Goodman v Zhao

Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61 Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 at [11] - [13] Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR [97326]Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5Liebe v Molloy (1906) 4 CLR 347 Lion Nathan Australia Pty Ltd v Coopers Brewery Limited (2006) 223 ALR 560 CASES CITED: Ormwave Pty Limited v Smith [2007] NSWCA 210 at [68] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35 at [22] Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 at [69] Source and Resources Pty Ltd v Porada [2007] NSWSC 883 at [27] The Commonwealth v Verwayen (1990) 170 CLR 394 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251

Marla Shoshana Goodman (Plaintiff and First Cross-Defendant) PARTIES: Yan Shou Zhao (Defendant and Cross-Claimant) Brian Goodman (Second Cross-Defendant)

COUNSEL: Ms M Dolenec (Plaintiff) Mr R B Wilson (Defendant)

SOLICITORS: Mills Oakley (Plaintiff) Peter Leung (Defendant)

1. During 2000 and 2001 Mr Zhao, a licensed builder trading as 'YSZ Building Service' constructed a residential house for Mrs Goodman at 2 Cadigal Place, Dover Heights. It was alleged that the construction work was never fully or properly completed and that there were numerous defects that required rectification. These proceedings were commenced claiming damages for incomplete work and the cost of rectification work, together with liquidated damages for the delay in the completion of the works. The claim is for $175,628.93, plus interest (Exhibit N).

2. Mr Zhao denied liability. It was his defence that he carried out all the works agreed, and that any damage or defects related to work that was not done by him, were the result of causes other than faulty work performed by him or his sub-contractors, or arose because he completed particular works in a certain way, or used particular material and products, in accordance with specific express instructions. Mr Zhao also cross-claimed for outstanding payments he alleged are due under the contract and for additional works requested on behalf of Mrs Goodman. The claim for additional payments, totalling $61,185.00 plus interest, was opposed.

3. It was common ground that Mrs Goodman's husband, Brian Goodman, acted as her agent during the negotiation of the construction contract, and thereafter during the course of the building works. Mr Goodman first met Mr Zhao in 1999 whilst he was undertaking some construction works on a property opposite the premises of Mr Goodman's parents-in-law. They entered into discussions with a view to Mr Zhao being engaged to construct the house at 2 Cadigal Place for Mrs Goodman. During the course of these negotiations various documents were brought into existence. These documents included a number of quotations prepared by Mr Zhao, and a Home Building Contract, in booklet form, as to which there are various versions or counterparts. The protagonists now fundamentally disagree as to the sequence in which those documents came into existence and which of them governed the contract ultimately concluded early in 2000.

4. The Goodmans contended that the contract was constituted by a standard form Home Building Contract (Exhibit A), and other incorporated documents including specifications and drawings, for a fixed sum of $533,800 together with some prime cost (PC) items. They also contended it was agreed that an additional $10,000 was to be paid if the Goodmans decided to proceed with the construction of a fourth bedroom, bringing the total contract price to $543,800.

Mr Zhao contended that that the contract was constituted by an itemised Quoteation (sic) (Exhibit 1) and certain oral terms to the effect that he was to act upon any instructions given as to the works to be done, and that he would only perform and charge for such items of the works as he was directed to undertake by Mr Goodman.

5. There are, therefore, various fundamental factual issues surrounding the formation of the construction contract and the applicable terms that need first to be determined prior to proceeding to consider the consequential aspects of the dispute. I turn, therefore, to consider some legal principles relevant to that exercise.

6. The High Court has strongly reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35 at [22]. This principle was reaffirmed in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 at [40]. The High Court said:

"It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction."

7. The Chief Justice of NSW, Spigelman CJ, recently discussed the High Court's approach and the circumstances in which it is appropriate to have regard to the extrinsic facts and matters surrounding the contract document to assist in the ascertainment of the common intention of the parties as to their contractual rights and liabilities. In Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 he said, at [11] - [13]:

"In a number of joint judgments the High Court has adopted an approach to statutory interpretation which requires attention to the broader context of the words in issue in the first instance, not only after some kind of 'ambiguity' has been identified. (See, e.g. CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 at 408; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 335 at [69] and Network Ten Pty Limited v TCN Channel Nine Pty Limited (2004) 218 CLR 273 at 280 - 281.) There is nothing new about this approach. (See e.g. R v Wilson; Ex parte Kisch (1934) 52 CLR 234 at 244.) However, its application in recent cases was based on a judgment of Mason J in K & S Lake City Freighters Pty Ltd v Gordon & Gotch Limited (1985) 157 CLR 309 at 315. It has been suggested that Mason J adopted a different approach to the task of contractual interpretation by requiring the identification of ambiguity in the first instance. (See Codelfa Constructions Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 at 348.) I have, however, expressed the view that his Honour did not intend to confine the approach to contractual interpretation in that way but that his reference in Codelfa at 348 to the proposition that language may not only be 'ambiguous' but also 'susceptible of more than one meaning' invoked a concept of 'ambiguity' extending to any situation in which the scope and applicability of the formulation was, for whatever reason, doubtful. (See South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478 at [35].)

This approach is consistent with the subsequent authority in the High Court, particularly the passages to which I have referred in Pacific Carriers [Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451 at 461-462] and in Alphapharm. In this respect I agree with the reasoning in the Federal Court at first instance in Lion Nathan Australia Pty Limited v Coopers Brewery Limited (2005) 223 ALR 560 at [78]-[79] and on appeal in Lion Nathan Australia Pty Limited v Coopers Brewery Limited (2006) 156 FCR 1 at [45]-[52], [98], [101] and [254]. In this respect also, contractual interpretation has been brought into alignment with statutory interpretation. (See Bowtell v Goldsborough Mort & Co Limited (1905) 3 CLR 444 at 456-457; Minister for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273 at 287-288; Repatriation Commission v Vietnam Veterans' Association of NSW Branch Inc (2000) 48 NSWLR 548 at [116].)"

8. A court may find that a contract exists, and enforce it, notwithstanding a lack of clarity in the conduct and language of the parties in the formative stages: Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR [97326]. McHugh JA (as he then was) said: "It is often difficult to fit a commercial arrangement into the common lawyers' analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of 'offer' 'acceptance', 'consideration' and 'intention to create a legal relationship' which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship ...Moreover, in an ongoing relationship it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties' subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed… A contract may be inferred from the acts and conduct of parties...The question…is whether the conduct of the parties, viewed in the light of the surrounding circumstances, shows a tacit understanding or agreement."

9. Consistent with this approach, the Court of Appeal has also held that it is not necessary, in determining whether a contract has been formed, to identify either a precise offer or a precise acceptance, nor the precise time at which an offer was made or accepted: Ormwave Pty Limited v Smith [2007] NSWCA 210 at [68]. The offer and acceptance analysis is a useful tool in most circumstances, and indeed is 'normal' and 'conventional', but it does not work well in various circumstances: Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61 per Heydon JA (as he then was) at [71] - [74]:

"While the process by which many contracts are arrived at is reducible to an analysis turning on the making of an offer, the rejection of the offer by a counter-offer and so on until the last counter-offer is accepted, that analysis is neither sufficient to explain all cases nor necessary to explain all cases."

10. However, the concept of commercial unreality should not be seen as unrestricted permission for judicial rewriting of contractual provisions: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5, per Basten J. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered inconvenient or unjust: even if it suspects that the parties intended something different: Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 per McColl JA at [69]:

"If the words used [in a written contract] are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered inconvenient or unjust." 11. Also consistent with the objective approach to the determination of the rights and liabilities of contracting parties is the significance that the law attaches to the signature (or execution) of a contractual document. 12. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52, the High Court reviewed the authorities relevant to this issue, and reiterated the relevant principles at [42] - [47]) as follows:

· A written agreement is proved by signature, and, in the absence of fraud, misrepresentation or some other special circumstance, it is wholly immaterial that the party has not read the agreement and does not know its contents. A party cannot escape the consequences of signing a document bysaying, and proving, that they did not understand it.

· If a party signs and thereby binds themself to the terms of a contract it is immaterial that the party did not trouble to discover the contents of the contract. That party is nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the legal efficacy of the instrument.

· To sign a document known and intended to affect legal relations is an act which ordinarily conveys a representation to a reasonable reader of the document that the person who signs either has read and approved the contents, or is willing to take the chance of being bound by those contents.

