Iftikhar v Rockwall Homes Pty Ltd - [2023] NSWCATCD 44 - NSWCATCD 2022 case summary — Zoe

NSWNSWCATCD

Iftikhar v Rockwall Homes Pty Ltd

[2023] NSWCATCD 44

NCAT Consumer and Commercial|2022-11-24

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At a glance

Source facts

Court

NCAT Consumer and Commercial

Decision date

2022-11-24

Source

Original judgment source is linked above.

Judgment (48 paragraphs)

[1]

REASONS FOR DECISION

This is a residential building dispute involving construction of a new dwelling in Kellyville, New South Wales.
On or about 19 April 2016 the applicant Mr Iftikhar (the homeowner) and the respondent Rockwall Homes Pty Ltd (the builder) entered a contract to perform residential building works (the Contract). The Contract price stipulated in the Contract was $1,000,000.
The builder issued a notice of practical completion on or about 14 May 2018.
The homeowner and his family moved into the premises in about July 2018.
On 30 August 2019 the builder issued a final occupation certificate.
These proceedings were lodged by the homeowner on 31 August 2021 (the Homeowner's Proceedings). The homeowner seeks an order for monetary compensation in respect of alleged building defects. Initially the homeowner alleged 13 defects. At the commencement of the hearing the homeowner's counsel informed the Tribunal that the homeowner was pressing only five of those defects, and wished to withdraw the claim in relation to the remaining defects. The homeowner seeks an order for the payment of money to compensate him for the defective work, rather than a work order.
The issues which I must decide in these proceedings are: 1. Whether the builder has breached the implied warranties in s 18B of the Act; 2. If so, what steps are required to remedy the defective work; 3. Whether to make a work order or a money order in respect of any established breaches of the implied warranties; 4. If a money order is appropriate, what is the cost of rectification?
For the reasons that follow I have decided to make a money order in the sum of $129,863.41 in favour of the homeowner.

[2]

[5]

The parties' submissions regarding transfer

The builder's submissions as to why the Homeowner's Proceedings should be transferred to the Court included the following: 1. It is desirable and indeed necessary for all claims to be heard together due to the interconnectedness of the applications. The builder would be prejudiced in the Related Proceedings if factual issues relevant to those proceedings are determined, or partially determined, in these proceedings. In particular, the builder says that evidence in relation to the Release and the variations claim will be relevant in the Related Proceedings and that if findings were made by the Tribunal in relation to those matters an issue estoppel would be likely to arise. 2. The Homeowner's Proceedings also involve jurisdictional issues as the builder asserts that some or all of the homeowner's warranty claims are out of time and it would be problematic if the Homeowner subsequently decided to bring a claim in the Court in relation to any issues time-barred in the Tribunal. 3. SSR would not be bound by findings in the Homeowner's Proceedings.
The homeowner's submissions included: 1. The builder's application for transfer was made belatedly on the day of the hearing and was not foreshadowed until the night before hearing. It is unsatisfactory for the homeowner to be required to deal with an application of this nature with virtually no notice. 2. Section 48L of the Act makes clear that the Tribunal is the preferred forum for resolution of claims under the Act. 3. The homeowner had filed and served all its evidence by 21 January 2022 (ie more than ten months ago). The hearing has already been delayed due to inaction by the builder and it would be prejudicial to the homeowner if the hearing was further delayed.
The solicitor for SSR, Mr Zreika, attended the first part of the hearing and informed the Tribunal that his client had not been provided with any details of the claim against it, or any of the builder's documents, until 24 October 2022. This was less than one month prior to the hearing and almost five months after the due date stipulated in the Tribunal's procedural directions made on 19 April 2022. Mr Zreika submitted that his client had not had sufficient time to respond to the builder's claim.

[6]

Procedural history

Relevant to the transfer application is the procedural history of this matter: 1. On 31 August 2021 the homeowner commenced the Homeowner's Proceedings. 2. The matter was first before the Tribunal for a directions hearing on 6 October 2021. 3. As at 21 January 2022 the homeowner had filed and served all of his evidence and documents. 4. On 24 January 2022 at the second directions hearing for the matter, the Tribunal made directions, including that the builder was to file and serve all of its documents by 7 March 2022. 5. On 9 February 2022 the builder's expert Mr Drexler was given access to the premises to prepare his expert report. 6. On 14 March 2022 Mr Drexler issued his report. However, the builder did not serve this report on the homeowner or the Tribunal until 24 October 2022 (ie over six months later). 7. On 15 March 2022, at the third directions hearing, the Tribunal made further directions, including that the time for the builder to file and serve his documents be extended to 22 March 2022, and that any cross application against the homeowner be filed and served by 29 March 2022. 8. On 19 April 2022, at the fourth directions hearing, the Tribunal made further directions, including an extension of time for the builder to file and serve its documents and cross-claim to 3 May 2022. The Tribunal also directed that "no further extensions shall be granted". 9. Following a multitude of email exchanges between the parties' legal representatives, the builder finally served its documents and cross-claim on 24 October 2022, ie almost six months after the extended due date for compliance. No extension of time had been sought from, or granted by, the Tribunal. 10. The only explanation given by the builder for the extraordinary failure to comply with the Tribunal's procedural directions is that the delay was attributable to a misunderstanding within the office of the builder's solicitor. 11. On 18 November 2022 the parties made a joint application for adjournment of all the proceedings. This application was rejected by Senior Member Ellis in chambers on the same day.

