Harding v Horticultural Holdings Pty Ltd

Jurisdiction

1. It is clear these proceeding relate to residential building work, and that the definition of "building goods or services" in s 48A of the Home Building Act 1989 (HBA) is satisfied. As these proceedings involve a claim by the owners for an amount of money, they involve a "building claim" within the meaning given to those words by s 48A of the HBA.
2. As the building work the subject of this application commenced late in October 2020 and the application was lodged in June 2021, these proceedings have clearly been commenced within time. The amount claimed exceeds the lower limit of $5,000 set by cl 2(3)(a) of the HBA and cl 12 of the Home Building Regulation 2014 and is below the upper limit of $500,000 set out in s 48K of the HBA. Accordingly, the Tribunal has jurisdiction under the HBA.

Relevant law

1. In the HBA, s 18B(1) contains the following statutory warranties in relation to residential building work: (a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract, (b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new, (c) a warranty that the work will be done in accordance with, and will comply with, this and 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 marking or alternations 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 know to the holder of the contractor licence or person required to hold a contractor's licence, or another person with express or apparent authority to enter into or vary any 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 that work to achieve, so as to show that the owner relies on the holder's or person's skill or judgment.
2. It is also necessary to note that s 48MA of the HBA provides: A court or tribunal determining a build claim involving an allegation of defective residential building work or specialist work by a party to the proceedings (the responsible party) is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome.
3. Prior decisions which have considered those words assist in its consideration in this case. Galdona v Peacock [2017] NSWCATAP 64 is an Appeal Panel decision which noted that s 48MA provided for a preferred outcome, not a mandatory outcome. That case suggested that a work order would not be appropriate where (1) the relationship between the parties has broken down, (2) the builder has not acknowledged a poor standard of work, and/or (3) there are reservations as to the ability of the builder to rectify the work with due care and skill. However, those categories cannot be regarded as confining the operation of s 48MA since the test to be applied is not that decision, but the words of the statute set out above.
4. Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23 at [32] suggests s 48MA operates as a preference rather than a right and only operates to prevent unreasonable refusal by the owners to prevent the builder from carrying out rectification work.
5. It is clear the Tribunal is required to weigh up the factors in each case and make an evidence-based decision: Brooks v Gannon Constructions Pty Limited [2017] NSWCATCD 12 at [64].
6. If a money order is to be made, such as by reason of a breach of contract, the assessment of the amount payable must be determined by reference to the fundamental principle that the party affected by the breach should be put in the same position as if the breach had not occurred: Haines v Bendall [1991] HCA 15 (Haines). It is also necessary to note that, where there has been defective work, the rectification method must be both necessary and reasonable and the rectification cost must be reasonable: Bellgrove v Eldridge [1954] HCA 36 (Bellgrove).

Evidence

1. Unusually, there are no witness statements, statutory declarations, or affidavits from either of the Owners or the Builder. As a result, the primary evidence to be considered is that of the experts.
2. There were matters of evidence raised in the submissions lodged shortly before the hearing, but they have not been treated as evidence since directions were made for the provisions of evidence by the parties as far back as 29 July 2021 with the time for compliance with those directions being subsequently extended. It would be procedurally unfair to permit either party to rely on matters not raised until shortly prior to the hearing, at a time when there is no reasonable opportunity to either challenge or respond to any such evidence.
3. As a result, there is no evidence on matters such as when the kitchen was installed and when concerns were raised, other than an email dated 5 March 2021 and letters dated 10 March 2021 and 3 May 2021. Further, there is no evidence going to any inspection by either of the Owners at the sub-contractor's factory.

Owners' submissions

1. The submissions of the Owners (MFI 1) contended that the kitchen which was installed was not a "Solid timber" kitchen, that the timber used was not of furniture grade quality, that there were deficiencies in design and manufacture, that there were multiple areas where damage had occurred during production and/or installation, and that the paint finish was poor.
2. It was contended that the only reasonable course of action was removal and replacement due to the nature and extent of the defects and that a money order should be made rather than a work order. These submissions also sought not only an order for costs but also an order for the determination of the amount of those costs.