The construction contract 13. After entering into discussions with a view to Mr Zhao being engaged as the builder for the construction of the Goodmans' house at 2 Cadigal Place, Mr Goodman provided him with drawings and specifications prepared for the Goodmans by an architect, Mr Danny Kidron. Mr Zhao provided several quotations that were the subject of various changes as the negotiations progressed and developed.

It was common ground that the final contract was concluded on a particular day in either late January or early February 2000, when over the course of several hours Mr Zhao met with Mr and Mrs Goodman at her parents' house. There were lengthy discussions, during the course of which key documents were discussed, including the quotation at Exhibit 1 and a standard Home Building Contract in booklet form as issued by the Department of Fair Trading of which Exhibit A is one of the original counterparts. During the course of the meeting, Mr Zhao signed the Home Building Contract. The Goodmans say that was the contract that was concluded. Mr Zhao agrees he signed the contract, but says, however, that within minutes of him signing that agreement, it was discarded and replaced with another contract, consisting of the quotation and various oral terms.

Mr Zhao's version is set out in his affidavit of 5 March 2007 (at 2.1 - 4):

"I cannot now recall precisely at what stage during these discussions I actually signed this booklet. However, after I had signed this booklet:

Marla Goodman said: "it is hard to explain to you all the details of the specifications, so we will not follow the architect's specifications. All the details, Brian will tell you".

Brian Goodman said: "the specifications are rubbish, we won't follow it, but we will follow the dimensions of the architect's drawings. But it should meet Australian Standards unless I tell you how to do the work. I want to save money so we will use the simplest ways to build the house".

Brian Goodman said: I will do some of the work myself to save money. With the money I save I can build the swimming pool and the fourth bedroom. I am not sure about the works I will do but I will tell you once I have decided."

Brian Goodman said: I do not have a supervising architect so I will supervise the job myself. If you follow my instructions then you will be fine".

I then referred to the booklet I had signed and said "then we cannot follow this contract, it is for the whole job". Then Brian Goodman typed up a new document on his computer. This document has my letterhead on it, but I did not prepare this document, Brian Goodman did. He showed this document to me and said: 'we can use this, if I do the work you take the price off". This document shows the same price as the booklet, $533,800.00. I agreed with this by saying "yes" or words to similar effect and then I said "we will take responsibility for the jobs we do". He said "ok, no problem, I just want to save money". Marla Goodman and I then both signed this new document and it was dated 25.01.00 in handwriting (exhibit YSZ-5). I refer to this document as the "contract document" in this my affidavit. Brian Goodman gave me his business card at this meeting. This business card was then attached to my copy of YSZ-5 by either myself or Mr Goodman at that time.

I then said to Brian Goodman: "we should destroy this one", referring to the booklet that had been signed. Brian Goodman said: "no, I will keep it for my records, in case Council wants to see it". I said nothing in reply to this.

During the discussions that day the document in exhibit MG-1 to Marla Goodman's affidavit (at page 136) was shown to me by Mr Goodman. I did not prepare this document as it came from Mr Goodman's computer. It is not correct to say that it is a quote I gave for the building works. The handwriting on that document was done by Mr Goodman. It is not my handwriting. There is writing on that document towards the bottom of the page which appears to be my signature but I do not recall signing that document at any time. This document was prepared and discussed before we signed exhibit YSZ-5.

My understanding was that we would work from this contract document exhibit YSZ-5 and the drawings but if Brian Goodman arranged for someone else to do any of the works then I would not do the work and I would take the value off the price as set forth in the document. I also believed that Mr Goodman would tell me if he wanted me to do works differently to what was shown in the drawings and that if he did this I should do what he instructed.

To do the work we agreed that we would use the architect's drawings as I have stated above so that we would know the dimensions. I have the drawings that he gave me. Some changes were made though by Brian Goodman at various times as I proceeded with the construction of the home and at other times he requested me to vary the works or do additional works."

There is no doubt, therefore, that the contract price, finally agreed at $533,800, was derived from one or other of the iterations of the Quoteation, either the one that appears at page 136 of exhibit MG-1 and in the Home Building Contract booklet (which became Exhibit A in the proceedings), or the one that appears at exhibit YSZ-5 (which became Exhibit 1 in the proceedings). The dispute revolved around when and in what circumstances each iteration came into existence. Mr Zhao's evidence about this was unsatisfactory. According to his affidavit both documents were discussed at the meeting, but the Exhibit A iteration, with Mr Goodman's handwriting on it, was prepared by Mr Goodman and discussed before Exhibit 1 came into existence. Then, after the contract in the Home Building Contract booklet was discarded, Mr Goodman went inside and prepared Exhibit 1, and that became the basis of the contract. In his affidavit Mr Zhao said he could not remember ever signing the Exhibit A iteration. In cross-examination, however, he conceded he signed it at the time he signed the Home Building Contract booklet (T 729.11). He signed on the left hand side because he only agreed with what was on the left side of the document and could not agree with what was on the right-hand side (T 731.13 - 43). By this stage of the cross-examination it was clear to me that Mr Zhao's evidence as to these two documents was entirely unreliable.

I prefer Mr Goodman's evidence, that Exhibit 1 was prepared before the Exhibit A iteration of the quotation (T 134.20). I am satisfied that Exhibit 1 was prepared by Mr Goodman for Mr Zhao, at his request in the circumstances described in Mr Goodman's affidavit of 23 March 2007 (at 12 - 14). This was the final quote by which the agreed amount of $533,800 for the works was recorded, created after he and Mr Zhao had negotiated that price down from earlier quotes (T 227.39 - 41), including a quote for $592,800 in the document at YSZ 3 dated 8 December 1999 (T 231.11 - 31). I am satisfied that Mr Goodman prepared the Exhibit A iteration subsequently, and made the comments and handwritten notes on a copy of the pre-existing Exhibit 1 iteration. At some stage he stapled that iteration on the inside cover of his counterpart copy of the Home Building Contract booklet (T 232.1 - 2). It is clear, therefore, that the only relevance of the Quoteation was that it records the way in which the contract price was made up. Its relevance, contractually, is limited to the objective intention of the parties as to price. I am satisfied that on the day the contract was finalised, there were no further discussions as to price, the price having been previously agreed (T 233.24 - 27). Nor were there any discussions of the kind asserted by Mr Zhao by which the contract recorded in the Home Building Contract booklet was discarded, varied, replaced or otherwise renegotiated.

I find, therefore, that the contract which governed the building works the subject of the dispute was comprised of the Home Building Contract dated 1 February 2000, evidenced at Exhibit A, together with the documents which it expressly incorporates, being the specifications, drawings and other documents listed in Clause 3. It was further agreed that an additional $10,000 was to be paid if the Goodmans decided to proceed with the construction of a fourth bedroom. The Goodmans subsequently elected to include the fourth bedroom (see paragraph 8 of Mr Goodman's affidavit). The total price was, therefore, $543,800.

But it is not just by reference to the inconsistencies and discrepancies in Mr Zhao's evidence as to the Quoteation that I came to this conclusion and I have preferred the evidence of the Goodmans to that of Mr Zhao. In the first instance, I agree with the submission that it is implausible the Goodmans would have gone to the effort and expense of obtaining detailed architectural specifications and preparing a formal written contract, only to abandon them moments later after some cursory discussions with Mr Zhao. My assessment of Mr Goodman was that of a careful and meticulous businessman who would not wish to leave important matters of contractual agreement at large or outside the protection of a formal written agreement. His care and attention to the detail of the various quotes reinforced this impression of him. It is also inconsistent that both Mr Goodman and Mr Zhao kept their respective counterparts of the Home Building Contract if it was no longer relevant.

There were other matters that were improbable. For example, I did not believe that Mrs Goodman said the things attributed to her. In my assessment of her, she left all the discussions as to contractual detail and price to her husband. Given that she was only 'vaguely familiar' with the specifications it is unlikely she said they should not be followed. Nor is it likely that Mr Goodman described them as 'rubbish'. The meeting at which the final contract was agreed occurred at the house of Mrs Goodman's parents and it is also unlikely that Mr Goodman could have gone inside and typed up Exhibit 1 on his computer.

