Kensington Homes (NSW) Pty Ltd v McMullen

Texts Cited: None cited

Category: Principal judgment

Parties: Kensington Homes (NSW) Pty Ltd (Appellant)
Matthew McMullen (First Respondent)
Karen McMullen (Second Respondent)
Jessica McMullen (Third Respondent)

Representation: Counsel:
J Nathan (Appellant)
A Munro (First, Second and Third Respondents)
Solicitors:
Blackwell Short (Appellant)
Campbell Paton and Taylor (First, Second and Third Respondents)

File Number(s): 2025/00384696

Publication restriction: Nil

REASONS FOR DECISION

Overview

1. This is an internal appeal from part of the decision of the Tribunal made on 9 September 2025 (the Decision) in two proceedings under the Home Building Act 1989 (NSW) concerning a dispute between the first to third respondents, Matthew McMullen, Karen McMullen, and Jessica McMullen (the McMullen family), who are the owners of a property at Cargo in New South Wales (the property), and the appellant, Kensington Homes (NSW) Pty Ltd (Kensington Homes), which is the builder that carried out residential building work at the property under a building contract between them (the building contract).

2. The Tribunal in the Decision relevantly made a money order of $145,423.44 in favour of the McMullen family including $144,058.44 for the cost of the rectification and completion of defective and incomplete works.

3. The issue in this appeal is whether the Tribunal failed to accord procedural fairness to Kensington Homes or constructively failed to exercise its jurisdiction by failing to consider its submission that the balance of the contract price payable under the building contract should be deducted from any damages for defective works awarded to the McMullen family after adding the value of any incomplete works.

4. We have decided that there was such a failure by the Tribunal and it should have made such a deduction from the money order in favour of the McMullen family. It follows that the appeal should be allowed, the money order should be varied to substitute $100,206.58 for $145,423.44, an order should be made that the McMullen family pay $45,216.86 to Kensington Homes and there should be no order as to the costs of the appeal.

5. Before determining this issue, we have summarised the background to the appeal, the history of the appeal and the jurisdiction of the Appeal Panel.

The background to the appeal

6. On 29 June 2020, the McMullen family and Kensington Homes entered into the building contract.

7. On or about 17 December 2020, Kensington Homes commenced carrying out the residential building work under the building contract.

8. On 4 August 2022, the McMullen family issued a notice terminating the building contract to Kensington Homes.

9. On 16 November 2022, Kensington Homes commenced proceedings HB 22/51993 (which were subsequently renumbered 2022/00398344) in the Consumer and Commercial Division of the Tribunal against the McMullen family by lodging an application in which it claimed damages for their repudiation of the building contract.

10. On 3 March 2023, the McMullen family commenced proceedings HB 23/11221 (which were subsequently renumbered 2023/00405814) in the Consumer and Commercial Division of the Tribunal against Kensington Homes in which they claimed damages for defective and incomplete works, and delay, and the recovery of money paid by mistake.

11. On 29, 30 and 31 July 2024 and 17 February 2025, the Tribunal constituted by Senior Member D Charles heard the two proceedings following which the parties lodged their closing written submissions.

12. On 9 September 2025, the Tribunal made the Decision in which it:

13. made the following orders (the orders):

(a) an order dismissing the claim of Kensington Homes (order 1); (b) a money order of $145,423.44 in favour of the McMullen family (order 2); (c) orders to facilitate the determination of any application for costs (orders 3 to 6);

2. made the following findings in the statement of reasons (the reasons):

(a) the claim of Kensington Homes was dismissed as the McMullen family lawfully terminated the building contract on 4 August 2022; (b) as to the claims of the McMullen family:

(i) they were entitled to damages of $144,058.44 for the cost of the rectification and completion of defective and incomplete works; (ii) their claims for solatium damages and the cost of a new retaining wall were dismissed; (iii) they were entitled to damages of $1,365 for delay; (iv) their claim for the recovery of money paid by mistake was dismissed; (v) there should be a money order of $145,423.44 in their favour.

The history of the appeal

13. On 7 October 2025, Kensington Homes commenced this appeal against the McMullen family by lodging a notice of appeal in which it challenged orders 1 and 2 of the Decision.

