Hiperia Holdings Pty Limited v Sghabi;; Sghabi v Hiperia Holdings Pty Limited

The Tribunal's reasons for decision

1. At the beginning of the two-day hearing before the Tribunal, nine alleged defects remained in dispute, with one item (Item 8) having been agreed shortly before the hearing. Another item (Item 2) was agreed in respect of defect, liability, and quantum on the second day of the hearing, resulting in a finding in the owner's favour in the sum of $8,390. This left eight alleged defects for the Tribunal to determine.
2. According to [50] of the reasons for decision, there was also a dispute as to whether the builder undertook the works which were the subject of the claims concerning Items 5, 6, 7 and 9. The Tribunal stated: 50 The onus was on the Owner in several disputed items (5, 6, 7, 8 and 9) to prove that the Second Builder undertook the home building work and not the First Builder. The fact that they failed to do this in respect of some of these items confirms the Tribunal's application of this principle.
3. The issue in relation to Item 8 was resolved during the hearing.
4. The Tribunal made findings in respect of the disputed items, with reference to the expert opinions expressed by the owner's expert witness (Mr Ransley) and builder's expert witness (Mr Melick).
5. The Tribunal relevantly found: 1. In relation to Item 1: This item concerned uneven riser heights to the entry stairs. The parties' expert witnesses agreed on the existence of the defect and liability for it. In relation to the cost of rectification, the Tribunal preferred Mr Ransley's opinion over that of Mr Melick, stating that "Mr Ransley's costings are more detailed and were not challenged in cross-examination". 2. In relation to Item 3: This item concerned the provision of access into the roof space to service the air conditioning equipment. The Tribunal preferred Mr Ransley's proposed method of rectification, being the installation of an access panel in the ensuite bathroom at a cost of $2,040, to Mr Melick's view that a servicing contractor could cut a hole in the ceiling and repair it thereafter at a cost of $122.49. The Tribunal preferred Mr Ransley's proposed method of rectification because Mr Melick had conceded during the conclave that the position of the access panel directly under the condensate tray prevented access to it and because Mr Ransley had demonstrated that the condensate tray had not been installed in accordance with the instruction manual. 3. In relation to Item 4: This item concerned doors fitted to "sanitary compartments" which were not constructed in accordance with National Construction Code (NCC) CL 3.8.33, in that they had toilet pans located within 1.2 metres of the inward opening doors. The experts were agreed on the existence of the defect and the method of rectification but disagreed about the cost of rectification. Mr Ransley estimated 8 hours to complete the work and Mr Melick estimated two hours. The Tribunal took the view that Mr Ransley's estimate of cost was excessive for the relatively minor task involved in rectification and found that the mid-way point between the two estimates was appropriate. The Tribunal found $741.25 to be the cost of rectification in respect of this defect. 4. In relation to Item 5: This item concerned defects in the external brick cavity veneer wall resulting in water penetration and damage. The defects included defects in the installation of window flashings in windows installed in the brick wall. The experts agreed on the existence of a defect but disagreed on liability and method of rectification. The Tribunal found that the brick work was not part of the builder's scope of work but found that the builder was nevertheless liable for "the reduced estimate of costs" in the sum of $14,181, less the estimated amount for making good the brickwork, but including 50% of site supervision costs in the sum of $550. As discussed further below, the sum awarded was calculated by reference to the cost of rectifying the defective installation of windows. 5. In relation to Item 6: This item concerned defects in the bedroom 2 balcony and sliding door installation which resulted in water penetration and damage to the bedroom 6 ceiling. The experts acknowledged that there was a technical breach of AS 4564 in that there was no set down between the interior and exterior floor surfaces as required by that standard. There was a dispute between the experts as to the nature and extent of the defect, whether the builder was liable for it and the cost of rectification. The Tribunal was not satisfied on the balance of probabilities that the defect was the builder's responsibility or that, if it was the builder's responsibility, any real issue with water ingress arises from the defect. The Tribunal stated that "for these reasons" it was willing to accept Mr Melick's proposed remedy of installing epoxy ground to all grout joints for any waterproofing issues that may arise, which it considered to be "a better and more proportionate response than Mr Ransley's scope of works". The Tribunal considered Mr Melick's costs' estimate "probably understates the actual work to be undertaken" and awarded the owner $3,000, rather than Mr Melick's estimate of $948.83. 6. Item 7: This item concerned defects in the bedroom 1 balcony resulting in water penetration and damage to the ground floor entry balcony. The Tribunal reached the same conclusion as it had in respect of Item 6 and awarded the same amount. 7. Item 8: Defect, liability, and quantum in respect of this item were agreed at $680 (base cost). 8. Item 9: This item concerned consequential damage due to water penetration through brick veneer walls and first floor balconies. The Tribunal found that widespread damage to the walls of specified rooms, staining to the soffit cladding and to the ground floor entry balcony wall, hairline cracking and efflorescence suggest that water ingress will present medium to long term problems. 9. Item 10: This item concerns roofing defects. The experts were partially agreed as to the existence of defects, were agreed that the builder was responsible for the agreed aspects of the roofing defects and disagreed on the cost of rectification. The Tribunal found that while there may be no water ingress, "there are matters that require remediation". The Tribunal stated that it was "willing to split the difference between the assessment of the two experts and award the sum of $6,007.30 as a base cost for this item".
6. The other items in dispute concerned: 1. Item 11: This item concerned the increase in building costs since the experts' reports were prepared. Mr Ransley allowed 15% and Mr Melick allowed 8%. The Tribunal stated that it was minded to "split the difference" and allow 11.5%. 2. Item 12: This item concerned an allowance for contingencies. Mr Ransley allowed 10% and Mr Melick made no allowance. The Tribunal found that a 10% contingency to be excessive because the owner failed in respect of various major items in his claim. The Tribunal found that 5% should be allowed to compensate for any latent conditions which may arise. 3. Item 13: This item concerned preliminaries. Mr Ransley allowed 10% for preliminaries and Mr Melick made no allowance. The Tribunal accepted that no further provision for preliminaries should be made as a margin of 25% was agreed and a contingency of 5% had been allowed.
7. The builder sought a work order. The Tribunal found that a money order was the most appropriate remedy, especially when the owner had not contracted with the builder but "inherited the building with its defects by a sale transfer in April 2021".
8. The owner sought damages for accommodation costs which they claimed would be required while rectification works were carried out. The owner estimated accommodation costs to be $12,320. The Tribunal refused the claim, apparently on the basis that the head of damage was not in the reasonable contemplation of the parties at the time the building contract was entered into and does not flow naturally from the builder's breach of contract. The Tribunal also referred to the fact that it had found that some of the water ingress which may require the owner to vacate was because of brickwork defects which were excluded from the builder's contract with the previous owner.
9. The Tribunal ordered the builder to pay the owner's costs on the basis that r 38 of the Civil and Administrative Tribunal Rules 2014 (the Rules) applied to costs of the proceedings and special circumstances did not need to be established.