In my view, much of Mr Zhao's evidence in this case was a reconstruction of events, designed to advance a defence that fitted the available documents but avoided their consequences. The unfavourable view I formed as to his evidence in respect of the formation of the contract in turn infects my view as to his credit on other aspects of the dispute, to which I will come.

The submissions made on Mr Zhao's behalf attempted to make much of the fact that the Goodmans made numerous variations in respect of the works during the course of construction. This was said to be evidence of an objective intention consistent with Mr Zhao's version of the contract. It was not. In this respect I adopt the plaintiff's submissions in reply at paragraph 16. It is part of the usual course for residential construction work for variations to occur at the request of the owner.

A claim of $17,000 was made for liquidated damages pursuant to Clause 45 of the Tender Specification (Exhibit Q), which, as I have found, was incorporated into the construction contract. The Clause provides:

"If the Builder fails to bring the works to Practical Completion by the date stipulated by the contract the Builder shall be liable for liquidated damages of Five Hundred Dollars ($500) per week."

There was no argument as to the applicability of Clause 45 in the event I found, as I have, that the applicable contract was the Home Building Contract, nor could there be: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 at [53] - [57]. Rather, the defendant argued, Clause 45 was not operative in the circumstances of the present case because there was no material upon which it could be determined that Practical Completion had not occurred. The term 'Practical Completion' is expressly defined at Clause 44 of the Specification:

"Practical Completion designates the time that, at the discretion of the Architect, the works are reasonably fit for the occupation of the Proprietor.

…The Builder shall notify the Architect in writing when he considers that the works are Practically Completed. At the discretion of the Architect, notice of Practical Completion may be issued for certain elements of the project with selected exclusions and/or the Proprietor may occupy the premises, with the permission of the Builder, prior to the issuing of a Notice of Practical Completion."

There was no Architect engaged under the construction contract to manage or supervise the works. Thus, there was no Notice of Practical Completion issued by an Architect.

It was submitted for the Goodmans that Mr Zhao was required to complete the works by 25 July 2000, but the works remained incomplete until 28 March 2001 when the building reached lock-up stage. That may be so, and it seems likely that Mr Zhao was in breach of the construction contract so far as completion is concerned. The Goodmans, however, do not seek damages for this breach. Rather they seek liquidated damages pursuant to Clause 45. That provision, however, requires a procedure that depends for its operation on formalities, involving an Architect appointed by the parties determining, at his or her discretion, when Practical Completion has occurred and issuing a notice accordingly.

In the absence of any designation by the Architect that Practical Completion has or has not occurred, Clause 45 cannot operate. In other words, in a contract that does not involve a supervising architect, the clause providing for liquidated damages does not operate. In this respect I adopt the defendant's submissions at paragraph 19.5.

For these reasons the plaintiff's claim for liquidated damages fails.

The claim for the cost of rectifying defective work is based on alleged negligence and breaches of the duty of care owed by Mr Zhao, together with breaches of express statutory warranties in the construction contract (Clause 8), or implied pursuant to the Home Building Act 1989.

The relevant provisions of the Home Building Act 1989 are s 18B and s 18F. Section 18B provides: "18B Warranties as to residential building work

The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work: (a) a warranty that the work will be performed in a proper and workmanlike manner 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, (e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling, (f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder's or person's skill and judgment." Section 18F provides for a defence, as follows: "18F Defence In proceedings for a breach of a statutory warranty, it is a defence for the defendant to prove that the deficiencies of which the plaintiff complains arise from instructions given by the person for whom the work was done contrary to the advice in writing of the defendant or person who did the work."

The rectification work and repair work required by reason of the damage caused by defective works alleged is set out in the Scott Schedule (Exhibit N). In summary the items for which claims were made are:

(i) Level 2 terrace eave soffit and bulkhead $ 4,086.17 (ii) Level 3 terrace eave soffit and bulkhead, and playroom $ 16,988.70 (iii) Bedroom 4 balcony $ 2,803.34 (iv) Defective render $ 69,372.67 (v) Kitchen fountain $ 443.05 (vi) Front entry $ 2,016.63 (vii) Garage ceiling $ 4,240.72 (viii) Not pressed - (ix) Garage door power point $ 371.25 (x) Termite damage $ 53,940.00 (xi) Sub-floor ventilation and abutting soil $ 4,366.40 $158,628.93

In support of these claims the Goodmans called extensive expert evidence as to the nature, cause and cost of rectification of the defects and damage caused by reason of the defects. Mr Zhao did not rely on expert evidence, but resisted each claim, on various bases, including challenges to the expert evidence called for the Goodmans, and to the quantification of the cost of rectification and repair, to which I will come. I pause here to observe that I had the benefit in this case of a view. On 26 March 2008, during the course of the hearing I attended at the premises in the company of Mr Zhao and Mr Goodman, counsel and the solicitors and inspected the various defective works about which the Goodmans complain. The view assisted me in obtaining a better understanding of the nature and extent of these defects and the damage occasioned by them.

Items 1 & 2 - The failure to construct drip grooves on the terrace bulkheads

It was alleged that there was a failure to properly construct eaves soffits and external bulkheads for the level 2 and level 3 terraces, with consequent water penetration and damage (Particular 1.1 in Annexure "A" to the Statement of Claim). The eaves were constructed without a drip groove, the absence of which allowed rainwater to penetrate at the external edge and seep back into the soffit, causing damage. "A drip groove provides a void where water cannot be drawn by capillary or wind-driven action around it to then impact or impede into the lining/timber structure within the soffit of the terrace" (Robinson at T 341.19). The soffits and bulkheads required reconstruction, and the damage caused by water penetration to the soffits and terraces required repair (Scott Schedule).

The Goodmans contended that Mr Zhao failed to perform the construction work in a proper and workmanlike manner and in particular did not construct the soffits in accordance with the plans and drawings, which required a drip groove (see Exhibit H). He was, therefore, in breach of his statutory warranty, and liable for the consequences.

In answer to this claim Mr Zhao contended that he was instructed by Mr Goodman to produce a square finish to all roof edges, irrespective of the plans. In particular, he was instructed not to install a drip groove. So he in fact installed a projecting plastic edge to prevent the entry of water at the leading edges to the terraces. Mr Zhao's version is set out in his affidavit of 5 March 2007 (at 18.1-3):

"When I was about to construct the ceilings for the second and third level terraces I showed Mr Goodman the relevant drawing AKDGM 108 which has no details as to how to finish the edges, except that it shows them as square. It does not show that any fascia boards and drip grooves should be installed. I said to him "We should follow AKDGM 109; this shows timber fascia and a drip groove to prevent rain water from blowing inside".

Mr Goodman said: "I do not want a drip groove because I do not like seeing a visible line. I want a square flat finish".

I said: "A square finish will allow the rain water to blow inside".

He said: "I saw another building with a square finish, why can't you do it"?

Mr Goodman wanted to achieve a square finish to all of the roof edges. The architectural drawings that he had given me did not show the same method of construction: some were shown as having a drop on the face of the bulkhead or wall as in drawing AKDM - 109, whereas others were shown as having a square finish as in drawing AKDM - 108. I agreed to follow Mr Goodman's instructions about building the edges square and flat. However, when we discussed the fascia boards I told Mr Goodman that we would need to have a drop on the fascia boards of at least 25mm to keep rainwater out, particularly when it was windy. He said that I was to make the finish square, without a drop at all. We argued about this many times and I cannot now remember exactly what was said on each occasion. He still wanted a square finish but eventually agreed that I could at least add a small 3mm angle at the bottoms of the external faces. I did this using a 3mm thick angle which is "L" shaped and was fixed to both the front and underside and is attached to both the front and underside so as to make the water drip from it. Visually however, it has a flat square look."

The essence of Mr Zhao's defence to this claim was, therefore, that he was expressly instructed by Mr Goodman not to install a drip groove, and that his advice that projecting fascia should be installed was rejected. (See also paragraph 18.4).

Mr Goodman denied the conversation alleged (see his affidavit of 23 March 2007 at 35). He was not cross-examined about this, but in any event, having regard to my findings as to Mr Zhao's credibility, I was not persuaded that I should accept his version that he did not install drip grooves because Mr Goodman told him not to. That is inherently unlikely, particularly if he had been warned, as alleged, that a drip groove was required 'to prevent rain water from blowing inside'. His evidence about the drawings is unconvincing (see Robinson at T 522 and Ms Dolenec's submissions at 98 - 99 and 25 (i) of her submissions in reply), and I agree with the submission that Mr Zhao simply did not understand the detail in the drawings.

