The Applicant ("the Owner") is the owner of a unit in Donvale ("the Unit") which she purchased from the first respondent ("the Developer"). The Unit was sold to her "off the plan" during the course of construction by a contract of sale dated 19 May 2009 ("the Contract").
It was a term of the Contract that it was not itself a major domestic building contract within the meaning of the Domestic Building Contracts Act1995 ("the Act") but that the Developer had or would enter into a major domestic Building Contract with a registered builder.
In fact, at the time the Contract was entered into the only domestic building contract the Developer had entered into was a contract between itself as owner and the Third Respondent ("Ma Constructions") as builder, for Ma Constructions to supervise the construction of the Unit and two other units for the amount of $40,000 ("the Building Contract"). It was not suggested that it had any intention of entering into any further building contract.
The Unit is one of three constructed upon what was formerly a single block of land ("the Land") that was acquired by the Developer together with an existing planning permit for the three units.
Notwithstanding that Ma Constructions was only to supervise the construction of the three units, it obtained a Certificate of Domestic Building Insurance ("the Certificate") for the construction of the Unit in its own name as builder. According to the Certificate the value of the domestic building work for the Unit alone was $230,370.33, although the value of the supervisory work to be provided by Ma Constructions under the Building Contract was only $40,000 for all three units. The Certificate provided for a limit of indemnity of $200,000 and a claims excess of between $500 and $1,000, depending upon how long after the completion date the claim was made.
The first respondent ("Mrs Xiao") and the fourth respondent ("Mr Ming") are husband and wife. Mrs Xiao is a director of the Developer. Mr Ming gave evidence that he is a carpenter but he is not a registered building practitioner. He is a Director of Mings International Pty Ltd ("Mings International"), a company through which he has conducted a timber exporting business.
The Developer is a project specific company which Mrs Xiao acquired for the purpose of purchasing the Land, constructing three dwelling units on it and selling them. It did these things as the trustee of a unit trust. Mrs Xiao said that the unit holders of the unit trust are herself and her brother Henry ("Henry"). All three units have been sold and transferred to the purchasers. It is not known what the current status of the unit trust is, that is, whether the Developer still holds any trust assets against which it might be able to satisfy any order made against it or whether those assets have been distributed to the unit holders.
At the time the Developer acquired the Land for development, Mrs Xiao was conducting a furniture manufacturing business ("D and G Furniture") in a factory ("the Factory") in Bayswater in partnership with another woman. The workforce of D and G Furniture was largely comprised of Cantonese speaking Chinese workers and the supervisor of those workers was Mr Ming.
According to her evidence Mrs Xiao incorporated the Developer and acquired the Land because the furniture business was "slow" and she decided that it would be a good idea to try a new business operation. After discussing the matter with Mr Ming they decided to set up the new company, acquire the Land, build the units and sell them at a profit.
Ma Constructions is a partnership comprising Mr Jun Ma ("Mr Ma") and his wife who carry on business as builders. Mr Ma is registered as a building supervisor and so if he wishes to carry out any domestic building work he must employ only registered building practitioners as subcontractors.
A central issue argued in this case was the identity of the builder but it is not simply a case of asking who was the builder. It is apparent that Mrs Xiao, Mr Ming and Ma Constructions have all been involved in the construction of the three units and to ascertain the precise role played by each of them requires careful consideration of the evidence.
The estate agent engaged by the Developer to sell the units "off the plan" was Ray White in Doncaster ("the Agent").
[2]
Following construction of the units there was some delay in settling the sale of the Unit to the Owner due to a dispute that arose between the Owner and the Developer concerning defective and incomplete workmanship. Finally, on 5 February 2010 although the Owner and her husband were still dissatisfied with the condition of the Unit she settled the purchase under protest. Apart from the threat of rescission, one of the inducements used by the Developer to persuade the Owner to settle was a representation that the defects complained of would be rectified after settlement.
Following settlement, which occurred on 26 March 2010, the complaints by the Owner remained unsatisfied. Mrs Xiao claimed that the Owner was "too fussy". Some flooring that had been damaged by water penetration was replaced by the Owner at a cost to her of $14,525. She seeks to recover that sum together with damages with respect to her other complaints.
[3]
On 13 August 2010, this proceeding was issued by the Owner seeking damages with respect to the defective work.
Initially, the respondents to this application were the Developer, Mrs Xiao and Ma Constructions. Subsequently, Mr Ming was joined as a fourth respondent on the application of the Owner. On 4 October 2011, on the application of the first, second and fourth respondents, Bulleen Plumbing Services Pty Ltd (the first joined party), Alfion Deco Australia Pty Ltd (the third joined party") and Frank Apostolou ("the fourth joined party") were joined. There was also a second joined party but it had been removed from the proceeding by the time of the hearing.
[4]
The matter came before me for hearing on 5 December 2011. Mr B. Reid of counsel appeared on behalf of the Owner, Ms S. Kirton of counsel appeared on behalf of the Developer, Mrs Xiao and Mr Ming and Mr Matters of counsel appeared on behalf of Ma Constructions. There was no appearance by or on behalf of any of the joined parties, possibly because no relief was sought against them by the Owner.
The matter proceeded for a full week following which it was adjourned part heard until May 2012 for a further 3 days. At the conclusion of the hearing I said that I would provide a written decision.
[5]
The Owner and her husband, Mr Sam Kettyle gave evidence. The principal witness was Mr Kettyle who had had most of the dealings with Mrs Xiao, Mr Ma and Mr Ming. He was not shaken in cross examination and I found him to be a credible witness. Mrs Kettyle also gave evidence and was not cross examined. I accept the evidence of both of them.
Mrs Xiao was a most unsatisfactory witness. It is quite clear that there has been substantial concealment from the Tribunal on the part of Mrs Xiao and Mr Ming in regard to the dealings involving themselves, the Developer and Mr Ma. The banking records of the development were called for and only some of them were produced, late in the hearing, and without any adequate explanation as to why. Those records were most significant in regard to the identity of the builder and also the question as to whether or not there was a sham contract entered into between the Developer and Ma Constructions for $870,000 in order to obtain finance from the Developer's bank.
Mr Ming was shaken considerably in cross examination, contradicting himself on several occasions and making a false claim that the interpreter had misinterpreted evidence that he had given earlier. I do not believe that his role in the construction was as limited as he claims. Indeed, I am satisfied that he supervised the inexperienced work force that was supplied by D and G Furniture to carry out the building work.
