Elias v Alloha Formwork & Construction Pty Ltd

Supreme Court of NSW|2017-10-20|Before: Ball J

Solicitors: Elias Gates & Associates (Plaintiffs) Mitry Lawyers (First and Second Defendants) Gilchrist Connell (Third Defendants) File Number(s): 2016/152816 Publication restriction: None

Introduction

The plaintiffs, Mr and Mrs Elias, operate a bakery in Belfield. Their native language is Arabic. Their English, particularly Mrs Elias's, is limited and both gave evidence through an interpreter, although it was apparent that Mr Elias could understand a number of questions addressed to him. Both Mr and Mrs Elias are unsophisticated in business and financial matters.
Mr and Mrs Elias bought their family home, which comprised a cottage in Rawson Road, Greenacre, in 2000. In 2010, they decided to knock down the existing home and construct a new one in its place. For that purpose, they engaged a firm of architects, Architek Pty Ltd, to prepare architectural plans. On or around 17 December 2010, Architek, on Mr and Mrs Elias's behalf, submitted a development application to Bankstown City Council for the demolition of their existing home and the construction of the new one.

Factual background

As I have said, the Bankstown City Council gave development consent to the new house on 11 January 2011. It was a condition of that consent (condition 27) that "[t]he building work must be carried out in accordance with the requirements of the Building Code of Australia, the provisions of the relevant Australian Standards and the approved plans".
There is a dispute concerning how Mr Farah came to be retained to prepare the structural drawings. According to Mr Elias, it was a meeting with the architect that his wife also attended. According to Mr Farah, it was in a telephone conversation with the architect. Nothing, however, turns on the resolution of that dispute.
Mr Farah prepared the drawings, which are dated April 2012, and dropped them off to Mr Elias at the bakery at the architect's request. It is common ground that Mr Elias paid Mr Farah for the drawings.
The drawings consist of four pages. The first page sets out the design of the footings for the ground floor slab. It contains the following note: SLAB 110MM THICK F72 TOP MESH SITE IN ACCORDANCE WITH AS2870 ASSUMED CLASS M. FOOTINGS HAVE BEEN DESIGNED FOR A S.B.C. OF 200kPa MIN BEARING ON STIFF CLAY.
The third page contains a design for the first floor suspended slab. It shows the walls above the slab as being double brick, which Mr Farah says was a mistake. The architectural plans in fact specified brick walls for the ground floor and brick veneer for the first floor.
The fourth page contains a number of construction notes including the following: GENERAL G1 THESE DRAWINGS SHALL BE READ IN CONJUNCTION WITH ALL ARCHITECTURAL AND OTHER CONSULTANT DRAWING AND SPECIFICATIONS AND WITH WRITTEN INSTRUCTION AS MAY BE ISSUED DURING THE COURSE OF THE CONTRACT. ALL DISCEPANCIES [sic] SHALL BE REFERRED TO THE ARCHITECT FOR DECISION BEFORE PROCEEDING WITH THE WORK. … G6 ANY CONFLICT BETWEEN THESE NOTES, THE SPECIFICATION OR THE DRAWINGS SHALL BE RESOLVED BY THE ENGINEER. G7 THE ENGINEER DOES NOT HOLD ANY LIABILITY OR IMPLIED LIABILITY FOR ANY OTHER PART OF THE STRUCTURE THAT IS NOT INCLUDED IN THESE DRAWINGS OTHER WRITTEN SITE INSTRUCTIONS. FOUNDATIONS F1 FOOTINGS HAVE BEEN DESIGNED FOR AN ALLOWABLE BEARING PRESSURE OF 200 Kpa ON UNIFORM VIRGIN MATERIAL F2 FOUNDATION MATERIAL SHALL BE APPROVED BY THE ENGINEER FOR THIS PRESSURE BEFORE PLACING REINFORCEMENT OR CONCRETE CONCRETE … C6 CONSTRUCTION JOINTS WHERE NOT SHOWN SHALL BE LOCATED TO THE APPROVAL OF THE ENGINEER
Attached to the architectural drawings were specifications for the required work. Under the heading "Excavation" the specifications stated, among other things, that: The site is to be excavated and filled, to form even grades, to the reduced levels shown on the drawings. Filling is to be well consolidated.
Mr and Mrs Elias met with Mr Boumelhem at the bakery in November 2012. At that meeting, they provided him with copies of the plans and specifications and asked him to provide a quote. Mr Boumelhem agreed to do so. During their first meeting, Mr Boumelhem suggested that they get the provisional cost (PC) items from China and said that he would bring some brochures so that Mr and Mrs Elias could choose the items they wanted. They met on a number of subsequent occasions during which Mr and Mrs Elias made their selections. Mr Elias's uncontradicted evidence is that Mr Boumelhem marked their selections in the brochures he had shown them.
Following those meetings, Aazzo Formwork & Construction Pty Ltd sent Mr Elias a quotation dated 3 December 2012. It appears that Aazzo is a company associated with Mr Boumelhem's brother. The quotation was described as a "Lump Sum Quotation of $512,000". It was signed by Mr Boumelhem as "Director", although the evidence is that he was not. The quotation contained a short description of the work in bullet point form including the following: Kitchen (standard) $10,000 Bathrooms (standard) Tiles - $20/m2 It concluded with the statement "Everything as per plans".
Mr Elias spoke to Mr Boumelhem shortly after receiving the quote and accepted it. Mr Boumelhem agreed to prepare the contract.
There was a further meeting between Mr and Mrs Elias and Mr Boumelhem on 4 March 2013. Mr Boumelhem took two copies of the contract to the meeting. The contract was in the form published by Fair Trading NSW for work over $5,000. It stated that the contract price was $512,000, that the contractor was Alloha and that the work was to be carried out at the Rawson Road premises, although no plans were attached. The contract also stated that the insurer providing home warranty insurance, which was required by the Home Building Act 1989 (NSW) (HBA), was "QBE Insurance P/L". In fact, although Alloha held a building licence covering the period from 14 February 2013 to 13 February 2014, it was a condition of its licence for the period 31 December 2013 to 13 February 2014 that the licence only covered building work not requiring home owner's warranty insurance. Moreover, notwithstanding what the contract said, no home owner's warranty insurance had been obtained by Alloha from QBE Insurance.
The clause dealing with the time for completion (cl 6) was not completed. Nor were the clauses identifying what allowances had been made for provisional sum (cl 10) and PC (cl 11) items. However, cl 12, dealing with progress payments, was completed. It specified a total of eight progress payments including payment no 4 of 25 percent to be made at "lock up" and a final payment no 8 of 10 percent on completion of the building works.
It appears that Mr and Mrs Elias and Mr Boumelhem initialled each page of one copy of the contract. Curiously, however, both Mr and Mrs Elias deny that the signatures in the box for the "Owner's signature" are theirs. In addition, the signature in the box for "Contractor's signature" does not appear to be Mr Boumelhem's. Despite those matters, it seems clear that on 4 March 2013 Mr and Ms Elias and Mr Boumelhem on behalf of Alloha entered into a contract for the building work which was the subject of the Aazzo quote dated 3 December 2012. Mr and Mrs Elias accept that they initialled each page of the contract. There is nothing to suggest that the initials on each page are not those of Mr Boumelhem. The contract clearly relates to the work the subject of the quote, and following signature of the contract Alloha commenced the work contemplated by the quote and sent invoices to Mr and Mrs Elias for that work.
Mr Elias sent a copy of the contract to Westpac in support of an application for a construction loan. On 6 March 2013, Alloha provided Westpac with a document described as a "SCHEDULE OF FINISHES". That document set out some additional information concerning the proposed building work. It also appears that Mr Boumelhem provided Westpac with what purported to be a certificate of insurance from QBE. However, it is apparent from the evidence that that certificate was a forgery.
The loan was refused by Westpac. However, on 31 May 2013, Mr and Mrs Elias borrowed approximately $222,000 from their existing bank, St.George.