Even if Mr Zhao's version were to be accepted, it cannot amount to a defence to the claim for breach of warranty, in that he did not establish that the deficiencies of which the Goodmans complain arose from any written instructions contrary to his advice: s 18F.

For these reasons I find that Mr Zhao was negligent and in breach of warranty in respect of his construction of the eaves soffits and external bulkheads for the level 2 and level 3 terraces, as a result of which the defective work required to be rectified and the consequential damage required to be repaired. I will come to the question of quantum shortly.

Items 2 & 3 - The failure to waterproof the level 3 terraces

It was alleged that there was a failure to properly, or at all, waterproof and/or flash the balconies, terraces and deck. This failure caused water penetration and damage to the premises below (Particulars 1.2 and 1.3 in Annexure "A" to the Statement of Claim). The faulty work required rectification and the consequential damage required repair (Scott Schedule).

The Goodmans contended that there was no waterproofing of the level 3 terrace floors, in the form of a waterproof membrane, on either the terrace adjacent to the kitchen/living area or the terrace outside bedroom 4 and above bedroom 1. Their expert, Mr Robinson, was unable on inspection to see any evidence of waterproofing. In respect of the level 3 terrace Mr Zhao also failed to install overflashing to the top of the external doors to the entry, nor any waterproof flashing turned up and incorporated into the external walls of the terrace balconies.

Mr Zhao contended that he applied flashing beneath the doors, and that he did in fact install waterproof membranes, in preparation for the laying of tiles. The problem arose because the Goodmans changed their mind and decided to install concrete pavers that were thicker and heavier than the intended tiles. The terrace and balcony surfaces had already been constructed and could not be changed. Mr Zhao's case was that he warned Mr Goodman the pavers were too heavy and could damage the membrane. He further warned that the pavers were too high and in the event of heavy rain, water damage would occur. Notwithstanding this warning, Mr Goodman instructed him to proceed with the concrete pavers and not the original tiles provided for in the specifications. Mr Zhao's version is set out in his affidavit of 5 March 2007 (at 19, 19.1, 19.2 and 19.3). At 11(h) he said:

"On 10.01.01, after the balconies and terraces had been built, Mr Goodman told me he wanted to 'replace the tiles on the terraces and balconies with concrete paving' and that he wanted me 'to do it with concrete paving'; this included the terraces at levels 2 and 3 and the bridge leading from level 3 of the house to the street. I did not build this bridge. When he asked me to do this:

I said: "The ground floor (level 2 terrace) is ok, but not for the upstairs terrace (level 3). There is not enough fall on the terrace to do it properly with concrete paving. The structure is finished, we cannot change it".

and: "Concrete paving is too heavy. It could damage the terraces and crack the waterproofing".

The vertical drop from the room floor levels to the terrace and balcony surfaces is 75mm and this creates a fall from the room levels across the terrace and balcony of 75mm. This is only enough fall to lay tiles. The tiles are thinner than concrete paving. To use concrete paving you would need a fall of 100mm. At this time I showed Mr Goodman AKDGM 108 and:

I said: "If you want to put in concrete paving now, the paving will be higher than the door track bottom level and also higher than the flashing and waterproofing. It will also cover the weepholes in the door tracks. If the rain is small it will be ok, but if it is heavy and windy the water will go into the playroom, bedroom and everywhere. If there is not enough fall the water will be trapped in the terrace and balcony".

He said: "It doesn't matter, just do it. If it is a real problem I will put in a window or use a special awning to stop the rainwater".

The essence of Mr Zhao's defence to this claim was, therefore, that he did install waterproofing, but that he was expressly instructed by Mr Goodman to change the materials without reconstructing the terrace and balcony level surfaces, or the membrane, to accommodate the variation. It was this variation in materials that caused the water penetration. His warning in that respect was rejected.

Mr Goodman denied the conversation alleged (see his affidavit of 23 March 2007 at 27). Having regard to my findings as to Mr Zhao's credibility, I was not persuaded that I should accept his evidence as to the conversation alleged. I regard it as improbable that Mr Goodman, having regard to my assessment of him, would accept the prospect of water damage in the way suggested. Nor do I believe he would laugh in the way suggested. Indeed, if he had laughed at a suggestion that he should take responsibility for any water damage, surely Mr Zhao would have done something to protect himself, in writing. His evidence about the Goodman's change of mind about the tiles was also unconvincing, and I prefer the evidence of Mrs Goodman that it was always their intention to use concrete pavers (T 108.19).

Mr Zhao subsequently raised an additional contention in respect of the balcony outside bedroom 4. In his affidavit of 21 September 2007 he said (at 9 and 9.1):

"...when I was present at the house doing rectification works towards the end of 2002, Brian Goodman asked me to install glass balustrades to the balcony for the guest or fourth bedroom. I did this at no charge. At the time he said to me: "the company I got to do this work have not finished and have disappeared. Can you do it?

At this time I said to him: you should use silicon to seal the glass into the frame to stop water getting in" He said to me: No, use this product that the other company was using... I used this material as he had told me."

Mr Goodman also denied this conversation, and for the reasons I have previously given, I do not accept Mr Zhao's evidence as to this conversation. I find that no such direction was given by him to Mr Zhao. In any event there is no probative evidence that the sealant was in fact faulty and the suggestion is mere eristic conjecture on the part of Mr Zhao.

I am not satisfied that the water damage was caused by reason of damage to any membrane. It is also unlikely, having regard to the fact that the successful rectification work involved the same type of concrete pavers and no change to the superstructure, that the height of the pavers was the cause of the water damage. Nor was any water damage caused by reason of any defective sealant used by Mr Zhao. It is more probable that a membrane simply wasn't installed and in this regard I accept the evidence of Mr Robinson. The evidence of the absence of a membrane is clearly evident in photographs 21B, 22A, 22B, 23A and 23B in the second Robinson report, where calcite leaching from above is apparent. I find that the water damage claimed by the Goodmans was caused by the failure of Mr Zhao to properly waterproof the terraces concerned by the installation of membranes and flashing.

Even if Mr Zhao's version of the various conversations he relies on were to be accepted, they cannot amount to a defence to the claim for breach of warranty, in that he did not establish that the deficiencies of which the Goodmans complain arose from any written instructions contrary to his advice: s 18F.

For these reasons I find that Mr Zhao was negligent and in breach of warranty in respect of his failure to properly waterproof the level 3 terraces, as a result of which the defective work required to be rectified and the consequential damage required to be repaired. I now come now to the question of quantum.

Items 1, 2 & 3 - The cost of rectification and repair

The Goodmans claim damages totalling $23,878.21 in respect of items 1, 2 & 3, as set out in the Scott Schedule. The claims for these items are based on the evidence of their expert, Mr Robinson in his various reports and amplified in his oral evidence. There is no dispute as to the arithmetic of the claims, but aspects of the quantum were disputed by Mr Zhao.

Firstly, Mr Zhao contended (at the end of 10.1 (d) of the written submissions) that there is no need to lift the concrete pavers and provide fresh waterproofing. Water penetration at the front entry door has been remedied simply by the application of a surface coating to the concrete paving which prevents water entry. The same remedy can be applied to the level 3 terrace floors. On this basis, it was submitted, the quantum of damages was overstated. Second, work has already been carried out on the bedroom 4 balcony at an actual cost, as to which there was no evidence. The claim for $2,803.34 is too high.

I am satisfied, however, that attempted rectification by the application of a silicon shield over the pavers would be short term and inadequate (T 520.5). I find, therefore, that the rectification required properly involves removing the pavers and waterproofing the sub-strata. Insofar as some rectification work has already been carried out, I am satisfied that the actual cost was no less than Mr Robinson's estimates (see Mr Goodman's affidavit of 29 June 2007 at 87 - 92). In fact, an examination of the detail of the work suggests that the actual overall cost of rectification and repair required in respect of Items 1, 2 & 3, taking into account the work done so far, will exceed the estimates. There has, however, been no amendment sought to claim the additional amount. I therefore award damages for these items in a total sum of $23,878.21.