Scope and nature of internal appeals

1. Internal appeals may be made as of right on a question of law, and otherwise with leave of the Appeal Panel: s 80(2) NCAT Act.
2. In Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 the Appeal Panel set out at [13] a non-exclusive list of questions of law, which includes the application of an incorrect legal principle, a denial of procedural fairness and a failure to give adequate reasons for decision.
3. For the Appeal Panel to grant leave to appeal from decisions made in the Consumer and Commercial it must be satisfied that the appellant may have suffered a substantial miscarriage of justice on the basis that: 1. the decision of the Tribunal under appeal was not fair and equitable; or 2. the decision of the Tribunal under appeal was against the weight of evidence; or 3. significant new evidence has arisen (being evidence that was not reasonably available at the time the proceedings under appeal were being dealt with).
4. In Collins v Urban [2014] NSWCATAP 17 (Collins v Urban), the Appeal Panel stated at [76] that a substantial miscarriage of justice for the purposes of cl 12(1) of Schedule 4 may have been suffered where: … there was a "significant possibility" or a "chance which was fairly open" that a different and more favourable result would have been achieved for the appellant had the relevant circumstance in para (a) or (b) not occurred or if the fresh evidence under para (c) had been before the Tribunal at first instance.
5. Even if an appellant from a decision of the Consumer and Commercial Division has satisfied the requirements of cl 12(1) of Schedule 4, the Appeal Panel must still consider whether it should exercise its discretion to grant leave to appeal under s 80(2)(b).
6. In Collins v Urban, the Appeal Panel stated at [84] that ordinarily it is appropriate to grant leave to appeal only in matters that involve: (a) issues of principle; (b) questions of public importance or matters of administration or policy which might have general application; or (c) an injustice which is reasonably clear, in the sense of going beyond merely what is arguable, or an error that is plain and readily apparent which is central to the Tribunal's decision and not merely peripheral, so that it would be unjust to allow the finding to stand; (d) a factual error that was unreasonably arrived at and clearly mistaken; or (e) the Tribunal having gone about the fact finding process in such an unorthodox manner or in such a way that it was likely to produce an unfair result so that it would be in the interests of justice for it to be reviewed.

Notices of Appeal

1. Each of the Notices of Appeal was lodged on 11 September 2023, which is within the 28 day time period specified in cl 25(3)/(4) of the Rules. The appeals are therefore in time.

Grounds of Appeal - builder's appeal

1. At the hearing, the builder's counsel agreed that the questions of law said to arise on the appeal are: 1. Application of an incorrect principle of law by awarding compensation to the owner in respect of items the Tribunal found not to be the builder's responsibility. 2. Failure to deal with submissions amounting to a denial of procedural fairness. 3. Inadequacy of reasons.
2. The builder's appeal concerns items 1, 3, 5, 6, 7, 9 and 12. The owner conceded the appeal in respect of items 6 and 7 on the basis that the Tribunal had found that the builder was not liable for the balconies and therefore damages should not have been awarded. The issues in dispute in the appeal are therefore items 1, 3, 5, 9 and 12.

Grounds of appeal - owner's appeal

1. The owner's sole ground of appeal is that the Tribunal did not include GST when calculating damages. The builder agrees that GST should have been included in the calculation.

Submissions and evidence

1. In deciding the appeals, we have had regard to the oral submissions made on behalf of the parties at the hearing, as well as relevant documents in the five-volume appeal bundle filed on 22 November 2023 (AB). The AB includes the parties' respective Notices of Appeal, Replies to Appeal and written submissions, together with the pleadings and documentary evidence before the Tribunal, the submissions made to the Tribunal, the transcript of the Tribunal hearing and the Tribunal's reasons for decision.

Issues

1. In respect of the builder's appeal, the issues to be decided are: 1. Whether the Tribunal made an error on a question of law in respect of any of the disputed Scott Schedule items, 2. If not, whether the builder has established a basis for leave to appeal the Tribunal's decision, and 3. If so, whether leave to appeal should be granted.

Tribunal's findings

1. This item concerned uneven riser heights to the entry stairs. The parties' expert witnesses agreed on the existence of the defect and the builder's liability for the defect. At [53] of the reasons for decision, the Tribunal notes that: 53 …. The methodology for remedying this defect also appears to be agreed following Mr Melick's agreement during the hearing that removal of the skirtings is now required….
2. The parties' expert witnesses disagreed on the cost of rectification. At [54] to [55] the Tribunal stated that: 54. The difference in costings seems to arise because Mr Melick has allowed less hours and material. Mr Ransley's costings are more detailed and were not challenged in cross-examination. 55. Mr Melick appeared to misunderstand during the hearing the time Mr Ransley had allowed for this task of 24 hours (T64,40-65, 40) when Mr Ransley had in fact allowed no more than 18 hours.
3. The Tribunal adopted submissions made by the owner to the effect that where experienced experts disagree "the Tribunal should assess compensation in a robust manner, relying on the presumption against wrongdoers": reasons for decision at [56].
4. The Tribunal awarded the owner $4,312, the cost of rectification assessed by Mr Ransley.

Builder's position

1. The builder submitted that the Tribunal was incorrect when it stated that Mr Ransley had allowed no more than 18 hours. Rather, Mr Ransley had allocated 39 hours, whereas Mr Melick had allowed 18 hours. The builder submitted that the Tribunal had "switched around the costings". The builder submitted it had been pointed out to the Tribunal in written submissions that the experts had been "switched around", but the Tribunal still made the error.
2. The builder submitted that where a court (or in this instance, the Tribunal) fails to grapple with an argument, this amounts to a denial of procedural fairness. In written submissions, the builder also submitted that the Tribunal had failed to provide adequate reasons for determining Item 1 adversely to the builder.
3. The builder further submitted that leave to appeal should be granted as the Tribunal's error is clear on its face and not merely arguable.

Owner's position

1. The owner's position is that no error on a question of law arises in relation to Item 1 and that leave to appeal in respect of this item should not be granted.

Consideration

1. It is not in dispute that to fail to respond to a "substantial, clearly articulated argument relying upon established facts" may be a denial of procedural fairness: see Dranichnikov v Minister for Immigration and Multicultural Affairs [2003] HCA 26; 77 ALJR 1088, at [24]. A denial of procedural fairness gives rise to a question of law.
2. However, we are not satisfied that the error made by the Tribunal amounts to a failure to deal with a substantiated, clearly articulated argument amounting to a denial of procedural fairness. Rather, at its highest, in stating that Mr Ransley had allowed 18 hours for rectification work, the Tribunal made an error of fact.
3. We have considered whether the Tribunal's reasons for decision in respect of item 1 are adequate.
4. The principles relevant to adequacy of reasons were set out by Bell P (as he then was) in New South Wales Land and Housing Corporation v Orr [2019] NSWCA 231 (Orr). These principles were helpfully summarised as follows by the Appeal Panel in Volkswagen Group Australia Pty Ltd v Saad [2022] NSWCATAP 133 (Saad) at [58]: (1) The function of the appeal court is to determine not the optimal level of detail required in reasons for a decision but rather the minimum acceptable standard. 2) The quantity (or detail) of reasons, necessary for those reasons to be adequate may vary both with the nature of the decision maker, i.e. whether or not it is a court or tribunal, and, if the latter, possibly the type of tribunal, and the nature of the question being decided. (3) As to the quality of reasons, it is generally accepted that the sheer volume of work undertaken by tribunals is such that a perhaps more relaxed standard of review of reasons is appropriate than may be the case when an appellate court is hearing an appeal from another court. (4) Even in the less formal setting of a tribunal there are certain minimum characteristics that a Tribunal's reasons must possess. These are supplied, in relation to the Tribunal, by s 62(3) of the NCAT Act which, requires there to be set out in reasons (when requested by a party): (a) the findings on material questions of fact, referring to the evidence or other material on which those findings were based, (b) the Tribunal's understanding of the applicable law, and (c) the reasoning processes that lead the Tribunal to the conclusions it made. (5) At least a basic explanation of the fundamental reasons which led the Tribunal to its conclusion is necessary. (6) It is not necessary for a judge to detail each factor which he or she has found to be relevant or irrelevant. Nor is a judge required to make an explicit finding on each disputed piece of evidence. It will be sufficient if the inference as to what is found is appropriately clear. (7) Reasons need not be elaborate. (8) Expression of conclusions in a certain sequence does not indicate a failure to consider the evidence as a whole. (9) The court should not read passages from the reasons for decision in isolation from others to which they may be related. (10) The reasons must be read fairly, and as a whole. (11) The reasons recorded ought not to be inspected with a fine tooth-comb attuned to identifying error. (12) There should be a degree of tolerance for looseness in the language of the Tribunal, unhappy phrasing of the tribunal's thoughts or verbal slips.
5. We consider that the Tribunal's reasons in respect of item 1, while economical, meet the minimum acceptable standard referred to in Orr at [66]. In relation to this, the Tribunal set out clear reasons for its conclusion in relation to item 1, which was based on the Tribunal's preference for Mr Ransley's evidence over that of Mr Melick: 1. Mr Ransley's costings were more detailed: reasons at [54], 2. Mr Ransley's costings were not challenged in cross-examination: reasons at [54], and 3. The acceptance of the owner's submission that where two experienced experts disagree on quantification, the Tribunal should assess compensation in a robust manner: reasons at [56] to [57].
6. We are not satisfied that the Tribunal erred on a question of law in its determination of Item 1. We have therefore considered whether to grant leave to appeal in respect of this item.
7. We have decided not to do so for the following reasons. First, the builder has not established one of the grounds for leave to appeal set out in cl 12 of Schedule 4 of the NCAT Act. Second, even if a ground for leave to appeal were established, we would not grant leave to appeal because we do not consider that any of the factors warranting leave to appeal set out in Collins v Urban apply in this case.