Demolition work commenced in about August 2013 and on 30 August 2013 Aazzo sent Mr Elias what was described as claim no 1 for demolition work, which Mr Elias paid.
On 1 November 2013, NSW Fair Trading issued an owner-builder permit addressed to Mr Elias for the premises at Rawson Road, Greenacre, authorising the demolition of existing structures and the construction of a new two‑storey dwelling. There is a dispute about how that came about. Mr Elias denies that the signature on the application for the permit was his or that he was aware that he had applied for and been granted an owner builder permit. He accepts, however, that at Mr Boumelhem's request he signed a statutory declaration in support of an application for the permit, although he says he did not understand the purpose of the document that he signed.
On the other hand, according to a statement provided to NSW Fair Trading by Mr Samir Sallit, an architectural designer, which was admitted into evidence without objection, Mr Sallit was introduced to Mr Elias by Mr Boumelhem at a meeting at Mr Sallit's home in about October 2013. At that time, Mr Boumelhem asked Mr Sallit to prepare amended plans for the new dwelling at Rawson Road, which he agreed to do. At the same time, Mr Boumelhem also persuaded Mr Sallit to complete an on-line owner builder course for Mr Elias. Mr Elias denies that he has ever met Mr Sallit.
I prefer the evidence of Mr Sallit to that of Mr Elias on this issue. There is no reason for Mr Sallit not to tell the truth in his statement about meeting Mr Elias, and his account of what happened seems plausible. As I will explain, amendments were made to the design of the house; and despite Mr Elias's denials, it is not plausible that those changes were made except at his and his wife's request. There may be a question concerning the extent to which Mr Elias appreciated the significance of obtaining an owner builder licence. However, I accept the submission made by Mr Pickles SC, who appeared for Mr and Mrs Elias, that Mr Boumelhem appreciated that Alloha was prevented from undertaking the building work itself. In particular, the effect of s 81A of the Environmental Planning and Assessment Act 1979 (NSW) (EPA) was that work on the new house could not commence unless Mr and Mrs Elias notified the PCA either that they would carry out the building work as owner builder or that they had appointed a principal contractor who was licensed to carry out that work, which Alloha was not. It is apparent from the evidence that once an owner builder permit had been issued in Mr Elias's name, Mr Boumelhem arranged for the appointment of DM Certifiers as the PCA and arranged for it to issue a construction certificate, which showed Mr Elias as the builder. The likelihood is that DM Certifiers would not have accepted the appointment and would not have issued the building certificate if they had known that Alloha was the builder.
Building work commenced on 5 November 2013.
Shortly afterwards, on or around 8 November 2013, Mr and Mrs Elias flew to China with Mr Boumelhem to select various items for the house. During that visit, Mr and Mrs Elias ordered two container loads of PC items. According to Mr Elias's uncontradicted evidence, the total price they paid for items for their home was $111,640. Mr Elias gives evidence that during their trip he asked Mr Boumelhem whether the PC items were included in the contract and Mr Boumelhem replied that they were.
On 3 December 2013, Mr Farah, at Mr Boumelhem's request, issued a certificate of structural design. The certificate was in the following terms: This is to certify that the design is in accordance with normal engineering practices, meets the requirements of the BCA. I am appropriately qualified and competent in this area and as such can certify the design and performance of the design systems and which are detailed on the following drawings: Sheets 1 of 4 to 4 of 4 It appears that the certificate was required in order to obtain a construction certificate from DM Certifiers.
On 12 December 2013, DM Certifiers issued a construction certificate which was lodged with the Bankstown City Council on 16 December 2013. The construction certificate was issued in the name of "Toni & Saidi Elias C/- McRae Pty Ltd". It gave their address as "22 Juno Parade Greenacre" and listed a contact mobile number that appears to be the number of an employee or contractor of Alloha. On the same day, DM Certifiers issued a notice recording that it had been engaged as the PCA. The notice stated that the builder was "Toni Elias". It set out the mandatory critical stage inspections. For the reasons I have given, none of this was evidence that it had been agreed between Mr and Mrs Elias and Mr Boumelhem that Mr and Mrs Elias would take over the role of builder from Alloha. Although an owner builder permit was issued to Mr Elias, to Mr Boumelhem's knowledge, Mr Elias had not completed the relevant course and knew nothing about being an owner builder. Rather, what happened was done in order to deceive DM Certifiers into issuing a construction certificate.
Building work continued from December 2013 until at least April 2014. During that time, Alloha rendered a number of invoices, which Mr and Mrs Elias paid.
Significant changes were made to the design of the house as built, including amendments to the roof, changes to the rear patio, changes to window locations, the addition of an ensuite bathroom to one of the first floor bedrooms and the deletion of part of the ground floor formal dining room. In addition, the first floor has been constructed out of double brick rather than brick veneer and the external walls have been constructed as cement rendered masonry rather than "Boral Bricks Cream Rockface", as specified in the approved plans. With one exception, Mr and Mrs Elias say that none of those changes were made with their consent. Mr Elias accepts that he noticed at least some of the changes on his frequent inspection of the progress of the building work. However, he says that since the work had already been done there was no point in him raising them with Mr Boumelhem. DM Certifiers was never asked to conduct any inspections of the building work including stages where a mandatory inspection was specified.
I do not accept Mr and Mrs Elias's evidence that they did not agree to the changes. A number of the changes added to the cost of the building work. It is inconceivable that Alloha would have undertaken those changes on its own initiative. As I have said, Mr Sallit said in his statement that was admitted into evidence that he was asked to prepare amended plans at a meeting with Mr Boumelhem and Mr Elias, which is what he did. I accept that evidence. The final plans prepared by Mr Sallit are not in evidence. However, it is reasonable to infer that the changes that were made to the house were made in accordance with those plans either on the instructions of Mr Elias or with his consent.
The one exception relates to the render. Mr Elias accepted in cross-examination that he agreed to a change to the external façade but only because Mr Boumelhem had advised him that the face bricks they wanted were not available. Mr Elias gave the following evidence: Q. The original design required face bricks. Do you understand what face bricks are? A. WITNESS: Yeah. A. INTERPRETER: Yes. Q. Subsequently you changed the type of bricks to be used, by direction to Mr Boumelhem? A. INTERPRETER: Mr Boumelhem told me that there is no more that kind of bricks, they are not-- A. WITNESS: No company make it. A. INTERPRETER: They don't make it any more. Q. Face bricks, so you agreed to change the type of brick? A. INTERPRETER: Yeah, he told me that they don't make it any more and I was asking for white brick, so I yeah, what I'm supposed to do? Q. You agreed that the type of brick would change? A. WITNESS: Yeah. A. INTERPRETER: He told me, like, rendering it's better, but to render it, it's better. I interpret this evidence as saying that Mr Elias accepted Mr Boumelhem's advice that render was better once he was told that the face bricks that it was originally planned to use were no longer available.