Part of the construction work at the premises involved the application of cement render to the exterior walls, including walls within the enclosed balconies. Much of the render work was defective in that it was uneven, had cracks, was 'crazed', was salting and shrinking, had lost adhesion and was 'drummy', had fallen off or was peeling away. (For the full detail of the defective render see the Table at 7.1 of the Technical Report of Dr Stuart Bayliss of the Coatings Consultancy dated 3 July 2007: pages 11 - 13. See also his summary at 7.2 - 7.3: page 14). I observed many of the defects on the view and they might best be described as unattractive - derogating significantly from the aesthetics of the building. Drummy, which is not an observable defect, is a phenomenon consistent with bond failure, when the render loses adhesion either with the background wall or between layers of render, which is detected by a drum-like sound when tapped lightly with a suitable implement such a small hammer. Crazing is an observable phenomenon being a network of fine intersecting cracks across the face of the render.

It was alleged that the cause of the defective render was, in particular, that it was incorrectly mixed and applied. (Particulars 7.1 - 7.4 in Annexure "A" to the Statement of Claim). The Goodmans relied on the expert evidence of Dr Bayliss and Mr Robinson. A claim is made for damages for the cost of rectification estimated at $69,372.67, as set out in the Scott Schedule.

Dr Bayliss, an expert with an impressive record, expressed the opinion that cracking and bond failure of cement render are defects that amount to breach of the statutory warranties (at 8.1 - 8.3). In his assessment, based on his experience and investigations, and his observations and inspection of the render, the factors contributing to the defective render were (at 7.5):

(b) The use of render with little or no lime addition and of excessive strength for application to clay brick background.

(c) The application of render at a thickness in excess of 15mm.

(d) The lack of adequate curing considering the location of the residence and exposure of the walls to prevailing winds and sunlight.

Mr Robinson, a building expert with extensive experience, expressed similar views. He gave the following opinions (at 3.6.3 - 3.6.5 of his first report):

"It is my opinion that craze cracking and salting to the surface is caused by wetting up (adding additional water) an existing batch of render or the incorrect mixing of render during the batching process; the over-wet mix then excessively shrinks and craze cracking results. This is not recommended or acceptable trade practice. It is my opinion that craze cracking of rendered surfaces is due to poor workmanship.

It is my opinion that peeling and lifting of the rendered surface is due to the masonry wall not being sufficiently prepared by cleaning or washing down prior to rendering taking place. This is not recommended or acceptable trade practice. It is my opinion that peeling and lifting of rendered surfaces is due to poor workmanship.

It is my opinion that salts that accumulate on the surface of rendered walls is generally due to the masonry wall under the rendered wall being excessively wet prior to the render being applied, then the evaporation of that moisture deposits dissolved salts on the outside face of the render."

The uncontroverted expert evidence was, therefore, that the defective render was a result of faulty workmanship.

By way of response to these expert opinions, Mr Zhao affirmed a third affidavit on 21 September 2007, in which he set out the methodology employed for the mixing and application of the render, as follows (1 - 6):

"The walls of the Goodmans' house were constructed using new (fresh) clean clay bricks. After the walls were constructed they were scraped with a metal scraper to remove any loose cement mortar that was there following the application of the mortar between the layers of the bricks. This also removed any unduly large protruding mortar, but left a rough slightly protruding mortar layer that would give adhesion points for the cement render when applied. The walls were also washed with clean tap water.

...The mortar was mixed and applied a section at a time. Each section of the wall to be rendered was washed, section by section, just before the render was applied. At the time of application of the render to each section of the walls, the bricks in that section were still "a little bit wet inside". I knew that they had to be for the render to stay on properly. When each section of the wall was washed before putting on the render, the sections nearby that had already been rendered were also sprayed again with water to make them a little bit wet so that fresh render would stick to the existing render properly.

The mortar was mixed by machine in batches as each section was ready for rendering...I knew at the time that it is important for the render to be mixed not too wet and not too dry. When we started doing the rendering I checked the batches that the employee was making up were correct. I used a product known as plaster master which had instructions on the outside of the bags about how to mix it with cement and sand. I followed these instructions and measured out the amounts of sand, cement and plaster by bucketfuls. The Sand I used was Sydney sand, which is a washed sand. The water was then added until I was satisfied that the mix had reached the point at which it would be good render...I did not use lime in the mixture as the instructions did not require it...

The batches of render were then applied by other employees to the brick walls after each section to be done, and the nearby sections already with render, had been made wet so as to make the render stick to the walls. From time to time I watched these employees as they were applying the render to check that they were doing it properly. They were all experienced in this work and had worked for me doing this before. I only applied a single layer of render to most of the walls. There were parts where the brickwork was not entirely square so that a double layer was applied so as to make the overall finish even...I am unable to say where exactly these two layers were applied...

After about 2½ or 3 hours after the render had been applied, or towards the end of the day, those parts of the walls that had been rendered were given a fine mist spray of water so as to keep them moist overnight...This is all I have ever done with cement render on other jobs to keep it moist for a period of time so as to help the cement to set properly. I have never had trouble in the past with doing the render this way...Cement render does not require constant wetting as is the case with concrete slabs for example. Concrete slabs must be kept wet for considerable periods of time.

I did not apply any bonding agent to the brick walls before applying the render as we were working with fresh and clay bricks. It is only necessary to use a bonding agent when the bricks have been used before and when applying render to a concrete base."

In following the instructions on the Plaster Master bag, Mr Zhao used a mixture of 8 parts sand, 2 parts cement and Plaster Master.

The employees referred to were not called to corroborate this narrative. 56. Mr Zhao's defence to this claim, by way of a brief summary, was as follows. (The full version is at 11.0 - 11.12 of the written submissions):

· The expert opinion is not sufficiently reliable to satisfy the requisite standard of proof. Nor do the experts adequately explain the basis for their assertions of improper workmanship.

· Mr Zhao applied an admixture of cement render in which the traditional mix of lime was replaced with a product marketed as 'Plaster Master', made up of fireclay (kaolin) and other additives. "Neither expert has said that to do so per se amounts to faulty workmanship."

· Cement rendering skills are, of their very nature, imprecise. There are no objective methods of testing a mix. "At best, all a renderer can do is make an imperfect, but skilled approximation of the situation and do obvious things like follow a manufacturer's instructions when using an additive...". The ex post facto reasoning of the experts "is not apposite to prove faulty workmanship".

· Mr Zhao used experienced tradesmen to do the work, and supervised their work. The walls were clean, and there was no evidence of excessive water in the batches mixed, or of 'wetting-up'existing batches of render.

· Cement render has a propensity to naturally crack 'to some extent', even to craze. Further, many of the cracks were due to settlement of the building, not defective render. In addition, rainwater penetrated the external walls underlying the render and in relevant locations that is an equallyconsistent cause of the drummy render.

It is to be observed that no explanation is offered on behalf of Mr Zhao as to why the render was defective. The essence of his defence is that he did the best he could in the circumstances, and that the render was drummy and crazed through circumstances for which he was not responsible. It was not suggested, for example, that the product "Plaster Master" was defective. Nor, as I have already observed, was an expert called in his case to say that what he did was in accordance with sound building practice. There is no evidence to support the assertion of rainwater penetrating the external walls, and this was but further eristic conjecture on the part of Mr Zhao.

I am satisfied that the experts called by the Goodmans, Dr Bayliss and Mr Robinson, were sound and reliable. Their experience relevant to this issue is extensive. Their opinions were formulated carefully and logically, and soundly based on appropriate investigation and consideration. I have no hesitation in accepting their opinions. I prefer their evidence to that of Mr Zhao on these matters.

Dr Bayliss was of the clear opinion that a bonding agent was required. He was also of the clear opinion that the mix of render was inappropriate, even if Mr Zhao did use the Plaster Master product, in that there was no lime or insufficient lime, especially having regard to the clay brick background. The mix used was also inappropriate to this site due to the excessive cement/sand ratio. Furthermore, it was also likely that the mix had excessive water.

Dr Bayliss also found at least three areas where excessively thick render had been applied. This increased the propensity for bond failure in those areas, especially in the absence of particular precautions, including surface roughening and the application of a bond coat.

Having regard to the proximity of the works to the ocean, and the location near the top of a hill with exposure to prevailing winds, the render had not been allowed to adequately cure. Dr Bayliss considered the methodology used by Mr Zhao was inappropriate for the site conditions, and was not kept sufficiently moist for an appropriate period following application.

