Houston v Phillips trading as Arise Building Services

Owner's contentions

1. The Owner did not challenge the Tribunal's finding that the Builder validly terminated the contract.
2. However, the Owner did challenge the manner in which the Tribunal determined the Owner's claim for overpayment and defective works in light of that finding. Essentially: 1. regarding the overpayment claim, the Owner: 1. contended that the Tribunal failed to determine part of the overpayment claim, specifically the Owner's claim for the Builder to deliver the blackbutt flooring in the Builder's possession for which the Owner had already paid $29,106; and 2. challenged the Tribunal's purported finding that the Owner's claim for overpayment could not succeed once the Tribunal had found that the Builder had lawfully terminated the contact. 1. Regarding the Owner's defective works claim, the Owner challenged the Tribunal's findings that: 1. items 4, 6, 8, 9 and 10 were defective works on the basis that these had been conceded by the Builder but not item 5 [valued at $41.40] which had also been conceded. 2. the Owner's claims for defective works in items 1, 5, 3 and 7 could not succeed as a result of the finding that the Builder had lawfully terminated the contract and the Tribunal's preference for the costings of Mr Wallace (the Builder's Expert Building Consultant) to those of Mr Seeto (the Owner's Expert Quantity Surveyor). 3. it would not award preliminaries, margin and GST on the defective items found to exist being items 4, 8, 6, 9 and 10.

Builder's contentions

1. In the reply to the grounds for appeal, the Builder initially supported the original orders and agreed with the reasons given. In oral submissions, however, the Builder acknowledged certain errors in the Tribunal's decision in that item 5 had been conceded by the Builder as a defect and that the Owner in fact had sought orders for the delivery, return or replacement of the blackbutt flooring.
2. After the Appeal Panel hearing, the Builder lodged further written submissions noting the absence of a transcript and contending that, in the event that the Owner was successful in relation to the defects and overpayment claims and on the issue regarding the blackbutt flooring, all three issues should be remitted to the Tribunal for reconsideration.
3. Although leave had not been granted for post-hearing submissions, we were of the view that the submissions did not introduce new issues and merely clarified the Builder's position on this point. Accordingly we granted leave for the submissions and offered the Owner the same opportunity.
4. In response, the Owner asserted that the overpayment claim should be determined by the Appeal Panel. The absence of a transcript had no bearing where the Builder had made submissions regarding the weight to be given to the evidence of the Owner's expert on quantum for defects but the Builder had made no submissions regarding the Owner's expert's opinion on overpayment.

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: 1. Whether there was no evidence to support a finding of fact: Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 355-6; The Australian Gas Light Company v Valuer-General (1940) 40 SR (NSW) 126 at 138; 2. Whether there was a failure to afford procedural fairness: Italiano v Carbone [2005] NSWCA 177; Clements v Independent Indigenous Advisory Committee [2003] FCAFC 143 at [8]; in that respect, s 38 of the NCAT Act prescribes the Tribunal's control of its procedure but s 38(2) expressly requires the Tribunal's procedures to accord with natural justice (also called procedural fairness) and s 38(5) and (6) also embody aspects of procedural fairness; 3. Whether a wrong principle of law had been applied: Chapman v Taylor [2004] NSWCA 456 at [33], per Hodgson JA (Beazley and Tobias JJA agreeing); 4. Whether there has been a failure to provide proper reasons. More recently, the NSW Court of Appeal in New South Wales Land and Housing Corporation v Orr [2019] NSWCA 231 (Orr) considered the Tribunal's obligation to give reasons. Bell P (Ward JA agreeing) expressed the relevant principles to identify adequate reasoning on the part of a Tribunal in light of the requirements of s 62(3) of the NCAT Act and the existing case law at [77].
3. The requirement to afford procedural fairness can overlap with the requirement to exercise jurisdiction. A wrongful denial of, or actual or constructive failure to exercise, jurisdiction can be jurisdictional error, including by a court: Craig v South Australia (1995) 184 CLR 163; [1995] HCA 58 177; Day v SAS Trustee Corporation [2021] NSWCA 71 at [37] per Meagher JA.