Tribunal's findings

1. This item concerned access into the roof space for the purpose of servicing air conditioning equipment. The owner claimed that the access panel allowed insufficient access. The parties' experts disagreed on the existence of the claimed defect and the method and cost of rectification. Mr Ransley opined that access should be provided through the ensuite ceiling. Mr Melick was of the view that the service hatch in its current position was sufficient to see and access the air conditioning unit. He was of the view that if access was needed, the contractor could cut a hole in the ceiling and repair it thereafter. During the conclave, Mr Melick conceded that if someone wanted to access the condensate tray, they could not do so as the access panel is positioned directly under the tray. Mr Ransley stated that the condensate tray had not been installed in accordance with the installation manual.
2. The Tribunal accepted Mr Ransley's estimate of $2,040 as the cost of repair for item 3.

Builder's position

1. The builder submits that the Tribunal failed to make a finding as to why or how item 3 was defective, failed to find a breach of a statutory warranty under s 18B of the HB Act, failed to address the builder's written submissions in respect of item 3 and did not provide adequate reasons for its decision.

Owner's position

1. The owner submits that the Tribunal made two key factual findings: 1. The condensate tray was not installed in accordance with the instruction manual, and 2. Mr Melick admitted that someone who wanted to access the condensate tray would be unable to do so given the location of the access panel.
2. The owner further submits that a failure to comply with an installation manual and Mr Melick's concession in relation to the lack of access to the condensate tray provide a sufficient basis to find that the builder failed to carry out the works involved in item 3 with due care and skill. The owner submits that the reasons, when read as a whole, reveal that an implied factual finding was made to this effect.

Consideration

1. We have first considered the principles set out in Orr in relation to the Tribunal's reasons for decision concerning Item 3.
2. While the Tribunal did not overtly make a finding that the work the subject of Item 3 was in breach of a particular statutory warranty, in our view it is clear that the Tribunal had reached such a conclusion when the reasons are read as a whole.
3. First, there is no dispute that the cause of action under consideration in the proceedings was in respect of breach of statutory warranty under s 18B of the HB Act: see, for example, the Tribunal's discussion of jurisdiction from [43] to [50] of the reasons for decision. Second, there was uncontradicted evidence before the Tribunal that Item 3 constituted work that was done otherwise than in accordance with the manufacturer's installation manual: see Mr Ransley's report at AB vol 2 page 384. Third, Mr Melick conceded during cross-examination that the location of the access panel was "not ideal" and that fixing, or maintenance of the condensate tray could not be done using the access hole in its present position: Transcript AB Vol 4 page 1828.34. Fourth, it is sufficiently clear from the reasons for decision that Mr Melick's concession led the Tribunal to prefer Mr Ransley's method of rectification.
4. In these circumstances, we are of the view that the only inference that can be drawn from the Tribunal's reasons in respect of Item 3 is that the Tribunal concluded the access panel was installed otherwise than in accordance with the manufacturer's specifications and that this constituted a breach of the statutory warranty set out in s 18B(1)(a) HB Act; that is, that work will be done with due care and skill.
5. We therefore conclude that the Tribunal made the required findings in respect of Item 3 and that its reasons for decision in relation to that item, while economical, are adequate. Further, we do not accept the Tribunal failed to consider the builder's submissions in respect of this item. The fact that the Tribunal does not specifically refer to the submissions does not give rise to a question of law. At most, the Tribunal's reasons for decision reveal that the Tribunal did not agree with the builder's submissions on this issue.
6. The appeal in respect of Item 3 accordingly fails.
7. If we have erred in concluding that the Tribunal's reasons in respect of Item 3 are adequate and/or in concluding that the Tribunal made a finding of breach of statutory warranty, we are of the view that there was ample evidence before the Tribunal to conclude that the work involved in Item 3 constitutes a breach of the statutory warranty in s 18B(1)(a) of the HB Act.
8. In relation to this, it is not in dispute that the installation of a panel giving access into the roof space was work the builder was required to undertake. In our view, installing an access panel in a location that does not accord with the manufacturer's installation guide and which hinders access to fix or maintain the condensate tray can be reasonably characterised as work not done with due care and skill, and therefore in breach of the statutory warranty in s 18B(1)(a) of the HB Act. Moreover, requiring a hole to be cut into the ceiling to undertake maintenance which would ordinarily be done through an access panel located in accordance with the manufacturer's instruction manual, is not a reasonable method of rectification. We conclude that the Tribunal did not err in preferring Mr Ransley's method of rectification.
9. We would not grant leave to appeal in respect of Item 3. We are not satisfied that the builder has established that it may have suffered a substantial miscarriage of justice arising from one or more of the bases for leave to appeal set out in cl 12 of Schedule 4. Even if the builder had done so, the builder has not established that the criteria for leave to appeal set out in Collins v Urban apply in this case.

Tribunal's findings

1. This item concerned defects in the external brick cavity veneer wall resulting in water penetration.
2. The Tribunal noted that there was a serious issue as to whether the builder was responsible for the brickwork concerned or whether that work had been undertaken by IMAK. The Tribunal recorded the relevant evidence as follows at [79]: (1) First photographs in the QS report appeared to show that the brickwork to the top floors where each bedroom is located had not been completed as at 21 November 2019, by the First Builder (2) However, brickwork was excluded under the building contract entered into between the former registered proprietor and the Second Builder dated 25 November 2019 (1342). In the Excluded Items Schedule (items not included in Contract) the following matters are listed: (a) "Footings, excavation, basement slab, dincel walls, transfer slab, timber formwork walls, ceilings and roof structure, all external windows and doors, brickwork to structure, rainwater tanks, termite control". (b) While the owner submits that "nothing turns on this" a concession, in cross examination that the Building Contract did not include all the work that was carried out by the Builder does not in the opinion of the Tribunal overcome such an express contractual term; (c) While the Second Builder attempted some rectification works to this defect by putting sarking on the timber near the brickwork (T13.25-30), no charge or variation was apparently made for this.
3. The Tribunal concluded at [80] of the reasons for decision that there was sufficient doubt that the builder "either constructed or was responsible for the brickwork".
4. However, the Tribunal proceeded to award the owner damages in respect of this item, stating at [81] to [84]: 81 As a result, the Tribunal finds that the Second Builder is not responsible for the brickwork and adopts the reduced estimate of costs in accordance with paragraph 8.20 of the AWS [the owner's written submissions] in the sum of $14,181.00. 82 The Second Builder in its submissions states that two of the items in this amount, are: (1) Make good brickwork (allow 75% of $3,500.00) Exhibit A page 186 in the sum of $2,625.00; and (2) 50% of site supervision ($1,100.00) (681) in the sum of $550.00. 83 The Second Builder submits that it is counterintuitive if a finding is made that it is not responsible for the brickwork to include a sum for making good the brickwork. The Tribunal has so found and reduces the Owner's estimate of $14,181.00 by the sum of $2,625.00 to $11,556.00 but allowing the second item of 50% of site supervision. 84 This is the sum that the Tribunal considers should be allowed for this item as a base cost, namely $11,556.00.
5. The parties agree that the damages awarded by the Tribunal in respect of Item 5 were calculated by reference to the cost of rectifying defects in the installation of windows into the brickwork.