[7]

The law relevant to the transfer application

Part 4 Division 1 (ss 35-38) of the Civil and Administrative Tribunal Act 2013 (NSW) (the NCAT Act) contains provisions dealing with introductory matters relating to the practice and procedure of the Tribunal. Section 36 specifies the guiding principle to be applied to practice and procedure, and relevantly provides: 36 Guiding principle to be applied to practice and procedure (1) The guiding principle for this Act and the procedural rules, in their application to proceedings in the Tribunal, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. (2) The Tribunal must seek to give effect to the guiding principle when it - (a) exercises any power given to it by this Act or the procedural rules, or (b) interprets any provision of this Act or the procedural rules. (3) Each of the following persons is under a duty to co-operate with the Tribunal to give effect to the guiding principle and, for that purpose, to participate in the processes of the Tribunal and to comply with directions and orders of the Tribunal - (a) a party to proceedings in the Tribunal, (b) an Australian legal practitioner or other person who is representing a party in proceedings in the Tribunal.
Clause 6(1) of Schedule 4 of the NCAT Act provides: 6 Transfer of proceedings to courts or to other tribunals (1) If the parties in any proceedings for the exercise of a Division function so agree, or if the Tribunal of its own motion or on the application of a party so directs, the proceedings are: (a) to be transferred to a court (in accordance with the rules of that court) that has jurisdiction in the matter, and (b) to continue before that court as if the proceedings had been instituted there.
The Tribunal has a discretion to transfer proceedings, whether or not such an application is made by one of the parties. The discretion to make such an order, as is the case with any other discretion, must be exercised judicially.
In Ideal Waterproofing Pty Ltd v Buildcorp Australia Pty Ltd & Ors [2004] NSWSC 765 (Ideal Waterproofing) at [47] Sperling J made the following observations regarding the transfer of proceedings by the predecessor of the Tribunal to a court: "… the parliament has constituted the Tribunal with limited jurisdiction. From time to time, the Tribunal will have to decide whether it has jurisdiction to hear and determine a matter. That is part of its role. The prospect that the Tribunal may be called upon to fulfil that role in a particular matter is not a good reason for transferring a case to the District Court. It is only where there are bona fide claims genuinely requiring determination and which cannot be decided by the Tribunal that a transfer of proceedings is warranted."
Section 48L of the Act is also important. It relevantly provides: 48L Tribunal to be chiefly responsible for resolving building claims (1) This section applies if a person starts any proceedings in or before any court in respect of a building claim and the building claim is one that could be heard by the Tribunal under this Division. (2) If a defendant in proceedings to which this section applies makes an application for the proceedings to be transferred, the proceedings must be transferred to the Tribunal in accordance with the regulations and are to continue before the Tribunal as if they had been instituted there.

[8]

The decision regarding transfer

After considering the parties' respective submissions and the factual matrix I declined to transfer the Homeowner's Proceedings for the following reasons.
Firstly, the builder's submissions as to the potential prejudice to the builder in the Related Proceedings if the Homeowner's Proceedings were not transferred were vague. It referred to the interconnectedness of the proceedings and the "real risk" of an issue estoppel arising if the Tribunal decided matters which were relevant to the Related Proceedings. However, other than a generalised reference to the alleged Release and the variations claim, the builder did not identify with any specificity any legal or factual issues in relation to which an issue estoppel might arise. It did not refer to any draft pleadings intended to be lodged in the Court and did not elucidate how the Tribunal deciding the Homeowner's Proceedings might prejudice the builder's claim in the Court. It was simply not clear from the builder's submissions what was the nature of the disadvantage that the builder might suffer in the Related Proceedings if the homeowner's claim was determined by the Tribunal. As things turned out the builder subsequently abandoned his defences pertaining to the Release and the variations claim so that this concern became moot in any event.
Secondly, even if there is the potential for disadvantage to the builder in the Related Proceedings if the Homeowner's Proceedings are decided in the Tribunal, this must be balanced against the actual disadvantage to the homeowner if the Homeowner's Proceedings are transferred to the Court. A transfer would necessitate a further, likely significant, delay of the resolution of the homeowner's claim. The homeowner claims that water ingress from the defective roof is causing damage to his home. Whilst there is a dispute between the parties as to the extent of the defects, and the steps needed to remedy them, it is not disputed that there are at least some roofing defects which need to be remedied. There is some urgency to having these resolved. It is incontrovertible that water ingress is not only potentially damaging to the existing structure, it is also a source of distress and discomfort. It would be unjust, and contrary to the guiding principle of the Tribunal, to transfer the proceedings in circumstances where the homeowner's case has been ready for some ten months, the lengthy delay has been in large part due to the builder's non-compliance with procedural directions, the explanation for the delay is feeble at best, and the legally represented builder waited until the day of the final hearing to bring its application for transfer.
Thirdly, section 48L of the Act makes plain that the Tribunal is the preferred forum for resolution of disputes of this nature. There is no suggestion that this is a situation where the Tribunal does not have jurisdiction to hear and determine the homeowner's claim at least insofar as it relates to major defects. To the extent that the homeowner's claim may not involve major defects, it is a matter for the homeowner, not the builder, to assess the risk of bringing his claim in the Tribunal. This is not a situation (per Ideal Waterproofing) where the Tribunal cannot determine the claim. Indeed, if the homeowner's claim had been initiated in the Court it would have been susceptible under s 48L to be transferred to the Tribunal.
Finally, even if the builder's claim against SSR for indemnity remained in the Tribunal, it would not have been heard together with the homeowner's claim in any event. As the builder did not comply with the procedural directions in relation to that matter, SSR had had insufficient time to prepare for the hearing. The claim against SSR could therefore not have proceeded on the dates set for the Homeowner's Proceedings and for the same reasons as are articulated above, I would have refused any request to adjourn the final hearing of the Homeowner's Proceedings so that it could be heard together with the claim against SSR. Indeed, at a directions hearing of the Tribunal on 19 April 2022 the Tribunal foreshadowed that if the proceedings against the sub-contractor were holding up the main application, those proceedings "may be severed." The builder and his legal representatives were on notice that the claims may not be heard together if the claim against the sub-contractor was in any way holding up the substantive proceedings.

[9]

What evidence and materials did the parties rely on?

