is unnecessary to consider whether leave to appeal should be granted on the basis of a substantial miscarriage of justice: NCAT Act, Sch 4, cl 12 (1) (a) - (c).

Costs

If successful, EK Constructions applies for costs of the appeal on the basis of the strength of the relative claims. Mr Zhu also applied for costs on the same basis.
The general rule in these kinds of cases is that each party pays their own costs: NCAT Act, s 60(1). Costs are not to be awarded unless there are "special circumstances": NCAT Act s 60(2) . The amount claimed or in dispute in the proceedings was less than $30,000.00, so r 38A of the Civil and Administrative Rules 2014 (NSW) that allow a costs order to be made in the absence of special circumstances does not apply.
"Special circumstances" are circumstances which are "out of the ordinary but without having to be extraordinary or exceptional" and each case depends upon its own facts: CPD Holdings Pty Ltd t/as the Bathroom Exchange v Baguley [2015] NSWCATAP 21 at [29]-[30]. Nothing either party put to the Tribunal constitutes special circumstances warranting an award of costs. Each application for costs is refused.

Orders

The appeal is dismissed.
The application by EK Constructions Pty Ltd for costs is dismissed.
The application by Mr Zhu for costs is 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: 09 May 2017

Civil and Administrative Rules 2014(NSW)

Home Building Act 1989(NSW)s 18D(1A), ss 18B, 18D, 48A, 48K, 48MA

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