I found Mr Ma to be a more credible witness. He answered questions directly without apparent prevarication. The evidence that he gave was plausible and fitted the documentary evidence. He was not shaken by skilful cross-examination of experienced counsel. He made admissions, against interest, albeit some of them under the protection of s.105(2) of the Victorian Civil and Administrative Tribunal Act1998. He is a builder who has, in effect, allowed unqualified people, being Mrs Xiao and Mr Ming, to construct these units in his name and he was a party to the production of the sham contract. Although he admitted those things I believe that he is a truthful witness. As between Mrs Xiao, Mr Ming and Mr Ma, I prefer the evidence of Mr Ma.
[6]
I am satisfied that Mrs Xiao, Mr Ming and Ma Constructions entered into a written agreement whereby Ma Constructions would supervise the construction of the three units. After work commenced, although Mr Ma assisted with it I am satisfied that construction was not carried out at his direction but rather, in accordance with decisions made from time to time by Mrs Xiao and Mr Ming. Where work was not done by tradesmen it was done by Mr Ming and employees of D and G Furniture under his supervision. Mr Ma complained about that to Mr Kettyle but nonetheless continued to assist, notwithstanding the limitation of his license which was to use only registered tradesmen.
Mr Ming was in charge of the construction. There was some assistance from Mr Ma, although his advice appears to have been ignored where that did not suit Mrs Xiao and Mr Ming. Mrs Xiao was in charge of the finances and decisions concerning the construction and what would be built were made by her and by her husband Mr Ming.
Such financial records of the Developer and Mings International as have been produced would suggest that although the Developer paid some bills, most of the day to day expenses were paid by Mings International, a company of which Mr Ming is director. After initially having given evidence that the Developer had obtained finance for the development from the National Bank, Mrs Xiao then swore that the finance was obtained by Mings International. This change in her evidence coincided with the production of some of the banking records that had been called for.
It appears that some of the expenses for the development were borne in the first instance by D and G Carpentry or Ma Constructions rather than Mings International. Some repayments were made to those companies but on the incomplete state of the evidence I cannot make specific findings as to the amounts or which entity paid them.
[7]
Apart from limited observations that were made by Mr Kettyle, the only evidence I have as to who was involved in construction is that of Mrs Xiao, Mr Ming and Ma Constructions. Mrs Xiao and Mr Ming sought to blame Mr Ma for the defective work whereas Mr Ma said that, although he was very much involved in the construction as detailed below, the construction work was carried out by or under the supervision of Mr Ming and to the directions of both Mrs Xiao and Mr Ming. For the reasons that follow I prefer the evidence of Mr Ma.
I am satisfied that between them they have constructed the Unit and that it was constructed negligently. I am not satisfied that it has been demonstrated that any of the work done by Mr Ma was done negligently but I am satisfied that Mr Ming was negligent in the respects set out below. No case of negligence was pleaded or argued against Mrs Xiao but I find her to be vicariously liable for the negligence of her husband.
I find that the Owner has suffered loss and damage by reason of the negligent construction, amounting to $181,709.00. She seeks to recover that sum as damages against the Respondents on various grounds, all of which are considered below.
There is a division of responsibility in the order that I make in regard to the apportionable claims between Mrs Xiao and Mr Ming on the one hand and two of the joined parties on the other.
As to the responsibility of the Developer, it was a term of the Contract that the Developer would engage a registered builder to construct the unit. It failed to do so and instead, allowed the building to be constructed by unskilled persons without the benefit of any warranty insurance.
The defective construction of the Unit is a reasonable consequence of the Developer permitting unskilled persons to carry out the construction and the absence of warranty insurance has the consequence that the Owner has no recourse to an insurer to seek indemnity for the defective work. As a consequence, the cost of rectifying the defective work is a reasonable and consequential result of the breach of Contract. The Developer is therefore responsible for the whole of the loss.
[8]
There is insufficient evidence to attribute any responsibility for any particular item in the list of defective work to Ma Constructions and although it was party to the sham contract and remained assisting in the construction after Mr Ma became aware that he was not being allowed to supervise the project, I do not find that any cause of action against Ma Constructions is established not do I find that it is a concurrent wrongdoer.
[9]
The Developer contracted to pay Ma Constructions $40,000 for supervising the project and only $14,000 of this sum was paid. I am satisfied that Mr Ma was willing to supervise the construction and remained on site to do so. Mr Ma's advice was given even though it was sometimes not followed. Ma Constructions is therefore entitled to an order on his claim for payment of the balance of $26,000.
The reasons for these conclusions follow.
[10]
It was the Agent that introduced the Owner and her husband, Mr Kettyle, to Mrs Xiao as potential purchasers "off the plan". Its salesmen showed the plans to the Owner and to her husband. When they asked about the standard of finishes they could expect in the Unit they were taken by two salesmen from the Agent to another property in East Doncaster and were informed that the standard of finishes in those units would be similar to those they would receive in the Unit. They took a number of photographs of this unit and then agreed to purchase the Unit for the sum of $735,000.
During the course of construction Mr Kettyle visited the site regularly and came to know Mr Ma. In July 2009, which was two months after the Owner had signed the Contract, Mr Kettyle spoke to Mr Ma about concerns that he and the Owner had with poor quality workmanship. Mr Ma then informed Mr Kettyle that he was not the builder and he was just being paid to stand around at the site because he was the one with the building licence. He agreed to pass Mr Kettyle's concerns about poor workmanship on to Mrs Xiao but the poor workmanship continued. When Mr Kettyle complained again Mr Ma suggested to him that he should get a good lawyer.
Mr Kettyle observed Mr Ming carrying out construction work including construction of the kitchen, bathroom, laundry, toilets, retaining walls, fences, decking, painting and digging of trenches for plumbing and the electrical services. I am satisfied that he also installed the lintels in the brickwork and did other work detailed below.
It was Mrs Xiao's brother Henry who excavated the site. That excavation was extensive because it was a sloping site and had to be sufficient to accommodate the garages of the three units.
Mr Ma told Mr Kettyle that Mr Ming was the boss and paying the bills and that he was in charge of the building work and that he should talk to him. Since he was told that Mr Ming spoke no English he made his complaints to Mr Ming through Mr Ma, who acted as translator.
There were a number of variations carried out to the Unit at the Owner's request for which she paid $6,095 directly to the Developer.
In October 2009 Mr Ma told Mr Kettyle that Mrs Xiao and Mr Ming were very tight with their money and that he (Mr Ma) was getting paid very little for letting them use his building licence.
As the time for settlement approached some correspondence ensued following which the Developer through its solicitors undertook to rectify the defective work before settlement.