The Decision

1. After setting out the parties' submissions, the Tribunal went on to make the following findings which are relevant to the Appeal: 1. The Owner had acknowledged in evidence before the Tribunal that she had engaged in activities on the building site which included entering the site, installing a gate and requiring the Owner's permission to access the site, taking photographs of deliveries and progress of the works, contacting the Builder's suppliers and being prolific in her emails and texts to the Builder. The Owner accessed the site with or authorised a building inspector to access the site to inspect the works and the report was relied on by the Owner to make a complaint to NSW Fair Trading. The Owner's expert, Mr Corbishley, made marks and wrote measurements on the site at the time of his inspection, interfering with the Builder's works. The Tribunal found these events alone to be in breach of the provisions of clause 13 of the contract, despite the Owner's attempts to minimise the extent of the interference [230]. 2. Clause 27.2(a) of the contract also provided that the Owner performed a substantial breach of the contract if the Owner failed to pay an amount due under the contract by the due date [223]. The Tribunal found that the Builder had substantially completed the works required before PC2 could be issued [221] and the Owner was required by clause 17 to pay PC2 within 5 working days of issue without set off [222]. 3. Cumulatively considered, the Tribunal accepted that the conduct of the Owner contravened clauses 26.1(c), 27(e) and (d) of the contract [230]. The Builder subsequently issued four breach notices. Notwithstanding the Owner's denial of the Builder's termination of the contract on 4 February 2022, the Tribunal was satisfied that the Builder lawfully terminated the contract on 3 February 2022 [242]. 4. The Tribunal found that the Owner's cross-application failed and it was accordingly dismissed [243]. 5. On the Builder's application, the Tribunal noted that the Builder claimed to be entitled to the value of the completed works as valued by its expert Mr Wallace in the amount of $51,817.40 and an amount toward the work completed for PC3, valued by Mr Wallace at $2,742.54 [245]. 6. In reply submissions, the Owner had relied on the decision of Stevenson J in Cohen v Zanzoul trading as Uniq Building Group [2020] NSWSC 592 (Zanzoul) in contending that the Owner was entitled to recover damages for defects, incomplete work and overpayment if the Builder had been found to have validly terminated the contract [179]; [246]. 7. The Tribunal considered Zanzoul but found it was distinguished on its facts. The Tribunal sorted the defects listed in a Conclave Joint Report and Scott Schedule dated 27 January 2023 (the Joint Report) into two tables [250]: 1. "Unconditional Accrued Rights Table" totalling $15,199.70 which comprised: 1. Item 4 (Termite Barrier) ($1,655.28); 2. Item 8 (Wall framing height) ($2, 590.60) 3. Item 6 Structural Drawings ($9,641.44) and 4. Item 9 & 10 Backfalls to drainage ($1312.40) 1. "Alleged Accrued Rights which are disputed and are not unconditional" totalling $23,886.62 which comprised: 1. Item 1 (Subfloor clearances) ($11,346.70) 2. Item 2 (subfloor ventilation)($0 - not pressed) 3. Item 5 (omitted Damp Course) ($41.40) 4. Item 3 Omitted tie downs ($635.60) 5. Item 7 (particle board damage) ($11,862.92)
2. The Tribunal was satisfied that, on the expert evidence before it, the unconditional accrued rights should be brought into account when determining the accrued rights at termination. The alleged accrued rights were disputed and on the evidence of the builder's expert (Mr Wallace) the Builder was not liable for those alleged defective works [252]. The Tribunal was satisfied that the cost assessed by Mr Wallace in his evidence was the fair and reasonable scope and cost of the accrued rights.[255]
3. The Tribunal's decision to award $39,260.24 to the Respondent Builder was comprised [at 263] of $54,459.94 (being $51,817.40 as the unpaid minimum value of the completed works for PC2 plus $2,742.54 being the unpaid value of the works completed towards PC3 minus $15,199.70 (the unconditional accrued rights for 4 defects at the time of termination which were conceded by the builder [250]).

Grounds of Appeal:

1. By way of amended Grounds of Appeal, the Owner challenged the Tribunal's decision under six main themes.

As of right (as questions of law: s 80(2)(b) NCAT Act): 1. Ground 1: whether the Tribunal erred in failing to award 15% preliminaries, 15% margin and GST ($6,910.86) on the defects as found (where those were agreed). 2. Grounds 2, 3 and 3A: whether the Tribunal erred by failing to resolve the contest as to how the $29,106.00 paid in advance by the Owner for blackbutt timber flooring should be dealt with. 3. Ground 4: whether the Tribunal applied a wrong principle of law in not allowing the Owner's claim for defective works because the Builder had terminated the contract. 4. Ground 5 & 5A: whether the Tribunal failed to resolve the contest regarding the Owner's overpayment claim or otherwise applied the wrong principle of law in not allowing the Owner's claim for overpayment because the Builder had terminated the contract. 5. Ground 6: whether the Tribunal failed to give adequate reasons when determining (i) the addition of preliminaries, margin and GST to the defects as found (ii) the blackbutt flooring issue (iii) the defects claim and (iv) the overpayment claim.

By leave (s 80(2)(b) and Schedule 4 Item 12) 1. Ground 7: contested as against the weight of the evidence and resulting in a decision that was not fair and equitable: 1. the finding at [255] that the Owner did not establish the balance of the defects claim and 2. the finding at [261] with respect to the blackbutt flooring.

1. Ground 6 overlapped with grounds 1 - 5 and has been considered alongside each of those grounds.

Summary of findings

1. For the reasons set out below, we have determined that the Owner has established errors in the Decision on questions of law and consequently that she has the right (that is, she does not require leave) to make this internal appeal. The errors on questions of law which we have identified are: 1. there was no evidence for the finding that item 5 was a contested item; 2. the failure to apply the correct legal principle in relation to whether 15% preliminaries, 15% margin and GST should be applied to the defects as found; 3. there was no evidence to support the Tribunal's finding that no order regarding the blackbutt flooring was sought; 4. failure to address the claim regarding the blackbutt flooring resulting in a denial of procedural fairness; 5. there were inadequate reasons: 1. to explain the Tribunal's decision to deduct from the amount awarded to the Builder the costing (at the amount of the preferred builder's expert's assessment and without preliminaries, margin and GST) of the works conceded by the Builder to be defective but not the costing of works not conceded. (The conceded works' costings were labelled "Unconditional Accrued Rights"; the contested works' costings were labelled "Alleged Accrued Rights" and were said to be not unconditional.) The conceded defective works were items 4, 6 and 8 to 10 in the owner's claim; the contested defective works were items 1, 3 and 7 (after item 5 was added to the uncontested list) and 2. to explain how the Tribunal had determined the overpayment claim.
2. As set out under grounds 2, 3 and 3A, the issue regarding the blackbutt flooring should have been resolved prior to the Tribunal's hearing by the parties themselves. There is no need to remit that point to the Tribunal as the orders to be made are clear cut.
3. We have re-determined the issues regarding the addition of preliminaries, builder's margin and GST, the omission of item 5 from the table of uncontested defects and the return of the blackbutt flooring. In the absence of a transcript we are unable to determine whether items 1, 3 and 7 should also have been deducted from the amount awarded to the Builder and, if the parties are unable to compromise after the Appeal Panel's determination, that matter would need to be remitted to the Tribunal. (We note in passing that item 2 was not pressed by the owner.) For the same reason, we are unable to determine the overpayment claim.
4. The proceedings have so far been underway in the Tribunal for over two years. The parties are strongly encouraged to negotiate a settled outcome on the remitter in order 4 without the need for further Tribunal hearings.