14. On 17 November 2025, Kensington Homes lodged an amended notice of appeal in which it:

15. specified five grounds of appeal relating to the findings of the Tribunal that the McMullen family lawfully terminated the building contract on 4 August 2022 (grounds 4(a) and (b)) and were entitled to damages of $144,058.44 for the cost of the rectification and completion of defective and incomplete works (grounds 4(c) to (e)), and a ground of appeal relating to the delay between the hearing and the Decision (ground 4(f)) including:

“4. The Appellant relies on the following grounds of appeal:

…

(c) The Senior Member erred in failing (at D[252]) to deduct from the total amount of damages awarded to the Respondents for defective works (being $144,058.44) the balance of the contract price payable under the Contract (being $165,831.26) less the amount of incomplete works which was alleged by the Respondents' expert (being $95,509.89) and consequently the finding that the Respondents owed the Appellant the sum of $144,058.44 as damages for defective work was against the weight of evidence, made by taking into account irrelevant considerations, did not take into account relevant considerations and was manifestly unreasonable in the circumstances;

(d) The Senior Member erred as he failed to accord natural justice or constructively failed to exercise the Tribunal's jurisdiction by failing to respond to the argument made on behalf of the Appellant consider the Appellant’s submission that the balance of the contract price payable under the Contract should be deducted from any damages for defective works awarded to the Respondents after adding the value of any incomplete works and accordingly, the Senior Member failed to take into account relevant considerations;

(e) The Senior Member failed to provide proper or adequate reasons for declining to deduct the balance of the contract price payable under the Contract after adding the value of any incomplete works found under the Contract;”

2. specified questions of law raised by the grounds of appeal including:

“5. The Grounds of Appeal referred to in paragraph 4 above raise the following questions of law:

…

(c) Did the Senior Member fail to consider a substantial, clearly articulated argument relying upon established facts that the balance of the contract price payable under the Contract should be deducted from any damages for defective works awarded to the Respondents after adding the value of any incomplete works;

(d) Did the Senior Member fail to provide proper or adequate reasons for declining to deduct the balance of the contract price payable under the Contract after adding the value of any incomplete works found under the Contract.”

15. On 26 November 2025, the McMullen family lodged a reply to appeal in which they relevantly disputed the grounds of appeal in the amended notice of appeal.

16. At the hearing of the appeal:

17. Kensington Homes did not press the grounds of appeal in the amended notice of appeal relating to the findings that the McMullen family lawfully terminated the building contract on 4 August 2022 (grounds 4(a) and (b)) and the delay between the hearing and the Decision (ground 4(f));

18. the parties advised that they were in agreement on the following matters:

(a) the money order of $145,423.44 had been paid by Kensington Homes to the McMullen family; (b) the only live issue related to the finding of the Tribunal that the McMullen family were entitled to damages of $144,058.44 for the cost of the rectification and completion of defective and incomplete works (grounds 4(c) to (e)); (c) if the appeal was allowed there should be no order as to the costs of the appeal;

3. counsel for the parties relied on their written submissions and made oral submissions.

4. Following the hearing of the appeal, the parties pursuant to directions made at the hearing notified the Appeal Panel that they were in agreement on the following matters:

5. the balance of the contract price under the building contract that has not been paid to Kensington Homes is $134,971.26;

6. the cost of incomplete work under the building contract is $89,754.40;

7. the amount that should be repaid to Kensington Homes if it is successful on the appeal is $45,216.86.

The jurisdiction and approach of the Appeal Panel

18. Section 80(1) of the Civil and Administrative Tribunal Act 2013 (NSW) (NCAT Act) allows a party to proceedings in which the Tribunal makes an internally appealable decision to appeal the decision to an Appeal Panel.

19. Internal appeals against an internally appealable decision may be made in the case of any kind of decision (including an ancillary decision) other than an interlocutory decision as of right on a question of law, or with the leave of the Appeal Panel, on any other grounds: NCAT Act, s 80(2)(b).

20. We have conducted the appeal as a rehearing on the materials before the Tribunal and any additional or further evidence received to determine whether the orders that are the subject of the appeal are the result of some legal, factual or discretionary error: Yuen v Thom [2016] NSWCATAP 243 at [14]-[22].