The homeowner relied on the following documents: 1. An expert report prepared by Anthony Capaldi of Tyrells Property Inspections Pty Limited issued January 2022 (the Capaldi Report); 2. An affidavit of the homeowner sworn 21 January 2022; 3. An affidavit of the homeowner sworn 24 November 2022; and 4. An affidavit of Mrs Nazia Junaid (the homeowner's wife) sworn 21 January 2022.
During the hearing the homeowner's counsel tendered the following additional documents: 1. a copy of a plan of the premises which had been marked up by Mr Capaldi during cross-examination to show the locations of water ingress and solar panels on the roof. This was marked as Exhibit A1. 2. A printout of an online Fair Trading licence search in respect of the builder which was marked Exhibit A2.
The respondent relied on the following documents: 1. An affidavit of Mr Mehcur (director of the builder) sworn 24 October 2022; 2. An affidavit of Mr Mehcur sworn 22 November 2022; 3. An expert report and scott schedule prepared by Dan Drexler of NSW Master Building Inspectors dated 14 March 2022 (the Drexler Report). 4. A letter from NSW Police Force to the homeowner dated 21 January 2022 which was tendered during the hearing and marked Exhibit R1.
At the hearing, the two experts gave oral evidence concurrently and were cross-examined by Mr Li and Mr Davie respectively. Mr Iftikhar and Mr Mehcur gave additional oral evidence in chief under oath. All three lay witnesses were cross-examined.
In making this decision I have also had regard to the written submissions lodged by the parties. The homeowner lodged submissions in chief on 13 January 2023 and submissions in reply on 21 March 2023. The respondent lodged written submissions on 2 February 2023.
At the commencement of the hearing the parties made submissions as to whether the Tribunal should exclude the builder's evidence which had been lodged belatedly on 24 October 2022.
The homeowner did not object to the admission of the builder's expert evidence but strongly opposed the admission of its lay evidence (being the affidavits of Mr Mehcur and the many documents attached thereto).
After consideration of the parties' submissions I decided not to exclude the builder's lay evidence and informed the parties that I would publish my reasons for this decision in due course. My reasons in this regard are as follows.
The builder acknowledged that the evidence was filed and served almost six months late but submitted that it should nonetheless be permitted to rely on it. It relied on an affidavit sworn by the builder's solicitor, Zeinab Tawbe, on 24 November 2022. The builder's submissions relevantly included: 1. The direction made on 19 April 2022 that no further adjournments would be granted was not a guillotine order; 2. The delay was attributable to a misunderstanding within the office of the builder's solicitor rather than due to any fault of the builder and it would be unfairly prejudicial to the builder to penalise it for an oversight by its lawyers; 3. The homeowner had had four weeks in which to address the respondent's evidence, which is not an unreasonable period of time to deal with lay evidence; 4. It would be contrary to the Tribunal's guiding principle in s 36 to refuse to allow the builder to rely on its evidence.
The homeowner's submissions relevantly included: 1. The explanation for the delay is unsatisfactory, particularly given the length of the delay; 2. The evidence of alleged contract variations cannot be dealt with because it is largely illegible and does not identify prices; 3. It would be a time-consuming process to take the homeowner through all that evidence and conduct an analysis of how the pricing of the alleged variations interacts with the Contract price; 4. It may be necessary to obtain additional expert evidence in relation to the builder's evidence of variations and the evidence in relation to the Release; and 5. It may be necessary to issue summonses to deal with the lay evidence.
In Mesiha v Murrell [2017] NSWCATAP 1 the Appeal Panel set out at [45] the principles to be applied in determining an application for an extension of time in the Tribunal.
Applying those principles I determined that although the builder's lay evidence was lodged woefully late, and the explanation provided for that lateness was not a convincing one, it was nonetheless appropriate to allow that evidence to be relied upon. My reasons were as follows: 1. Four weeks is not an insignificant amount of time to deal with lay evidence; 2. The homeowner did not provide an adequate explanation as to why that time was not productively used to further the various steps referenced by Mr Davie as being necessary to address that evidence; 3. Mr Davie said summonses and further expert evidence "may be needed" but was vague as to the nature of the summons which might be needed and the additional expert evidence which would be required. Moreover, he did not adequately explain why such steps could not have been taken in the four week period prior to the hearing.
For these reasons the builder was granted leave to rely on the lay evidence which had been provided out of time.

[10]

Statutory warranties - legal framework

The homeowner relies on s 18B of the Act pursuant to which the following warranties are implied in every contract to do residential building work: (a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract, (b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new, (c) a warranty that the work will be done in accordance with, and will comply with, this or any other law, (d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time, (e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling, (f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder's or person's skill and judgment.
The principles applicable to determining whether there has been a breach of the statutory warranties in s 18B of the Act were summarised in Deacon v National Strategic Constructions Pty Ltd; National Strategic Constructions Pty Ltd v Deacon [2017] NSWCATAP 185 as follows (at [46]): Although objective standards such as Australian Standards, the Building Code of Australia and the Guide are of significant relevance in establishing whether work has been performed in a proper and workmanlike manner (Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61 at [10]), the absence of such evidence does not automatically mean a homeowner has failed to establish breach of statutory warranty. In our view, the relevant principle was succinctly stated by Senior Member Goldstein in G MacFayden and Anor v G Tadrosse [2014] NSWCATCD 194 at [46] as follows: …[E]vidence that work does not comply with the Building Code of Australia would establish a basis for a finding that sub section 18B(c) of the Act has been breached. Evidence of the details in which work does not comply with the contractual plans and specifications would form the basis for a finding that sub section 18B(a) of the Act has been breached. Evidence of work not being carried out in a proper and workmanlike manner would in my view involve identification of the work in question, a statement of how the expert would expect it to be carried out in in a proper and workmanlike manner and then identification of the factors which establish that the way in which the work has been carried out falls short of it being carried out in a proper and workmanlike manner. Evidence of this nature, if accepted, would form the basis for a finding that sub section 18B(a) of the Act has been breached.
As was also set out in Deacon, the Tribunal, when considering whether breach of s 18B of the Act has been established, must consider and make findings in respect of: 1. Whether the owner has established on the balance of probabilities that works have not been performed in accordance with s 18B of the Act. 2. If a 'defect' (in the sense of failure to comply with s 18B of the Act) is established, what is the appropriate method to rectify that defect.
I will now deal with each of the alleged defects.