Owners' submissions

1. Omitting matters of evidence, the Builder's submissions (MFI 2) indicated that the supply and installation of the kitchen was sub-contracted. Reliance was placed on the report of Mr Valstar. It was contended that the Builder should be permitted to complete the work, which would be undertaken by the same sub-contractor, being a sub-contractor who held a licence. Further, that the areas of concern could be fixed with the result that removal and replacement was not warranted.
2. On the question of whether a work order or money order should be made, it was said that: "The [Builder] had the opportunity to rectify the defects and chose not to because the quotation to repair what [the Owners] saw as fault was grossly excessive, $86,314.87 as compared to the original cost of supply and installation of the entire kitchen of $51,580.00."

Consideration

1. There are matters which do not appear to be in dispute, set out below: 1. The Owners are the owners of residential premises in Newport. 2. The Builder provided them with a quotation dated 24 August 2020. 3. On 28 October 2020 the Builder provided the Owners with an invoice for the provision of a "Solid timber kitchen" for $44,000 and a "Butler[']s Pantry" for $7,580, giving a total amount of $51,580 inclusive of GST. 4. The Owners have paid $49,696 for that work with the result that there is an unpaid balance of the contract price of $1,884. 5. The subject work commenced on 30 October 2020 and the last day on which work was carried out was 23 February 2021. 6. The Builder did not have a licence to carry out that building work. 7. There was no insurance cover in respect of that building work.
2. The determination of this application is made in unusual circumstances, including (1) the sole contract document appears to be the invoice dated 28 October 2020, (2) there is no evidence from either of the Owners or from the Builder, (3) the Builder sub-contracted the subject work to a third party, and (4) there is a suggestion that the work was not completed but no evidence of either what was the remaining work or the cost to complete.
3. As a result, the issues which require determination, listed below, must be determined primarily, if not exclusively, on the evidence of the experts: 1. Was a "solid timber" kitchen provided? 2. What is the nature and extent of the defects? 3. Repair or replacement? 4. Work order or money order? 5. If a work order, what should be the scope of works? 6. If a money order, what amount should be awarded?

Solid timber

1. In determining this question, the Tribunal only has the appearance of those words in the invoice and the opinions expressed by Mr Frizzell and Mr Valstar in their respective reports.
2. Many decisions, such as that of the High Court of Australia in Taylor v Johnson [1983] HCA 5 and numerous subsequent decisions, have held that contract law is concerned not with the subjective intentions of the parties to a contract, but rather with the outward manifestations of those intentions. That is sometimes referred to as the objective theory of contract because the assessment is not made from the subjective view of either party but objectively, as if a reasonable person was considering what was said and done by both parties at the relevant time. In other words, what either the Owners or the Builder thought was meant by the words "Solid timber" does not determine the issue.
3. The meaning given to the words "solid timber" depends on the evidence of what those words usually denote by reference to the context in which they were used, namely the supply and installation of a kitchen.
4. Mr Frizzell's view was that the words "solid timber" requires at least the "drawers, doors, end panels, infill panels, edge trims, kickboards, and loose shelves to be selected furniture grade solid timber". Mr Valstar suggested the words "solid timber" are ambiguous, covering both lumber (being milled timber which is rough sawn then dressed) and engineered work (including plywood, fibreboard, MDF and particle board). The Tribunal notes that MDF is an abbreviation of the words 'medium density fibreboard', which is an engineered wood product made by breaking down hardwood or softwood residuals into fibres. As a result, the Tribunal has difficulty with a suggestion that MDG could ever be considered as falling within the words "solid timber".
5. However, the crucial problem with the opinion expressed by Mr Valstar is that it would render the words "solid timber" superfluous. It is plain the inclusion of those words denoted a higher quality product for the Owners and a higher price for the Builder. Consistent with what was said in Sauvage v Cleardon [2017] NSWCATAP 47 at [31], the Tribunal prefers the view of Mr Frizzell as that view gives the words "solid timber" an effect while they would have no effect at all under the alternative interpretation suggested by Mr Valstar.
6. A consideration of the photographs included in the report of Mr Frizzell provides clear support for the view that what was supplied and installed was not "solid timber" and this constituted a breach of contract which entitles the Owners to an award of damages.
7. Beyond the general basis for a breach of contract, the Tribunal considers the kitchen supplied and installed involved a breach of paragraph (a) of s 18B(1) of the HBA in that such work was not done in accordance with the specification set out in the contract, namely the specification of "solid timber" in the Builder's tax invoice.
8. The work that would be required to rectify this aspect of the work weighs significantly against the contention that the work done can be repaired rather than removed and replaced.

