Elica Nedelkoska and Ljuben Nedelkoski v Champion Homes Sales Pty Ltd

BACKGROUND

1. The applicants are the owners of a residential dwelling at xx Judd Street Banksia ("the dwelling")
2. The respondent is the holder of licence no 92732C under the Act. On 11th August 2011 the parties entered into a Building Contract for New Dwellings which was in the standard form HIA building contract. The contract was for the construction of a two storey brick veneer and tile dwelling for a price of $207,000.00. A copy of the contract was in evidence.
3. The building works were completed about 30 May 2012 at which time practical completion was achieved. The applicants and respondent undertook an inspection and signed a document entitled "Handover Statement".
4. Approximately 2 weeks after the handover and before they moved into the house, the applicants arranged for the installation of a timber floating floor throughout the upstairs area. The floor was installed by Benny Wen-Hao Wen ("Benny") of Benny Timber Floor.
5. The applicants allege that after 3 months they noticed the floor squeaked when they walked on it. The applicants' daughter Sara Nedelkoska contacted the respondent and spoke with Fawzia Loi, a client services officer. There is some dispute about when this conversation exactly took place but there is no doubt that an email was sent to the respondent on 21/2/13.
6. In the email on 21/2/13 Sara Nedelkoska wrote: Älso, the floor upstairs creaks a lot and we had the people who installed the floor boards come to see if they were at fault, but the floorboards were taken out and the problem is with the floor."
7. In an email from Fawzia Loi dated 1 March 2013, she advised the applicants that the respondent would not be responsible for rectifying any defect in the floor and would be taking no further action..
8. On or about 19 November 2013 the applicants filed a complaint with the Office of Fair Trading ("OFT") about the squeaking/ creaking floor in the upstairs area.
9. Garry Christy and Michael Troiano from the OFT conducted an inspection of the residential premises on 4 December 2013 in the presence of the applicants and a representative of the respondent. The Complaint Inspection Advice noted that "there is extensive squeaking of the first floor when area occupied'. Garry Christy made a rectification order on 6 December 2013 which required the respondent to: "investigate and rectify the squeaking to particle board flooring on the first floor." The work was to be completed by 31 January 2014. It is noted that on 4 December, the floating floor had not been lifted to allow an inspection of the floor underneath.
10. The respondent disputed the rectification order and complained to the Director General about the basis upon which Mr Christy issued the order.
11. The respondent did not comply with the rectification order. On 14 February 2014 Mr Christy returned to the property. On this occasion part of the floating floor had been lifted to permit an inspection of the particleboard floor. Mr Christy took a series of photographs and prepared a report in which he states that: "The Yellow tongue particleboard flooring has not been installed in a proper and workmanlike manner. Common building practice is to install the particleboard flooring ensuring that sheeting has been laid with sufficient fastening and glue to eliminate squeaking."
12. In Mr Christy's opinion there was a breach of the statutory warranty in section 18B (1)(a) of the Act.
13. The applicants lodged an application with the Tribunal on 13 March 2014.

APPLICANTS' EVIDENCE

1. The applicants tendered a bundle of documents which included the following: 1. A report prepared by Bill O'Grady of Jim's Building Inspections dated 23/10/14 ("Jim's Report"); 2. The Building Inspection Report of Garry Christy dated 14/2/14 ("the OFT Report"), rectification order and complaint inspection advice; 3. A chronology of events; 4. Statement from Benny; 5. Quote from Jelts Cleaning Service; 6. Copies of email correspondence; 7. Final occupation Certificate, record of mandatory inspections, certificate of home owners warranty insurance; and 8. Report of Robert Paceskoski dated 13/6/13, engineering certificate and diagram; 9. Letter from Garry Christy dated 14/2/14
2. The documentary evidence was supplemented by oral testimony from Sara Nedelkoska at the hearing. Ms Nedelkoska also tendered further statement from Benny concerning the cost of relaying the floating floor and a statement of Bill O'Grady's qualifications.

RESPONDENT'S EVIDENCE

1. The respondent relied on documentary evidence and submissions. It did not call any witnesses in its case but tendered various documents including: 1. Outline Response to the Applicants' Claims; 2. Copy of the Building Contract and plans; 3. Handover Statement dated 30/5/12; 4. Final Inspection Report dated 28/5/12; 5. Letter from Rockdale Council dated 17/6/14; 6. Copies of correspondence with OFT, rectification order, complaint inspection advice and building inspection report 7. Affidavit of Max Grant sworn 29/7/14; 8. Statement of John Donovan dated 24/7/14; 9. Structural Report of Structerre Consulting Engineers ("the Structerre Report") 10. Supplementary Report of John Donovan dated 27/11/14 11. Affidavit of Marco Contreras sworn 29/7/14
2. At the conclusion of the evidence, Mr Vardas provided the Tribunal with a written submission outlining the respondent's case.