[14]

Decision on defect

It is not disputed that the lack of overflow, rainwater head and sump is a defect which has contributed to water ingress and requires rectification.
What is in dispute is whether the other issues identified by Mr Capaldi are also defects which have contributed to the water ingress.
With regard to the pitch of the roof, the Capaldi Report does not explain how the change to the fall of the roof has contributed to the water ingress and indeed Mr Capaldi conceded during cross examination that this change would not necessarily have affected waterproofing. I do not accept that the change in the fall of the roof contributed to the water ingress.
With regard to the impact damage to the roof it is not disputed that the homeowner engaged tradesmen to install solar panels and associated infrastructure. Having considered the homeowner's uncontested evidence in this regard, I find that the solar panels were installed in about May 2020. It is feasible that the impact damage to the roof was caused during the installation of the solar panels and there is no evidence from Mr Capaldi or any other witness which supports the homeowner's assertion that the impact damage to the roof occurred during the construction of the dwelling or was caused by the builder. On the balance of probabilities, I am not satisfied that the impact damage to the roof was caused by any act or omission of the builder. In any case, the Capaldi Report does not explain how the impact damage may have contributed to the water ingress.
With regard to the excessive sealant, there is no evidence which establishes that it was installed by the builder. Indeed, the homeowner's own evidence is that on about 24 May 2020 he arranged for a plumber to carry out temporary repairs to address the water ingress, and that the plumber "put sealant around the box gutters". It is possible that the excessive sealant was applied by the plumber engaged by the homeowner. I am not satisfied that the excessive sealant was installed by the builder. In addition, the onus is on the homeowner to establish that the sealant installed by the builder was defective. Whilst Mr Capaldi says that the excessive sealant is "consistent with the Builder applying new sealant over failed sealant", without more, this is not enough to establish a failure of the underlying sealant. Moreover, Mr Capaldi's report does not explain how the issues with the sealant may have contributed to the water ingress.

[19]

Decision on defect

Having considered the evidence of both experts I prefer the evidence of Mr Capaldi in relation to the defective roofing work causing water ingress into the first floor. My reasons for this include:
Firstly, Mr Capaldi's report provides a more detailed explanation as to the investigations he carried out and the observations made by him in relation to each of the various defects identified, and cross-refers to the relevant provisions of the Australian Standards and National Construction Code. Mr Drexler's report does not contain the same level of detail in relation to the tests and investigations done by him.
Secondly, with regard to the pitch of the roof, whilst Mr Drexler said in his report that there is no evidence that it is contributing to water ingress, he did acknowledge during cross-examination that the low pitch of the roof is not in accordance with the National Construction Code.
Thirdly, Mr Drexler opines that the water ingress through the roof is caused by the installation of solar panels which was carried out after completion of the dwelling by a third party tradespersons. He says "It is my opinion that the rainwater penetration through the roof is occurring through the numerous penetrations through the roof due to the installation of the 54 solar panels and hundreds of hex head bolts that have been screwed into the roof to secure the electrical conduit to the roof by others". For the following reasons I am not convinced that solar panels caused the water ingress: 1. Firstly, the evidence establishes that the water ingress first occurred before installation of the solar panels. I am satisfied on the basis of the homeowner's uncontroverted evidence, supported by photographs, that the roof leak (including into the upstairs bedroom and leisure room) was first observed in November 2018 and again in early 2019. However, the solar panels were not installed until May 2020, more than one year after the water ingress was first observed. The timeline does not support Mr Drexler's explanation that the roof leak was caused by the installation of the solar panels. 2. Secondly, the water ingress is not occurring in the same part of the roof as where the solar panels are located. 3. Thirdly, Mr Drexler has provided no explanation as to why he has concluded that the cause of the water leak is the solar panels other than to say that the electrical conduit has been installed in a "haphazard manner" and that "blobs" of sealant have been "haphazardly installed where the electric conduit has been inserted in the sides of the solar panels instead of neat beads of sealant indicating the contractor who installed the sealant did so with sufficient care and skill". The fact that the solar panel installation may have not have been carried out with the level of precision Mr Drexler would have expected is not enough to establish that the installation caused the water leak. No explanation has been provided as to how the manner of installation of the electrical conduit or the "blobs" of sealant have contributed to the water ingress. 4. Fourthly, the evidence given by Mr Drexler regarding the water leak is inconsistent and contradictory. On the one hand he says that the water ingress is caused by the solar panels and on the other he recommends installation of overflows to box gutters. By contrast the evidence of Mr Capaldi on this issue is clear and consistent.
For all of these reasons I prefer the evidence of Mr Capaldi in relation to this issue and am satisfied that the weatherproofing of the roof, failed sealants, lack of overflow provisions, corrosion to roofing components and low roof pitch are all defects attributable to the work of the builder and contributing to the water ingress.

[24]

Decision on defect

Having considered the evidence of both experts I prefer the evidence of Mr Capaldi in relation to the roofing and roof drainage at the lower northern and southern roof elevations. My reasons for this include the following.
Firstly, Mr Capaldi's report provides a more detailed explanation as to the investigations he carried out and the observations made by him in relation to the defects identified. His report also cross-refers to the relevant provisions of the Australian Standards and National Construction Code. Mr Drexler's report does not contain the same level of detail in relation to any tests, investigations or observations.
Secondly, Mr Drexler concedes that no overflow provisions have been installed to the box gutter and that these require rectification. He does not dispute that these deficiencies are in breach of the Australian Standards and National Construction Code, the relevant provisions of which make plain that these items are necessary components of a waterproofing system.
Thirdly, Mr Drexler does not address the soffit damage, the separation and delamination to the waterproof sealants, or the darkened staining to the perimeter ceiling area of the southern bathroom all of which are identified in the Capaldi Report.
Fourthly, Mr Drexler focuses only on the mould in the bathroom which he says is caused by poor ventilation during the owners' use of the bathroom. I am not convinced by Mr Drexler's explanation regarding the cause of the mould. It is not supported by any literature or other materials supporting his opinion and Mr Drexler is not a biology or mycology expert. In any event, regardless of whether Mr Drexler is correct about the provenance of the mould, he has not provided a response to any of the other evidence of water ingress referred to by Mr Capaldi.
For all of these reasons I am satisfied that the defects identified by Mr Capaldi are established, that those defects have contributed to water emanating from the lower northern and southern roof elevations, and that the defects have resulted in damage to the external walls and internal ceilings.