Mr Pickles submitted that Mr Elias only agreed to a change in render because he was misled about the availability of face bricks. In support of that submission, he relied on evidence given by Mr Dietrich that it would be possible to replace the render with an approved brick similar to "Boral Cream Rockface Bricks". However, that evidence does not establish that the original face bricks are still available, only that similar bricks are. Consequently, it does not establish that what Mr Boumelhem said in relation to the availability of the bricks that were originally specified was misleading.
Mr Farah inspected the site at the request of Mr Boumelhem on four occasions in 2014 during the time that building work was progressing. On the first, he was asked to inspect the footings, on the second he was asked to inspect the on-ground slab, on the third he was asked to inspect the first floor suspended slab and on the last occasion he was asked to inspect the roof. Mr Farah says that he carried out the inspection in each case, although he has no records of doing so. He says that on the first three occasions he checked what he saw against his structural drawings and found the work to have been carried out in accordance with those drawings. He gave evidence that it was his practice only to take photographs and make notes of any discrepancies with the drawings as a record of what he would need to check on a follow-up inspection of rectification work. Mr Farah inspected the roof to check compliance with AS1684, which relates to timber framing. Although Mr and Mrs Elias submitted that Mr Farah had not carried out the inspections, there is no reason to doubt his evidence in that regard and I accept it.
Mr Elias arranged for his brother, Mr Elias Elias, who is a tiler, to do the tiling in the house. Mr E Elias's evidence is that he did that work in the first half of February 2014. He was only able to do the first floor because building work had not finished on the ground floor. He gave evidence that he has not charged for his work but that if he did he would have charged $15,250 for the work he has done. In cross-examination, he said that he had delayed sending an invoice until the work was complete.
In or about March or April 2014, it became apparent to Mr Elias that he would need further funds to complete the building work. He rang a mortgage broker, Mr John Bazouni, who had assisted him in arranging the loan with St.George Bank, to see whether he could arrange a further loan. Ultimately a loan for $900,000 was arranged with NAB. That loan was approved in late April 2014 and was used, in part, to pay out Mr and Mrs Elias's existing loan with St.George.
At about the time the loan was approved, Mr Boumelhem spoke to Mr Elias and said that he needed $40,000 to continue work. Mr Elias arranged for that amount to be paid on or around 16 May 2014 out of the NAB loan. According to Mr Elias, about two days after that a gyprocker went to the site and worked for about four days. That was the last work done on the job despite persistent requests made by Mr Elias to Mr Boumelhem to resume work.
Mr Elias gives evidence that in late June or early July 2014 he had a further conversation with Mr Boumelhem in which Mr Boumelhem said that if Mr Elias could make the payment due at lock-up stage, he would finish the work. Following that, on 10 July 2014 Alloha sent two progress claim certificates to NAB for payment. One was for $76,800 for framing. The other was for $128,000 to cover work to lock-up. Both were purportedly signed by Mr and Mrs Elias, although both deny that the signatures on the certificates are theirs. That evidence seems likely when a comparison is made between the signatures on the documents and their actual signatures; and there is no reason for Mr Elias to deny that the signature on the progress claim certificate for $128,000 was his when it is part of his case that he agreed to that payment in exchange for Mr Boumelhem agreeing that Alloha would return to the site to complete the job.
Mr Elias's evidence is that he had already paid the invoice for $76,800 in cash. NAB paid $119,360 in respect of the other claim on 28 July 2014. Mr Elias gave evidence that, despite that payment, Mr Boumelhem refused to recommence work.
On 5 August 2014, Elias Gates & Associates, who had been instructed to act for Mr and Mrs Elias, sent an email to Mr Boumelhem asking when Alloha would resume work. Mr Boumelhem replied to that email the following day asserting that lock-up stage had been reached. Subsequently, Mitry Lawyers, who had been engaged by Alloha, wrote to Elias Gates & Associates on 27 August 2014 asserting that Alloha had only been paid the sum of $302,360.00 and asserting that their client had ceased work when it became clear that Mr and Mrs Elias had no intention of paying the amounts owing under the contract. Following that letter, Mr and Mrs Elias commenced proceedings, originally in the NSW Civil & Administrative Tribunal.
After work ceased on the site, Mr Elias says that he contacted another builder about completing the work. According to Mr Elias, the builder told him that he would not be able to continue the work until he knew what stage the works were up to, what inspections had taken place and what certificates had been produced.
Following that conversation, Mr Elias contacted Mr Farah concerning the inspections he had undertaken and asked for a certificate relating to them. Mr Farah provided that certificate (referred to earlier as the "second certificate") to Mr Elias on 12 August 2014. The certificate was in the following terms: This is to certify that an inspection was carried out at the above site to the reinforcements of the structural elements prior to pouring of concrete. At every inspection the sizes of the structural components (Footings, slab on ground and suspended slabs) and the laid steel reinforcements were in accordance with the engineer's design, instructions and AS 3600 and approval was given for the pouring of concrete.
On 27 January 2015, Elias Gates & Associates wrote to DM Certifiers asking them whether they would be prepared to provide an occupation certificate. Mr Di Matteo replied on 28 January 2015 in the following terms: 1) Providing all legislative requirements are met I am willing to issue an Occupation Certificate, it being noted no critical stage inspections or non-critical stage inspections have been carried out by my office. 2) Particular certification required would be as follows, however this subject to change following an inspection being carried out at the subject address: a. Missed inspection report forms for all missed critical stage inspections. b. Smoke alarm certification. c. Pest protection certification. d. Waterproofing certification. e. Glazing certification. f. BASIX certification. g. Glazing certification. h. Surveyors report and diagram. i. BCA report for the as constructed works. j. Structural Engineers certification for concrete footings, ground floor concrete slab(s), first floor suspended slab(s), masonry, timber framing, structural steel framing. k. Hydraulic Engineers certification for the stormwater system. l. Work permit compliance certificate as per condition 36 of the development consent. m. During construction photographs (if available).
In February 2016, Mr and Mrs Elias, through their solicitors, engaged Jay Design to make an application pursuant to s 96(1A) of the EPA for modification to the development consent. The application sought approval to build the house in its as-built state except for the substitution of render for face bricks. That modification was granted on 6 April 2016. Jay Design charged Mr and Mrs Elias $3,866.00 for that work.
Since their house was demolished, Mr and Mrs Elias have lived in rented accommodation. From 20 July 2013 to 16 July 2015 they paid rent of $450 per week for a property in Belfield, making a total of $47,250. From 24 July 2015 until the present they have paid rent of $1,300 per fortnight.
The unchallenged evidence of Mr Elias is that he and his wife have made the following payments in respect of the building work: 1. $326,960.00 to Alloha 2. $111,640.00 for the items purchased in China; 3. $8,738.14 paid directly for materials used by Alloha.