Ground 1: did the Tribunal err in failing to award 15% preliminaries, 15% margin and GST ($6,910.86) to the defects as found (where those were agreed)?

Ground 6: did the Tribunal fail to give adequate reasons when determining this issue?

1. The Owner did not seek to dislodge the Tribunal's findings that the Owner was entitled to the items set out in the "Unconditional Accrued Rights Table". However, the Appellant noted that item 5 (Omitted Damp Course) had also been agreed by the parties' experts as to defect and quantum and had mistakenly been omitted from that table. The Builder acknowledged that this was a mistake on the part of the Tribunal; we note however, that item 5 was listed as disputed in the Builder's submissions in reply to the Tribunal (AB 145) and the Tribunal was not alone in this mistake. Accordingly, there was no evidence to support the Tribunal's exclusion of that item from the Unconditional Accrued Rights Table. This is an error on a question of law on which the Appellant has a right of appeal.
2. Whilst Item 5 in itself was of low value, the Owner's main point in relation to Ground 1 was that the Tribunal had failed to apply the correct legal principle when assessing damages and therefore did not award preliminaries (15%), builder's margin (15%) and GST (10%) to those items which it had found should be awarded. In accordance with Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 (Amann), the Owner should have been placed in the same position as though the breach had not occurred. The Builder had not led evidence as to what it would cost the Builder to rectify the defects; both parties' experts had added preliminaries, margin and GST to their costings in the Joint Report. The Owner contended that the error was material on the basis that rejection of the claim deprived the Owner of a further $6,910.86 (excluding Item 5) on the findings already made.
3. The Builder contended that the experts' opinions in the Joint Report were predicated on the basis that the defects would be rectified possibly by a third party. The experts were not aware of the difficulties between the Owner and the Builder and did not contemplate the issues arising from the Builder's termination of the contract. After litigation, it was up to the Tribunal to decide how damages should be awarded. The Tribunal had preferred the evidence of the Builder's expert and so had only deducted amounts to rectify such defects as the parties had agreed upon. It was unnecessary for the Tribunal to go any further.
4. The Builder argued that the Tribunal was not obliged to make a decision regarding the Owner's entitlement to preliminaries and margin. Instead, the Tribunal calculated the unconditional accrued rights to be deducted from the Builder's claim. The Tribunal would have erred by dealing with preliminaries and margin. Where the Owner repudiated the contract and the Builder properly terminated the contract, margins were not recoverable but the cost of the unconditional accrued rights were (Bittania Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302 (Bittania)). The Owner's breach of contract had the consequence that the Owner could only recover the amount that it would have cost the Builder to deal with the defective items.
5. The Owner submitted that the Builder's reliance on Bittania was misplaced and should be distinguished on the basis of the dissimilarity of the respective contracts. The contract in the present case did not have any clauses that provided a regime similar to the contract considered in Bittania. The Owner contended that the Tribunal had simply failed to add these amounts to the defects that were found.
6. In the Decision, the Tribunal set out a preference for the evidence of the Builder's expert, Mr Wallace, over one of the Owner's experts, Mr Seeto, because Mr Wallace was qualified to make a qualitative assessment both as to the building works and the costings, while Mr Seeto's expertise was limited to one arm of the expertise, as a quantity surveyor [254]. The Tribunal was satisfied that the costs assessed by Mr Wallace in his evidence was the fair and reasonable scope and cost of the accrued rights.
7. However, Mr Wallace's assessment in the Joint Report also added preliminaries, builder's margins and GST to the final sum. There is no explanation in the Decision as to why the Tribunal came to the decision to award only the bare value of the items in the Unconditional Accrued Rights table, without preliminaries, builder's margin or GST (which both parties' experts had added into their costings in the Joint Report).
8. As said above, the Builder sought to justify the Tribunal's findings on the basis of Bitannia. That case does not appear in the Decision. Notably, Bitannia concerned a contract for redevelopment of a hotel to a mixed hotel and residential apartment complex which included a specific term that provided for the giving of instructions by the architect to the builder to rectify defects during the Defects Liability Period [23].
9. At [75] - [77] White J followed the decision in Turner Corporation Pty Ltd v Ausotel Pty Ltd (1994) 13 BCL378 at 395, where Cole J held that, whilst clear words were necessary before a party's common law right to sue for damages for breach of contract could be contractually removed, express words were not required before the principal became disentitled from recovering damages for the cost of others rectifying the defects.
10. White J went on to acknowledge that clear words were needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law. The Builder did not point to, and we have not identified, any such clauses in the present contract.