That did not occur and on 18 December 2009 the Owner obtained a building condition report from a building expert, Mr Mladichek which lists numerous defects and described the work as being of third world standard.
Further correspondence then ensued until 20 January 2010 when the Developer's solicitor threatened service of a rescission notice and demanded interest on the balance of purchase money from 23 December 2009. Thereafter the Owner settled under protest.
[11]
Section 4 of the Act provides (inter alia) the following relevant definitions:
[12]
"builder means a person who, or a partnership which -
[13]
(b) manages or arranges the carrying out of domestic building work; or
[14]
(c)intends to carry out, or to manage or arrange the carrying out of, domestic building work;
[15]
domestic building contract means a contract to carry out, or to arrange or manage the carrying out of, domestic building work other than a contract between a builder and a sub-contractor;
[16]
domestic building work means any work referred to in section 5 that is not excluded from the operation of this Act by section 6;"
[17]
Section 5 of the Act provides (where relevant);
[18]
(a) the erection or construction of a home, including -
[19]
(i) any associated work including, but not limited to, landscaping, paving and the erection or construction of any building or fixture associated with the home (such as retaining structures, driveways, fencing, garages, carports, workshops, swimming pools or spas); and
(c) any work such as landscaping, paving or the erection or construction of retaining structures, driveways, fencing, garages, workshops, swimming pools or spas that is to be carried out in conjunction with the renovation, alteration, extension, improvement or repair of a home;
(ii) in respect of which a building permit is required under the Building Act 1993;"
[25]
Special condition 23 of the Contract reads as follows:
[26]
"The parties agree that this Contract is not a major domestic building Contract. The vendor has or will enter into such a Contract with a registered builder".
[27]
The building Contract in evidence is a New Homes Building Contract in the form published by the Master Builders' Association. In that Contract, the owner is described as "Xue F Xiao as E.Cheong Garden P/L") and the builder is described as "Jun Ma (as Ma Construction)" (sic). The description of major domestic building work in Item 5 of the Schedule is:
[28]
"Managing construction of three new double storey units, including driveway from start to complete".
[29]
The "Contract price" is described as $40,000 payable in instalments related to the various stages of construction. The Contract is dated 15 September 2008.
Quite obviously, this is not a contract for the construction of the Unit. Rather, it is a contract for someone to manage the construction of the Unit and the two other units.
This document followed an estimate Mr Ma had provided to construct the three units for $830,000 including GST. Mrs Xiao rejected that as being too high. In early September Mr Ma provided a further estimate to construct the three units to lock up stage for the sum of $645,000. Again, that was rejected that as being too high.
[30]
However, according to Mr Ma's evidence, a contract was drawn up at Mrs Xiao's request for the construction of the three units for $870,000. The document was a sham, in that it was not intended by them that he would construct the units for that price. It was only prepared and signed for the purpose of showing to Mrs Xiao's bank to enable her to obtain a loan to finance the construction of the units.
On 15 September 2008 an agreement was signed by Mrs Xiao and Mr Ma in the following terms:
[31]
"I, Jun Ma (builder, trading as Ma Construction) and Xue F Xiao (Client, trading as E. Cheong Garden pty ltd) have agreed, that the new home Building Contract (constructing 3 double storey units at 31 Leslie st, Donvale a Contract value $870,000) being signed by both party is for E Cheong Garden pty ltd to apply bank loan only, and the signed new home Building Contract will not be used for any other purpose. And both party agreed will not entering the new home Building Contract (constructing 3 double storey units in 31 Leslie st, Donvale. Contract value $870,000)"(sic.) .
[32]
It was put to Mrs Xiao in cross examination that this document corroborates Mr Ma's evidence that she and Mr Ma signed a sham Contract in the sum of $870,000 for the construction of the units in order to enable the Developer to obtain a loan from its bank. Although she acknowledged having signed this document, she said that she did so at Mr Ma's request and without reading it. She denied the existence of any such sham contract.
In regard to the 15 September document, Mrs Xiao said that she trusted Mr Ma and did not give any thought to the content of the document that she was signing. She said:
[33]
"In any event the agreement makes no sense to me as, at the time of signing the agreement, I had already arranged funds from the NAB to undertake the building work."
[34]
She produced a document intended to support this allegation but the document that she produced is bereft of any detail. Despite being called upon to produce the Developer's banking records and her own banking records which would confirm her story if it were true, no such records were produced. Instead, when the hearing resumed on 8 May, other banking records were tendered showing that money was obtained by Mings International and it was then that she changed her evidence to provide an entirely different account of how the project was financed.
Mrs Xiao says that she asked Mr Ma to speak to the bank directly and provide whatever documents it needed. She said that she did not know what Mr Ma sent to the bank. Given the close supervision that she had of this project, the control that she exercised and the limited role she and Mr Ming ultimately gave to Mr Ma, I think this is unlikely to have occurred and I do not believe her evidence.
If there had been no building contract for $870,000 signed by Mrs Xiao and Mr Ma, then this document they signed on 15 September would simply make no sense. No reason was advanced to suggest why Mr Ma would have prepared such a document and had Mrs Xiao sign it if there had been no sham contract. Mrs Xiao says that Mr Ma brought it to her and asked her to sign it and she did so, trusting Mr Ma. That seems most improbable.
I prefer the evidence of Mr Ma, supported as it is by the document that Mrs Xiao admits having signed. I am satisfied that there was a sham contract prepared at her request for the purpose of showing to her bank to obtain funds and that that her evidence to the contrary is false.
The rejection of part of a witness's evidence does not necessarily mean that that witness should be generally disbelieved. Recollections will differ, people will interpret things differently and there is commonly an element of reconstruction in the evidence of the most honest witness. However since Mrs Xiao provided in her witness statement an elaborate and detailed account of her dealings with Mr Ma that must be false I must treat her as being an untruthful witness. There were other instances throughout her evidence where I did not believe her. I do not think I can safely place any reliance upon her evidence. I received the strong impression that she was prepared to say whatever she thought would support her case, whether it was true or not.
[35]
A building permit was obtained, naming as the builder a Mr Radek who, according to his registered number which appears on the permit, had an unlimited licence. He is described in the permit as being "engaged in various parts of the building". Mr Ma is described in the body of the permit as "prepared documents only". It is not suggested on the permit that he will be engaging in any building work. It is a staged permit, one stage for the foundations and the other for the rest of the construction. Both permits specify the same practitioners involved. Mr Radek is a friend of Mr Ma but he took no part in the construction work.