Claim against Alloha

On the factual findings I have made, there was a building contract between Alloha and Mr and Mrs Elias for the construction of the house in accordance with the plans and specifications prepared by Architek. That contract was varied in conversations between Mr Elias and Mr Boumelhem to include the modifications prepared by Mr Sallit and to replace face bricks with render.
It was not disputed that the contract was a contract to perform "residential building work" within the meaning of the HBA, that Alloha was required to hold a contractor licence in respect of that work and that, as a result, the following warranties, among others, were implied into that contract by s 18B of the HBA: (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, (b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new, (c) a warranty that the work will be done in accordance with, and will comply with, this or any other law, (d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time,
On the findings I have made, there can also be little doubt that Alloha repudiated the building contract by refusing to complete the work: see Wesiak v D&R Constructions (Aust) Pty Ltd [2016] NSWCA 353. Nor can there be any doubt that Mr and Mrs Elias accepted that repudiation, at least by the time that they commenced proceedings. In the normal course of events, Mr and Mrs Elias would be entitled to recover from Alloha the costs of completing the work less any amount owing by them under the contract. They are also entitled to recover the costs of rectifying any defects as damages for breach of the warranties implied by s 18B(a) and (c) of the HBA. Lastly, they are entitled to recover any loss they have suffered as a consequence of the house not being completed within a reasonable time as damages for breach of the warranty implied by s 18B(d) of the HBA.
Mr Phillips SC, who appeared for Alloha and Mr Boumelhem, and who was faced with the difficult task of defending Mr and Mrs Elias's claim without any evidence, raised a number of points in answer to it.
First, Mr Phillips submitted that the contract could not have been a fixed price one. He pointed to the fact that the parties were unsophisticated, that in China they chose more expensive items than those originally contemplated by the quote and that other variations were made to the building work without any adjustment to the price. The parties could not have intended in those circumstances that the price be a fixed one.
I do not accept that submission. The agreement between the parties was obviously poorly documented. However, the quotation made it clear that it was a quotation for a "Lump Sum" contract. The quotation was prepared after Mr and Mrs Elias had selected the finishes they wanted. It is apparent that those selections and the plans and drawings formed the basis of the quote that Mr Boumelhem prepared. There is no evidence of what choices concerning finishes were originally made by Mr and Mrs Elias. However, it may be inferred that the schedule of finishes that was sent by Alloha to Westpac on 6 March 2013 reflected those choices. The fact that Mr Boumelhem kept a record of the choices made by Mr and Mrs Elias may also explain, at least in part, why the parties thought that it was unnecessary to complete cls 10 and 11 of the contract dealing with provisional sum and PC items.
The contract itself specified a contract price of $512,000 and set out when that amount was to be paid. Next to the specification of the price was a warning that the price could increase in accordance with the terms of the contract. But it is plain that the contract was for a fixed price subject to changes in accordance with the contract. It was open under the contract for Alloha to seek variations to the price in respect of agreed variations to the work. In my opinion, it must bear the consequences of not doing so.
Mr Phillips also submitted that, even if the contract was a fixed price contract, the contract price did not include the PC items bought in China. I do not accept that submission. There is nothing in the contract itself which states that the cost of the PC items was not included in the contract price; and the suggestion that that is what the parties intended is inconsistent with their conduct. Mr Boumelhem raised the idea of obtaining the PC items in China at his first meeting with Mr and Mrs Elias and presumably prepared his quote on the basis that that is what would happen. It is apparent that the quote covered those items. The allowance it made for tiles is a clear example. Although the contract does not specifically say so, the scope of the work that it covered must be the same as the scope of the accepted quote that the contract sought to document. If the ultimate price of the items acquired in China was greater than the amount Mr Boumelhem had allowed for because the quality of what was chosen was superior, that may have entitled Alloha to a variation of the contract. However, there is no evidence that it sought any such variation.
Mr Phillips's second point relates to the upstairs tiling undertaken by Mr E Elias. Mr Dietrich's evidence is that the tiling work in the upstairs bathrooms is defective because there are defects in the waterproofing and the fall in the bathrooms is inadequate. His evidence is that those defects can only be rectified by stripping out the bathrooms and redoing them. Mr Phillips submits that Alloha should not be liable for those costs either because the tiling work was not defective or because the tiling work was done pursuant to a special arrangement between Mr Elias and his brother.
I do not accept that submission.
I accept Mr Dietrich's evidence concerning the defects in the upstairs bathrooms. There is no reason to doubt his evidence. He physically inspected the bathrooms. He came across as a careful and competent expert witness. Mr E Elias naturally had a personal interest in defending the quality of the work that he had done.
There is no evidence before the court on how Mr E Elias came to be engaged. It was natural for Mr Elias to make arrangements for his brother to be engaged to do the tiling work. However, whether that was for Mr Elias's benefit because he would receive a reduction in the cost of the work through some adjustment to the price or whether it was for Mr E Elias's benefit because he would obtain a substantial job that he would not otherwise obtain is unclear from the evidence. Whatever the position, it does not alter the fact that Alloha was responsible for the tiling work under the contract. There is no evidence that that position was changed as a result of an agreement between Alloha and Mr and Mrs Elias. Consequently, any defect in the tiling work is a breach of the statutory warranties implied in the contract for which Alloha is liable. In the result, the fact that Mr Elias's brother did the tiling work does not affect the contract price or Alloha's liability for defects in that work.
The third point raised by Mr Phillips concerns the costs of replacing the rendered façade with face bricks. Mr Phillips submits that Alloha should not be liable for the cost of that work because Mr Elias agreed to the change.
I accept that submission. Mr Elias accepts that he agreed to the render. For the reasons I have given, the evidence is insufficient to establish that he was misled into doing so. There is no basis for thinking that Mr and Mrs Elias could not get a variation to the development approval in respect of the render. The evidence is that both face bricks and render are used on other houses in the neighbourhood.
According to Mr Dietrich, the total cost of replacing the render is $240,955.73. However, at the end of his evidence, he volunteered that those costs included rectifying a number of defects with the brickwork that would need to be undertaken whether the render was replaced or not. He gave evidence that he had costed that work in earlier versions of his report at approximately $120,000, but had not included those costs in his final report because he had been instructed to proceed on the basis that the render would be replaced. Again, there is no reason to doubt Mr Dietrich's evidence. On the basis of that evidence, I would not permit Mr and Mrs Elias to recover the costs of replacing the render but would permit them to recover the costs of repairing the defects with the brickwork. On that basis, they are entitled to recover $221,853.45 in relation to defect rectification work (that is, $342,809.18 less $240,955.73 plus $120,000).
The last issue raised by Mr Phillips relates to the items bought in China and the extent to which Mr Dietrich has made allowance for those in preparing his estimate of the costs to complete the house. Clearly, it would be double counting if Mr Dietrich included in his costs estimate the costs of an item that has already been purchased and is available to be used to complete the building work.
The evidence in relation to this issue is not in a satisfactory state, through no fault of Mr Dietrich's. Mr Dietrich did observe tiles on the site and has assumed that they can be used to complete some of the tiling work and consequently has not included the costs of those tiles in his estimates. He has, however, included the cost of replacement tiles in the upstairs bathrooms, on the basis (which seems reasonable) that the number of tiles acquired in China would not be sufficient to replace those that have already been used. However, Mr Dietrich has not made an allowance for any of the other items he says are required to complete the building work. Most of the relevant items are stored in the garage on-site in substantial sized containers that were not accessible when Mr Dietrich visited the site. Mr Dietrich was given a list of the items bought in China. A copy of that list was not attached to his report. When Mr Phillips called for the list, Mr and Mrs Elias produced a list which contains an inadequate description of the items in question. It is not surprising then that Mr Dietrich did not make allowance for any items purchased in China other than the tiles.
When this issue came up during the trial, Mr Pickles accepted that some further allowance needed to be made for the items purchased in China. He provided the court with a handwritten document setting out the allowance proposed by Mr and Mrs Elias. There is, however, no evidence to support that list. According to the list, Mr and Mrs Elias submit that a further allowance of $48,002 should be made for items bought in China.
Although the position is not satisfactory, I have concluded that the approach taken by Mr and Mrs Elias provides the best estimate of their damages in the circumstances. The total amount spent by Mr and Mrs Elias in China on PC items was $111,640.00. Some of those items have already been installed in the house (such as tiling). Mr Dietrich has taken into account the fact that other tiles are available in preparing his estimate and Mr and Mrs Elias have allowed a further $48,002. When added together, the cost of those items is likely to come close to the $111,640. In addition, Alloha has not sought to identify other items included in Mr Dietrich's calculations that it might have been expected would have been acquired in China. Consequently, if the amount of $48,002 is deducted from Mr Dietrich's figures, the risk of double counting should be small. It follows that Mr and Mrs Elias are entitled to recover $447,050.10 (that is $495,052.10 less $48,002) in respect of the costs to complete.
That leaves the question of delay costs. Mr and Mrs Elias make a claim for delay costs of $135,800. That amount is calculated by assuming that if Alloha had complied with its contractual obligations the house would have been ready for occupation by 31 December 2014. If work is resumed in the near future, it is not expected to be completed until December 2018. Mr and Mrs Elias have paid rent of $450 per week from 31 December 2014 to 16 July 2015, making a total of $16,200. Since August 2015, they have paid rent at the rate of $650 per week, which is said to involve a total payment of $109,600 until 31 December 2018 (it may be slightly more depending on precisely when Mr and Mrs Elias commenced paying rent). Implicit in this submission is the assumption that Mr and Mrs Elias have not had the financial resources to undertake the required work, and that that fact provides an answer to any submission that they have failed to mitigate their loss by failing to undertake the work earlier. Mr and Mrs Elias submit that delay costs should be apportioned between Alloha and Mr Farah in a way the court thinks fit.
The submission that, if Alloha had complied with its contractual obligations, the house would have been completed by 31 December 2014 is consistent with the expert evidence given by Mr Dietrich and Mr Zakos, an expert builder who gave evidence for Mr Farah. Both also agreed that it would not be practical to recommence work until February 2018. Mr Dietrich estimated that the remaining work would take a year to complete. Mr Zakos did not disagree with that estimate. It follows that it is reasonable to proceed on the assumption that the house will not be ready for occupation until 31 December 2018.
Mr Phillips cross-examined Mr Elias extensively on his financial affairs with a view to demonstrating that Mr Elias was not a credible witness. However, it was not put to Mr and Mrs Elias, and nor was it submitted, that they had the financial resources to do the work necessary to obtain an occupation certificate at any time before now. Equally, however, Mr and Mrs Elias did not lead evidence to the effect that they did not have the financial resources to complete the work. However, in my opinion, that is a reasonable inference to draw. Mr and Mrs Elias were obviously cost conscious. They had some difficulties in obtaining financing to undertake the construction work. The house is intended to be their family home. It is unlikely that they would delay its completion unless they had to.
It appears to be accepted since the decision of the House of Lords in Lagden v O'Connor [2004] 1 AC 1067; [2003] UKHL 64 that a plaintiff's impecuniosity must be taken into account in determining what loss is a reasonably foreseeable consequence of the defendant's wrongful conduct. As Lord Hope of Craighead observed at [61] (see also at [6] per Lord Nicholls of Birkenhead): But it is clear that … the correct test of remoteness today is whether the loss was reasonably foreseeable. The wrongdoer must take his victim as he finds him … The rule applies to the economic state of the victim in the same way as it applies to his physical and mental vulnerability. It requires the wrongdoer to bear the consequences if it was reasonably foreseeable that the injured party would have to borrow money or incur some other kind of expenditure to mitigate his damages. That decision has been applied by the Court of Appeal: see Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 at [192] per Handley JA; [254] per Giles JA.
Consistently with the principle stated in Lagden, a plaintiff should be entitled to recover any additional damages the plaintiff suffers because he or she is unable due to impecuniosity to take steps to mitigate the loss that the plaintiff suffers as a consequence of the defendant's wrongful conduct. In the present case, that loss takes the form of rent payable by Mr and Mrs Elias because they are not able to move to their new home.
In my opinion there is no basis for apportioning the delay costs between Alloha and Mr Farah if Mr Farah has some liability for those costs. The claim against Alloha is not an apportionable claim. Alloha is responsible for the whole of the delay. Consequently, it should be liable for all of the delay costs. Of course, if Mr Farah is also responsible for those costs, Mr and Mrs Elias cannot recover for the same loss twice. However, they would be entitled to recover those costs from whichever defendant they chose, leaving that defendant to bring a claim for contribution.
It follows that Mr and Mrs Elias are entitled to recover the sum of $804,703.55 ($221,853.45 plus $447,050.10 plus $135,800.00) from Alloha.