11. Additionally, as noted by White J (at [78]), that result would be: a restriction on the rights of the proprietor which would be rendered ineffective by s 18G of the Home Building Act in the case of the statutory warranties under s 18B of the Home Building Act, if that Act applies.
12. For completeness, White J further noted (at [81]): 81 Even though it was open to the plaintiffs to seek damages for defective work which was the result of the breach of statutory warranties, notwithstanding that they did not pursue the procedures for rectification under clause 6.11, it was still necessary for the plaintiffs to show that the carrying out of rectification work by a third party was necessary and reasonable (Bellgrove v Eldridge (1954) 90 CLR 613 at 619; Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253 at [45]). Moreover, if the defective work was included on one of the lists given by the architect pursuant to clause 6.11, Parkline was both obliged and entitled to do the work. It is one thing to say that s 18G precludes the plaintiffs from being compelled to follow the procedures in clause 6.11 in the case of a breach of a statutory warranty. It is another to say that the section enables the plaintiffs to ignore the procedures in clause 6.11 once they have been invoked.
13. In the present case, both parties agreed that an order under s 48MA (that the Builder should rectify the defects) was inappropriate under the circumstances of the termination of the contract and the parties' uncompromising relationship that resulted from their falling out during the period when the contract was on foot [262].
14. Further, the Builder had terminated the contract. There was no longer any relationship between the parties and there was no basis on which the Builder would be returning to repair any defective works. The only means by which the Owner's statutory warranties would be honoured would be by the work being undertaken by a third party. For the Owner to be sufficiently compensated for defects in such circumstances would require damages which covered the preliminaries, builder's margin and GST which would be incurred in arranging that work.
15. It is established law that a party should be compensated so as to be put in the position the party would hold but for the breach. As set out by Deane J in Amann regarding damages in contract at 116: 2. The general principle governing the assessment of compensatory damages in both contract and tort is that the plaintiff should receive the monetary sum which, so far as money can, represents fair and adequate compensation for the loss or injury sustained by reason of the defendant's wrongful conduct. The application of that general principle ordinarily involves a comparison, sometimes implicit, between a hypothetical and an actual state of affairs: what relevantly represents the position in which the plaintiff would have been if the wrongful act (i.e. the repudiation or breach of contract or the tort) had not occurred and what relevantly represents the position in which the plaintiff is or will be after the occurrence of the wrongful act ….
16. In the case of defective building work, the usual measure of damages is the cost of rectifying the work to produce conformity with the contract. In Bellgrove v Eldridge (1954) 90 CLR 613, the High Court said that the scope of remedial works must not be disproportionate to the defect. The High Court has also stated that there is a high bar for unreasonableness or disproportion once a breach is established: Tabcorp Holdings Ltd v Bowen Investments PL (2009) 236 CLR 272, [2009] HCA 8 at [13]-[20]; see also Walker Group Constructions PL v Tzaneros Investments PL [2017] NSWCA 27 at [186]; Barwick v Shetab [2017] NSWCATAP 127 at [87]-[88].
17. As such, we see no reason (nor did the Tribunal provide any) for omitting preliminaries, builder's margin and GST from the overall deduction to the amount awarded to the Builder. In failing to do so, the Tribunal failed to apply the correct legal principle. This is an error on a question of law from which there is a right of appeal.
18. Under s 80(3) NCAT Act, the Appeal Panel may decide to deal with the appeal (on this point) by way of new hearing and permit fresh evidence to be given (and we have done so). In accordance with the guiding principle in s 36 NCAT Act (to facilitate the just, quick and cheap resolution of the real issues in the proceedings) we shall make orders in substitution for the Tribunal's orders on this point.
19. The Owner calculated the additional amount due to the Owner for items 4, 6, 9 and 10 as follows: (a) Found by Tribunal for Items 4, 6, 8, 9 and 10 $15,199.70 (b) preliminaries at 15% $2,279.00 (c) subtotal 1 $17,478.70 (d) Margin at 15% $2,621.81 (e) subtotal 2 $20,100.51 (f) GST $2010.05 (g) total $22,110.56 (h) less amount in (a) above -$15,199.70 Balance $6910.86
20. We see no fault in reaching the total of $6,910.86 apart from the exclusion of Item 5. Item 5 was agreed between the parties and the Builder has acknowledged that Item 5 should be included, therefore $41.40 + (preliminaries at 15%) $6.21 + (builder's margin at 15%) $7.14 + (GST at 10%) $5.48 = $60.23 should be added to that amount, totalling $6971.09.
21. Therefore the amount of $39260.24 awarded to the Builder under order 1 should be reduced by $6971.09 to $32,289.15.

Grounds 2, 3 and 3A: did the Tribunal fail to deal with a substantive issue by failing to resolve the blackbutt flooring issue?

Ground 6: did the Tribunal fail to give adequate reasons when determining this issue?