Builder's position

1. In summary, the builder submits in relation to Item 5: 1. The Tribunal "failed to find any jurisdictional fact …. enlivening the ability to make an order under the [HB] Act". 2. The Tribunal found at [32] of the reasons for decision that all external windows were excluded from the contract with the builder, so an award of damages was inconsistent with the Tribunal's finding. 3. No factual finding was made that the builder installed the windows, so the Tribunal failed to properly exercise jurisdiction and failed to consider the builder's written submissions to this effect. 4. The Tribunal failed to provide adequate reasons for determining Item 5 against the builder.

Owner's position

1. The owner's position is that the Tribunal made an implied factual finding that the builder installed windows into the brickwork the subject of Item 5.
2. In relation to this, the owner submits: 1. In making an award of damages in favour of the owner in respect of this item, the Tribunal referred to [8.20] of the owner's closing submissions. 2. In [8.20] of the owner's closing submissions, the owners sought the amount of $14,181 on the basis that the builder installed the windows. 3. The sum of $14,181 was calculated as follows: Remove windows/doors - $11,006, Make good brickwork (75% of $3,500) - $2,625, 50% of site supervision ($1,100) - $550. 1. The implied finding that the builder installed the windows is revealed when [81] to [84] of the reasons for decision are read together with [8.20] of the owner's closing submissions. 2. The parties' expert witnesses agreed that the windowsill flashings were defective. On that basis the only factual finding required to impugn the builder was that the builder installed the windows. 3. Consistent with the Tribunal's finding that the builder did not construct the brickwork, the Tribunal reduced the amount claimed by $2,625 and awarded $11,556, being the amount required to rectify the windows without touching the brickwork. 4. The implied finding that the builder was responsible for the installation of the windows was sufficient to impose liability for the cost of rectifying the windows and is consistent with the reasons provided.

Consideration

1. As stated in Orr at [71] per Bell P (as he then was) and as referred to by the Appeal Panel in Saad at [58(4)]: … [T]here are certain minimum characteristics that a Tribunal's reasons must possess. These are really supplied, in relation to the Tribunal, by s 62(3) of the CAT Act which, as noted at [52] above, requires there to be set out in reasons (when requested by a party): (a) the findings on material questions of fact, referring to the evidence or other material on which those findings were based, (b) the Tribunal's understanding of the applicable law, and (c) the reasoning processes that lead the Tribunal to the conclusions it made.
2. In determining Item 5, the Tribunal made a clear finding that the builder was not responsible for the brickwork. However, the Tribunal did not make a finding as to who installed the windows in the brickwork. Defects in window installation are an integral part of Item 5.
3. As noted by the Tribunal at [32] and [79(2)(a)] of the reasons for decision, windows were among the items excluded from the contract between the original owner and the builder.
4. Whether the builder had nevertheless undertaken work that was excluded from the contract remained in contention throughout the proceedings. Both parties' closing submissions dealt with the issue.
5. The owner's closing submissions (at AB Vol 5 p 1923) advance several reasons why the Tribunal should find that they were installed by the builder: see [6.6].
6. The builder's closing submissions (from AB Vol 5 p 1953) relevantly state (footnotes omitted): 7. The applicant's case is largely mounted on the assumption that the respondents undertook works that formed part of the excluded works. However, the Respondent notes from the Applicant's Points of Claim that the Applicant has not pleaded (expressly or otherwise) that the Second Contract was incorrect, incomplete or otherwise the subject of any variation. Furthermore, as submitted by the Respondent's Counsel during the Hearing, there has never been any allegation of sham advanced, or any challenge to the Second Contract. Similarly, there has never been any pleading or case advanced by the Applicant of any further oral contract encompassing future works. Nor has there been any argument that the Second Contract contained implied terms - presumably because any such argument could not be mounted to circumvent the clear words of the agreement excluding some of the very works upon which the Applicant brings its case. 8. By virtue of the Respondent's Points of Defence, the Respondent submits that at all times during the proceedings, the Respondent expressly and squarely put on notice that to the Applicant [sic] that were specifically excluded works from the scope of the Second Contract which it relied on as part of its defence. The Respondent notes that at no time has the Applicant led any evidence from the First Builder as to whether any works pertaining to the excluded works from the scope of the Second Contract was not completed by them, or as to any other entity or person who completed that work. This is particularly relevant given the Applicant called the then director of the First Builder…. 9. Furthermore, the Applicant has not led any evidence (in chief or reply) disputing the Second Contract nor any evidence to the contrary of the Second Contract. Particularly, no evidence (such as any account of witnesses) has been led by the Applicant as to whether Item 5 (the brickwork) was completed by the Respondent. The Respondent notes the Affidavit of Wahid Ishac dated 14 October 2022 (nominated supervisor of the First Builder at the material time) is silent on those issues. 10. If there was any doubt or contest from the Applicant as to whether the items excluded from the scope of the Second Contract were undertaken by the Respondent, it was open to the Applicant to call subcontractors to give evidence as to what works they undertook, and whether they were at the direction of either the First Builder, or the Respondent, or the previous registered proprietor. In circumstances where the Respondent has the benefit of a written agreement it did not need to do so. However, given the serious allegations by the Applicant, which were directly in conflict with the clear terms of the contract and the evidence of the Respondent's lay witnesses, at the very least the Tribunal would require direct evidence on the issue before it considered embarking on any journey to go behind the Second Contract. 11. The Respondent submits that if the Applicant was serious about seeking to identify who undertook certain works (and particularly who completed the brickwork), then contractors such as for brickwork, windows and doors should have been called as witnesses…
7. As the issue of who installed the windows remained in contention and was material to the disposition of Item 5, the Tribunal needed to make a finding of fact in relation to that issue. In giving reasons in relation to Item 5, it was incumbent on the Tribunal to: 1. Make a finding as to whether the builder installed the windows, 2. Refer to the evidence on which the finding was made, and 3. Explain the reasoning process which led to the finding.
8. As noted above, it is not in dispute that the award of damages in respect of Item 5 represents the cost of rectification of defects in the installation of windows. However, even if it can be inferred from an award of damages in respect of Item 5 that the Tribunal had concluded that the builder installed the windows, the Tribunal did not refer to the evidence in relation to this issue or explain the reasoning process which led to the Tribunal's decision. It is therefore not possible to discern from the Tribunal's reasons for decision why the Tribunal awarded damages in respect of Item 5.
9. We conclude that the Tribunal's reasons for decision in respect of Item 5 are inadequate. The appeal is allowed in respect of this item. Given our conclusion in this regard, we do not need to consider the other grounds of appeal or the application for leave to appeal in respect of Item 5.