The claim against Mr Boumelhem

Mr Boumelhem is alleged to have engaged in misleading and deceptive conduct in breach of s 18 of the ACL in a number of respects. Three, however, appear to be critical to Mr and Mrs Elias's case. The first is that Mr Boumelhem represented that Alloha was licensed to carry out residential building work and had obtained home warranty insurance from QBE when it had not. The second is that Mr Boumelhem represented that the work was being undertaken by Mr and Mrs Elias as owner builders when it was not. The third is that Mr Boumelhem represented that Alloha would complete the work if Mr and Mrs Elias paid the amount due when the work had reached lock-up stage, whereas Alloha never did.
In my opinion, the first representation was made. Quite apart from anything Mr Boumelhem might have said, the representation was implicit in the fact that he provided a quote for the work and prepared a contract in the name of Alloha, which he initialled and which represented that Alloha had home warranty insurance from QBE.
Mr and Mrs Elias do not give specific evidence that they relied on the representation in agreeing to retain Alloha to undertake the building work. There may be a question whether they appreciated that some of the things that they were asked to do were done to overcome regulatory restrictions on Mr Boumelhem or Alloha performing the work. However, as I have said, they were unsophisticated in business matters, their English was limited and, in my opinion, it is most unlikely that they would have agreed to Alloha undertaking the work if they had appreciated that they would not have the benefit of home warranty insurance. Moreover, at least one of the purposes of the representation was to induce Mr and Mrs Elias to agree to the contract. In those circumstances, reliance can be inferred: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 at [55] (French CJ and Crennan, Bell and Keane JJ); see also Redmond Family Holdings v GC Access Pty Ltd [2016] NSWSC 796 at [84] (Black J).
As to the representation that the work was being undertaken by Mr and Mrs Elias as owner builder, it seems plain that Mr Boumelhem was dealing with DM Certifiers to obtain a construction certificate and that he made the representation to them. They unquestionably relied on the representation in issuing the construction certificate; and if the construction certificate had not been issued the building work would not have proceeded. It appears that Mr Elias was present when Mr Boumelhem asked Mr Sallit to complete the owner builder course on Mr Elias's behalf and, as I have said, Mr Elias completed a statutory declaration in support of the application for an owner builder permit. However, the evidence is insufficient to establish that he was anything other than an unwitting participant in the conduct that misled DM Certifiers. It is true that Mr and Mrs Elias did not themselves rely on the representation in proceeding with the building work. However, that is not necessary. It is sufficient if they suffered loss as a consequence of the reliance by DM Certifiers: see for example Hampic v Adams [1999] NSWCA 455 at [35] (Mason P and Davies AJA, with whom Giles JA agreed on this point).
As to the representation concerning payment, in the absence of evidence to the contrary from Mr Boumelhem, I accept Mr Elias's evidence that the representation was made. It seems entirely plausible that Mr Elias was pressing Mr Boumelhem to complete the work and it is entirely plausible that Mr Boumelhem asked for more money before doing so. In my opinion, it is not open to Mr Boumelhem to submit that Mr Elias did not rely on the representation. It may be that, in fact, Mr Elias did nothing on the basis of the representation because, on the findings I have made, Mr Boumelhem managed to procure NAB to make the additional payment by presenting a progress claim certificate which contained Mr Elias's forged signature. But accepting that that is what happened, it is not open to Mr Boumelhem to contend there was no reliance by Mr Elias. The inference must be that Mr Boumelhem forged Mr Elias's signature because he believed that Alloha was entitled to the money as a result of what Mr Elias had said. Mr Elias said what he did because of Mr Boumelhem's representation.
Nor is it open to Mr Boumelhem to submit that Alloha was entitled to the payment in any event under the building contract. The building had not reached lock-up stage and consequently the payment was not due under the contract.
The first two representations were obviously misleading. If they had not been made, Mr and Mrs Elias would not have entered the building contract (in the case of the first representation) or proceeded with the building work (in the case of the second representation). Mr Pickles submitted that, in those circumstances, Mr and Mrs Elias were entitled under s 236 of the ACL to recover from Mr Boumelhem the same damages as they were entitled to recover from Alloha. In making that submission, Mr Pickles relied on the decision of the Court of Appeal in Kavanagh v Blissett [2001] NSWCA 79. That case, was very similar to the present one. The builder was sued for damages for breach of contract, which were made up of the costs of completing the building work the subject of the relevant contract and the costs of rectifying defects. That claim succeeded before a referee. A claim was also made against the appellants, who were shareholders and directors of the builder, for misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (the TPA) (the predecessor to s 18 of the ACL). That claim also succeeded and the referee awarded damages against the appellants in the same amount as the damages awarded against the builder. The referee's report was adopted by the District Court. On appeal from that decision, it was submitted, among other things, that the referee adopted the wrong approach in assessing damages under s 82 of the TPA for misleading and deceptive conduct. In the appellants' submission, damages should have been assessed by comparing the actual position of the claimants with the position they would have been in but for the breach of s 52. Commenting on that submission Brownie AJA (with whom Ipp AJA agreed) said: 24 There is no doubt that, generally speaking, this is the correct approach: Marks v GIO Australia Holdings Limited (1998) 196 CLR 494; [1998] HCA 69. However, this generality is not to be elevated into some absolute rule of law, not justified by the words of the statute and where, as is the case here, the conduct found to have constituted a breach of the provisions of s.52 led the [claimants] into entering into a contract, it may be that the contract would have produced the very benefit that was the subject of the representation, so that it might be appropriate to assess damages by reference to the contract: Marks at 504. 25 A result of the conduct of [the builder] and of the appellants, in breach of the provisions of s.52, was that the [claimants] entered into a contract with [the builder], for the construction of residential premises. I think that we are entitled to know that, in Sydney at the relevant time, there were many people engaged in work of that nature, in competition with each other. The evidence makes it plain that if the [claimants] had not contracted with [the builder], they would have contracted with someone else to do the same general work. It is no doubt possible that the contract which the [claimants] would have entered into with some other builder might have been for a different contract sum, might have been made pursuant to a different form of contract, and might have stipulated a different date for completion of the work, but it seems legitimate to infer that the contract between the [claimants] and [the builder] represented what was generally available in the market place at the time.
In my opinion, this reasoning cannot be applied in the present case. It cannot be inferred that Mr and Mrs Elias would have been able to enter into another contract on substantially similar terms to those of the building contract with a licensed builder or that the building contract represents what was generally available from a licensed builder in the market place at the time. Even assuming that the original contract represented the market price for the then contemplated work, it is unlikely that any experienced builder who was licensed to carry out residential building work would have agreed to or undertaken significant variations without seeking an adjustment to the contract price. There is no evidence of what Mr and Mrs Elias would have done if the initial contract price had been higher or if they had been told the costs of the variations. It is possible that they would have agreed to a higher price, but it is also possible that they would have modified the plans to build a less ambitious house. It is not possible to draw any inferences from the evidence on what they would have done or what the likely cost was of a house that they now seek to complete. The result is that, in my opinion, they have failed to prove that the position they would have been in but for the representations is that they would have had the house that they seek to complete for $512,000. Consequently, they have failed to prove that the costs to complete, less the amount they have not paid, represents their loss resulting from the representations.
On the other hand, but for the representations, I think it can be inferred that Mr and Mrs Elias would have entered into a contract for the demolition of their existing home and the construction of a new one in its place with a licensed builder. It can also be inferred that that house would have been completed within a reasonable time and that Mr and Mrs Elias would not have incurred additional costs in rectifying defects with the house, since any defects would have been rectified by the builder or been covered by the home warranty insurance that the builder was required to take out. It follows that Mr and Mrs Elias are entitled to recover from Mr Boumelhem the loss they have suffered as a consequence of the delay in completing the work together with the costs of rectifying defects with the house, since but for the representations they would not have incurred those costs. On that basis, Mr and Mrs Elias are entitled to recover $221,853.45 plus $135,800, making a total of $357,653.45.
The third representation concerning Alloha's willingness to recommence work if the payment was made is not a representation of fact. It is a representation with respect to a future matter - that is, what Alloha would do if the payment was made. Under s 4 of the ACL, the representation is taken to have been misleading if Mr Boumelhem did not have reasonable grounds for making the representation. A person is taken not to have reasonable grounds unless evidence to the contrary is adduced: s 4(2).
In the present case, Mr Boumelhem has adduced no evidence to the contrary. It follows that the representation was misleading and that Mr and Mrs Elias are entitled to recover the amount of the payment from Mr Boumelhem.
The result is that Mr and Mrs Elias are entitled to recover from Mr Boumelhem $357,653.45 plus $119,360.00, making a total of $477,013.45. That amount represents part of the same loss as the loss they are entitled to recover from Alloha. Consequently, they are not entitled to recover that amount from both Mr Boumelhem and Alloha.