1. The Owner contended that there was no evidence to support the Tribunal's finding that no order was sought regarding the blackbutt flooring.
2. The Owner referred to a (paid) invoice for the blackbutt flooring issued on 27 August 2021 (INV - 0231) in the amount of $29,106 as evidence that the Owner had paid for the blackbutt flooring. (AB 575). INV-0231 set out: Invoice to secure Blackbutt flooring as requested. Please note this price is trade price. Please be advised, This amount will come off future progress claims.
3. The Tribunal set out: 257 The Owner's Points of Claim included at paragraph 7 a pleading that on 6 September 2021 the owner paid the builder $29,106 in advance for blackbutt timber flooring "to be deducted from future payments". In their Points of Defence to the Owner's Cross Claim, the builder did not deny the particulars in paragraph 7 of the Owner's Points of Claim. 258 The builder has received the benefit of being paid/credited for the flooring and the owner is entitled to the benefit of the flooring. The builder states that the "to be deducted from future payments" is that the cost will be accounted for as preliminaries, builders margin, and GST to be added, and the material was to be purchased and stored by the builder. 259 The builder contends that the owner's issue regarding the blackbutt flooring is a claim for restitution which was not pleaded. The builder submits that no order should be made in these proceedings regarding the blackbutt flooring. 260 No orders were sought by the owner regarding the blackbutt flooring, yet the owner has not received the benefit of the prepayment for the flooring. 261 The Tribunal makes no order regarding the flooring. It is open to the parties to reach an agreement regarding the flooring and the pre-payment and the Tribunal encourages the parties to consider resolving this issue between themselves rather than incur the delay and cost of further proceedings. If an agreement cannot be reached as no determination is made, it is open to the parties to seek orders if they so choose in other proceedings.
4. The Owner contended that the Tribunal's finding that no orders had been sought was wrong. As the Tribunal had previously noted in paragraph 3, the Owner sought orders under section 48O(1)(c)(i) that: (1) the builder delivers, return or replace blackbutt flooring having a value of $30,000.
5. The Owner noted that, after the contested stay application pending appeal was determined, the Builder delivered the flooring to the Owner. The Owner still sought for the Appeal Panel to determine grounds 2, 3 and 3A since it was a matter of importance on the question of costs. Had the Tribunal ordered the blackbutt flooring to be returned or otherwise accounted for, the commercial outcome for costs purposes would be a $29,106.00 swing in favour of the Owner.
6. In written submissions the Owner set out: 5.13 Given the unexplained capitulation that arose only after a stay application was refused and given the amount of time from 24 February 2022, when the owner sought delivery of the blackbutt flooring to the time of actual delivery being July 2024, the blackbutt flooring is of no use to the owner and the owner seeks a money order in the amount of $29,106 on terms that the owner makes the blackbutt flooring available for the builder to collect at the builder's cost. 5.14 The net amount awarded to the builder below was $39,260.24. Had the Tribunal allowed preliminaries, margin and GST (Ground 1) and the $29,106 for the blackbutt flooring (Grounds 2, 2A and 3) the builder's net position would be reduced to $3,243.38 calculated as follows [as adjusted for addition of Item 5 per Ground 1]: (a) net amount found by tribunal to be owing to builder $39,260.24 (b) less additional allowance for Ground 1 $6910.86 [$6971.09] (c) less adjustment for return of black but flooring $29,106.00 Balance $3243.38 [$3,183.15] 5.15 The error is material in the sense that it "could" have made a difference to the outcome on the basis that the conclusion that no orders should be made regarding the blackbutt flooring deprived the owner of a further $29,106.00.
7. The Builder contended that the Tribunal could not make a decision regarding flooring as a restitutionary claim because it was not so pleaded. In the written submissions, the Builder set out that there was no dispute regarding a delivery claim before the Tribunal when considering the agreement between the parties; however, at the hearing the Builder's counsel accepted that the Owner had sought an order regarding the delivery, return or replacement of the blackbutt flooring.
8. The Owner was now seeking a money order in the amount of $29,106 on terms that the Owner made the flooring available for the Builder to collect at the Builder's cost.
9. At the hearing, the Builder sought to tender further correspondence between the parties post-dating the Decision regarding the return of the blackbutt flooring to the Owner, which appeared at Tab B to the Builder's submissions in reply. The Owner did not object and the material was admitted into evidence before the Appeal Panel.
10. The Builder contended that there were discussions between the parties regarding the blackbutt flooring. At the end, delivery to the Owner was by agreement. The Owner accepted that the blackbutt flooring would be delivered in accordance with the Tribunal's observations.
11. An email from the Owner's solicitor to the Builder's solicitor dated 1 June 2022 noted the Builder's statement that he was always willing to deliver the flooring at the Owner's expense and would she like to take delivery at that time and pay the freight.