Tribunal's findings

1. This item concerned consequential damage due to water penetration through brick veneer walls and first-floor balconies. The Tribunal noted in [106] and [107] of the reasons for decision that there was widespread moisture/mould damage on the walls of several rooms, that there was staining to the soffit cladding and to the wall of the front ground floor entry balcony and that there was hairline cracking to floor tile grout. The Tribunal further noted at [108]: All of these matters suggest water ingress or penetration to some degree which, if not remedied, will present medium and long term problems at the Property.
2. At [110] and [111] of the reasons for decision, the Tribunal noted the builder's position that the cost of repairs for consequential water damage referred to in Item 9 was "already accommodated in Items 5, 6, 7 and 8". It also noted the owner's concession that 80% of the cost of rectification in respect of this item is attributable to the brickwork defect (Item 5) (which the Tribunal found was excluded from the Building Contract) and 20% was attributable to the issues with the balconies (Items 6, 7 and 8).
3. The Tribunal stated: 112 At 8.31 AWS the Owner submits that the Tribunal should assess compensation in a robust manner relying on the presumption against wrongdoers and resolving doubtful questions against wrongdoers and where there is a range the wrongdoer can hardly complain if the loss is found at the upper end of the range. 113 The Tribunal's concern here is not being presented with a range or at what end of the range it determines appropriate damages, but rather addressing quantum fairly where there seems to be clear duplication of cost. 114 The Second Builder acknowledges in its own submissions at RWS 135 that the costings for Item 9 should have been factored into Items 5, 6, 7 and 8. 115 However unlike Items 5, 6, 7 and 8 and where there is a dispute as to whether the First Builder or the Second Builder was responsible for the works which created the defect, these are consequential damages resulting from water penetration after the Second Builder handed over the Property to the Owner. There is also clear visual evidence of water penetration and dampness which is supported by the use of moisture meters by both experts. 116 For these reasons, and to permit the Owner to receive a 'dry house' from the Second Builder at the completion of its contract and as the Owner is surely entitled, the Tribunal considers it is appropriate to adopt the estimate of loss of $31,580.00 of Mr Ransley to provide for replacement of water damaged plaster board throughout the Property.

Builder's position

1. The builder submits that the Tribunal erred by: 1. Awarding damages for consequential loss arising from defects the Tribunal found not to be the builder's responsibility, thereby failing to find a jurisdictional fact that "gave rise to the ability to make a money order" in respect of that loss. 2. Misapplying the onus of proof by failing to determine what defect attributable to the builder was the cause of the consequential loss. 3. Applying an incorrect legal principle at [116] of the reasons for decision by finding that the award of damages was necessary to permit the owner to receive a dry house at the completion of its contract with the builder, where no such principle exists under the HB Act or at common law. 4. Failing to consider or deal with the builder's written submissions. 5. Failing to provide adequate reasons for determining this issue adversely to the builder.

Owner's position

1. The owner relevantly submits that: 1. The reasons for decision at [50] reveal that the Tribunal correctly identified that the onus of proof for the disputed items always rested with the owner. 2. In circumstances where the builder was engaged to "complete the duplex", the builder completed the works and gave possession to the former registered proprietor, it is difficult to see why the builder would not be obliged to provide a completed duplex that was not watertight. 3. The builder's obligation extended to aspects of building work that would be reasonably incidental to the work that the builder was expected to do. 4. Water ingress into a property, results in the property not being reasonably fit for occupation in breach of s 18B(1)(e). 5. A finding that the owner was entitled to receive a "dry house", goes no higher than reaffirming the obligation imposed on all builders by s 18B(1)(e). 6. An argument that the builder was relieved of its obligation to deliver a completed duplex that was not watertight is contrary to common sense, the express terms of the contract and the purpose for which the builder was engaged. 7. The Tribunal did not make a jurisdictional error. The Tribunal found that the consequential loss complained of arose as a direct result of the owner's right to receive a "dry house", meaning by reason of the builder's breach of s 18B(1)(e). 8. The Tribunal rejected the builder's and the owner's submissions and drew its own conclusion from the evidence before it. 9. The Tribunal's reasons were adequate. 10. Leave to appeal should not be granted.

Consideration

1. The Tribunal's decision in relation to Item 9 was based on a conclusion that the owner was entitled to a "dry house". This conclusion was not based on the submissions of the parties in relation to this item. Rather, the closing submissions of the parties in relation to Item 9 focused on the cause and extent of water penetration and the method and cost of rectification. See AB Vol 5 pages 1944, 1990-1990 and 2028. There is no reference in these submissions to the concept of a "dry house".
2. We accept that a dwelling which is not "dry" - that is, a dwelling into which water penetrates - is consistent with a breach of the statutory warranty set out is s 18B(1)(e). This subsection states: 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 - ….. (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 … (Emphasis added).
3. However, if the work which caused the water penetration and therefore caused the dwelling not to be reasonably fit for habitation was not conducted by the builder, then it is not clear how the builder could be found to have breached s 18B(1)(e). This is so even if the water penetration occurred after the builder hands over possession of the dwelling to the owner.
4. The reasons for decision do not explain the basis on which the Tribunal concluded that the builder was liable for the cost of rectifying the consequential damage which constitutes Item 9. An explanation of this conclusion was required, particularly when the evidence before the Tribunal indicated that a substantial cause of the water penetration was the defective brickwork, for which the Tribunal had found the builder not to be liable. The other cause of the water penetration was through the balconies, for which the Tribunal also found that the builder was not responsible.
5. We conclude that the Tribunal's reasons for decision in relation to this item are inadequate. The appeal in respect of Item 9 is allowed on this basis. We therefore do not consider other grounds of appeal or the application for leave to appeal.

Tribunal's findings

1. This item concerns a contingency. The Tribunal stated: 129 At the hearing, Mr Ransley allowed 10% for contingencies, Mr Melick did not allow any sum for contingency. 130 Mr Melick conceded the more work that is done the more risk that arises and hence the need for an allowance for contingency (T117.45-118.10). 131 A number of the major items in the Owner's claim have not succeeded at the costs estimate of Mr Ransley. The Tribunal therefore considers that a contingency of 10% to be excessive. The Tribunal finds that a figure of 5% being the amount allowed in the QS report is in order to compensate for any latent conditions which may arise (1750).

Builder's position

1. The builder submits that: 1. Section 48O of the HB Act allow the Tribunal to order the payment of money by way of debt, damages, or restitution or refund. 2. Contingencies cannot be damages because the sum was allowed to "compensate for any latent conditions which may arise". 3. In these circumstances the sum awarded will either be a windfall if there are no latent conditions or compensation for defects which do not form part of the claim. 4. The award offends against the fundamental principle of restitutio in integrum. 5. There is no scope to compensate an owner for some hypothetical defect which does not form part of the claim.

Owner's position

1. The owner relevantly submits: 1. No question of law has been identified. 2. The builder did not submit to the Tribunal that a contingency should not be awarded for the reasons now claimed and should not be permitted to do so now. 3. The law recognises that not all kinds of loss and damage are susceptible to exact proof. 4. Superior courts often award contingency for risk uplift when assessing damages for defective works. 5. In cases where the subject building works have not been "fully opened up" to assess possible further damage, if sufficiently probative evidence is adduced of possible further defective works being discovered, damages may be required to be estimated on a contingency basis. 6. A finding of 5% for contingency was open given the other factual findings with respect to the existence and extent of defects. 7. The amount of 5% is consistent with the figure allowed by the quantity surveyor engaged by the previous proprietor.