The Claim against Mr Farah

As I have said, the claim against Mr Farah has two limbs. The first relates to the first certificate. The second relates to the second certificate.
It is not seriously disputed that Mr Farah owed Mr and Mrs Elias a duty of care in issuing the first certificate. The real questions are whether he breached that duty of care and whether Mr and Mrs Elias suffered loss as consequence of his doing so.
The first certificate is a certificate that "the design" (meaning the design set out in the drawings attached to the certificate) "is in accordance with normal engineering practices [and] meets the requirements of the BCA". Although in some respects the certificate is expressed in absolute terms ("the design … meets the requirements of the BCA"), it must be understood in context. Mr Farah was retained to prepare the structural drawings for the house. He was given the approved plans and it was at least implicit in his retainer that he would prepare structural drawings that satisfied the requirements of the approved plans. In doing so, it was an implied term of his retainer, and he was under a duty, to take reasonable care in preparing those plans. He gave his certificate for the purpose of satisfying the PCA that the plans had been prepared consistently with that duty. In context, the certificate was not an absolute promise that the plans complied with the BCA: see, for example, Auburn Municipal Council v ARC Engineering Pty Ltd [1973] 1 NSWLR 513 at 531 per Hutley JA; Roluke Pty Ltd & Anor v Lamaro Consultants Pty Ltd & Anor [2007] NSWSC 349 at [58]ff. Rather, it was a statement that, in preparing the plans, Mr Farah had followed normal engineering practices and had taken reasonable care to prepare plans that were consistent with the BCA. It is not disputed that compliance with the BCA relevantly required compliance with AS 2870.
The plans themselves state "SITE IN ACCORDANCE WITH AS2870 ASSUMED CLASS M". It is not entirely clear what the certificate, taken together with this statement, means. One possibility is that Mr Farah assumed that the site was a class M site for the purposes of AS 2870 and that he prepared his drawings on that basis. On that interpretation, the first certificate could be interpreted as a certificate that, on the assumption that the site was a class M site, the plans complied with the BCA. Another possibility is that the statement in the plans and the certificate should be interpreted as saying that the site is properly classified as a class M site for the purposes of preparing the structural plans.
Of these alternatives, I prefer the second interpretation. The more natural reading of the words in question is that Mr Farah is stating that, in accordance with AS 2870, the site is a class M site. The statement is expressed to be a statement about the site (that is, that it is a class M site) and not a statement about the assumptions on which the drawings have been prepared. Moreover, Mr Farah's drawings were prepared and his certificate was given so that Mr and Mrs Elias could proceed to build their house in accordance with the relevant plans and drawings. It is not disputed that Mr Farah had the qualifications and experience as a structural engineer to classify the site in accordance with AS 2870. Indeed, he gives evidence that based on his experience the site was properly classified as type M. In those circumstances, Mr Elias must have intended by his certificate to state, and those reading the certificate must have understood him to be certifying, that the foundations, if built in accordance with his drawings, would comply with the BCA, and with the requirements of AS 2870 in particular. Mr Farah was not simply providing a theoretic opinion on a particular assumption that may or may not have turned out to be true. If he had been, there was a risk that his drawings would have no utility at all. That could not have been what he was retained to do.
The next question is whether Mr Farah exercised reasonable care in issuing the first certificate.
Mr and Mrs Elias contend that Mr Farah was relevantly negligent in three respects.
First, he did not inspect the site or take any other steps to determine the soil classification before providing the first certificate.
Second, the design of the footings did not comply with AS 2870 because the design adopted by Mr Farah was effectively for a masonry veneer building for a class M site whereas the house was full masonry with a suspended first floor slab. That error was compounded by the fact that the drawings showed the house as a full masonry construction.
Third, Mr Farah failed to specify articulation joints on the structural drawings.
It is convenient to deal first with the allegation that Mr Farah was negligent in classifying the soil type.
AS 2870, which is the Australian Standard governing residential slabs and footings, draws a distinction between what it refers to as "normal sites" (cl 1.3.2) and sites with "abnormal moisture conditions" (cl 1.3.3). Normal sites are classified as classes A, S, M, H1, H2 and E in accordance with section 2 of the Standard. The classes vary depending on the reactivity of the soil to changes in moisture level, with class A being the least reactive and class E the most reactive. Relevantly, Class M sites are described as "Moderately reactive clay or silt sites, which may experience moderate ground movement from moisture changes". Class H1 sites are described as "Highly reactive clay sites, which may experience high ground movement from moisture changes". The Standard contains standard footing systems for each class for certain types of dwelling. However, none of those standard footing systems apply to a two storey dwelling with a suspended concrete floor at the first floor level except where the relevant soil type is class A or S (see AS 2870 cls 3.1.1, 3.9). Consequently, none of the standard designs applied in this case.
Sites with abnormal moisture conditions are classified as class P. The standard gives examples (in cl 1.3.3) of where abnormal moisture conditions may exist. They include where an existing building or structure that is likely to have significantly modified the soil moisture conditions under the footprint of the footing system is removed. They also include unusual moisture conditions caused by drains and channels. The footings for sites classified as class P must be designed in accordance with normal engineering principles.
Section 2 of the Standard sets out two methods for site classification of normal sites. One involves the identification of the soil profile by using one or more boreholes or other excavation or sampling methods. The Standard sets out as a guide for the classification of areas where the soil profile is well known. So for example, Table D2 in Appendix D sets out a classification of type M for all Sydney clay soils where the depth of clay is greater than 0.6 metres but less than 1.8 metres. It specifies a class H1 or H2 where the depth of clay exceeds 1.8 metres. The Standard also sets out a guide based on the observed performance of houses that are less than 10 years old that are built on soil of a similar profile using lightly stiffened strip footings or a slab on the ground. Relevantly, Table 2.2 states that if masonry houses built on a similar soil profile to the proposed house using foundations of those types exhibit "Damage often Category 1, but rarely Category 2", then the soil profile should be classified as M or H1. Damage Category 1 is described in Appendix C as "Fine cracks that do not need repair" and are stated to be less than 1 mm in width. Damage Category 2 is described as "Cracks noticeable but easily filled. Doors and windows stick slightly". The crack width is stated to be less than 5 mm.
The second method of site classification is by reference to characteristic surface movements estimated in accordance with a formula set out in cl 2.3.1 of the Standard. Application of the formula requires, among other things, determination of what is referred to as the "instability index" of the soil. Two ways that may be done are through laboratory testing or visual-tactile examination of the soil by a suitably qualified engineer or engineering geologist having appropriate expertise and local experience.
It is plain that Mr Farah did not apply AS 2870 in classifying the soil type and that the first certificate was issued negligently insofar as it suggested that he did. There is no evidence that Mr Farah turned his mind to the question whether the site was a normal one or whether it had experienced abnormal moisture conditions. In addition, Mr Farah did not adopt either of the approaches set out in AS 2870 for classifying the soil profile of the site on the assumption that it was subject to normal moisture conditions. Instead, he said that he relied on his knowledge of the area. He pointed out that he had had 20 years' experience in designing footings for residential buildings, that he had designed footings for a number of houses in the area on the basis that the soil profile was type M and that he had not received a complaint from any of the clients for whom he had designed footings.
Mr Broune, an expert structural engineer retained by Mr Farah, gave the following evidence in his report: In my experience and opinion, it has been widely accepted practice in Australia since the introduction of the first edition of AS2870 in 1986, including in April 2012, the first edition, for structural engineers to assume a soil classification for the construction of a single residential dwelling on the basis of their experience and knowledge of the soil conditions and performance of similar buildings in the relevant region.
However, even accepting this evidence, it does not establish that Mr Farah was not negligent in concluding that the soil type was class M. First, it does not address the point that Mr Farah did not turn his mind to the question whether the site was subject to abnormal moisture conditions and therefore should be classified as a class P site. Second, the first certificate conveyed the impression that Mr Farah had complied with AS 2870, whereas in fact he had not. Third, the evidence given by Mr Farah is inadequate to establish that he could reasonably have assumed that the soil type was class M based on his experience and knowledge of similar buildings in Greenacre. Mr Farah relies on the fact that he had designed foundations for other buildings in the area on the basis that the soil classification was class M and he had received no complaints from the owners of those houses. But, in my opinion, the absence of complaints in relation to other houses of itself does not provide a sufficient basis to conclude that the soil type is class M. The absence of complaints could be explained by a number of other factors such as the sale of the house, the owner not being concerned about minor cracking or the owner not attributing the fault to Mr Farah's design.