Nor did Mr Robinson change his opinion when cross-examined as to the use of the Plaster Master product. He also confirmed that the efflorescence evident was indicative of excessive water. Oxidisation is an outcome of the underlying surface having been excessively wet at the time of application of the render.

I am satisfied, therefore, that more probably than not the defective render resulted from its having been incorrectly mixed and applied, through a combination of the failure to use a bonding agent, the application of a high strength render on a clay brick background, with inadequate lime, inadequate curing, the use of excessive water and /or the wetting-up of batches, an excessively wet surface at the time of application, and excessive thickness in a number of areas.

In my view the plaintiff's written submissions in reply (at 26 - 34) are a well-reasoned rebuttal of the defendant's contentions. I agree, in particular, with the observations at 26 (iv):

"It is agreed that the application of cement render is a skill acquired by experience and practical training... Recognising when the render mix is "too wet" is the cornerstone of the renderer's skill in performing his trade...Applying render is a trade like any other - the quality of the work will depend on the skill and expertise of the renderer. The proper preparation of the background surface, the selection of appropriate additives for the surface background, the measurement of the batch ingredients and taking appropriate precautions to enable curing are all factors within the expertise of a competent renderer."

The evidence establishes that Mr Zhao did not competently mix or apply the render, with the result that it was defective in a number of ways; in particular there was extensive drummy and crazing, with salting and shrinking, peeling and delamination.

For these reasons I find that Mr Zhao was negligent and in breach of warranty in respect of his failure to properly mix and apply the cement render, as a result of which the defective work required to be rectified.

I turn, therefore, to the question of quantum. The claim is $69,372.67 (see the Scott Schedule), which is based on estimates prepared by Mr Robinson in his reports of 19 January 2007 and 30 June 2007. Two submissions were made as to this estimate. Firstly, that the basis for the estimate was precarious, given his examination was not a close one, and that Mr Robinson did not accurately measure the affected areas. Secondly, it was submitted that although the drummy render needed to be removed, the crazed render could be repaired with a protective coating, as a 'type of maintenance procedure' (written submissions at 11.12).

Dr Bayliss was of the opinion that partial removal of the render would be inadequate rectification. Patching of render leaves noticeable variations in texture, and often a visible edge. In Mr Robinson's opinion, an effective repair can only be achieved by removal and replacement of all the render, and that patching would be inadequate. He also considered that the application of an external emulsion to the crazed render, as suggested on behalf of Mr Zhao, would be insufficient to remove the crazing. I am satisfied, therefore, that the render should be removed and reapplied.

The evidence establishes that 433 square metres of render require rectification, including window and door reveals and sills (Exhibit O). I am satisfied that the cost per square metre is $14.70 for hacking off the render, $17.00 for scaffolding, $11.80 for a sealer/binder, $41.65 for re-rendering, and $12.90 for re-painting, an amount of $42,455.65. I am also satisfied that the rectification work should include the installation of weep holes and 86 lineal metres of control joints, at a cost of $3,731.60. There is an additional cost for waste disposal ($252.00). The total cost is $46,439.25. I am satisfied that an appropriate builder's margin for such rectification work is 35% ($16,253.74) giving $62,692.99. GST of 10% ($6,269.30) must be added to provide a total cost of rectification at $68,962.29.

I therefore award damages for this item in a total sum of $68,962.29.

It was alleged that there was a failure to properly, or at all, waterproof the kitchen fountain, resulting in water penetration and damage to the bedroom soffit below (Particular 2 in Annexure "A" to the Statement of Claim). The faulty work required rectification and the consequential damage required repair (Scott Schedule).

A small fountain was constructed on the kitchen balcony. This was a variation to the original works. It was subsequently discovered that water from the fountain had penetrated the masonry wall and percolated through it into the soffit lining in the bedroom below, which was water-damaged, and bubbled. On inspection, Mr Robinson found minimal to no waterproofing of the water holding receptacle of the fountain. This was defective building work.

The submission for Mr Zhao, by way of defence, was that he did waterproof the fountain. I prefer Mr Robinson's evidence on this issue. It was further suggested that Mr Zhao did not install the plumbing, which was done by others, and "it was their responsibility to ensure that any breakages in the waterproofing were remedied". This was but more casuistry. There was no evidence of any damage from plumbing. In fact there was no evidence that any plumbing work was done to the fountain receptacle at any time, let alone after it was constructed.

For these reasons I find that Mr Zhao was negligent and in breach of warranty in respect of his failure to properly waterproof the kitchen fountain, as a result of which the defective work required to be rectified, and the damage required repair.

A claim was made for $443.05 (see the Scott Schedule), which is based on estimates prepared by Mr Robinson in his reports. The amount was not challenged. I therefore award damages for this item in that amount.

It was alleged that there was a failure to properly, or at all, waterproof the front entry tiles, resulting in water penetration and damage to the bathroom below (Particular 1.2 in Annexure "A" to the Statement of Claim). The faulty work required rectification and the consequential damage required repair (Scott Schedule).

In the opinion of Mr Robinson water penetrated the front entry tiles at the construction joint and flowed down through the concrete slab into the bathroom below, as a result of inadequate sealing.

Mr Zhao's evidence was that he waterproofed the area prior to laying the concrete pavers. He argued that the basis for Mr Robinson's opinion was not established, and contended that if there has been water entry, it was caused by the increased height of the concrete pavers, installed at Mr Goodman's direction, which brought the surface of the entry terrace to the same level as the floor entry. Finally, it was submitted, the water entry has been remedied by the application of a surface coating, such that removal of the pavers and re-waterproofing is not required.

I have already rejected Mr Zhao's assertions as to the pavers. I am satisfied, therefore, that the water penetration was more probably than not caused by inadequate sealing, which was Mr Robinson's opinion. This was defective building work.

For these reasons I find that Mr Zhao was negligent and in breach of warranty in respect of his failure to properly waterproof the front entry tiles, as a result of which the defective work required to be rectified, and the resulting damage required repair.

A claim was made for $2,016.63 (see the Scott Schedule), which is based on estimates prepared by Mr Robinson in his reports. The amount was not challenged. I accept the evidence that the defect has not been rectified by the painting of the tiles which was but a temporary solution. I find that the work recommended by Mr Robinson is appropriate, and therefore award damages for this item in the amount claimed.

It was alleged that there was a failure to fill voids and complete the painting of the garage ceiling (Particular 14 in Annexure "A" to the Statement of Claim). The specified work required proper completion (Scott Schedule).

Mr Zhao conceded that he did not complete this work, but did not do so because Mr Goodman gave him a direction to do other work instead. Mr Zhao's version is set out in his affidavit of 5 March 2007 (at 35):

"I had commenced to complete the garage ceiling…when Mr Goodman said to me 'there is no need to do this, it is in the garage. Would you do some of the south-east fence instead?" This fence wall was not part of the contract as I have earlier stated. I told Mr Goodman that if he "supplied the bricks and materials I would provide the labour for the wall instead of plastering and painting the garage ceiling". He agreed to this. I therefore ceased doing work on the garage ceiling and I provided labour for the south-east fence instead.

The essence of Mr Zhao's defence to this claim was, therefore, that he was expressly instructed by Mr Goodman not to complete the garage ceiling, and that an agreement was reached as to a variation of some sort, whereby Mr Zhao would do other work instead. It was submitted that it is inconceivable that Mr Zhao would not have attended to completing the garage ceiling without good cause.

Mr Goodman denied the conversation alleged (see his second affidavit at 46). Having regard to my findings as to Mr Zhao's credibility, I was not persuaded that I should accept his version of why he did not complete the work required on the garage ceiling. Mr Zhao's version in his affidavit is also at odds with what he told the insurance company (see Exhibit T at 6.3).

For these reasons I find that Mr Zhao was in breach of contract and in breach of warranty in respect of his failure to properly complete work he had contracted to perform.

A claim was made for $4,240.72 (see the Scott Schedule), which is based on estimates prepared by Mr Robinson in his reports. The amount was not challenged. I accept the evidence that the whole of the garage soffit requires bagging with a coarse even finish to fill the voids prior to painting. I find that the work recommended by Mr Robinson is appropriate, and therefore award damages for this item in the amount claimed.