Consideration

1. The builder does not identify with any precision, the question of law which arises in respect of Item 12. However, it is reasonably clear from the builder's submissions that what is being alleged is that the Tribunal incorrectly applied legal principles relevant to the assessment of damages in a building case. In such circumstances, leave to appeal is not required.
2. We are not satisfied that the builder has established that the Tribunal made an error on a question of law.
3. First, while the Tribunal referred to the contingency as compensation for "any latent conditions which may arise", in the context of the evidence and the reasons for decision (considered as a whole), we determine this to be an incidence of loose language, rather than a finding that the owner was in fact being compensated for latent conditions.
4. In relation to this, it is clear from the transcript that Mr Mellick agreed that contingency is to cover risk. However, he considered that risk was allowed for in his calculation of the builder's margin: see Transcript AB Vol 4 page 1875.40 and page 1876.26. Further, Mr Ransley agreed that the 10% contingency he calculated was partly for unidentified defects and partly for unintended damage: Transcript AB Vol 4 page 1876.30 to page 1867.35. In these circumstances, we consider that the Tribunal's reference to "latent defects" can be more properly characterised as a reference to hidden (as opposed to latent) defects and to the possibility of damage caused during rectification which in turn needs to be rectified.
5. Second, there is no principle that a contingency cannot be part of an assessment of damages in a building defects case: see, for example, The Owners - Strata Plan No 87265 v Saaib; The Owners - Strata Plan No 87265 v Alexandrova [2021] NSWSC 150 at [416] to [421]. In that matter, Henry J awarded a 10% contingency stating at [420] to [421]: 420 In my view, a 10% contingency and risk factor should be applied in this case. Mr Madden's [the applicant's quantity surveyor's] evidence that a 5% to 15% contingency and risk factor was industry practice was not challenged and a fair reading of his evidence is that the selection of 10% was made because many of the defect items have been captured and the rectification methodology identified. 421 Mr Madden's evidence involves some estimation of the costs involved and it is, in my view, to be expected that the builder (or builders) who would ultimately be retained to do the works would include a contingency and risk factor in fixing the price for the work they do, particularly if the price is based on a fixed price contract. It also seems to me to be appropriate and reasonable to give a 10% contingency and risk allowance in circumstances where Mr Madden has excluded escalation costs beyond October 2018.
6. Third, although the builder has not argued a 'no evidence' ground, we consider that there was evidence before the Tribunal that justified the award of a 5 % contingency: Catalyst Constructions Cost to Complete Quantify Surveying Report - AB Vol 1 at page 313.
7. We find no error on a question of law in respect of Item 12.
8. We have considered whether leave to appeal should be granted in respect of Item 12. We are not satisfied that any of the criteria for leave to appeal set out in Cl 12 Schedule 4 of the NCAT Act have been established. Even if that were the case, we would not grant leave to appeal as we do not consider that the factors identified in Collins v Urban apply in this case.

Conclusion

1. We have allowed the appeal in respect of Items 5 and 9 and the owners have conceded the appeal in respect of Items 6 and 7. We have otherwise refused the builder's appeal.
2. The builder concedes the sole ground raised in the owner's appeal; that is, that GST should be applied to the total. We allow the owner's appeal on that ground.

Disposition of the appeal

1. We consider that it would be appropriate to substitute our decision for the Tribunal's decision in respect of Items 5 and 9, based on the evidence and submissions that were before the Tribunal and the submissions that were made to the Appeal Panel.

Item 5

1. As noted above, the issue in dispute in this case is whether the builder installed the windows into the external brick wall. The Tribunal found that the builder did not construct the brick wall.

Owner's position

1. The owner submits that the builder installed the windows into the brick wall. His position in relation to this is set out in the owner's closing submissions to the Tribunal (at AB Vol 5 pages 1938 to 1939) and are reproduced at Schedule 1 to the owner's appeal submissions. The owner relies on the following in support of his contention that the builder installed the windows: 1. The Drexler Report (AB Volume 5 page 2142) states that Mr Merheb informed Mr Drexler on 18 March 2020 that all the aluminium doors were removed and reinstalled after 21 November 2019 and some windows were installed incorrectly and without subsills. [The Drexler report was prepared by Mr Dan Drexler of NSW Master Building Inspectors. Mr Drexler was instructed by Mr Merheb's solicitor and the report was for the purpose of identifying defects in the work undertaken by IMAK]. 2. Mr Merheb confirmed that he spoke to Mr Drexler on 18 March 2020 and that everything he said was accurate. 3. Mr Merheb agreed that he had no reason to doubt the accuracy of the Drexler Report. 4. Mr Drexler is an independent witness who agreed to be bound by the expert witness code of conduct. He has no financial interest in the proceedings and there is nothing to suggest that he failed to accurately record the instructions given to him by Mr Merheb. 5. Mr Merheb signed a statutory declaration on 5 May 2020 when he lodged the claim with ICARE. The claim included the Drexler Report. 6. Mr Merheb signed a declaration that he would notify the insurer if any of the information disclosed to it, materially changed. 7. There is no evidence of Mr Merheb taking such steps and accordingly the Tribunal can reasonably infer that anything submitted to the insurer was entirely accurate. 8. At a site inspection on 26 May 2020, Mr Merheb informed Mr Alex Leslie, a building consultant engaged by the insurer, that a large quantity of windows and doors had been replaced by the new builder. 9. Mr Merheb admitted that his use of the phrase "new builder" was a reference to the builder. 10. Mr Merheb gave evidence that he ensured that everything he told Mr Leslie was accurate and that he had no reason to lie or mislead him. 11. Mr Leslie had no financial interest in the proceedings and there is nothing to suggest that he failed to accurately record his discussion with Mr Merheb on 26 May 2020. 12. Although all external doors and windows were excluded under the contract with the builder, nothing turns on this as the builder admitted that the signed contract does not include all the work carried out by the builder on the site.
2. When making submissions in respect of Item 5 at the appeal hearing, it was also submitted on behalf of the owner that the best evidence of the state of the building works at the relevant time is found in a Cost to Complete quantity surveyor report [QS report] dated 22 November 2019, which was prepared for the previous owner Mr Merheb by Mr Joseph Sahyoun of Catalyst Construction. The QS report is included (although without all the appendices) in AB Vol 5 from page 2086.

Builder's evidence and submissions

1. The builder's position in respect of installation of the windows is set out in its submissions to the Tribunal: AB Vol 5 pages 1975 to 1976: 1. The builder relies on the AAGG Glazing Certificate (which formed part of the owner's cross-examination bundle and was marked Exhibit A) as evidence that the windows were installed not by the builder but by Merview Group Pty Ltd t/as AAGG Glazing. 2. AAGG Glazing was engaged not by the builder but by the previous owners. 3. Exhibit A also included a tax invoice in the sum of $97,081 issued by AAGG Glazing, which set out a description of the works undertaken, including the supply and installation of balcony doors. 4. The owner did not dispute the AAGG Glazing invoice. 5. The instructions from Mr Merheb recorded in the Drexler Report that aluminium doors were removed and reinstalled after 21 November 2019 does not state that the builder undertook those works. 6. The supply and installation of windows was excluded by Clause 1 of the contract between the previous owner and the builder. 7. The Tribunal must accept that the builder did not install the windows and cannot be liable for this work in circumstances where the work was excluded from the contract and there are independent business records showing that the previous owner contracted with someone else to do the work.