[37]

Hourly rates

Both experts agree that the wage rates set out in "Rawlinsons Construction Cost Guide 2021" (the Rawlinsons Guide) are an appropriate starting point. However, the Capaldi Report allows for higher rates than the Drexler Report because Mr Capaldi has increased the rates provided in the Rawlinsons Guide by 20%.
Mr Capaldi's explanation for this increase is set out in his report, and Mr Capaldi elaborated on the issue when giving oral evidence. His reasons for the increase include: 1. The Rawlinsons Guide states "Costs should be adjusted to take account of factors such as sloping sites, foundation problems, high wall to floor ratios, unusual shape and any special design factors where costs can vary considerably from the range given." 2. Rectification and remedial works attract higher labour rates than allowed in the Rawlinsons Guide because they are not working off "a clean slate or a flat block". Such works involve demolition of existing works "and underneath those works there could be more issues. So what we normally see is specialised trades … because with rectifying builders, they're actually held under a bit more scrutiny than the first builder … specialised trades equals additional cost." 3. The increase of 20% is based on Mr Capaldi's experience of labour costs applied by rectifying contractors. In addition, Mr Capaldi is in regular contact with remedial builders to ascertain the hourly rates they use.
Mr Drexler disagrees with Mr Capaldi's approach. He says "It is my opinion that since Mr Capaldi is relying on Rawlinsons for his rates, Rawlinsons then becomes the basis of his rates." He also says that: 1. Fluctuations in rates (ie increases and decreases) occur for a number of reasons "including highs and lows in the building cycle, highs and lows in the economic cycle, increases and decreases in immigration and various other macro economic reasons". 2. The Homeowner's property is a standard two level house not of "significantly different size or type" and "therefore there is no valid reason to increase the Rawlinsons rate by 20%". 3. The property is not on a sloping site, does not have foundation problems, does not have high wall to floor ratios, is not an unusual shape and does not have any special design factors where costs can vary considerably.
Having considered the evidence of both experts on this issue, I prefer the evidence of Mr Capaldi. Mr Capaldi has provided a sound explanation for increasing the rates provided in the Rawlinsons Guide by 20%, which is, in essence that remedial works attract a higher rate because remedial works by their very nature involve a higher degree of complexity. Mr Drexler did not address that issue, which is the basis for Mr Capaldi's opinion, in his report, and in cross-examination conceded that rectifying builders "sometimes" charge more.
Mr Capaldi has also provided a convincing explanation for the 20% adjustment, explaining that he regularly consults with remedial builders. Mr Drexler's evidence focuses on why the rates in the Rawlinsons Guide should not be increased, but does not provide an opinion as to the rate of increase proposed by Mr Capaldi. He also conceded in cross-examination that (unlike Mr Capaldi) he had not consulted with any remedial builders prior to preparing his report.
For these reasons I accept the hourly rates proposed by Mr Capaldi.

[40]

Contingencies

Mr Capaldi says that a contingency rate of 5% should be allowed.
Mr Drexler says no contingency should be allowed.
Mr Capaldi explains in his report that contingency "refers to costs that will probably occur based on past experience, but with some uncertainty regarding the amount. The contingency allowance is designed to cover items of cost which are not known exactly at the time of the estimate but which will occur. It also covers lag time and lost time due to events outside the control of the rectifying builders".
Mr Capaldi elaborated on this issue in oral evidence stating "contingency is an allowance for either unforeseen items that you can't see when you quote a job, that may be present or may be a latent defect; not until you remove one thing do you find something else. So that's what I've allowed the continency for".
The Capaldi Report includes a definition of contingency taken from the Association for Advancement of Cost Engineering International which is consistent with Mr Capaldi's explanation.
Mr Drexler says "it has been my experience … that builders do not include contingency amounts … because the repairs that are required are clearly understood… It is my opinion that the alleged defects in the works provided by Mr Capaldi can be clearly understood by the contractor … and no contingency amounts are necessary".
I am not convinced by the evidence before me that a clear scope of works means that a rectifying builder will not charge a contingency. In any event, having regard to the lack of agreement between the experts in relation to almost every alleged defect, as well as in relation to the scope of works required to address those defects, I do not agree that the works required to address the defects in this instance are necessarily clearly understood. The lack of agreement between the experts exposes that there is an inherent degree of complexity involved in repairing the defective roof.
I accept Mr Capaldi's cogent and persuasive explanation regarding contingencies and accept that it is appropriate in a matter such as this to make an allowance for contingencies.
Mr Capaldi's proposed rate of 5% was not addressed by Mr Drexler and in the absence of any evidence contradicting that rate I accept that a contingency rate of 5%, which is based on Mr Capaldi's extensive experience in the industry, is appropriate.

[42]

Conclusion in relation to costings

For ease of reference, the following table sets out my conclusions in relation to costings. Item Description Tribunal's decision Amount 1 Water staining and ingress ground floor entry porch. Per lines 4, 5, 6, 17 and 18 of Item 1 Capaldi Report. $1,230.35 2 Water staining and water ingress, first floor ceilings. Per item 2 of Capaldi Report. $58,825.23 3 Poorly constructed roofing and roof drainage. Ground floor north and south apron roofing. Per item 3 of Capaldi Report less $1800 allowed for mould remediation. $4,774.78. 4 Water staining to the soffit linings and 'ghosting of the roof framing. Ground floor alfresco. Per item 4 of Capaldi Report. $4,807.63 5 Balcony waterproofing failure and cracking to the soffit linings. Per item 5 Capaldi Report. $14,281.89 Subtotal $83,919.88 Preliminaries 10% $92,311.87 Builder's margin 20% $110,774.24 Contingency 5% $116,312.96 GST 10% Not disputed 127,944.25 Home Warranty Insurance 1.5% $129,863.41 TOTAL $129,863.41

[43]

Should the Tribunal make a work order or money order?