[36]
The certificate of insurance issued by the domestic building insurance underwriter describes Ma Constructions as being the builder. There is no reference to Mr Radek in the certificate, nor does it state that Mr Ma's involvement was limited to supervising the work in exchange for a fee of $40,000. The value of the domestic building work insured is said on the certificate to be $230,370.33. Again, this is quite inconsistent with what actually occurred.
There is a conflict in the evidence between Mrs Xiao and Mr Ma as to why Mr Ma was ultimately contracted only to supervise the construction. According to Mrs Xiao, Mr Ma told her that he was not able to get funding from his bank to finance the project and that he therefore suggested that the Developer "hold the cheque book" and pay the Contractors and suppliers directly and that he be paid a commission for his work.
Mr Ma denies that and says that the prices that he had quoted to Mrs Xiao were rejected by her as being too high and that was the reason he was engaged only to manage the project. I prefer Mr Ma's evidence. I do not regard either Mrs Xiao or Mr Ming as being truthful witnesses.
[37]
There is a sharp difference between the evidence of Mrs Xiao and Mr Ma as to who conducted the building work following the excavation of the site by Henry.
Mrs Xiao said that she would drop by the building site most mornings to ask Mr Ma about progress and see if she needed to do anything. She said that she wanted to be sure that he did a good job. She said that Mr Ming occasionally went to the site to assist Mr Ma. The examples she gave in her witness statement of this were, Mr Ming acting as caretaker on Friday afternoons, his opening the site on occasions and doing carpentry labouring and maintenance type work when asked to do so by Mr Ma or by her.
Mr Ming insisted that it was Mr Ma who carried out the construction and that he only did small jobs to help out at his request. I do not accept that evidence.
It seems clear that one of the purposes of carrying out this development was to provide employment to the workforce of the factory of D & G Furniture and Mr Ming was their supervisor.
According to Mr Kettyle, Mr Ming was on site five days a week. He said that he never saw Mr Ma carry out any work but he did see Mr Ming doing a variety of things. According to Mr Ma, Mr Ming and his workforce were directly responsible for most of those parts of the work that turned out to be defective.
Mr Kettyle said that, when he was making complaints, he was told by Mr Ma that he was not the builder and that it was Mr Ming who was in charge and paying the bills and that he should make his complaints to Mr Ming. Mr Kettyle said that he would complain through Mr Ma to Mr Ming, Mr Ming would agree to fix them.
I prefer the evidence of Mr Kettyle and Mr Ma. I am satisfied that it was Mr Ming and not Mr Ma who was in charge of the construction.
[38]
Mr Ma kept a detailed diary of which photocopied pages are in evidence. While preparing these reasons I called for the production of the original diary but, since the case was closed, decided that I would refer only to those parts that are in the Tribunal book.
Ms Kirton invites me to infer that this was a complete record of what occurred on site and in particular, who was on site and when. However the entries in evidence appear to be very sketchy and they were sometimes written up to three days later. I have no reason to believe that the diary is inaccurate but it does not purport to be a comprehensive journal and most of the entries are not easy to read or understand.
It was established during cross-examination of Mr Ma by Mr Reid that, on some of the days when the diary does not record there being anyone on site, work was nonetheless done. I am not prepared to infer that, if something is not intelligibly recorded in the diary it did not occur or if someone was not recorded as being present they were not present.
[39]
Although he applied for the Building Permit in his own name as builder, Mr Ma obtained the Building Permit in the name of Mr Radek with his own role stated to be preparation of documents. However he obtained the domestic building insurance in his name as builder, although it was not intended that he would be the builder. He was engaged to supervise only.
He was required by the terms of his registration to engage only registered tradesmen yet as supervisor he would not engage any tradesmen himself. Mrs Xiao decided who would be engaged and the concreter, the carpenter, the bricklayer and the tiler who worked on the site were all unregistered.
Mr Ma was on site virtually every day. He ordered materials, performed calculations and coordinated the works although on occasions Mrs Xiao would organize for tradesmen to attend the site without informing Mr Ma that they were coming. Mrs Xiao would introduce him to tradesmen as being the site manager or the foreman.
It was Mr Ma who dealt with the Building Surveyor. For example, the Building Surveyor wrote to him about a leak in the Unit and what defects needed to be rectified in order to obtain an occupancy permit. That would suggest that the Building Surveyor thought that Mr Ma was the person who would address these problems although it was Mr Radek who was shown on the permit as the builder and Mr Ma was shown on the Insurance Certificate as the builder. The application for the permit shows Mr Ma as the builder and Mr Radek as being engaged to prepare documents. How the Building Surveyor reconciled those documents is not apparent but it seems to have been Mr Ma that the Building Surveyor dealt with after the permit was issued.
It is clear that Mr Ma did the organization and the scheduling of the work, liaised with the Building Surveyor, supervised the work and offered advice to Mrs Xiao and Mr Ming. However it appears that they did not accept his advice if it did not suit them. For example, Ma told them that the front canopy which was out of level had to be fixed and told them how to do it but they did not do as he suggested and it remained out of level. He advised them against the substitution of the French doors but they were nonetheless substituted he advised them against building the deck level with the floor of the Unit but they nonetheless did so. Mr Ma was not the person who chose the tradesmen and although he gave them directions it was Mr Ming, not Mr Ma, who had the final decision on what would be done on site and by whom.
Mr Kettyle said that he paid Mr Ma $500 cash to move the framework of the bathroom and walk-in robe, so it appears that he did do some work on site and he did not suggest that he did not. The question is whether he did any of the defective work or whether any of the defects are the result of him failing to supervise the construction in a proper and workmanlike manner. Because Mrs Xiao and Mr Ming are clearly not truthful witnesses, the only witness that I can rely upon to decide who did the various items of work, apart from Mr Kettyle, is Mr Ma. In any case, they adopted the course of blaming everything on Mr Ma on the ground that he was, they said, the builder. They did not suggest in regard to any defect that it was due to his failure to advise them about it or defective advice on his part.
Sometimes expenses were paid by Mr Ma but he was then repaid by Mrs Xiao. He said that he passed the complaints by Mr and Mrs Kettyle onto Mrs Xiao and Mr Ming but they would dismiss them, Mrs Xiao saying to him that Mr and Mrs Kettyle were too fussy. Mr Ma said that he ceased to be involved in October 2009. Of the $40,000 provided for in the contract, he received only $14,000.