Consideration

1. In relation to Item 5, we have considered: 1. The submissions summarised above, 2. The documents referred to by the parties in those submissions, 3. The transcript of the hearing, and 4. The submissions made in the appeal proceedings.
2. The onus was on the owner to prove that the builder installed the windows. Unless the builder installed the windows, the builder could not be liable for water penetration though the windows. We are not satisfied that the owner has discharged the onus placed upon him in this regard.
3. Significantly, there is no direct evidence that the builder installed the windows which are the subject of Item 5. In relation to this, installation of all windows and doors was specifically excluded from the builder's scope of works by clause 1 of the contract between the builder and the previous owners. Weight must be given to this contractual provision. This is particularly the case in circumstances where the owner did not submit that the contract between the previous owners and the builder was a sham or that the previous owners and the builder had entered into another contract, which included installation of the windows. Although the builder's director Mr Mouawad agreed in cross-examination that the builder had undertaken work that was "over and above the works set out in the contract" and that the contract did not include "all the work that [the builder] carried out on this particular site" (Transcript AB Vol 4 page 1773.21-29), Mr Mouawad specifically denied that the builder had installed the windows (Transcript AB Vol 4 page 1775.39). Mr Merheb also specifically denied that the builder had installed the windows: Transcript Vol 4 pages 1810.13 - 1811.9).
4. At the appeal hearing, it was submitted on behalf of the owner that the QS report was the best evidence in relation to the windows. As noted above, the QS report shows that windows were 40% complete, as of 21 November 2019. We do not consider that the QS report is as critical as the owner claims it to be. In relation to this, the QS report sheds no light on who installed or reinstalled windows after 21 November 2019.
5. The owner also relies on what Mr Merheb is reported to have said to Mr Drexler, which is set out in the Drexler report, specifically what Mr Merheb told Mr Drexler at the inspection carried out on 18 March 2020. The report sets out Mr Merheb's instructions as follows (AB Vol 5 page 2143): 2.4.12 All of the aluminium windows and doors were supplied and installed prior to 21 November 2019. 2.4.13 All of the aluminium windows and doors were removed and reinstalled after 21 November 2019 since some windows and doors were installed incorrectly, and some windows and doors were installed without subsills.
6. Accepting for present purposes that the Drexler report accurately sets out what Mr Merheb told Mr Drexler, we do not consider that what was said to Ms Drexler concerning this issue particularly assists the owner. First, the suggestion that all the windows were supplied and installed before 21 November 2019 is arguably inconsistent with the QS report. Second, the Drexler report does not state who installed the windows and does not suggest that Mr Merheb told Mr Drexler that the builder installed, removed, or reinstalled the windows.
7. The owner also relies on the report dated 10 June 2020 prepared by Mr Alex Leslie of Sedgwick Building Consultancy Services on behalf of the HBCF insurer. (AB Vol 5 pages 2219 - 2253). The report states (at AB Vol 5 page 2230): At the time of inspection, I was advised by the Owner that a large quantity of the windows and doors had been replaced by the new Builder.
8. During cross-examination, Mr Merheb denied that he had said "new builder", although he agreed that IMAK was the "old builder" and that the builder was the "new builder": Transcript AB Vol 4 page 1799 20-31. However, even if Mr Merheb did tell Mr Leslie that windows and doors had been replaced by the "new builder", this does not prove that the builder installed the windows. While we make no finding that this is what occurred, it is also consistent with a conclusion that for whatever reason Mr Merheb did not wish to tell the insurer that he had engaged contractors other than the builder to undertake work.
9. In relation to this, during cross-examination Mr Merheb stated that entities other than the builder were engaged to rectify defects in IMAK's work. (See Transcript AB Vol 4 1812 to 1815). In re-examination, Mr Merheb gave evidence that he had engaged City Wide Waterproofing to undertake waterproofing to the wet areas including the balconies and paid an invoice for that work: Transcript AB Vol 4 page 1881- 30 to page 1882-15. Mr Merheb also gave evidence that he engaged AAGG Glazing to attend to the replacement of windows and doors: Transcript AB Vol 4 page 1883-12 to page 1883-37. Mr Merheb also stated that he allowed the bricklayers originally engaged by IMAK (JMZ Masonry) to complete the brickwork and he then paid the invoice: Transcript AB Vol 4 page 1884-14 to 1885-1
10. The transcript suggests that Mr Merheb's evidence was in some respects unsatisfactory. For example: 1. Mr Merheb could not recall whether he had shown the Drexler report to the builder before the contact was signed: Transcript AB Vol 4 page 1791.11-19. 2. He stated that there was no other builder other than the builder on site after 21 November 2019, although this is inconsistent with the evidence given in re-examination that other contractors undertook the brickwork, the waterproofing and the window and door installation: Transcript AB Vol 4 page 1796.40-41. 3. Mr Merheb's affidavit did not provide details of contractors other than the builder being engaged to do rectification or completion work, other than to state that "Despite IMAK being terminated as the builder …. I still provided access to tradesmen and contractors engaged by IMAK to complete their respective works": AB Vol 4 page 1402 [12].
11. However, notwithstanding the unsatisfactory aspects of Mr Merheb's evidence the onus was always on the owner to prove who had undertaken the work subject to the claim.
12. In circumstances where there is no direct evidence that the builder installed the windows the subject of Item 5, we have considered whether, based on the evidence before the Tribunal, we should infer that the builder did so.
13. In Seltsam Pty Limited v McGuiness; James Hardie & Coy Pty Limited v McGuiness 49 NSWLR 262; [2000] NSWCA 29, Spigelman CJ stated from [84] to [88]: 84 It is often difficult to distinguish between permissible inference and conjecture. Characterisation of a reasoning process as one or the other occurs on a continuum in which there is no bright line division. Nevertheless, the distinction exists. 85 Lord Macmillan in Jones v Great Western Railway Co (1930) 47 TLR 39, in the context of stating that a possibility that a negligent act caused injury was not enough, said (at 45): "The dividing line between conjecture and inference is often a very difficult one to draw. A conjecture may be plausible but is of no legal value, for its essence is that it is a mere guess. An inference in the legal sense, on the other hand, is a deduction from the evidence, and if it is a reasonable deduction, it may have validity as legal proof. The attribution of an occurrence to a cause is, I take it, always a matter of inference." 86 After referring to this passage, Sir Frederick Jordan in Carr v Baker (1936) 36 SR(NSW) 301 said (at 306): "The existence of a fact may be inferred from other facts when those facts make it reasonably probable that it exists; if they go no further than to show that it is possible that it may exist, then its existence does not go beyond mere conjecture. Conjecture may range from the barely possible to the quite possible." 87 As Lord Wright put it in a frequently cited passage in Caswell v Powell Duffryn Associated Collieries Ltd [1940] AC 152 at 169-170: "Inference must be carefully distinguished from conjecture or speculation. There can be no inference unless there are objective facts from which to infer the other facts which it is sought to establish. In some case the other facts can be inferred with as much practical certainty, as if they had been actually observed. In other cases, the inference does not go beyond reasonable probability. But if there are no positive proved facts from which the inference can be made, the method of inference fails and what is left is mere speculation or conjecture." 88 The test is whether, on the basis of the primary facts, it is reasonable to draw the inference. (See eg Layton v Vines (1952) 85 CLR 352 at 358).
14. It is clear from this passage and the cases cited therein that an inference cannot be used to make up for a lack of evidence. Overall, we have concluded that we should not infer that the builder installed the windows because: 1. Installation of windows and doors was specifically excluded from the contract. 2. Both Mr Mouawad and Mr Merheb stated in oral evidence that the builder did not install the windows and their evidence in this regard was did not change under cross-examination. 3. There is evidence that AAGG Glazing installed windows and doors and its invoice was paid by Mr Merheb and not by the builder.
15. While it is possible that the builder installed the windows, we do not consider that this goes beyond conjecture. We are therefore not satisfied that the owner has established that the builder installed the windows. The claim in relation to Item 5 as far as it concerns the windows is refused.