By reason of s 48MA of the Act, the Tribunal must have regard to the principle that rectification of defective work by the responsible party is the preferred outcome.
In Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23 at [41]-[46] the Appeal Panel stated as follows: While not appropriate to seek to define all circumstances that might justify a court or tribunal making an order that departs from the preferred outcome, it is necessary to give some consideration to the nature of the obligation imposed on the court or tribunal by s 48MA. First, the principle, by its terms, only applies "in determining a building claim involving an allegation of defective residential building work or specialist work". It is not expressed to apply where, for example, the building claim only involves an allegation of incomplete residential building work or specialist work. That is not to suggest s 48O does not otherwise permit a work order in respect of work found to be incomplete. Second, s 48MA is directed towards the remedy or "outcome" to be provided by the court or tribunal where a claimant establishes the responsible party has carried out defective residential building work or specialist work. In this sense, it is not properly described as a "presumption". Rather, it is a remedy to be "preferred" to other forms of order which the court or tribunal might make. Third, while s 48MA provides the court or tribunal "is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome", the section does not mandate that a work order must be made in all cases. Further, the section does not confine the form of orders that may be made under s 48O, including an order that defective work be rectified by the responsible party engaging another person to carry out that work on behalf of the responsible party. Fourth, the term "preferred" is not defined. The HB Act and Regulations do not specify circumstances in which the preferred outcome is not to be adopted. However, guidance as to the meaning of "preferred" and the circumstances that would justify an order for a different outcome is found in the second reading speech where the Minister for Fair Trading makes clear that the purpose of the amendment was to: (1) prevent a homeowner from unreasonably refusing a builder access to a building site to rectify defective work; (2) permit a builder to return to carry out necessary rectification work if they are willing; and (3) support the timely and cost-effective resolution of disputes. That is, in deciding what order should be made, a court or tribunal may consider whether there is a reasonable basis for any objection raised by the homeowner to the builder being permitted to rectify the defective work, the terms of any order, whether the builder is willing to return and whether such an order would support a timely and cost effective resolution of the dispute.
Whether the Tribunal departs from the "preferred outcome" that the builder who performed the defective work involves the exercise of discretion (Leung v Alexakis [2018] NSWCATAP 11 at [139]; Robinson v Hindmarsh Construction Australia Pty Ltd [2021] NSWCATAP 51 at [66]).
In Culina v Timilty Constructions PL [2022] NSWCATCD 109 the Tribunal helpfully summarised the applicable principles relevant to exercise of the discretion: 14. Under HBA s 48MA, a work order is the preferred, not the mandatory, outcome for defective work: Galdona v Peacock [2017] NSWCATAP 64 at [65]. Personal animosity is not sufficient to displace the primacy of a work order for defective work, as the test is objective and the flexibility of s 48O permits an order that the builder fulfil a work order by engaging another party to carry out the work order on behalf of the builder. 15. However, relational breakdown is an element in objective assessment, as can be the builder's conduct in unrelated projects and as will be doubts about the builder's capacity or skills to undertake the required remediation, the builder's attitude to the standard of work done and willingness to return and the likelihood of further dispute not meaning that a work order would be a timely or cost-effective resolution: Owners SP 78465 v MD Constructions PL [2016] NSWSC 162 at [47]-[48]; Brooks v Gannon Constructions PL [2017] NSWCATCD 12 (appeal not affecting s 48MA decision); Galdona at [64]; BNT Constructions PL v Allen [2017] NSWCATAP 186 at [33]-[36]; Kumar v Sabharwal [2017] NSWCATAP 200 at [29]-[30]; Clements v Murphy [2018] NSWCATAP 152 at [30], citing with approval Kurmond Homes PL v Marsden [2018] NSWCATAP 23 at [31]-[32], [46]; Brennan Constructions PL v Davison [2018] NSWCATAP 210 at [15]-[21]. 16. A work order is always available as one of the range of choices under HBA s 48O, even though there is no statutory preference for it in respect of incomplete work and it would be unusual to direct a builder to complete work under a work order where the builder's performance is the reason for acceptance of repudiation or termination of the building contract: Clements at [22]-[33]. It would be otherwise where the owner repudiated or provided the grounds for termination of the contract: White v Sunrise Pools Aust PL [2017] NSWCATAP 216 at [5], [70]. 17. The ultimate litmus test for whether a work order should be made, and formulating its content, is whether it is appropriate, having regard to the fact that HBA s 48O(3) imports the requirement in s 79U(1) of the Fair Trading Act 1987 (NSW) that the orders will be fair and equitable to all the parties to the claim: Petropoulos v CPD Holdings PL t/as The Bathroom Exchange (No 2) [2018] NSWCATAP 233 at [28], [30], citing with approval Kurmond Homes PL v Marsden [2018] NSWCATAP 23 at [25].

[45]

The builder's submissions

The builder's submissions in support of its position that a work order rather than a money order should be made include: 1. Section 48MA stipulates a mandatory preference for the making of a work order. 2. The homeowner's evidence about alleged animosity between himself and the builder's principal, Mr Mehcur, is "an elaborate and fanciful exaggeration designed to avoid a work order" and that the evidence does not establish that Mr Mechur was or would be violent or aggressive to the homeowner. 3. The homeowner has installed solar panels on the property after the builder vacated the premises. This has had the effect of increasing the rectification costs and "it would do grave injustice to require [the builder] to pay a money order which is inclusive of work required to undo subsequent work done by the [homeowner]". 4. The contract between the builder and its roofing sub-contractor requires the sub-contractor to rectify defective work within 48 hours of receipt of notice from the builder, and provides that if the sub-contractor does not comply with such obligation, the builder may itself make good the defects and the cost will be a debt owing by the sub-contractor to the builder. A money order would result in the builder's rights under that provision being extinguished as the builder would lose the opportunity to direct the sub-contractor to perform the work and recover liquidated damages if the sub-contractor fails to perform the work. The builder would then have to sue under an implied term and seek unliquidated damages which would unfairly increase the risk that the builder would be able to recover any loss suffered on account of the sub-contractor's breach. 5. Mr Mehcur would not need to personally return to the site to perform the work other than to inspect the completed work. 6. The Tribunal should assume, unless there is evidence to the contrary, that if a work order is made the builder will abide by it. 7. In circumstances where the builder's variation claim in the order of $543,968 was compromised to $100,000 it was not unreasonable for the builder to believe that the release also operated in respect of latent defects. 8. The non-compliance with the rectification order made by NSW Fair Trading was on the basis that the builder was of the assumption that the homeowner had released all defects, including latent defects. It is not an independent basis to find that the builder would not comply with a work order. In circumstances where the alleged release is now not pressed in the Tribunal, there is no basis that would allow the Tribunal to find that the builder would not comply with a work order.