Apart from specific aspects of the work there is the overall responsibility that Ma Constructions has for, in his own words, lending its licence to Mrs Xiao and Mr Ming to enable them to build using unregistered and unskilled labour. Once it became apparent that he was not being allowed to supervise the work using registered tradesmen he should have terminated the contract immediately and informed the Building Surveyor who could then have halted the work. By acquiescing in what Mrs Xiao and Mr Ming were doing and assisting them, he allowed them to continue and so made himself a party to it. The subsequent loss to the Owner was suffered as a result. The question is, whether that is actionable.
[40]
By Special Condition 23 of the contract of sale the Developer warranted that it had entered into a major domestic building contract with a Registered Builder.
The Owner alleges that, since the only contract entered into that was intended to have any legal effect was the contract with Mr Ma to do nothing more than supervise the construction, that is not a major domestic building contract as contemplated by Special Condition 23 and the Developer is therefore in breach.
Ms Kirton submits that the contract entered into with Mr Ma was a major domestic building contract. That is true, in that what was to be done by Ma Constructions under that contract was domestic building work within the meaning of the Act and the contract price was $40,000. However in my opinion what is contemplated by Special Condition 23 is a major domestic building contract to carry out and complete all of the building work required to construct the dwelling sold, not only part of that work. It cannot seriously be contended that, if the vendor had entered into a contract with a registered builder to do only part of the work and had used unlicensed and unqualified people to do the rest, the special condition would have been satisfied.
The apparent purpose of the special condition is to give the Owner the protection that she would receive from a major domestic building contract and by the operation of the Act. She would be entitled to the implied warranties set out in s.8 of the Act. That purpose would not have been served if the domestic building contract related to only part of the work. Such an interpretation would not give business efficacy or even common sense to the Special Condition.
The Developer did not enter into a major domestic building contract for the construction of the Unit. All that it did was enter into a contract with Ma Constructions for the supervision of the construction of that and two other units. That contract extended to supervision and no more. That is not what the special condition required. As things turned out, Ma Constructions did not even do that. The real supervisors of the project were Mr Ming and Mrs Xiao.
As a consequence, the Owner does not have the benefit of the implied warranties under s.8 of the Domestic Building Contracts Act1995 except insofar as they relate to supervision by Ma Constructions.
Further, s3(4) of the Act provides as follows:-
[41]
"(4) A contract for the sale of land on which a home is being constructed or is to be constructed that provides or contemplates that the construction of the home will be completed before the completion of the contract is not, and is not to be taken to form part of, a domestic building contract within the meaning of this Act if -
[42]
(a) the home is being constructed under a separate contract that is a major domestic building contract; or
(b) the contract of sale provides that the home is to be constructed under a separate contract that is a major domestic building contract".
[43]
It is only because the contract of sale provided that the Unit was to be constructed under a separate major domestic building contract that the contract of sale itself was not a major domestic building contract. Accordingly, if I am wrong in my interpretation of Special Condition 23, it would seem that the contract of sale was itself a major domestic building contract because it required the Developer to construct the Unit.
However, I think the better interpretation is that the contract of sale simply has not been complied with.
[44]
Under the scheme in the Act, the warranties set out in s.8 are implied into every domestic building contract. They have no force independently of the domestic building contract. They exist as warranties within a contract and they derive their binding force from the contract of which they form part. Therefore it must follow that, if there is no contract, there can be no implied warranty because there is nothing to imply a warranty into.
Although I am satisfied that the Developer, Mrs Xiao, Mr Ma and Mr Ming. were all builders within the meaning of the wide definition of that term in the Act, there is no domestic building contract in existence between them and anyone else, save for the contract between the Developer and Ma Constructions to supervise the work. That is the only contract of which the s. 8 warranties could form part and that is confined to work carried out under that contract, that is, supervision by Ma Constructions. I accept Ms Kirton's submission in that regard.
Accordingly, any claim against the other respondents for breach of the implied warranties under s.8 must fail and any claim against Ma Constructions for breach of implied warranties must also fail except insofar as it relates to the limited scope of work that it undertook.
By s.137B of the Building Act1993 it is an offence for and owner -builder to sell a building without the domestic building insurance required by that Act except in accordance with that section. Where the section applies, warranties similar to s,8 of the Act are implied into the Contract of Sale (Building Act1993s.137C). The application of these provisions was not pleaded or argued.
[47]
In the amended Points of Claimed dated 19 August 2011 the Owner claims that the first, third and fourth respondents owed her a duty of care.
In Bryan v Moloney (1995) 128 ALR 163 the High Court held that a builder who built a house on inadequate foundations had owed a duty to subsequent owners of the house to use reasonable care in its construction. In the majority judgment, Mason CJ, Deane and Gaudron JJ said (at p. 165):
[48]
"The cases in this Court establish that a duty of care arises under the common law of negligence of this country only where there exists a relationship of proximity between the parties with respect to both the relevant class of act or omission and the relevant kind of damage. In more settled areas of the law of negligence concerned with ordinary physical injury to the person or property of a plaintiff caused by some act of the defendant, reasonable foreseeability of such injury will commonly suffice to establish that the facts fall into a category which has already been recognized as involving a relationship of proximity between the parties with respect to such an act and such damage and as "attracting a duty of care, the scope of which is settled". In contrast, the field of liability for mere economic loss is a comparatively new and developing area of the law of negligence. In that area, the question whether the requisite relationship of proximity exists in a particular category of case is more likely to be unresolved by previous binding authority with the consequence that the "notion of proximity ... is of vital importance". As Stephen J indicated in Caltex Oil (Australia) Pty. Ltd. v. The Dredge "Willemstad", it is the "articulation", in the different categories of case, "of circumstances which denote sufficient proximity" with respect to mere economic loss, including "policy considerations", which will gradually provide "a body of precedent productive of the necessary certainty". Inevitably, the policy considerations which are legitimately taken into account in determining whether sufficient proximity exists in a novel category will be influenced by the courts' assessment of community standards and demands." [footnotes omitted]
[49]
As to proximity in the case before them they said (at p.172):
[50]
"Upon analysis, the relationship between builder and subsequent owner with respect to the particular kind of economic loss is, like that between the builder and first owner, marked by the kind of assumption of responsibility and known reliance which is commonly present in the categories of case in which a relationship of proximity exists with respect to pure economic loss. In ordinary circumstances, the builder of a house undertakes the responsibility of erecting a structure on the basis that its footings are adequate to support it for a period during which it is likely that there will be one or more subsequent owners. Such a subsequent owner will ordinarily have no greater, and will often have less, opportunity to inspect and test the footings of the house than the first owner. Such a subsequent owner is likely to be unskilled in building matters and inexperienced in the niceties of real property investment. Any builder should be aware that such a subsequent owner will be likely, if inadequacy of the footings has not become manifest, to assume that the house has been competently built and that the footings are in fact adequate."