Defects

1. The report of Mr Frizzell for the Owners grouped the alleged defects under four topics, considered separately below. His views complied with what is expected of an expert witness, as set out in Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305, which made it clear that an expert's opinion must clearly indicate the facts upon which that opinion is based and either the reasons or the process of reasoning which led to the that opinion.
2. The unsigned report of Mr Valstar, which did not set out his qualifications and experience, did not respond to the individual defects. Although he did not refer to the Tribunal's Procedural Direction 3, which contains a Code of Conduct for Expert Witnesses, his report did refer to such codes and it is clear he is aware of the expectation that an expert witness will regard his or her primary duty as assisting the court or tribunal and not being an advocate for the party for whom the report was provided.
3. Mr Valstar's views included the following propositions: (1) the work was not complete, (2) he found "the quality of the build to be below average, exhibiting concerns as to the selection and quality of material used", (3) the assembly of the units was below average, and (4) quality control was "below expectations", (5) the work should be repaired rather than removed and replaced. "The timber used is not of furniture grade quality"
4. Mr Frizzell expressed the view that: "The timber used for the drawers is not furniture grade, has excessive knots, knots have fallen out and been filled, gum streaks, roughly finished, torn surfaces." Supporting photographs were provided. That evidence was neither challenged nor contradicted. "There is inconsistent/poor design and manufacture"
5. Photographs of a drawer unit installed hard against a wall, without a side filler panel, requiring the skirting board to be cut to allow the doors to be opened and closed, provided clear evidence of poor design. Mr Valstar's use of the words "below average" and quality control being "below expectations" do not stand in the way of a finding that this defect has been established. "Multiple areas [of damage] at the production or installation stage …"
6. Mr Frizzell provided evidence in support of this defect under no less than eight items with photographs providing evidentiary support. While matters such as "works not cleaned and tested" could be remedied, timber which has not been sealed on unexposed sides is more consistent with cutting time and cost than a failure to complete work. If the suggestion of Mr Valstar that there were aspects which were incomplete work and could be corrected is directed to this group of defects, that suggestion is rejected as being an adequate response to each of the eight items listed by Mr Frizzell.
7. The Tribunal also accepts the evidence of Mr Frizzell that these items involve failures to comply with the provisions of AS4386-2018. "The paint finish is poor, inconsistent and bleeding onto stained areas"
8. Photographs included by Mr Frizzell in his report satisfy the Tribunal that the paint finish warrants a finding that it is defective and not merely below average.
9. It is convenient to here note that the Tribunal is satisfied that each of these four topics warrants a finding that there has been a breach of paragraph (a) of s 18B(1) of the HBA in that the subject work was not done with due care and skill.
10. Further, for the sake of completeness, it is noted that the evidence reveals that Mr Belaunde, an expert retained by the Builder, inspected the subject kitchen on 1 April 2021. However, no report from him has been provided not has his absence been explained.

Repair or replacement?