[46]

Decision in relation to s 48MA

I will first consider the submission regarding the relationship between the parties.
The builder made lengthy submissions regarding the probity of the evidence given by Mr Iftikhar in relation to the behaviour of Mr Mehcur during and after the build and I have considered them carefully. Whilst I accept that Mr Iftikhar's evidence was emotional and at time inconsistent, I am not satisfied that this is enough to establish that his allegations against the builder are an "elaborate and fanciful" exaggeration cynically made for the purpose of casting aspersions on Mr Mechur's character and avoiding a work order.
Having considered all the evidence I accept that there has been animosity between Mr Iftikhar and Mr Mehcur and that there has been a relational breakdown between the parties. My reasons for this include the following:
Firstly, despite there being some inconsistencies and possibly overstatements in Mr Iftikhar's evidence, this is not enough to establish the serious allegation that he deliberately lied about being fearful of the builder for the purpose of avoiding a work order. In any event the builder's counsel did not specifically put to Mr Iftikhar during cross-examination that he was in fact content for the builder to return to the site, or that he was exaggerating simply to obtain a money order.
Secondly, the contemporaneous evidence - namely a police report - establishes that police attended Mr Iftikhar's home following a meeting between Mr Iftikhar and Mr Mehcur on 20 August 2018, that at that time Mr Iftikhar alleged to police that he had been assaulted, and that he told police that Mr Mehcur "got frustrated and pushed [Mr Iftikhar] on the shoulder and walked out."
Thirdly, Mr Mehcur's own affidavit evidence regarding that incident supports the allegation that Mr Mehcur's behaviour towards Mr Iftikhar was confrontational. He states that during a disagreement about monies allegedly owed, he said to Mr Iftikhar (following an alleged refusal by Mr Iftikhar to go his brother's house next door to discuss money matters) "Really how convenient, you say talk to him, he says talk to you and you say you are not talking to him. Get up let's go talk like adults" and that he then "held [Mr Iftikhar] by the arm and gently nudged him towards the door". He says that Mr Iftikhar then said "Don't touch me Marley".
Thus, even disregarding Mr and Mrs Iftikhar's extensive testimony on the subject, it is abundantly clear from the police report and from Mr Mehcur's own evidence that at the very least there was animosity between the parties, that Mr Mehcur used derisive, condescending language towards Mr Iftikhar, and that Mr Mehcur made unwanted and inappropriate physical contact with Mr Iftikhar.
Fourthly, Mr Iftikhar's evidence is that a subsequent meeting with Mr Mehcur on 17 September 2018 to discuss the occupation certificate took place at Merryland's shopping centre. Mr Iftikhar says he was afraid of Mr Mehcur and therefore chose a "neutral" venue". Mr Iftikhar's evidence in this regard was not disputed by Mr Mehcur and was not challenged in cross-examination and I accept it.
The different accounts given by the witnesses make it virtually impossible to know exactly what happened at the 20 August 2018 meeting, or during previous interactions. However, the fact that police were called on 20 August 2018, Mr Mehcur's own evidence about the way he acted towards Mr Iftikhar on that date, and the fact that Mr Iftikhar elected for the subsequent meeting to take place at a "neutral" venue because of his concerns about Mr Mehcur's behaviour, are sufficient for me to be satisfied that the Iftikhars' concerns about Mr Mehcur are genuine, and there has been a relational breakdown between the parties.
I will now turn to the allegation that the builder has shown an unwillingness to stand by its work and rectify the defects.
The relevant facts, established on the basis of the parties' respective evidence, are as follows: 1. At the meeting at Merrylands shopping centre in September 2018 the homeowner presented to Mr Mehcur a list of defects that he wanted repaired. The list did not include the leaking roof. Mr Mehcur says that during that meeting the parties agreed to the Release. 2. Later that day Mr Mehcur sent an email to the homeowner stating: Both parties have agreed to the following: 1. Upfront payment of $80,000 to be made on Monday 17 September 2018 by Junaid Iftikhar. 2. Builder to obtain an Occupation Certificate within 30 days of payment 1. 3. Upon receipt of the Occupation Certificate, Junaid Iftikhar is to make another payment for $20,000. This payment will bring the balance of the debt from the owner to the builder to zero dollars. 4. Junaid Iftikhar will be responsible to repair his own defects. 5. Full and final settlement of the matter between Rockwall Homes and Junaid Iftikhar. 1. The homeowner responded on the same day by email, stating "Just a question defect is painting / randring [sic] / stairs you talking right? Not anything to get occupancy defects". 2. Two days later the homeowner paid the builder $80,000. 3. On 30 August 2019 the homeowner received the final occupation certificate for the property. On or about the same day the homeowner paid the builder $20,000. 4. In November 2018 the homeowner first noticed that the roof was leaking. 5. Since being made aware of the leaking roof the builder has repeatedly refused to carry out rectification works citing that it has been released from the obligation to rectify defects. 6. On numerous occasions Mr Mehcur has stated that the builder would be willing to rectify the defects if the homeowner paid extra money. For example, at [72] of Mr Mechur's affidavit of 24 October 2022, Mr Mehcur says that he had the following exchange with the homeowner on or about 11 September 2021, following the issue of a rectification order by NSW Fair Trading (the Rectification Order): [Mr Mehcur]: I thought we had an agreement. You repair your own defects and I pay for the variations. [The homeowner]: Yes, but this is a major defect. I have a quote to remove the roof more than $80,000. [Mr Mehcur]: Ok, then why don't you pay me $50,000 and I will repair the roof. [The homeowner]: I will think about it. 1. Similarly, during cross-examination, Mr Mehcur said that he had said to Mr Skaliasi (of NSW Fair Trading) in September 2021 "I'm happy to fix the defect [being the leaking roof], as long as he pays me some money." 2. The builder failed to comply with the rectification order issued by NSW Fair Trading on 17 August 2021, which required the builder to attend to the leaking roof (the Rectification Order). 3. Throughout the proceedings key components of the builder's defence were that: 1. the effect of the Release was that the homeowner was estopped and precluded from bringing these proceedings, or in the alternative that the Release was a binding and enforceable agreement between the parties. 2. any loss or damage suffered by the homeowner was offset by the amount of $543,968.31 allegedly owed to the builder in respect of Contract variations. 1. On the second day of the hearing both of these aspects of the defence were dropped by the builder, with no explanation given.