[51]
In the present case, it is argued that the duty of care arose from the following alleged facts:
(a) The reliance by the Owner upon the Developer to engage a qualified builder to construct the unit;
(b) That neither Mrs Xiao nor Mr Ming had any building qualifications or skill in building;
(c) The knowledge by all of them of the limited role that Ma Constructions was to play;
(d) The Owner's necessary reliance upon the Developer to arrange for a suitably qualified builder to construct the Unit under a major domestic building contract;
(e) The Owner's inability to supervise the work herself;
(f) That it was reasonably foreseeable in the circumstances by the Developer, Ma Constructions and Mr Ming that the Owner would rely upon them to construct the Unit using reasonable care and skill and good and sufficient materials.
In her submissions Ms Kirton acknowledged that the Developer and Mr Ma were under a duty to complete the works using due skill, care and diligence using appropriately qualified persons to ensure that the works complied with relevant legal requirements and standards. However there was no admission that Mrs Xiao or Mr Ming were under such a duty. It was not pleaded that Mrs Xiao owed any duty of care so I will consider only the duty owed by Mr Ming
Ms Kirton said that Mr Ming did not act in a personal capacity but acted merely as an employee. There is no evidence that he was employed by the Developer. The Developer was a mere trustee. Mr Ming's interest in the construction was not as an employee but as director of the company that was providing most of the finance for the development and as the husband of Mrs Xiao who was one of the unit holders to whom the Developer would disburse the profits that they hoped to make from the venture. Precisely what his financial involvement was is not apparent from the evidence and cannot be known. That is peculiarly within the knowledge of Mr Ming and Mrs Xiao. The accounts for the venture have not been produced.
In general, a director of a building company owes no duty of care to a person with whom the company contracts to see that the work is carried out in a proper and workmanlike manner (see Korfiatis v Tremaine Developments Pty Ltd & anor[2008] VCAT 403 and the cases there cited). However the position is otherwise where the director assumes a personal responsibility to the other party (see for example Fairline Shipping Corporation v Adamson[1975] QB 180; Williams v Natural Life Foods [1998] 2 All ER per Lord Steyn (at p. 582)).
In the case of Morton v Douglas Homes Limited[1984] 2 NZ LR 548 at 594 directors of a building company were found liable in negligence for defective foundations. The buildings in question were built on land filled with sawdust that, to the director's knowledge, required a particular foundation. The director negligently failed to ensure that the company implemented the engineer's instructions including an important one given to him personally. It was found that in the circumstances of that case the director had assumed a personal duty of care to the subsequent owners, that is, he was directly liable for his own tort.
In the present case the Developer was under no contractual duty to the Owner to construct the Unit. In the Contract it warranted (the work having commenced) that it had already contracted with a registered builder to do so. Since it had not, the Contract was broken as soon as it was entered into but that was a breach by the Developer.
Mr Ming was under no contractual obligation to construct the Unit. However he took upon himself the task of building these units. There is no evidence that he did that as an employee but even if he did that would make no difference. He was not purporting to fulfil some contractual obligation on the part of the Developer. He was building three units without being a registered builder or having the knowledge and experience to do so.
Any claim in negligence must be examined according to the precise duty of care owed and the standard of care necessary to discharge that duty. In the present case the matters referred to above were known to all of the Respondents, including Mr Ming who was the de facto supervisor and builder on the project.
The Owner was in a vulnerable position. She had no ability to carry out the work herself or direct the actions taken to ensure that the Unit was constructed properly and in accordance with the plans that she had been shown. If it were not so constructed, she would suffer a loss equivalent to the cost of rectifying the deficiencies. Mrs Xiao, Mr Ma and Mr Ming all knew that. They also knew that she was relying upon whoever undertook the work to take care that this was done.
Mrs Xiao and Mr Ming took it upon themselves to construct these units using unskilled employees from Mrs Xiao's factory and money supplied by Mr Ming's company. They were the builders, not just because of the definition of that term in s.3 of the Act, but in reality. The Developer appears to have been nothing more than the corporate vehicle to hold the land, sell the units and divide the proceeds between the unit holders of the unit trust. It was a also a builder within the meaning of the Act but the fact that it too owed a duty of care does not mean that Mr Ming and Mrs Xiao did not as well.
The:
(a) vulnerability of the Owner to loss from their defective workmanship;
(b) her necessary reliance upon whoever undertook the building work to ensure that it was properly done;
(c) the knowledge of Mrs Xiao and Mr Ming who undertook the work of that vulnerability and reliance; and
(d) the foreseeability of the loss that would be suffered by the Owner if the Unit were not properly constructed
[52]
are together sufficient to give rise to the duty of care relied upon.
[53]
The standard of care required of Mr Ming was to use reasonable care to avoid economic loss to the Owner from a failure on his part to construct the Unit properly and according to the plans. "Properly" in this context means in a proper and workmanlike manner and using good and sufficient materials.
[54]
Ms Kirton submitted that there was no evidence that the Developer did not engage suitably qualified tradesmen. There is no evidence that either Mrs Xiao or Mr Ming were engaged at all by the Developer but it allowed Mrs Xiao to control the finances and make decisions that the plans would not be followed and it allowed the work to be carried out under the direction of an unqualified person namely, her husband, Mr Ming and by workmen from her factory. Mrs Xiao and Mr Ming and, consequently, the Developer, ignored advice given to them by Mr Ma concerning defective work and the need to rectify it and ignored the requirements of the plans.
Ms Kirton submitted that the Owner did not rely upon anything done by the Developer. That is not the case. She relied upon the Developer's contractual obligation to appoint a suitably qualified builder under a major domestic building contract to construct the Unit in accordance with the plans. She relied upon whoever undertook the work to ensure that the Unit was constructed properly and in accordance with the plans. There was no indication given to her that those persons proposed to take on the construction themselves using unskilled labour. She also relied upon the representations given to her as to the standard of construction she should expect, which were made by the Developer's agent.
Ms Kirton pointed out that when Mr Ma told Mr Kettyle that he was not the builder Mr Kettyle continued asking Mr Ma to fix defective work and did not see a lawyer and subsequently settled on the sale of the Unit. In fact, Mr Kettyle could not communicate directly with Mr Ming because of the latter's limited English. He had to use Mr Ma as an interpreter. The Owner settled on the sale of the property under threat by the Developer's conveyancer to serve a notice of rescission if she did not. She was legally obliged to settle or face rescission and the forfeiture of her deposit.