21. In relation to an appeal on a question of law, we note the following established principles:

22. the question of whether the Tribunal has failed to afford procedural fairness to a party by conducting the hearing in accordance with the proper procedure raises a question of law: Italiano v Carbone & Ors [2005] NSWCA 177 at [85]-[87] (Basten JA); Resource Pacific Pty Ltd v Wilkinson [2013] NSWCA 33 (Resource Pacific) at [9] (Basten JA with Beazley P at [1] agreeing); Fisher v Nonconformist Pty Ltd [2024] NSWCA 32 (Fisher) at [39] (Kirk JA with Meagher JA at [1] and Simpson AJA at [149] agreeing). This principle has been applied by the Appeal Panel: see for example Inventbuild Pty Ltd v Tulemis [2024] NSWCATAP 49 at [18];

23. where a ground asserting an infringement of the rules of natural justice is raised, it is appropriate for the court to consider it first and in advance of other grounds because if established the ground may necessitate a remittal for rehearing in any event: Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd (2006) 229 CLR 577; [2006] HCA 55 at [116]-[117] (Gummow ACJ). This principle has been applied by the Appeal Panel: see for example Baas v JB Hi Fi Group Pty Ltd [2021] NSWCATAP 10 at [32];

24. the term ‘constructive failure to exercise jurisdiction’ is used to describe a situation where the court has purported to resolve the parties’ dispute but has not in fact done so. Thus, particularly with a court or tribunal required to provide reasons for its decision, it may become apparent from those reasons that a material issue has simply not been addressed or that material evidence has been overlooked: Resource Pacific at [9] (Basten JA with Beazley P at [1] agreeing). If there has been a constructive failure to exercise jurisdiction there will have been error of law which can be addressed on an appeal limited to a question of law: Alexandria Landfill Pty Ltd v Transport for NSW (2020) 103 NSWLR 479; [2020] NSWCA 165 (Alexandria Landfil**l) at [22] (Basten JA); see also Fisher at [39] (Kirk JA with Meagher JA at [1] and Simpson AJA at [149] agreeing). This principle has been applied by the Appeal Panel: see for example Steelbond Australia Pty Ltd v Wein [2024] NSWCATAP 20 at [59]-[60].

25. In accordance with this approach, we have considered ground 4(d) first. In view of our conclusion on ground 4(d), it has been unnecessary to consider grounds 4(c) and 4(e).

Ground 4(d)

23. We will consider the following the first question and depending on the answer the second question set out below:

24. whether ground 4(d) raises a question of law;

25. if so, whether the Tribunal failed to accord procedural fairness to Kensington Homes or constructively failed to exercise its jurisdiction.

26. If ground 4(d) is made out, we will consider the first question and depending on the answer the second question set out below:

27. if so, whether the balance of the contract price payable under the building contract should be deducted from the amount of damages for the cost of the rectification and completion of defective and incomplete works;

28. if so, whether the Appeal Panel can make orders which will determine the issue of damages arising out of the building contract.

Whether ground 4(d) raises a question of law

25. The McMullen family submitted that ground 4(d) does not raise a question of law and asserts that Kensington Homes has not adequately explained how this ground raises a question of law.

26. In the light of Alexandria Landfill at [22] and Fisher at [39], we are satisfied ground 4(d) raises the question in the amended notice of appeal at [5(c)] and that this question is a question of law.

27. It follows the appeal is as of right on ground 4(d).

If so, whether the Tribunal failed to accord procedural fairness to Kensington Homes or constructively failed to exercise its jurisdiction

28. Kensington Homes in its closing submissions made the following submissions (the balance of contract price submissions):

“68. In any case if the Owners are entitled to a money order, the balance of the Contract price being $165,831.26 ought to be deducted from any amount awarded to the Owners after adding the value of any incomplete works found. This is to put the Owners in the position they would have been had the defective and/or incomplete work not subsisted (see Owners SP 92450 v JKN Para I Pty Limited [2023] NSWCA 114 at 67).

69. This is because, the purpose of damages is to put the party in the position they would have been had the relevant contract been performed (see Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2005] NSWCA 248 at [85]).

70. Likewise, if a works order is made for the Builder to complete the defective and incomplete works, then the Builder should be paid the balance of the Contract price of $165,831.26 upon completion of the Works less the value of any incomplete works found but not completed by the Builder.”

29. The McMullen family in their closing submissions made the following submission:

“37. In respect of the Builder's submissions at BS [68] - [70], those submissions do not reflect the authority relied upon (SP 92450 v JKN Para 1 at [67]). At [67] in SP 92450 v JKN Para 1, Gleeson JA merely restates the principles in Tabcorp Holdings. Those principles do not stand for the asserted set off contended for. …”

30. The Tribunal in the reasons at [252] relevantly made the following finding:

“252 Considering my earlier findings, and my later findings (see below) which are to dismiss the Owners’ claims for solatium damages and a new retaining wall, the money order for defective and incomplete works is $144,058.44, calculated as follows: …”

31. Kensington Homes submits that there is no evidence in the reasons that the Tribunal gave any consideration to the balance of contract price submissions.