It was alleged that there was a failure to install a power point on the garage ceiling, for operating the garage door (Particular 11 in Annexure "A" to the Statement of Claim).

It is common ground that there was no power point installed on the garage ceiling. A power point for the garage doors was required by the plans to be installed on a wall, at a time when the intention had been to install a sliding garage door, for which that power point would have been adequate. However, a change occurred as a result of which a tilter garage door was installed. Mr Zhao's version of what then occurred is set out in his affidavit of 5 March 2007 (at 32):

"I did install the power point for the garage door according to the plans… The plans show the garage door as a sliding door and the power point was to allow for such a door. After I had put this power point in, Mr Goodman asked me to "close it up and put it in another location near the door". He said that he had "changed the door to a lift panel door". I said "to put a new one in there I will need to charge extra for the electrician". He said "No, I will do it myself". So I closed up the power point I had installed and did nothing further.

Consistent with my earlier findings, I do not accept Mr Zhao's version of the conversation. The Goodmans contended that the change in garage doors was necessitated because of a clearance problem. There seems to be no dispute that there was a clearance problem. Nor does it seem to be disputed that there was bowing of the main support beam following the slipping of some formwork during construction. The dispute was whether this was the reason for the change in the type of garage doors. That issue was not addressed by the expert evidence. In any event, in my view, that is not the issue that is determinative of this claim.

Mr Goodman's claim was that a change of position of the power point was made necessary by the change of door type. But what matters is that Mr Zhao was not requested, nor required, to install a power point in the ceiling following the change in door type. There was no variation documented, and for that reason the claim must fail. Whether Mr Zhao did or did not install the power point required on the wall is not to the point, because that is not the subject of the claim. There is no evidence to support a contention that Mr Zhao was negligent in failing to install a power point in the ceiling, nor that the failure to do so was a breach of contract or a breach of warranty.

For these reasons I find that this claim was not made out.

If the claim had been made out, I would have found the cost of installing a power point in the amount claimed of $371.25.

Items 10 & 11 - The termite damage and the sub-floor ventilation

It was alleged that Mr Zhao failed to provide any, or any proper termite protection system, failed to provide continuous ant capping and a failed to provide proper sub-floor ventilation, including soil abutting (Particulars 16.1 - 16.5 in Annexure "A" to the Statement of Claim).

In 2003 a termite infestation was discovered in Goodman's house. The entry of termites had caused significant damage that required substantial repair work.

Claims were made for rectification of the defects, including the cost of ongoing termite treatment and protection for 40 years into the future, and for repair of the termite damage (Scott Schedule at Items 10 and 11).

Mr Neil Howard, an expert in pest control, was engaged to investigate and advise. Upon inspection, he found a sub-nest of termites in the ceiling of bedroom 1, between that bedroom and bedroom 4 above it. He also found evidence of subterranean termite workings and damage at the northern end of bedroom 1, in the sub-floor area of bedroom 1, in bedroom 4 and other adjacent areas. Mr Howard also arranged to cut a hole through the floor to access the sub-floor of bedroom 1 and he observed termite workings in the northeastern corner of the sub-floor tracking along the bearers and joists. He also observed mould and fungi to the timbers caused by the absence of ventilation. Ventilation to the subsoil of the bedroom was non-existent as a result of the way the building had been constructed, the soil left against the wall and the rendering over of the weep holes. Ventilation is required to keep timberwork dry and prevent rotting. The moisture in the timbers created a haven for termites that enabled them to obtain moisture without having to go back to the soil. Mr Howard further observed that ant capping to bedroom 1 was not continuous and the joints in the ant capping had not been sealed. There were also holes in the ant capping resulting from rusting (see Exhibit K2, 3 and 4). These gaps in the ant capping rendered it ineffective. In his opinion the construction work was defective and in breach of the Australian Standard, in particular the defective ant capping and the height of the external ground level relative to the floor level where ventilation was non-existent. Another expert in termites qualified on behalf of the Goodmans, Mr Ruben Valencia, confirmed the opinions of Mr Howard.

Both experts also agreed that the spray treatment needed to be applied at the time of preparation of the concrete slabs, before they were poured or any membrane or mesh installed. There is no evidence of spraying at the time the slabs were laid.

In the opinion of Mr Howard, the termites had obtained access to the house through a build up of soil that was abutting the external wall. This soil was above the level of the internal floor of bedroom 1, and concealed termite entry had occurred through that soil. The soil had a rough appearance and "looked like the leftovers of a building site" (T 390.3).

The experts called in the plaintiff's case were uncontradicted, no expert evidence having been called by Mr Zhao.

Mr Zhao raised a series of arguments by way of defence to the claim. The first was that termite protection works were removed from the scope of works he was required to perform: they were first varied from steel mesh to spray only and then his obligation to spray only was later removed from the works at the direction of Mr Goodman (written submissions at 7.9).

The specification required the installation of a product known as Termimesh that would have prevented the termite infestation that eventuated. During the negotiations that led to a reduction in the contract price, the allowance Mr Zhao had made in respect of termite protection was reduced from $6,000 to $2,000. It was Mr Zhao's case that the reduction occurred as a result of the abandonment by Mr Goodman of the requirement for the steel mesh, in favour of a "spray only" option. And then, at a later time after the contract had been concluded, even this requirement was dispensed with when Mr Goodman told Mr Zhao that he would arrange for the spraying himself. Another contractor came and carried out the spraying. Mr Zhao's version of events is set out in his affidavit of 5 March 2007 (at 1.6 and 37 - 40):

"We also discussed the termite protection. My quote dated 08.12.99 stated a sum of $6000-00 for termite protection. This quote included the installation of a stainless steel mesh barrier as shown in plan AKDGM-109. Brian Goodman said that "he did not want this, but something less expensive". I then gave him a quote of $2000-00 for termite spraying only. This appears in the document dated 25.01.00… The handwritten words "spray only" …were written by Brian Goodman when we talked about that document.

The contract document (YSZ-5) contains a quote for the termite protection…for $2,000-00. This price was for the original spraying and it was originally part of the works that I was to do, but it did not include the termite mesh protection shown in the drawings… I told Mr Goodman that he would have to do this spraying again every year. However, on or about 08 August 2000 Mr Goodman told me not to do this spraying work and he said that he "would arrange for it". I therefore did not do it. I was present on the premises when people came and sprayed the grounds. I did not arrange for this…

The balcony for bedroom 1 is inset into the main building. It is located at the north-east corner of the house. The balcony edge is at the same level as the surrounding grounds. The distance from the balcony edge to the doors allowing entry to bedroom 1 is 1.2 metres, as the plans show. The ground level rises sharply from the balcony edge towards the north-east. During the course of construction the balcony became covered with soil and vegetation debris after rains. The soil on the balcony was so deep that it was not possible to open the bedroom door onto the balcony without going outside and clearing the soil away. This happened at least three times. I told Brian Goodman about this and said that "you need to build a retaining wall to stop soil coming down the hill and building up against the wall of the house and on the balcony. If this happens termites will be able to enter the house"…

When I spoke with Brian Goodman about this additional retaining wall for the external soil I also explained to him that "we also needed to put in this retaining wall so that special ventilation holes and piping for the sub-floor could be allowed for. This would allow for ventilation through pipes opening in the nearby grounds. Without the retaining wall this can not be done". I gave him a quote for the retaining wall but he said that "it was too expensive" and he did not tell me to do the job…

It was not possible to install sub-floor ventilation holes…in those parts of the building that were below ground level (at the north, north-east and east side). I had explained this earlier to Mr Goodman when I gave him a quote to build a retaining wall…

All ant capping was…installed in the premises… I placed continuous ant capping in all the walls just below the timberwork except where concrete or steel beams prevented its installation. Where the ends of ant capping met I overlapped them so as to make a continuous barrier… Ant caps were placed on all piers and walls. Brian Goodman arranged for an inspection of the ant capping when this was done…"

In his later affidavit of 21 September 2007, Mr Zhao also said (at 12 - 14) that the 'pest applicator' was a Mr Kevin Jolie, but he did not know such a person. The quote for the retaining wall was $5,000.00. A retaining wall was subsequently constructed to hold bank soil from the sloping bank.