12. A letter dated 19 July 2024 from the Builder's solicitor set out: Having regard to the blackbutt flooring our client accepts your client's offer dated 1 June 2022 to accept delivery of the blackbutt flooring at anytime and to pay the freight. The flooring will be delivered on Monday 22 July 2024 to your client's property. …
13. An email from the Owner's solicitor dated 23 July 2024 indicated that the Owner was at her property and had cleared a space to accommodate the timber; at that point the Owner was still willing to accept the blackbutt flooring.
14. At the Appeal hearing, the Owner acknowledged that the blackbutt flooring was now stored on the Owner's property.
15. Although the Builder submits that this issue has been resolved between the parties without orders being required, we agree with the Owner that the question as to whether the Tribunal should have determined whether or not the blackbutt flooring should be returned to the Owner was before the Tribunal.
16. We also note that the issue should not have been before the Tribunal at all. The matter came before the Tribunal for hearing on 10 August 2023, at which point the Owner still sought orders for the delivery of the blackbutt flooring. However, in a witness statement dated 9 May 2022, the Builder (Nathan Phillips) had already accepted that the blackbutt flooring should be delivered to the Owner: Blackbutt flooring 62. … The amount paid was the exact amount charged by the supplier. Paying for it up front did not help my cash flow in any way as there was no builders margin on it. The flooring is using up valuable space at my supplier's yard. I have always stated I am happy to deliver at [the Owner's] cost at any time but conscious that it will become weathered if it is delivered now.
17. This matter clearly should have been resolved between the parties prior to the hearing. Nevertheless, it was not, and it was before the Tribunal as a live issue. As a result, we accept that there was no evidence to support the Tribunal's finding that no order regarding the flooring was sought. The Tribunal also failed to deal with a necessary matter which had been addressed by both parties. Further, the Tribunal's failure to respond to a clearly articulated argument resulted in a denial of procedural fairness. All of these errors go to questions of law and the Owner has a right of appeal on these points.
18. So, what order should the Tribunal have made? Under s 48O(1)(c)(ii) of the HB Act, the Tribunal is empowered to make an order that a party to the proceedings do or perform any specified act, matter or thing. Although the point is now moot, the Tribunal should have made the order for the Builder to deliver the blackbutt flooring to the Owner at the Owner's cost as the Builder had purported to offer to do in his statement.
19. The Owner now seeks a money order instead of delivery of the timber. It seems the Owner believes this should then further reduce the monetary reward to the Builder. However, we do not accept that a claim has now been made out to vary the orders sought and to find that the Owner should be entitled to a money order for the value of the blackbutt flooring. Without the benefit of a transcript, we have not found, nor have we been directed to, any point at which the claim for a money order for the blackbutt flooring (as opposed to a claim for the delivery of the blackbutt flooring) was made below. Although the cost of the blackbutt flooring possibly formed part of the overpayment claim [104], this is dealt with in relation to ground 5 below. The Owner's argument that she now has no need for the blackbutt flooring is undermined by the correspondence which shows that she was willing to accept and did in fact accept the flooring three months prior to the Appeal hearing. There is insufficient evidence to find that a claim for a money order instead of an order to deliver the flooring has been made out and we decline to make such an order.
20. In the post-hearing submissions, the Builder referred to the Owner's submission that "but for the Appeal proceeding the flooring would never have been delivered". The Builder noted that the correspondence which post-dated the Tribunal's hearing showed that the matter was resolved and there was a change of position by the Owner, despite the Builder's offer to deliver the flooring. The Builder submitted that, to the extent that there was an error of law, the issue would best be resolved by the primary member and this issue should also be remitted.
21. Ultimately, the issue of whether the stay proceedings triggered the delivery of the flooring has not had a bearing on our findings on this ground. It was largely raised as a matter going to costs. As to how this would have impacted on costs, whilst the Owner would have been successful on this issue, there was no monetary value attached to the order which should have been made; the Owner would merely have achieved delivery of the blackbutt flooring which she had already paid for. Accordingly, we do not accept the Owner's argument that the order for the return of the blackbutt flooring would have reduced the amount awarded to the Builder by the value of the flooring. Nevertheless, the Owner would have achieved a measure of success on the cross-claim and it would not have been dismissed in total.
22. The basic case is that the Tribunal should have made the order to deliver the flooring. Now that the blackbutt flooring has been delivered it is futile to remit this issue to the Tribunal for reconsideration. As with Ground 1, we will make orders in substitution for the Tribunal's orders on this point.