32. The McMullen family submits that the Tribunal in the reasons at [48] refers to Kensington Homes’ closing submissions. It cannot reasonably be said that the Tribunal failed to consider or respond to those submissions. The fact that Kensington Homes’ preferred methodology was not adopted does not establish a failure to consider a substantial argument or a constructive failure to exercise jurisdiction.

33. In Owners SP 92450 v JKN Para 1 Pty Limited [2023] NSWCA 114 (JKN) at [67] Gleeson JA stated (with White JA at [115] and Brereton JA at [116] agreeing):

“[67] In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [13], the joint judgment reiterated the “ruling principle” with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harman (1884) 1 Exch 850 at 855; 154 ER 363 at 365:

The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”

34. In Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2005] NSWCA 248 (Beckhaus) at [85] Ipp JA stated (with Hodgson JA at [1;] and McColl JA at [230] agreeing):

“[85] With respect to the cross-claims, the Council would only be entitled to judgment for an amount payable by Beckhaus to it were Macready AsJ to find, on re-assessment, that the Council would incur greater costs in having the work rectified and completed in accordance with the Contract than the amount it would have paid to Beckhaus if the latter had duly completed the work. The Council would then be entitled to be paid the difference between the two amounts.”

35. The Tribunal in the reasons at [191] sat out the classic statement of Parke B in Robinson v Harman (1884) 1 Exch 850 at 855; 154 ER 363 at 365 with respect to damages at common law for breach of contract cited in JKN at [67]. However, the Tribunal did not address the balance of contract price submissions which were clearly articulated in Kensington Homes’ closing submissions. We are satisfied that by this omission the Tribunal failed to accord procedural fairness to Kensington Homes or constructively failed to exercise its jurisdiction. Ground 4(d) is made out.

The issues for determination if ground 4(d) is made out

Whether the balance of the contract price payable under the building contract should be deducted from the amount of damages for the cost of the rectification and completion of defective and incomplete works

36. Kensington Homes in making the balance of contract price submissions relied on Wabbits Pty Ltd v Godfrey [2009] NSWSC 1299 (Wabbits) at [101-[103], [109]-[111] and DeMarco v Macey [2025] NSWCATAP 131 at [166].

37. The McMullen family in opposing the balance of contract price submissions relied on a dictum in Woodward Pty Limited v Kelleher [1989] NSWCA 82 (Woodward).

38. In Wabbits at [109]-[111], Ward J explained the measure of the damages recoverable by the building owner for the breach of a building contract in the following terms:

“[109] In determining damages as required under Bellgrove v Eldridge, account must be made for any amount of the contract price which remains unpaid to the builder, irrespective of whether the builder would be able to recover that amount. In Woodward Pty Limited v Kelleher [1989] NSWCA 82, Gleeson CJ (with whom Samuels and Priestley JJA agreed), dealt with this subject at some length:

In Bellgrove the High Court cited with approval the following statement in Hudson on Building Contracts 7th Ed (1946) at 343: "The measure of the damages recoverable by the building owner for the breach of a building contract is, it is submitted, the difference between the contract price of the work or building contracted for and the cost of making the work or building conform to the contract, with the addition, in most cases, of the amount of profits or earnings lost by the breach."

The corollary of that proposition was stated in H Dakin and Company Limited v Lee [1916] 1 KB 566. In that case the matter was considered from the point of view of the builder, who had performed work which was defective, but not so defective as to produce the result that he could not recover anything for his services. He was held to be entitled to recover the unpaid balance of the contract price, less the cost of rectifying the defects.

In many cases, perhaps most, cases of a claim for damages for breach of a building contract made by a proprietor against a builder on the basis of defective work, there will be no doubt that the unpaid balance of any contract price is recoverable by the builder from the proprietor subject always, of course, to the possibility that it might be exceeded by the proprietor's claim for damages. Whether or not it is technically accurate to describe what is involved as a set-off, there is no conceptual difficulty involved in such a case in deducting the unpaid balance of the contract price from the cost of rectification and consequential damages. There may, however, be, for a number of possible reasons, cases in which the unpaid balance of the contract price could not be recovered in an action brought by the builder. For example, the contract may have been repudiated by the builder. The building work may be so radically defective as to disentitle the builder to sue. The building contract may, for one reason or another, be void. Or, as in the present case, the building contract may be unenforceable at the suit of the builder.