Putting aside the fact that (as Mr Davie submitted during the first day of the hearing), a provision of an agreement or other instrument that purports to remove a person's rights in respect of a statutory warranty is void (see s 18G of the Act), I do not accept that the arrangement discussed by the parties in September 2018 sufficiently explains Mr Mehcur's repeated refusal to rectify the leaking roof. In this regard I am not satisfied that Mr Mehcur genuinely believed that the homeowner had agreed to release him from liability to rectify latent defects, such as the leaking roof the subject of these proceedings.
Looking first at the contemporaneous correspondence, the homeowner's response to Mr Mehcur's email of 17 September 2018 made it abundantly clear that the homeowner did not consider that he was releasing the builder from any defects other than those that had already been discussed (ie the stairs, the rendering and the painting).
Furthermore, in cross-examination Mr Mehcur conceded that the defects which the parties discussed when agreeing to the release were limited to the defects identified in the list the homeowner had brought to the September 2018 meeting. The relevant exchange is as follows: DAVIE: Patently, in that conversation, the defects being referred to by you were the number of defects in the list, weren't they? Because those were the defects under discussion. MEHCUR: Those were the defects he was referring to, yes.
The defects identified in the homeowner's list did not include the leaking roof because that defect had not yet become apparent at that time.
Moreover, Mr Mehcur's own affidavit evidence is not consistent with his assertion that he believed the Release included latent defects. For example, in relation to the conversation between Mr Mehcur and the homeowner on around 11 September 2021 it is irrational that, if Mr Mehcur genuinely believed he had no obligation to rectify the leaking roof, he would have offered to carry out such significant repairs for $50,000. Not only was this $30,000 less than the price which the homeowner said he had been quoted by another builder, but the offer was made in circumstances where the builder had not prepared a scope of works or carried out its own investigations to identify the cause or extent of the leak.
For these reasons I do not accept that the purported Release sufficiently explains the builder's repeated refusal to carry out the roof repairs and overall, the builder's approach causes me to have serious concerns about its attitude to the standard of work done, its willingness to return, and the likelihood of further dispute.
I would add that it would seem to be inherently contradictory for the builder to repeatedly refuse to carry out the roof repairs because of the Release, and then to abandon this key part of its defence on the second day of the hearing. No explanation was provided for this decision, but presumably it was made following a consideration of the merits of the defence. The builder cannot "have its cake and eat it too". If it genuinely considered that it was released from the obligation to carry out the roof repairs, then it is incongruous that it did not seek to press this defence.
The builder's position is not advanced by its submission that it was reasonable for the builder to believe that the release operated in respect of latent defects in circumstances where its variations claim was compromised from $543,968 to $100,000. First of all, whether or not such a belief was reasonable is of no moment given that I am not satisfied that the builder did in fact hold the belief that the release covered latent defects. In any event, there is scant evidence before me as to the extent of the defects which were already known at the time of the alleged Release and no evidence as to what it would have cost to repair them. It is also worth adding that there is a serious disagreement between the parties as to the validity of the $543,968 variations claim. As the builder abandoned his set-off defence on the second day of the hearing, that dispute is not a matter that I am able to determine.
The builder's submission that its non-compliance with the Rectification Order was on the basis that all defects including latent defects had been released also does not assist the builder. Compliance with a Rectification Order is mandatory because it is a condition of every builder's licence: s 48E(5) of the Act.
For all these reasons, I am concerned that there would be a likelihood of further dispute if a work order was made, meaning that a work order in these circumstances would not be a timely or cost-effective solution to the dispute.
I will now turn to the other submissions made by the builder as to why it says a work order should be made.
The builder's submission regarding the homeowner's installation of solar panels is not convincing. There was no suggestion that it was unreasonable or inappropriate for the homeowner to install solar panels and no argument was made that this involved a failure to mitigate loss. In any event, even if a work order was made, the rectification works would still involve removal and replacement of the solar panels at the builder's expense.
I am not persuaded by the argument regarding the builder's contract with SSR. Firstly, the terms of the contractual relationship between the builder and its sub-contractors is a matter which is entirely out of the control or knowledge of the homeowner. Secondly, the builder has had ample opportunity to exercise its contractual right to require SSR to rectify the defects by serving a notice on SSR, yet there is no evidence of it having done so. This is another example of the builder's unwillingness to stand behind its work and rectify defects, and does not counter against the Tribunal making a money order.
The argument that Mr Mehcur would not need to return to site personally to perform the work other than to inspect SSR's completed work is problematic. There is no evidence of the arrangements the builder has in place for the work to be done (whether by SSR or otherwise) and in any event Mr Mehcur presumably would need to attend site to supervise the work and ensure it is done properly.
For all of these reasons I am satisfied that a money order is the appropriate remedy in the circumstances.

Iftikhar v Rockwall Homes Pty Ltd

At a glance

Court

Decision date

Source

Judgment (48 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (18)