Ground 4; did the Tribunal apply a wrong principle of law in not allowing the Owner's claim for defective works because the Builder had terminated the contract?

Ground 6: did the Tribunal fail to give adequate reasons when determining this issue?

1. The Owner challenged the Tribunal's refusal to award damages for defective works comprising items 1, 3, 5 and 7.
2. Item 5 has already been conceded and is discussed above in relation to ground 1.
3. The remaining consideration is in relation to the Tribunal's determination to award damages for items 4, 8, 6, 9 and 10 but not 1, 3 and 7.
4. The Tribunal set out the Owner's case on defective building works at [105] - [135]. At [106(3)] the Tribunal set out the Owner's submissions as to the legal principles regarding rectification costs.
5. The Builder's contention on liability for defects was set out at [140]: 140 The extent to which the owner may have had a complaint is limited by the suspension of the complaint by a suspension notice and the outcome of payment. Any defects or incomplete works could still be remedied if payment had been made. The owner has no claim for defects, incomplete work or even overpayment because the owner deprived the builder of an opportunity to complete and make good any defects and incomplete work.
6. In the event that the Tribunal found that the Builder had lawfully terminated the contract, the Builder contended that there was no claim for defects at all: 158 If the builder's termination was lawful, the owner's subsequent termination is irrelevant and there is no claim for defects or incomplete work or costs for completion. The amount payable by the owner would then be either the assessment of the amount of the outstanding progress payment, assessed by Mr Wallace at $51,817.40, or, as assessed by Mr Corbishley at $47,761.75.
7. At [248] the Tribunal set out the Builder's arguments in the post-hearing reply submissions relating to accrued rights: 1) In Zanzoul the building contract was complete but for the defect's liability period. The owner had accrued rights under the contract and the last progress payment had been submitted. (2) In the present case there is a dispute about "so-called" defects some of which are admitted, and some are not. (3) Defects which are admitted and established at the time of termination are in the category of "unconditional" accrued rights and the owner does not admit to unaccrued rights except to the extent in the table that follows. (4) "Incomplete works" does not mean incomplete to the end of the contract; it means incomplete at the time of termination-it being an accrued right if established. (5) Incomplete work to the end of the contract is not recoverable. (6) Only incomplete work as at PC2 has been quantified. (7) Zanzoul is authority for the proposition that the progress payments are accrued rights as at termination. (8) In Zanzoul the builder had finished the works as at termination (last progress claim submitted) so there was an accrued right to completion. (9) Zanzoul dealt with an entirely different situation where there was no incomplete work but "incomplete" was viewed in the context of the significant defect list.
8. At [249] the Tribunal accepted that Zanzoul was distinguished for those reasons but The builder has, however, conceded limited defective work for the works completed at the date of termination according to the report of Mr Wallace. The owner is limited to the cost of unconditional accrued rights, as shown in the tables below.
9. However, there is no explanation as to why the defects which were conceded by the Builder's experts ("unconditional accrued rights") were accepted but those which were not conceded ("alleged accrued rights") were not.
10. After setting out the tables of "unconditional accrued rights" and "alleged accrued rights", the Tribunal found: 252 The Tribunal is satisfied that on the expert evidence before it that the unconditional accrued rights should be brought into account when determining the accrued rights at termination. The alleged accrued rights are disputed and on the evidence of Mr Wallace the builder is not liable for those alleged defective works.
11. The Builder acknowledged that the Tribunal had not set out reasons for distinguishing between unconditional and conditional accrued rights in the two tables but contended that it was not required to do so.
12. On the appeal, the Owner contended that the Tribunal should have applied Zanzoul. The Builder contended that Zanzoul was properly distinguished.
13. In Zanzoul Stevenson J found that the Owners had repudiated the building contract and the Builder's acceptance of that repudiation brought the contract to an end: 33 Both Mr and Mrs Cohen and Mr Zanzoul have accrued rights under the Contract. 34 Mr and Mrs Cohen have an accrued right to recover damages from Mr Zanzoul for any defective or incomplete building work. Mr Zanzoul is not exonerated from that claim by reason of Mr and Mrs Cohen's repudiation of the Contract. 35 Mr Zanzoul has an accrued right to recover the monies due to him under the Contract. Mr Zanzoul has established such an entitlement in respect of his unpaid Progress Claims, but not otherwise.
14. The Joint Report evidence defects that appear as at the time of termination, similarly to the circumstances in Zanzoul. The major difference between the "unconditional accrued rights" and "alleged accrued rights" in this case, is that the former were conceded, and the latter were not. It is unclear in the Tribunal's reasoning how the fact that the building contract in Zanzoul was complete makes any difference - in both Zanzoul and the present case, the defects were in the existing work at the time of termination.
15. Further, there is no reasoning to explain why Zanzoul should be distinguished and yet the defects which were conceded should still be deducted from the amount owed to the Builder.
16. The Tribunal set out a preference for the evidence of the Builder's expert, Mr Wallace, over one of the Owner's experts, Mr Seeto, because Mr Wallace was qualified to make a qualitative assessment both as to the building works and the costings, while Mr Seeto's expertise was limited to one arm of the expertise, as a quantity surveyor. [254].
17. As noted by the Owner, the Tribunal did not make any assessment of the evidence of the owner's other expert, Mr Corbishley (a building consultant). Is it to be inferred that the stated preference for the Builder's expert formed the basis for the Tribunal's decision to deduct the unconditional accrued rights from the quantum of the completed works awarded to the Builder and not to deduct those items which were contested? Without some explanation of how the Tribunal reached its position, we are not in a position to draw such a conclusion.
18. As a result, we find that there is an error on a question of law in that the Tribunal has provided insufficient reasons to explain its position on this point.
19. In their post-hearing submissions, the Builder contended that some of the defects now claimed were excluded by Mr Seeto at the Tribunal hearing and there was evidence that some of the defects relied on by the Owner were not recoverable. The Builder contended that both the defects and the overpayment claims should be remitted if we came to the view that there was an error of law. The Owner was also of the view that this item could not be determined by the Appeal Panel.
20. We do not have the benefit of a transcript to make our own assessment as to the reliability of the expert witnesses or whether items 1, 3 and/or 7 should have been included in the defects to be deducted. We are not in a position to make findings on the defects which were not included, and it will be necessary to remit this issue for reconsideration.

Ground 5 & 5A: Did the Tribunal fail to resolve the contest regarding the Owner's overpayment claim or otherwise apply the wrong principle of law in not allowing the Owner's claim for overpayment because the Builder had terminated the contract?

Ground 6: did the Tribunal fail to give adequate reasons when determining this issue?