The second respect in which Mr Farah is alleged to have been negligent in issuing the first certificate is that he adopted an inappropriate design for the soil class he assumed to exist. I accept that submission. It is unclear from the evidence how Mr Farah came up with the design that he did. He said that he relied on his expertise, but how that expertise was put to use in this case was not explained. Mr Farah did not adopt any of the standard designs set out in AS 2870; and he was not entitled to do so since, as I have said, none of them applied to a two storey dwelling with a suspended slab on the first floor. On the other hand, it appears that Mr Farah performed no calculations as part of the design process. On the assumption that the site is a class M site, Mr Stubbs, who was the structural engineer engaged by Mr and Mrs Elias, and Mr Broune both agreed that additional strip footings are required. In the face of that evidence, and the absence of any evidence from Mr Farah about how he arrived at the design he did, it is very difficult to resist the conclusion that his design was negligent and therefore that his certificate was given negligently.
The third respect in which Mr Farah is alleged to have been negligent in issuing the first certificate is the failure to specify articulation joints. I do not accept that Mr Farah was negligent in that respect. Mr Farah's drawings clearly specified a requirement for the inclusion of articulation joints. It was not negligent of Mr Farah to state that those joints should be located in places that he subsequently identified. And the first certificate was not given negligently in stating that the drawings complied with the BCA in that respect. Alloha could have complied with the drawings either by installing articulation joints in appropriate places or asking for Mr Farah's advice on that question. The fact that it did neither does not make Mr Farah negligent. It may have been negligent for Mr Farah not to pick up the absence of articulation joints on one of his inspections. However, no complaint is made in relation to that.
The next question is whether Mr and Mrs Elias suffered any loss as a consequence of Mr Farah's negligence.
Ms Steele, who appeared for Mr Farah, advanced two broad reasons for why they did not. First, she submitted that the site was properly classified as a class M site in any event, so that no loss flowed from Mr Farah's negligence in relation to site classification. Second, she submitted that whatever rectification work is done, Mr and Mrs Elias will not be able to obtain an occupation certificate. Consequently, the existing house will have to be demolished and rebuilt. Mr Farah is not responsible for any part of that loss.
The parties led a substantial amount of expert evidence both from Mr Broune and Mr Stubbs and from geotechnical engineers on the correct classification of the site. Although useful and relevant, none of that evidence directly addressed the critical question in relation to this aspect of the case, which is whether a structural engineer exercising reasonable care could have classified the site as class M and, if not, what conclusions such a structural engineer would have reached concerning site classification.
That question itself raises two questions. The first is whether a structural engineer exercising reasonable care could have concluded that the site was a normal site, rather than a class P. The second is, assuming that to be the case, whether a structural engineer exercising reasonable care could have classified the site as class M.
As to the first of these questions, I am not satisfied that Mr and Mrs Elias have established that a structural engineer exercising reasonable care would have classified the site as class P.
There is a difference of opinion between Dr Redman and Mr Smith, who are geotechnical engineers retained by Mr Farah and Mr and Mrs Elias respectively, and between Mr Broune and Mr Stubbs on the question. Mr Smith and Mr Stubbs would both have classified the site as class P taking into account a pre-existing building on the site, the possible effect of footings, underground pipes and stormwater absorption trenches and the absence of downpipes on a neighbouring property, leading to an increase of surface and sub-surface water on the site. Dr Redman and Mr Broune, on the other hand, would not have classified the site as class P.
Of the evidence given by the experts in relation to this question, I prefer the evidence of Dr Redman. In relation to the effect of the pre-existing house, he pointed out that in his experience the changes to moisture conditions under a house are likely to be beneficial in terms of the existence of abnormal water conditions because the area under the house is less affected by seasonal weather patterns. He also gave evidence that in his experience other factors were likely to cause cracking such as the presence of trees, not the removal of an existing dwelling and its replacement with another one. The position might have been different if some other type of structure had existed on the land previously. In relation to the absence of down-pipes on the adjacent house, he pointed out that that the results of boreholes drilled by Mr Smith did not show a marked variation in the moisture profile of the samples taken even though the absence of down-pipes on the adjacent property would, at most, only affect part of the property because of the slope of the land and the position of the adjacent house. The expert witnesses who expressed the opinion that the site was properly classified as class P expressed that opinion on the basis that the various matters they pointed to may have had an effect on the moisture conditions. They did not point to anything to demonstrate that those matters did have an effect. However, that is not sufficient. The onus is on Mr and Mrs Elias to prove that a structural engineer acting reasonably would have classified the site as a class P. But in order for a site to be classified as a class P, it must be the subject of abnormal moisture conditions, not the possibility of those conditions.
As to the question whether a structural engineer acting reasonably would have classified the site as a class H1 rather than class M, I am satisfied, based on the available evidence, that such a structural engineer would have done so.
As I have said, there are a number of ways in which a structural engineer could have applied the Standard. One was by drilling a borehole or carrying out some other form of excavation to determine the soil profile. Dr Redman and Mr Smith agree that, based on the results of the boreholes drilled by Mr Smith, the site is a class H1. In my opinion, it is reasonable to infer from that evidence that a structural engineer acting reasonably who adopted that approach would have reached the same conclusion.
There is a difference of opinion between Dr Redman and Mr Smith on the correct classification based on characteristic surface movement. Both agree that further testing is necessary. Mr Smith gave evidence that based on his tactile examination of the upper and lower residual clays he would expect a characteristic surface movement resulting in a classification of H1. On the other hand, Dr Redman's view was that it was not possible to reach any conclusion because the result would depend on the distribution of ironstone gravel and weathered shale within the soil profile which in his opinion could reduce the reactivity of the lower residual clay compared to the upper residual clay.
Two things may be said about that evidence in the present context. First, I accept that this method of classification relies more on a detailed analysis of the characteristics of the soil and for that reason is more likely to be undertaken by a geotechnical engineer. Second, absent any other evidence, I think that it is reasonable to infer that a structural engineer adopting this approach would have reached the same conclusion as a structural engineer adopting a classification based on the soil profile.
Accepting that a reasonably competent structural engineer may have classified the site based on experience of the area, no evidence was given by a structural engineer familiar with the Greenacre area on the actual foundations that are common in the area and the degree of cracking in houses that have foundations that are consistent with a soil type M. Again, in the absence of evidence of that type, it should be inferred that the results of adopting this approach would be no different from the results of adopting an approach based on soil profile.
It follows in my opinion that had Mr Farah exercised reasonable care, he would have concluded that the correct classification of the site was class H1; and he would not have given the certificate he did. Subject to Ms Steele's second argument discussed below, it is not disputed between the parties that the proper measure of Mr and Mrs Elias's loss is the cost of rectifying the foundations so that they are suitable for a class H1 site.
Ms Steele's second argument is put in various ways, but essentially it depends on the submission that the current house can never be certified as fit for occupation and so must be demolished and rebuilt.
That argument turns on the provisions of the EPA and the Environmental Planning and Assessment Regulation 2000 (NSW) (the EPAR). Section 109E(3) of the EPA relevantly provides: 1909E Principal certifying authorities (3) A principal certifying authority for building work or subdivision work to be carried out on a site is required to be satisfied: ... (d) that building work or subdivision work on the site has been inspected by the principal certifying authority or another certifying authority on such occasions (if any) as are prescribed by the regulations and on such other occasions as may be required by the principal certifying authority, before the principal certifying authority issues an occupation certificate or subdivision certificate for the building or work, …
Regulation 162A of the EPAR relevantly provides: 162A Critical stage inspections required by section 109E (3)(d) (1) For the purposes of section 109E (3) (d) of the Act, the occasions on which building work must be inspected are as set out in this clause. (2) Except as provided by subclause (3), the critical stage inspections may be carried out by the principal certifying authority or, if the principal certifying authority agrees, by another certifying authority. (3) The last critical stage inspection required to be carried out for the class of building concerned must be carried out by the principal certifying authority. (4) In the case of a class 1 or 10 building, the occasions on which building work for which a principal certifying authority is first appointed on or after 1 July 2004 must be inspected are: (a) (Repealed) (b) after excavation for, and prior to the placement of, any footings, and (c) prior to pouring any in-situ reinforced concrete building element, and (d) prior to covering of the framework for any floor, wall, roof or other building element, and (e) prior to covering waterproofing in any wet areas, and (f) prior to covering any stormwater drainage connections, and (g) after the building work has been completed and prior to any occupation certificate being issued in relation to the building. Class 1 buildings include single dwellings.