CONSIDERATION

1. The applicants claim $6,800.00 from the respondent for losses arising from breach of the statutory warranty under section 18B of the Act. In particular the applicants allege that the respondent has breached the implied warranty that the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract (section 18B (1)(a) of the Act)
2. The applicants rely primarily on the OFT Report and Jim's Report to establish the particleboard timber flooring was not installed in a proper and workmanlike manner. They also rely on the statement from Benny that the cause of the squeaking was too few screws in the flooring.
3. The respondent disputes the applicants' claims and submits that there is no evidence of defective workmanship. The respondent relies on the affidavits of Marco Contreras and Max Grant, the statement of John Donovan and the other documents listed in paragraph 19.
4. The applicants submitted that the squeaking/creaking in the floor constituted a defect which the respondent was obliged to fix under warranty. In its submissions the respondent argued that the squeaking was minor and should not be categorised as a defect.
5. The Tribunal rejects that submission and finds on the evidence that the squeaking/creaking in the floor is a defect and covered by the warranties implied under section 18B of the Act.
6. The evidence establishes that there is squeaking/ creaking in the floor. John Donovan noted at 5.01 that "the squeaking was slight and hardly noticeable." Max Grant at paragraph 10 of his affidavit states "apart from a little murmur in the floorboard there was no audible squeaking." Marco Contreras said that he noted upon inspection "that there was some minor but audible squeaking but I could not determine the cause."
7. The applicants' experts were more emphatic about the extent of the problem. In Jim's Report, Mr O'Grady wrote: "At the time of inspection, it was noted that an Audible "squeak" or noise is present in trafficable areas of flooring."
8. The OFT Report also recorded that there was squeaking in the floor. On the evidence there is no doubt that squeaking is present in the floor although there is some dispute about whether it is minor or major problem. I accept the applicants' evidence on this point and find that the squeaking is sufficiently serious to require rectification. It is more than minor and interferes with the applicants use and enjoyment of the dwelling.
9. The next issue is whether the removal of the wall between the garage and the downstairs living area and the other alterations were the cause of the squeaking in the floor or was the problem the result of defective workmanship.
10. The respondent submitted that any squeaking was caused by the structural changes undertaken by the applicants. The respondent referred to the report of John Donovan and affidavits of Marco Contreras and Max Grant.
11. The evidence establishes that the alterations were undertaken by the applicants in or about June 2013. The Tribunal accepts the evidence of Sara Nedelkoska that she had complained about the squeaking to the respondent sometime between August and December, 2012. Further, Ms Nedelkoska spoke with the respondent's Fawzia Loi regarding the squeaking floor and sent her an email on 21 February 2013.The Tribunal finds on the evidence that these communications took place well before the alterations were done and the removal of the wall was not the cause of the squeaking floor. The Tribunal finds that the squeaking floor resulted from defective workmanship.
12. There was much discussion at the hearing concerning the deficiencies in the experts' reports tendered in the proceedings. The respondent submitted that little or no weight should be given to Jim's Report and the OFT Report for the reasons set out in its written submission. The respondent referred the Tribunal to Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305 which sets out the duties and responsibilities of expert witnesses in civil cases. Whilst the OFT report and Jim's Report do not strictly comply with the criteria laid down in Makita the Tribunal is satisfied about the experience and observations of the authors. The Tribunal is satisfied that have sufficient knowledge and expertise for them to conclude that the floor was not laid in accordance with the relevant Australian Standard.
13. The supplementary report of John Donovan and the Structerre Report confirm that the installation of the particle board flooring did not comply with AS1860.2-2006. Both those reports express the opinion that the screw spacing and screw length are not likely to cause the squeaking in the floor. Mr Contreras could not determine the cause of the squeaking. The respondents' witnesses do not express any strong opinion as to why the floor does squeak although there is a suggestion the alterations undertaken by the applicants could be a cause. There is a general consensus amongst the "experts" that the floor was not installed in accordance with the relevant Australian Standard. Accordingly the Tribunal finds the respondent has breached the statutory warranty under section 18B(1)(a) of the Act.
14. The next issue is whether the respondent should compensate the applicants for the cost of removing and replacing the floating floor. The applicants claimed that they have suffered a loss as a result of the respondent's breach of contract and the respondent was thereby liable in damages. The respondent argued that it was unreasonable for the respondent to bear the cost of replacing the floating floor.
15. In Stuart Pty Limited v Condor Commercial Insulation Pty Limited [2006] NSWCA 334 at 32 Beazley JA stated: "A party may recover damages for breach of contract: "….such as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it." (Hadley v Baxendale [1854] EngR 296 at 354
16. In the Tribunal's opinion, the applicants' loss does not arise under the first limb as it cannot fairly and reasonably be considered to arise naturally from the breach of contract.
17. In Stuart Beazley JA held that to recover damages under the second limb in Hadley v Baxendale the loss must have been within the reasonable contemplation of the parties at the time of the contract and whether the event that caused the damage was "not unlikely to occur".
18. The crucial question is whether on the information available to the respondent at the time the contract was made, should the respondent or a reasonable man in its position have realised that it could be liable for the loss suffered by the applicants. Was it in the contemplation of the parties at that time?
19. There is no evidence before the Tribunal that on 11 August 2011 when the building contract was entered into by the parties, there was any discussion with the respondent about the applicants' intention to install a floating floor or during the course of construction. The Tribunal finds that it was not within the contemplation of the parties when the contract was made that the respondent would lay a floating floor. The claim to recover the cost of removing and replacing the floating floor is too remote. The damage claimed by the applicants was not within the reasonable contemplation of the parties and is therefore not recoverable.
20. The Tribunal finds on the evidence that the particleboard floor was not installed in a proper and workmanlike manner by the respondent in breach of the statutory warranty implied into the contract between the parties pursuant to section 18B (1)(a) of the Act. The squeaking was as a result of defective workmanship caused by non-compliance with the relevant Australian standard.
21. Accordingly the Tribunal orders the respondent at its own cost to investigate and rectify in a proper and workmanlike manner any defect in the particleboard flooring installed in the applicants' dwelling to eliminate any squeaking or creaking and to comply with the relevant Australian Standard. The applicant is to arrange at its own cost for the removal of the floating floor and advise the respondent when the removal has been completed. The respondent is to undertake and complete rectification of the defects in the particleboard floor within 14 days of receiving advice from the applicants that the floating floor has been removed.
22. The Tribunal dismisses the applicants' claim for monetary compensation

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: 18 June 2015