1. Although Mr Valstar contended for repair rather than replacement of the kitchen, he did not suggest any costs of repair. Further, it must be noted his view on the issues of repair or replacement was obviously based on his opinion that what was provided was with the words "Solid timber" in the invoice. It must be doubted whether that view could be maintained when the Tribunal's finding that what was supplied and installed was not a "Solid timber" kitchen and amounted to a breach of contract and a breach of statutory warranty by the Builder.
2. The nature and extent of the matters requiring attention satisfies the Tribunal that Mr Frizzell's opinion that the existing kitchen should be removed and replaced is to be preferred.
3. An issue was raised as to whether the claim for the cost of replacing the bench tops should be allowed. There is no evidence that the Owners installed the bench tops despite knowing that the kitchen was defective. Given that the cost of the bench tops was not included in the contract between the Owners and the Builder, it is unlikely that the Owners would incur that cost if they knew the kitchen was so defective as to require removal and replacement. Nor is there any evidence that the Builder advised the Owners not to install the bench tops.
4. While it might be contended that the installed bench tops could be re-used, it is clear from the evidence before the Tribunal that they were fixed in position, presumably glued. As a result, the force required to remove them may result in cracks. Even if that did not occur, it appears, as is usually the case, that a sink was cut into a least one of the bench tops which would have required specific measurements that may not be matched when that sink is removed and replaced. In those circumstances, the Tribunal is satisfied that the replacement of the bench tops is, in accordance with Bellgrove, both necessary and reasonable, and the cost of replacing the bench tops, obtained by reference to Rawlinsons, appears to be reasonable.
5. The principles relating to when a consequential loss can be recovered are well-established, by Hadley v Baxendale (1854) 9 Ex 341, which set out two tests, either of which needed to be satisfied for there to be an entitlement to recover. The first test is whether the damages claimed may fairly and reasonably be considered as arising naturally, in the usual course of things, from the breach. The second test is satisfied when the subject damage "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."
6. It is clear the replacement of the bench tops arises due to the need to replace the joinery on which they rest. Accordingly, the first test in Hadley v Baxendale is satisfied and the recovery of that cost by the Owners is justified both as a matter of law and on the evidence.

Work order or money order?

1. The fact that the Builder does not have a licence and that the subject work was not covered by Homeowners Warranty Insurance are not necessarily impediments to a work order being made and it is noted that the Builder has indicated that, if a work order were to be made, the same sub-contractor would be used to carry out the rectification work.
2. Despite a 5 March 2021 email from the Builder accepting there were matters that needed to be repaired or replaced, a 10 March 2021 offer by the Owners' solicitor did not result in rectification. The suggestion in the Builder's submissions that a decision was made not to rectify the defects because the suggested cost of $86,314.87 was excessive compared to the contract price of $51,580 is difficult to accept because if the Builder rectified the defects, it would not be required to pay what it considered to be an excessive amount.
3. The Tribunal is not persuaded that a work order should be made. There is no evidence from the Builder to acknowledge the poor standard of the subject work: only a report of its expert witness which suggests a "below average" standard of work. The Builder has indicated that if a work order is made then the same sub-contractor would be used.
4. As to that sub-contractor, there is no evidence that sub-contractor accepts that there is defective work and even the evidence of the Builder's expert is that the work of that sub-contractor was "below average". That, plus the nature and extent of the defects revealed by Mr Frizzell's report, has the result that the Tribunal has significant reservations as to the ability of that sub-contractor to rectify the work with due care and skill.
5. Further, given that the Tribunal is satisfied there should be removal and replacement, there is no evidence to persuade the Tribunal that if the sub-contractor removed and replaced the subject kitchen the outcome would be any better in terms of the quality of the work.

Work order

1. As the Tribunal is satisfied that a money order should be made, it is not necessary to consider this issue. However, it is noted that, despite contending for a work order, Mr Valstar did not propose any form of work order. If, as he contended, the defects were such as to warrant repair rather than removal and replacement of the kitchen, it would have been of assistance to the Tribunal for Mr Valstar to suggest the form of the work order for which he contended. If the defects were either as limited as he suggested and/or were readily capable of repair, then the submission of a draft form of work order would have had probative force.