Mr Goodman denied this version given by Mr Zhao. Specifically he denied that the reduction in price involved dispensing with the requirement for Termimesh. Nor did he ever tell Mr Zhao not to do the spraying, or engage someone else to do so. He did not know a 'Mr Kevin Jolie', and whilst it may have been that he contacted a 'Mr Kevin Joyce' that was in connection with the investigation of who had arranged the spraying and he denied that he had engaged Mr Joyce to carry out any spraying (T 280 - 281). He also denied that Mr Zhao ever discussed termites with him during the course of the construction, and although a retaining wall was discussed, it was not in the context of possible termite risk.

Having regard to my findings as to Mr Zhao's credibility, I was not persuaded that I should accept his version relating to the issues in respect of termites and sub-floor ventilation. His version was also improbable and inconsistent. It had the flavour of reconstructed evidence tailored to meet the exigencies created by the evidence served on behalf of the Goodmans, rather than evidence based on genuine recollection, and I was totally unconvinced by it. (See, for example, the criticisms at 274 - 281 of Ms Dolenec's written submissions).

I find that no preventative termite spraying was ever carried out at the Goodmans' house, either at the time of the construction of the slabs, or at any later time. I find that the construction work was defective in that there was inadequate termite protection, that the sub-floor ventilation was inadequate, and that the ant capping installed was substandard and unfit. I find further that Mr Zhao was negligent and in breach of warranty in respect of these failures, as a result of which the defective work required to be rectified, and the resulting damage required repair.

The cause of the termite damage was in my view multi-factorial. There is no doubt that entry occurred through the soil and debris left abutting the external wall at a height in excess of the floor level (T 382. 26 - 47). (See also Mr Wilson's written submissions at 12.4). But the magnitude and extent of the infestation and the scale of the damage was exacerbated and facilitated by the other factors described by the experts, including the defective ventilation and ant capping.

Ms Dolenec put it more eloquently than I could when she submitted (at 267 - 268) that Mr Zhao cannot avoid responsibility for the site conditions he created. He was responsible for excavation of the site. He gave no evidence of any difficulty with the site that either prevented sub-floor ventilation, or the slippage of soil onto the balcony of bedroom 1. It was the builder's responsibility to ensure that soil did not slip from the bank onto the building work, and to clean up and remove building debris and leftovers.

For these reasons, I find that the cause of the termite infestation and the damage caused as a result was the negligence and breach of warranty on the part of Mr Zhao.

Even if his version of the conversations with Mr Goodman were to be accepted, they could not amount to a defence to his breach of warranty under s 18F of the Home Building Act 1989 in that he did not establish that the deficiencies of which the Goodmans complain arose from any written instructions contrary to his advice.

I turn, therefore, to the question of quantum. The claims made amount to a total of $58,306.40, being $53,940.00 for the termite claim, and $4,366.40 for sub-floor ventilation (Scott Schedule at Items 10 and 11). There were no substantive submissions challenging these amounts. The only submission made (at 12.5) was to the effect that the claim based on the detection and baiting system for termites is not a head of damages flowing from any breach by the defendant, and his liability should be limited to the repair of the termite damage, and should not extend to ongoing monitoring, which only became necessary after termite infestation, which steel mesh would not have prevented. This submission is, however, flawed because the unchallenged evidence is that the monitoring is required because of the defective ant capping, which cannot now be rectified, and the site conditions created by Mr Zhao.

For these reasons, I find the claims are reasonable and appropriate, and I award damages for these items in the amounts claimed.

In the light of the findings I have made it is not necessary that I make a finding as to whether the plaintiff agreed to excise the requirement for the installation of Termimesh in accordance with the specifications. In the event that were to become a relevant consideration, I was not satisfied that the requirement was excised. In my view the recording of the words "spray only" on the iteration of the quotation Mr Goodman stapled on the inside cover of the counterpart contract were equivocal. Apart from the question of credit that I have addressed on a number of occasions, which would persuade me to reject Mr Zhao's evidence on the issue, having regard to my findings as to the applicable contract, it is clear that no amendments to the specifications were formally recorded. I find, therefore, that it was the common objective intention of the parties that the specifications, as incorporated into the Home Building Contract entered into between the parties, was binding on Mr Zhao. In the absence of any formal variation, therefore, he was contractually bound to install the Termimesh that the specifications required.

Items 1, 2 and 3 The terraces on levels 2 & 3 $ 23,878.21 Item 4 Defective render $ 68,962.29 Item 5 Kitchen fountain $ 443.05 Item 6 Front entry $ 2,016.63 Item 7 Garage ceiling $ 4,240.72 Item 10 Termite damage $ 53,940.00 Item 11 Sub-floor ventilation and abutting soil $ 4,366.40 Total $157,847.30

I find for the plaintiff on her claim against the defendant for that total amount, together with interest to date at the applicable statutory rate.

I turn now to consider Mr Zhao's cross-claim. The cross-claim was brought against the plaintiff, Mrs Goodman, and against her husband, Mr Goodman.

The cross-claim seeks payment for amounts in respect of various items of work Mr Zhao alleged he performed, which he claimed remain outstanding under the contract or were additional works requested on behalf of Mrs Goodman, for which he has not received payment.

I am unable to see any basis for the joinder of Mr Goodman as second cross-defendant. There was never any suggestion that he acted at any time other than as agent for Mrs Goodman, either in connection with the formation of the construction work, or in relation to the building works. There is no evidence that he was ever a principal in his own right and there can be no claim against him in contract. No other basis for personal liability on his part was pleaded, or argued. The cross-claim against him was misconceived and fails.

To the extent that the cross-claim against Mrs Goodman depends upon Mr Zhao's version of the applicable construction contract, it fails for the reasons I have already given.

The contract alleged would, in any event, be unenforceable, by reason of s 10 of the Home Building Act 1989, which provides that a person is not entitled to damages or to enforce any other remedy under a contract in respect of residential building work that is not in writing or does not contain a sufficient description of the works to which it relates. I find that neither of these requirements was satisfied. In this respect I adopt the submissions (in reply) of Ms Dolenec (at 45 - 58).

Furthermore, the items for which payment was claimed were, in any event, either part of the works covered by the agreed fixed price, or were encompassed in payments made by Mrs Goodman over and above that fixed price to Mr Zhao, or to third parties at his direction. In this respect I again adopt the written submissions (of 7 July 2008) of Ms Dolenec (at 302 - 312).

To the extent that the cross-claim against Mrs Goodman relies upon alleged variations, the claim likewise fails because no variations were effected in compliance with the formal requirements of the Home Building Contract that governed the relationship between the parties: Clause 12.

It was submitted, alternatively, that Mr Zhao was entitled to recover for the various works it is alleged were performed, for which he has not been paid, by way of quantum meruit. The quantum meruit claim was opposed on the basis it was not pleaded, and in the absence of being put on notice, the right to test the claim or lead evidence of reasonable cost was unable to be exercised at the trial. No application was made to amend; rather the defendant elected to rely on the pleading as it stands, arguing that it is wide enough in that form to encompass a quantum meruit claim. Specific reliance was placed on paragraphs 12, 13 and 14(b) of the Statement of Cross-Claim. In my view, the pleading does not raise a claim by way of quantum meruit. The paragraphs relied upon are insufficient to put the cross-defendants on notice of such a claim. That paragraph is clearly a reference to something else, namely the assertions, which failed, that the relationship between the parties was based upon a contract to the effect that Mr Zhao was to act upon any instructions given as to the works to be done, and that he would only perform and charge for such items of the works as he was directed to undertake by Mr Goodman. Having regard to the prejudice, a quantum meruit claim cannot be agitated, and it fails.

For these reasons the cross-claim also fails as against Mrs Goodman.

But even if Mr Zhao did have some valid claim for payment in respect of the items particularised in the Statement of Cross Claim, I am satisfied that any entitlement would be negated by reason of overpayments made by Mrs Goodman (see Ms Dolenec's written submissions at 302 - 311).

On the plaintiff's claim, I enter a verdict for the plaintiff against the defendant for $157,847.30, plus interest to be agreed or assessed.

On the defendant's cross-claim I enter a verdict for the cross-defendants.

I defer the entry of judgments until the amount of interest to be included is determined.

I reserve costs of the claim and cross-claim pending any applications and argument.

The exhibits may be returned after the expiry of 28 days.

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