Item 9 - Consequential loss

1. As noted above, this item concerns consequential damage caused by water penetration.

Owner's position

1. The owner's position is set out in the submissions to the Tribunal, the written submissions in the appeal proceedings and the oral submissions made at the appeal hearing.
2. The owner's submissions to the Tribunal stated that Item 9 consists of rectification costs which are 80% attributable to the brickwork defect (Item 5) and 20% attributable to issues with the balconies (Items 6, 7 and 8).
3. In the owner's written submissions in the appeal proceedings, the owner supported the Tribunal's finding in relation to the builder's obligation to hand over a dry house. At the appeal hearing, the owner's counsel conceded that if Item 5 was decided against the owner, it would be difficult for the owner to be successful in respect of consequential loss.

Builder's position

1. The builder's position is that if the builder did not do particular items of work, it cannot be liable for consequential loss related to those items of work.

Consideration

1. It is not in dispute that 80% of the rectification costs which are the subject of Item 9 are attributable to the brickwork (and window) defects which are the subject of Item 5 and 20% of the rectification costs are attributable to the balcony defects which are the subject of Items 6, 7 and 8. The Tribunal found that the builder was not responsible for the defects which are the subject of Items 6 and 7 and the owner conceded on the appeal that because of this factual finding, damages in respect of those items should not have been awarded. Item 8 concerns defects in the bedroom 4 balcony resulting in water penetration and damage to the living room ceiling below. That item was the subject to an agreement in relation to liability and quantum in the sum of $680 and is not at issue in the appeal.
2. In circumstances where the Tribunal found that the builder was not responsible for the brickwork component of Item 5 or for the claimed defects in the balconies in Items 6 and 7 and where we are not satisfied that the builder installed the window component of Item 5, we are not satisfied that the builder is responsible for consequential loss related to those items.
3. Further, we do not accept that the builder breached the statutory warranty set out in s 18B(1)(e) of the HB Act by handing over a dwelling that was affected by water penetration if the water penetration in the dwelling was not caused by the work undertaken by the builder in accordance with its contractual obligations.
4. Our conclusion in this regard is supported by the judgment of the NSW Court of Appeal in Building Insurers' Guarantee Corporation v The Owners - Strata Plan 60848 [2012] NSWCA 375. In that case, the Court of Appeal found that the District Court erred when it found that s 18G of the HB Act - which prohibits contracting out of statutory warranties - required a builder to carry out waterproofing work which was not part of the builder's scope of work. Sackville AJA stated at [72]: 72 I agree with Bergin CJ in Eq that the primary Judge erred in law in holding that s 18B(e) of the HB Act applied to the building contract so as to make the builder liable for failing to render the building waterproof. In view of the Tribunal's finding of fact that the building contract did not extend to waterproofing work, s 18B(e) could not operate to impose an implied term requiring the builder to carry out waterproofing work so as to render the premises fit for occupation as a dwelling. It follows that the primary Judge also erred in law in holding that the absence of any requirement in the building contract to perform waterproofing work attracted the operation of s 18G of the HB Act.
5. The owner's claim in relation to Item 9 accordingly fails.

Conclusion

1. Based the findings of the Tribunal which are not in dispute, our findings in relation to the disputed items, the owner's concession in respect of Items 6 and 7 and the builder's concession that GST should be added to the damages awarded to the owner, we conclude that: 1. The money order made by the Tribunal should be set aside; and 2. The builder should be ordered to pay the owner the sum of $35,514.45, made up of the following: Item 1 - Uneven risers to entry stairs $4,312 Item 2 - Tread width and riser height $8,390 Item 3 - Access to air conditioning equipment $2,040 Item 4 - Sanitary compartments $741.25 Item 5 - Brickwork / windows Nil Item 6 - Defects in b/r 2 balcony Nil Item 7 - Defects in b/r 1 balcony Nil Item 8 - Defects in b/r 4 balcony $680 Item 9 - Consequential damage Nil Item 10 - Roof defects $6,007.30 Sub-total 1 $22,170.55 Item 11 - Increase in building costs 11.5% $2,549.61 Item 12 - Contingencies 5% $1,108.53 Item 13 - Preliminaries Nil Sub-total 2 $25,828.69 Item 14 - Margin 25% 6,457.17 Sub-total 3 $32,285.86 GST $3,228.59 Total $35,514.45

Costs of the Tribunal proceedings

1. As noted above, the builder also appealed the Tribunal's costs decision. Rule 38 of the Rules applies to costs of the Tribunal proceedings, because what was claimed in the Tribunal proceedings, exceeded $30,000. In our view, even though the award in favour of the owner has been reduced, the owner remains the successful party in the Tribunal proceedings. We therefore do not propose to set aside the Tribunal's order in respect of costs of the proceedings.
2. However, as we did not hear from the parties on this issue, if the builder presses the appeal against the order for costs of the Tribunal proceedings, because there are matters and circumstances of which we are unaware, that can be addressed by evidence and submissions provided in accordance with our orders.

Costs of the appeal proceedings

1. The builder has been substantially, although not totally, successful on appeal. By virtue of r 38A, r 38 applies to its appeal proceedings. This is because the amount in dispute in these proceedings exceeds $30,000. Special circumstances do not need to be established to warrant an order for costs. Given the builder's substantial success in its appeal, we conclude that the owner should be ordered to pay the builder's costs of the builder's appeal.
2. The owner has also been successful in his appeal. However, what is in dispute in the owner's appeal (that is, the inclusion of GST in the award in his favour) does not exceed $30,000. Special circumstances therefore need to be established to warrant an order for costs of the owner's appeal in accordance with s 60 of the NCAT Act. We are not satisfied that there are special circumstances warranting an order for costs in respect of the owner's appeal.
3. We have made orders for the filing and service of evidence and submissions if a different costs order is contended for in the appeal proceedings.

Orders

1. We make the following orders: 1. The appeal of Christopher Sghabi in case no AP 2023/00289993 is allowed and the appeal of Hiperia Holdings Pty Ltd in case no AP 2023/00289266 is allowed in part. 2. Order 1 made in the Tribunal proceedings case no HB 22/16431 (2022/00431878) on 14 August 2023, is set aside. 3. In substitution for order 1, the following order is made: Hiperia Holdings Pty Ltd ACN 086 675 676 (builder) is to pay Christopher Charbel Sghabi (owner) the sum of $35,514.45 within 14 days of the date of these orders. 1. The owner is to pay the builder's costs of the builder's appeal proceedings (case no AP 2023/00289266), on the ordinary basis, as agreed or assessed. 2. In the owner's appeal proceedings (case no AP 2023/00289993), no order as to costs (with the intent that the parties are to pay their own costs of the proceedings). 3. The following orders apply if a party contends for a different costs order in relation to the appeal proceedings: 1. Order 4 above ceases to have effect if a different costs order is contended for in the builder's appeal proceedings (case no AP 2023/00289266), and Order 5 above ceases to have effect if a different costs order is contended for in the owner's appeal proceedings (case no AP 2023/00289993), 2. The party contending for a different costs order (the costs applicant) is to file and serve the application for costs, supported by evidence and submissions, within 14 days of the date of these orders. 3. The other party (the costs respondent) is to file and serve any evidence and submissions in response to the costs application within 28 days of the date of these orders. 4. The costs applicant is to file and serve any material in reply within 35 days of the date of these orders. 1. If the builder presses the appeal in relation to the Tribunal's costs order in case no HB 22/16431 (2022/00431878), the following orders apply: 1. The builder is to file and serve evidence and submissions in support of the appeal against the Tribunal's costs order within 14 days of the date of these orders. 2. The owner is to file and serve evidence and submissions in response to the appeal against the Tribunal's costs order within 28 days of the date of these orders. 3. The builder is to file and serve any material in reply within 35 days of the date of these orders. 1. Subject to the parties' submissions on this point, the Tribunal proposes to determine any application for a different costs order and/or the appeal against the Tribunal's costs order without a hearing based on the written submissions provided.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 June 2024