Money order

1. Mr Frizzell set out his calculation of the amount which the Owners are claiming at A38-39 (ie pages 38 and 39 in Exhibit A). While the Builder contended that the amount sought ($86,314.87) exceeded the contract price ($51,580, or $44,000 for the kitchen alone), it is noted that the work covered by the amount sought includes (1) removal and disposal of the existing kitchen ($4,868), (2) the supply and installation of a replacement kitchen ($38,977.50), and (3) new bench tops ($15,600), which gives a sub-total of $59,445.50 to which preliminaries (10%), builder's margin (20%) and GST (10%) were added to give $86,314.87.
2. The evidence of Mr Frizzell as to the amount of $86,314.87 was not challenged, (1) by him being questioned at the hearing, (2) in Mr Valstar's report, or (3) in the Joint Scott Schedule. His calculation indicates the basis of calculation which, for relevant items, was based on Rawlinson's Costs Guide. Being satisfied that it is reasonable and necessary to remove the existing kitchen, then supply and install a new kitchen, and that new bench tops will be required, the Tribunal is also satisfied that the amount proposed by Mr Frizzell is reasonable.
3. However, in the absence of evidence from the Owners that the subject work was not complete, to permit them to recover that amount would be to place them in the same position as if a contract for $51,580 had been performed without any breach but only requiring them to pay $49,696 for that outcome. Accordingly, it is necessary to deduct the unpaid balance of the contract price of $1,884 ($51,580 less $49,696) from $86,314.87 which gives $84,430.87.

Costs

1. In the Civil and Administrative Tribunal Act 2013, s 60 provides that each party is bear their own costs unless there are special circumstances warranting an award of costs. However, rule 38 of the Civil and Administrative Tribunal Rules 2014 provides that costs may be awarded where the proceedings are in the Consumer and Commercial Division and the amount in dispute exceeds $30,000.
2. As that is the case in this application, it follows that the usual rule that "costs follow the event" applies, the quoted words indicating the principle that the unsuccessful party should be ordered to pay the costs of the successful party, not to penalise the unsuccessful party, but to compensate the successful party. However, that usual rule is not followed when there are disentitling circumstances or where the Tribunal considers it should not award costs in the exercise of its discretion.
3. Both parties were self-represented, and it is clear from the High Court decision in Cachia v Haines [1994] HCA 14 that a self-represented party cannot recover costs for time spent on pursing or defending a claim in a court or tribunal.
4. The issues relating to costs were not canvassed during the hearing. Further, the Owners appear to be seeking not just an order for costs but an order for an amount in respect of costs. For those reasons, orders will be made to provide an opportunity for both parties to submit the documents upon which they wish to rely in relation to costs and to indicate whether they consent to costs being determined on the papers, ie without a further hearing being conducted.
5. As the Tribunal is aware that documents have been provided electronically between the parties, leave will be granted for any documents relating to costs to be provided electronically with pages numbered to facilitate reference to those documents. The link for the Tribunal's portal for the lodgement of documents is set out below.

Orders

1. Accordingly, the orders that will be made are as follows: 1. The respondent is to pay the applicants $84,340.87 immediately. 2. Any documents and/or submissions upon which the applicants wish to rely in relation to costs are to be provided to the Tribunal and the respondent on or before 14 February 2022. 3. Any documents and/or submissions upon which the respondent wishes to rely in response are to be provided to the Tribunal and the applicants on or before 28 February 2022. 4. Any submissions from applicants in reply are to be provided to the Tribunal and the respondent on or before 14 March 2022. 5. Leave is granted for any such submissions to be provided electronically to the other party and the Tribunal. 6. Any such submissions are to indicate whether it is agreed that the Tribunal should dispense with a hearing on the question of costs.

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

Amendments 28 March 2022 - Numbering 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: 28 March 2022