Regulation 162C of the EPAR relevantly provides: 162C Progress inspection unavoidably missed (1) If the circumstances described in subclause (2) apply: (a) an inspection, other than a final inspection, that would be prescribed for the purposes of section 109E (3) (d) of the Act in the absence of this clause, is not prescribed for the purposes of that paragraph, and (b) an inspection that is not prescribed for the purposes of that paragraph, but is required to be carried out by the principal certifying authority under that paragraph, need not be carried out. (1A) If the circumstances described in subclause (2) apply, an inspection, other than a final inspection, that is required to be carried out under clause 162AB need not be carried out. (2) The circumstances are: (a) the inspection was missed because of circumstances that the principal certifying authority considers were unavoidable, and (b) the principal certifying authority is satisfied that the work that would have been the subject of the missed inspection was satisfactory, and (c) the principal certifying authority, as soon as practicable after becoming aware of the circumstances that caused the inspection to be missed, makes a record in accordance with subclause (3). (3) The record of a missed inspection must include the following: (a) a description of the development to which the record relates and of the class of the building concerned, (b) the address and land title particulars (such as the Lot and DP numbers) of the property concerned, (c) the registered number of the development consent and the construction certificate or of the complying development certificate, (d) the name and accreditation number of the principal certifying authority, (e) the name, address and telephone number of the principal contractor or owner builder and, if that person is required to be the holder of a licence or permit, the number of that licence or permit, (f) particulars of the inspection that was missed and of the circumstances that the principal certifying authority considers were unavoidable that caused it to be missed, (g) a statement that the principal certifying authority is satisfied that the work that would have been the subject of the missed inspection was satisfactory, (h) the documentary evidence that was relied on to satisfy the principal certifying authority that the work that would have been the subject of the missed inspection was satisfactory, including (but not limited to) documentary evidence of a kind referred to in Part A2, clause A2.2, of the Building Code of Australia. (4) Within 2 days after a person who is not the principal certifying authority becomes aware that an inspection described in subclause (1) that was required to be carried out by him or her has been missed, he or she must inform the principal certifying authority of that fact and of the circumstances causing the inspection to be missed. … The effect of these provisions is that an occupation certificate can only be issued by the PCA if the PCA has carried out the mandatory inspections set out in reg 162A(4) or the requirements of reg 162C(2) are satisfied.
It is common ground that the PCA did not carry out any inspections of the building and consequently missed a number of mandatory inspections. Ms Steele submits that none of the requirements set out in reg 162C can be met. That submission is said to be reinforced by the letter from DM Certifiers dated 28 January 2015 setting out what they would require to issue an occupation certificate, since a number of those requirements cannot be met. The result is that Mr and Mrs Elias will be unable to obtain an occupation certificate with the result that the house will have to be demolished.
I do not accept that submission. In my opinion, the letter from DM Certifiers is of little assistance. It was written in response to a letter from Mr and Mrs Elias's solicitors which contained limited information and called for a response which at best could only be indicative. Nor do I accept that the requirements of reg 162C could not be met in this case.
So far as reg 162C(2)(a) is concerned, the question whether the circumstances were unavoidable or not is to be judged from the point of view of the applicants for the certificate of occupation - that is, from the point of view of Mr and Mrs Elias. The PCA might well form the view that from their perspective the missed inspections were unavoidable because they left it to Mr Boumelhem to arrange the inspections and he never told them that he had failed to do so. The PCA might well also be satisfied that, following rectification work, the work the subject of the missed inspections was satisfactory. That will, presumably, depend on what certificates can be provided to the PCA concerning the adequacy of the rectification work and the way it was carried out. It is noteworthy in this context that both structural engineers indicated that they would be prepared to certify that their agreed rectification work was appropriate both for a class P and class H1 site.
So far as the requirement set out in reg 162C(2)(c) is concerned, it is not clear why the PCA could not make a record in accordance with reg 162C(3) once they became aware of the circumstances that caused the relevant inspections to be missed. At the moment, there is no evidence that they are aware of those circumstances. Consequently, it is unnecessary to consider the position if the PCA delayed unduly in complying with reg 162C(2)(c).
It follows that Mr and Mrs Elias are entitled to recover the costs of rectifying the foundations so that they are suitable for a class H1 site. It is agreed that that work involves underpinning the entire footing system, the agreed cost of which is $357,500 (including GST).
The structural engineering experts agree that it is unnecessary to do any additional work to rectify the defects with the strip footings. Consequently, no additional amount is recoverable in respect of this head of negligence.
On the findings I have made, Mr Farah was not negligent as far as his failure to install articulation joints is concerned, at least in regard to the first certificate. Consequently, he has no liability in relation to the costs of installing articulation joints.
There is a suggestion in some of Mr and Mrs Elias's submissions that Mr Farah had some responsibility for the inadequate compaction of the fill, since a claim is made for the costs of rectifying that defect. How that responsibility arose was not explained. In any event, the agreed work that needs to be done to make the foundations suitable for a class H1 site would also deal with any issue relating to the compaction of the fill. Consequently, it is not necessary to pursue this issue further.
There is also a suggestion in some of Mr Farah's submissions that Mr and Mrs Elias have suffered no loss as a consequence of Mr Farah's negligence because there are no cracks in the house to date. I do not accept that submission. The loss Mr and Mrs Elias have suffered is that they currently have a house the foundations of which do not comply with the BCA and AS 2870.
Mr and Mrs Elias's second claim relates to the second certificate. It is not easy to understand that claim. As I have said, the complaint appears to be that Mr Farah was negligent in failing to document the four inspections he undertook and that he engaged in misleading and deceptive conduct in contravention of s 18 of the ACL by representing that he had undertaken inspections when he had not.
Both claims must fail. Although it may have been prudent for Mr Farah to keep a record of his inspections, in my opinion he owed no duty to Mr and Mrs Elias to do so. In any event, no loss is said to flow from Mr Farah's failure to keep a record of his inspections. On the findings I have made, Mr Farah did carry out the inspections. Consequently, the second certificate was not misleading in that respect. It is possible that the second certificate was misleading in other respects. However, no such allegation is made; and again, it is difficult to see what loss flowed from any misleading statement in that certificate. Mr and Mrs Elias did nothing on the basis of it.
In my opinion, Mr Farah, like Alloha, should be liable for the additional costs Mr and Mrs Elias have suffered as a consequence of the delay in completing the work. Mr Farah's failure to give a correct certificate is one of the causes of the delay in the house not being complete. Mr Farah could only have given the certificate he did in respect of drawings that were prepared on the basis that the correct classification of the site was H1. The likelihood is that if he had given such a certificate the foundations would have been constructed accordingly and there would have been no delay because of the need to rectify those foundations. Mr Farah should bear the costs of that delay. It is to be expected that the rectification work to the foundations will be completed before the remainder of the house. There is no evidence concerning when that might be. However, it is reasonable to assume that that work could be completed approximately nine months before the house is finished. On that basis, the amount of the delay costs should be reduced by the rent claimed in respect of that nine month period - that is by $25,350 (39 x $650). On that basis he is liable for a total of $467,950.00 that is, $357,500.00 plus $135,800.00 less $25,350). Again, Mr and Mrs Elias are not entitled to recover the delay costs from Mr Farah and from the other defendants.

Orders

The orders of the court are: 1. There be judgment in favour of the plaintiffs against the first defendant in the sum of $804,703.55. 2. There be judgment in favour of the plaintiffs against the second defendant in the sum of $477,013.45. 3. There be judgment in favour of the plaintiffs against the third defendant in the sum of $467,950.00.
I will hear the parties in relation to costs at a time fixed with my Associate.

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: 17 November 2017

Environmental Planning and Assessment Regulation 2000(NSW)

Trade Practices Act 1974(Cth)

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