[55]
I am satisfied that the Agent by its salesmen represented to the Owner that the Unit when constructed would have a similar finish to the unit that she was shown.
Ms Kirton relies upon Special Condition 26 of the Contract of Sale which provides:
[56]
"26. It is hereby agreed that there are no conditions or warranties or other terms affecting this sale other than those embodied herein and the person shall not be entitled to rely upon any representations made by the vendor or the vendor's agent except such as made are conditions of this contract".
[57]
If a vendor or a vendor's agent is guilty of misleading and deceptive conduct in breach of the provisions of the Fair Trading Act 1999 ("the Fair Trading Act"), the presence of such a clause as this does not alter that fact. Neither salesman was called and I find that the representations were in fact made.
The unit the owner was shown was of a high standard of finish and she was told by the salesmen that the Unit would be built to the same standard. It was not.
Section 4 of the Fair Trading Act, as it was on 19 May 2009 when the contract was entered into, read as follows:
[58]
(1) For the purpose of Part 2, if the person makes a representation about a future matter, including the doing of, or the refusing to do any act, and the person does not have reasonable grounds for making the representation, the representation is deemed to be misleading.
(2) In any proceeding under this Act concerning a representation made by a person about a future matter, the person making the representation bears the burden of proving that he or she had reasonable grounds for making the representation.
(3) Subsection (1) is deemed not to limit by implication a reference in Part 2 to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead".
[59]
I am not satisfied that it has been proven by the Developer that it had reasonable grounds for making the representation that the salemen made. It is apparent from the beginning of her dealings with Mr Ma that Mrs Xiao was intent on building the three units cheaply, using the unskilled workers from her factory, and there is no evidence that there was any discussion with Mr Ma as to the standard to be achieved nor any reference to the standard of the other unit that the Owner was shown with a view to ensuring that it would be built to a similar finish.
Section 9 of the Fair Trading Act provided as follows:
[60]
(1) A person must not in trade or commerce engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2) Nothing in the succeeding provisions of this part is to be taken as limiting by implication the generality of subsection (1)".
[61]
A reference in this division to a person involved in the contravention of this Act means a reference to a person who -
[62]
(a) has aided, abetted, counselled or procured the contravention;
[63]
(b) has induced, whether by threats or promises or otherwise, the contravention;
[64]
(c) has been in any way, directly or indirectly, knowingly concerned in or party to, the contravention;
[65]
(d) has conspired with others to effect the contravention".
[66]
(3) A person who suffers loss, injury or damage because of a contravention of a provision of this Act may recover the amount of the loss or damage or damages in respect of the injury by proceeding against any person who contravened the provision or was involved in the contravention".
[67]
Mrs Xiao instructed the Agent and showed the salesmen fittings to be included in the Unit and the specifications. She was aware of the superior finish of the unit that the Owner and her husband were shown because she saw it herself, but she did not tell the Agent that the finishes in the Unit would be to a lower standard. The only purpose of showing the Owner and her husband the other unit was to show them what they should expect to receive. The only purpose of providing information to a selling agent would be that it would be passed on to intending purchasers. Yet she had already entered into a contract with Mr Ma for supervision only and she intended having unqualified people conduct the construction. I am satisfied that she was involved in the contravention.
The measure of damages for misleading and deceptive conduct is the tortious measure. The financial position of the Owner as a result of the impugned conduct must be compared with what it would have been had that conduct not taken place. The exercise is necessarily hypothetical and involves a consideration of what she would have done if she had not been misled.
Ms Kirton says that there is no evidence what she would have done. However, her evidence, and that of her husband, is that they were looking for a home for themselves and their family. Had they been made aware of what Mrs Xiao and Mr Ming proposed to build for them it is more probable than not that they would not have purchased the Unit. Since their intention was to acquire a home for themselves and their family I think that it is likely that she would have bought another unit of a similar description that was constructed to the high standard of the unit that the estate agent showed her. Instead of that, what she has is a unit that is not constructed properly or in accordance with the plans. Although the measure of damages is not the cost of rectification per se, I think that in this case it comes down to the same thing. The difference between the position that she is in because of the misleading and deceptive conduct and the position she would have been in had she not been misled is the cost of bringing the Unit into the state and condition of the unit that she would probably have bought if she had not been misled.
[68]
Expert evidence as to the defects and the cost of rectification were given by Mr Novak on behalf of the Owner and by Mr Lees on behalf of the Developer, Mrs Xiao and Mr Ming. There was general agreement as to the existence of most defects but some divergence on the cost of rectification.
Most of the complaints are about defects and some are that the Unit was not built in accordance with the plans that the Owner had been shown. The failure to build in accordance with the plans is both a breach of contract by the Developer and also a breach of the duty of care by those who owed to the Owner a duty to take reasonable care to ensure that the Unit was built properly and in accordance with the plans.
As to damages against the Developer in contract, the Owner is entitled to the cost of bringing the work into compliance with the contract, unless that would, in the circumstances be unreasonable (see Tabcorp Investments v Bowen Investments[2009] HCA 8). There is nothing in the evidence in regard to any of the items to demonstrate that it would be unreasonable to provide to the Owner what she should have received in the first place. As to damages in negligence, the Owner is entitled to the amount of her economic loss, which is the cost of rectifying the deficient construction. The figure will be the same in each case.
My conclusions as to the defects follow. In each case I have, where possible, made a finding as to who was responsible for the defect. This is largely drawn from Mr Ma's witness statement as well as some observations by Mr Kettyle. I do not regard Mrs Xiao and Mr Ming as being credible or even truthful witnesses.
It is important to remember that Mr Ming was not contractually bound to see that the work was done in proper and workmanlike manner using good and sufficient materials. A builder who is so bound is answerable in damages if the work falls short of what the contract requires, even if the fault can be laid at the door of one of his sub-contractors. Contractual liability is strict. Mr Ming on the other hand, is only answerable for his own negligence. The extent of his responsibility is determined by the scope of his duty of care.
In this case he did not just perform isolated tasks. He undertook the whole construction and in so doing, he assumed a duty to the Owner to take reasonable care that the Unit was built in a proper and workmanlike manner in accordance with the plans and using good and sufficient materials. It was not simply to use such skill as he possessed because the Owner's reliance was not upon a person whom, she knew to be unskilled. Taking reasonable care required Mr Ming to seek advice from others to make up for the skills that he lacked. He was not qualified himself to supervise tradesmen, detect defective work and require it to be rectified or direct what was to be done. He ought to have followed Mr Ma's advice but the only evidence that I have about the advice that he received from Mr Ma related to advice that he chose not to follow.