1. The Owner had brought a claim for overpayment of $89,845.93. Without the inclusion of the upfront payment for the blackbutt flooring this totalled $60,739.93 and was cast as a claim in restitution.
2. The Tribunal set out the Owner's overpayment claim in paragraphs [96] - [104]. At [104] the Tribunal set out the Owner's conclusion regarding the issue of the value of works completed: 104 For these reasons the Tribunal should find that: (1) The value of the works provided by the builder was no more than $120,669.58 as determined by Mr Seeto; (2) The owner made payments (on account only) for the Contract works of $210,515.51; (3) The builder has been overpaid by $89,845.93; (4) The owner has established a qualifying or vitiating factor and is entitled to restitution; (5) The builder has not established any defence to the owner's claim in restitution, and accordingly, the owner is entitled to a money order of $89,845.93 in the event the owner does not otherwise recover completion costs.:
3. The Tribunal further noted the Owner's submissions regarding the overpayment claim at [136]: 136 If the Tribunal finds the builder lawfully terminated the Contract, then the owner should be awarded $160,848.41 based on the submissions for overpayment in the amount of $89,845.93 and defective works as assessed by Mr Corbishley of $71,002.48.
4. The Tribunal included the Builder's response at [140]: 140 The extent to which the owner may have had a complaint is limited by the suspension of the complaint by a suspension notice and the outcome of payment. Any defects or incomplete works could still be remedied if payment had been made. The owner has no claim for defects, incomplete work or even overpayment because the owner deprived the builder of an opportunity to complete and make good any defects and incomplete work.
5. At [179] the Tribunal noted the Owner's response, citing Zanzoul in support of the submission that the Owner's right to claim damages for defective work and overpayment did not turn on the question of lawful termination as those rights had accrued prior to termination taking place.
6. In its consideration, the Tribunal set out: 246 The owner's position is that if the builder has been found to have validly terminated the Contract, then the owner is entitled to recover damages for defects, incomplete work and overpayment. 247 The owner's citation of Zanzoul as a determination by Stevenson J of the same issue as in the extant case, that a builder's termination does not affect accrued rights to recover damages for defects and overpayment.
7. The Tribunal accepted that Zanzoul should be distinguished. However, the Tribunal went on to find: 254. The evidence before the Tribunal about substantial completion is that of Mr Wallace and there was substantial completion of the work for PC2, and the payment was due and payable. The Tribunal prefers the evidence of Mr Wallace to that of Mr Seeto. Mr Wallace is qualified to make a qualitative assessment both as to the building works and costing, while Mr Seeto's expertise is limited to one arm of the expertise, that is as a quantity surveyor. 255 The Tribunal is satisfied that the cost assessed by Mr Wallace in his evidence is the fair and reasonable scope and cost of the accrued rights. 256 The Contract is found to have been validly terminated by the builder. There is no entitlement to the owner to costs to complete the building contract as the owner contends. … 263 On Mr Wallace's evidence the minimum value of the completed works for PC2 and unpaid is $51,817.40 and the value of the works completed towards PC3 and unpaid is $2,742.54. A total of $54,459.94.
8. The Owner contended that it was unclear from the reasons whether the Tribunal determined the Owner's claim for overpayment.
9. Under ground 4, we were of the view that these paragraphs did not explain the determination not to include items 1, 3 and 7. We also do not consider that they explain how the Tribunal has determined the overpayment claim.
10. We have taken into account the considerations as to the requirement to give reasons set out by the NSW Court of Appeal in Orr and in s 62(3) of the NCAT Act. Whilst in paragraph [254] the Tribunal indicates a preference for the evidence of the Builder's expert as to quantum on the basis that Mr Wallace's evidence was the fair and reasonable scope and cost of the accrued rights, the Tribunal does not come to any conclusion as to the overpayment claim. Apart from referring to the Owner's position in paragraphs [246] and [247] (set out above) the Tribunal is silent on this point.
11. The Tribunal's failure to provide sufficient reasons to explain its position on this point constitutes an error on a question of law. The Tribunal did not deal with the overpayment claim which had been made and the Tribunal's approach on this point also constituted a denial of procedural fairness.
12. For the same reasons that we have expressed concerning ground 4, in the absence of a transcript the overpayment issue will need to be remitted.

orders

1. For the reasons set out above, we make the following orders: 1. The appeal is allowed. 2. The decision under appeal is set aside. 3. In application 2022/00449356, the following orders are substituted for those of the Tribunal: 1. The Owner Louise Houston is to pay the Builder NL Phillips & MR Phillips trading as Arise Building Services $32,289.15 after the date of final orders in the remitter of these proceedings and 2022/00438274 or the later of those proceedings if the remitter of each is not heard together. 1. The proceedings in application 2022/00449356 are remitted to the Consumer and Commercial Division of the Tribunal for determination in accordance with law (with leave given to the parties to adduce such further evidence as the Tribunal thinks fit) on the following issues only: whether the amount payable in order 3(a) should be reduced (and if so the quantum of any such reduction) by items number 1, 3 and 7 in the Conclave Joint Report and Scott Schedule dated 5 September 2022;and 1. costs. 1. In application 2022/00438274, the following orders are substituted for those of the Tribunal: 1. The Builder NL Phillips & MR Phillips trading as Arise Building Services must deliver the blackbutt flooring referenced in invoice number INV-0231 to the Owner's property at the Owner's expense. 1. The proceedings in application 2022/00438274 are remitted to the Consumer and Commercial Division of the Tribunal for determination in accordance with law (with leave given to the parties to adduce such further evidence as the Tribunal thinks fit) on the following issues only: 1. whether the applicant owner overpaid the respondent builder by $60,739.93; and 2. costs. 1. If any party seeks costs in the appeal, the following orders and directions will apply: 1. Any party contending for a costs order in the appeal proceedings (costs applicant) is to file and serve a short written submission (no more than 5 A4 size pages), within 14 days of the date of these orders, 2. The other party (the costs respondent) is to file and serve a short written submission (no more than 5 A4 size pages) in response to the costs applicant's submission, within 28 days of the date of these orders, 3. The costs applicant may file and serve any written submissions strictly in reply to the costs respondent's submissions (no more than 2 A4 size pages) within 35 days of the date of these orders, 4. Subject to the parties' submissions on this point, the Appeal Panel proposes to determine any application for a different costs order in the appeal proceedings without a hearing, pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2013 NSW, based on the written submissions provided in accordance with the directions as set out above.

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: 30 October 2024