The ultimate object of the rule as to damages earlier quoted is simply to apply to the particular case of a building contract the general principle of measurement of damages for breach of contract established in Hadley v Baxendale (1854) 9 EX 341 which is that the injured party is entitled to be indemnified against any loss likely to arise in the usual course of things from the breach, and also such other loss as was in the contemplation of the parties at the time of the contract as the likely result of the breach of it. Where a builder contracts to construct a building of a certain kind and to a certain standard of workmanship, and fails to do so, prima facie the loss sustained by the proprietor is the difference between what it will cost him to have the promised work carried out by somebody else and the price he agreed to pay to have it done by the builder in question. If, for some reason or other, the builder could not have enforced the contract against the proprietor, that does not mean that the proprietor was entitled to have the building erected for nothing. (my emphasis)

[110] Strictly speaking, the calculation as stated in Hudson (which must refer to the total amount expended to bring the works into conformity with the contract – ie the amount expended under the original contract plus the cost of the rectification works) automatically takes into account the unpaid contract balance. It is only when the cost of the rectification works alone is treated as the quantum of damages that it becomes necessary to deduct the unpaid contract balance.

[111] In other words, the calculation can be, and is, performed in two ways, both of which reach the same mathematical result. First, it can be approached by calculating the total amount expended to bring the works into conformity with the original contract (ie the amounts paid under the original contract ($x) and in respect of rectification works ($y)) and subtracting from that the original contract price ($z). Alternatively, it can be approached by calculating the cost of the rectification works ($y) and subtracting from that the unpaid contract balance ($z - $x). The approaches are mathematically the same: x + y – z = y – (z – x).”

39. In DeMarco v Macey at [166], where the contract had been repudiated by the builder, the Appeal Panel relevantly said:

“… in an action for breach of contract brought by a homeowner against a builder, the proper measure of damages is the cost, in excess of any amount of the contract price unpaid, of reasonable and necessary work to make the building conform to the contract, together with any consequential losses served by the breach: Wabbits Pty Limited v Godfrey [2009] NSWSC 1299 at [101], citing Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36 at 617-618. Thus, account must be made for any amount of the contract price that remains unpaid to the builder: see Wabbits, supra, at [109], citing Woodward Pty Ltd v Kelleher [1989] NSWCA 82.”

40. The McMullen family relied on the dictum “There may, however, be, for a number of possible reasons, cases in which the unpaid balance of the contract price could not be recovered in an action brought by the builder. For example, the contract may have been repudiated by the builder” in the third paragraph of the cited passage of Woodward in Wabbits at [109]. They gave no explanation as to how the failure to make a deduction of the balance of the contract price payable under the building contract would give effect to the rule of the common law expressly stated in JKN at [67] and implicitly stated in Beckhaus at [85].

41. We do not agree that Woodward is authority for a qualification to the measure of the damages recoverable by the building owner for the breach of a building contract which requires the deduction of the unpaid contract balance where the building contract is repudiated by the builder. As made clear in the last paragraph of the cited passage of Woodward in Wabbits at [109], the general principle of measurement of damages for breach of contract does not mean that the proprietor was entitled to have the building erected for nothing.

42. We are satisfied that in determining the amount of damages for the cost of the rectification and completion of defective and incomplete works to which the McMullen family were entitled the Tribunal should have deducted the unpaid balance owing under the building contract. Without such a deduction that includes a credit for the cost of incomplete work under the building contract the McMullen family would receive a windfall of $45,216.86.

If so, whether the Appeal Panel can make orders which will determine the issue of damages arising out of the building contract

43. In view of the agreement of the parties, we are satisfied that we can make orders which will determine the issue of damages arising out of the building contract by allowing the appeal, setting aside the money order and in its place making a money order that the McMullen family pay $45,216.86 to Kensington Homes.

Orders

44. We make the following orders:

45. The appeal is allowed.

46. Order 2, made on 9 September 2025, is varied by substituting $100,206.58 for $145,423.44.

47. The Respondents are to pay the Appellant the amount of $45,216.86, representing the amount of the overpayment made by the Appellant in consequence of the variation of order 2 made on 9 September 2025, within 28 days of the date of these orders.

48. There is no order as to the costs of the appeal.

**********

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar

Amendments

07 May 2026

7 May 2026 – Order 2 and Order 3 amended. Order 4 added. 7 May 2026 – Paragraph [4] amended.