The evidence did not establish in regard to any of the following defects that they arose as a result of Mr Ma having failed to provide necessary advice or because Mr Ma gave a direction or instruction that was wrong or engagd unqualified persons. It was not proven that Mr Ma failed to draw Mr Ming's attention to some defect that required rectification. Indeed, Mr Kettyle said that he voiced his complaints to Mr Ming through Mr Ma acting as translator so Mr Ming was aware of them. There is no evidence that Mr Ming sought advice from any other qualified person.
By:
(a) carrying out domestic building work without being registered or qualified by training or experience to do so;
(b) refusing to follow Mr Ma's advice in the instance of which evidence was given;
(c) not seeking advice form some other qualified person to make up for his own lack of knowledge and experience;
(d) employing unqualified workers from his wife's factory;
(e) refusing to follow the plans; and
(f) refusing to rectify defects even after they had been pointed out to him by Mr Ma and Mr Kettyle;
[69]
Mr Ming was in breach of his duty of care and I find that this was the cause of the defective work complained of.
[70]
The problem here was irregularity in the finishes of the steps and also the different heights of the risers. This work was done by a concreter called Paul engaged by Mrs Xiao. I accept the evidence of Mr Lees that the rectification cost of $2,547 will be sufficient.
[71]
The surface drainage here is quite inadequate and the area is flooding. This work was done by Mr Ming. There is not a great deal of difference in the methodology suggested by each expert but a divergence in their estimates between $2,875 by Mr Novak and $1,920 by Mr Lees. There seems to be some doubt as to the cost and so I will allow $2,500.
[72]
The paving next to the entry door collects water and is subject to flooding. There is insufficient difference in height between the external surface and the finished floor level. This work was also done by the concreter called Paul engaged by Mrs Xiao. A strip drain needs to be installed and the methodology seems to be common between the experts. There is a divergence of $1,375 between Mr Novak's figure to $750 from Mr Lees' figure. I will allow $1,000.
[73]
Item 4 - The front canopy is 10mm out of level.
[74]
The work was done by a bricklayer called Frank engaged by Mrs Xiao. According to Mr Ma he told Mrs Xiao and Mr Ming that a cap to the top of the canopy was required to address the issue but they refused to do it. The divergence in quantum here is between $1,140 by Mr Lees and $1,875 by Mr Novak. I think having seen the canopy Mr Lees' figure is likely to be closer to the mark. I will allow $1,140.
[75]
The drawings show that timber panelling was to be the external cladding to the first floor south elevation. Instead a lightweight cladding has been installed. There is no evidence who did this.
[76]
Mr Lees said that he had not been given construction documents to determine if timber cladding was required as part of town planning or building permit requirements but that, in many cases in off-the-plan purchases, the developer has a choice and does not necessarily have to confer with the prospective purchaser.
[77]
There is nothing in the evidence that justifies a change from what the plans depict, which is what was to be provided. It is not suggested on the part of the respondents that the change in cladding was allowed by the plans or by the contract of sale. A purchaser who buys off the plan is entitled to have what is depicted in the plan unless the contract provides otherwise. The contract in the present case provided in Special Condition 17 that the vendor had the right to make alterations to the Plan of Subdivision necessary to secure its approval by the Registrar of Titles. There was no contractual right to change the design without the purchaser's consent.
[78]
The divergence in cost here is between $3,275 assessed by Mr Novak and $3,597 assessed by Mr Lees. This seems to me to be a substantial item so I will allow Mr Lees' figure of $3,597.
[79]
There is a difference in colour in the render of the west facing wall of the courtyard. Mr Ma said that it was caused by Mr Ming lowering the level of the deck. Mr Novak says that the wall will require to be recoated to match the existing colour. Mr Lees acknowledges there is a slight difference. I think the item should be allowed. Mr Novak assessed it as $1,275. Mr Lees' figure was $895. I will allow $1,100.
[80]
Colourbond flashings have been splashed with paint and render. The rendering was done by a renderer called Van Niekerk engaged directly by Mrs Xiao, so it seems likely that he was responsible. This will need to be removed and the flashings touched up. Mr Novak's figure is $695. Mr Lees' figure is $512. I will allow $600.
[81]
The lintels have been installed so as to protrude from the face of the brickwork and have different end bearings from that specified. Both experts agree that they need to be removed and, if they can be reused, refitted but this item is included in the brickwork item. This is a stark illustration of very amateurish work done, in this case, in regard to the brickwork. There was a bricklayer on site but, according to Mr Ma, it was Mr Ming who installed these lintels.
[82]
The first floor bathroom window does not comply with the drawing which provides for a window of 600mm wide by 900mm high. The window installed is approximately 520mm wide and 780mm high. In this instance I agree with Mr Lees that it would be wholly unreasonable to remove and replace the window with something only marginally bigger, although the window is not quite as large as that specified. I will not make any allowance on this item.
[83]
The post of the front fence has been spliced using a piece of decking material instead of a continuous length post. This work was done by Mr Ming and workers from the factory. Both experts agree that the fence needs to be removed and rebuilt with posts of the appropriate height. Mr Novak's figure is $5,990 and Mr Lees' figure is $4,952. I will allow $5,500.
[84]
Panels of stack-stone have been installed without any mitred joints at the corners. Shelf angles have not been installed to the base of the column to support the stonework above and no capping has been provided at the top of the clad columns or feature stonework. This work was done by the Third Joined Party.
[85]
Mr Lees agrees about the defects and the difference between their figures is $9,850 from Mr Novak and $9,062 from Mr Lees. I will allow $9,500.
[86]
The decking was to have been Merbau and it is not. It has also been inadequately nailed. This work was done by Mr Ming and workers from the factory. According to Mr Ma it was first made level with the brick sill contrary to his advice and was then lowered.
[87]
Mr Novak has assessed an amount of $5,377 to replace the deck with one properly constructed of Merbau. Mr Lees said that although the timber was not Merbau it was equivalent in terms of rot resistance and should be accepted. He assessed $78 for fixing the inadequate nailing.
[88]
Again, I think the Owner is entitled to have what was contracted for and a Merbau deck should be supplied. I will therefore allow Mr Novak's figure of $5,377.
[89]
There is evidence of dampness to internal plaster and linings of the living room study. According to the drawings the finished floor level was to be the same level as the base of the brickwork to the slab. Egg shell plastic sheeting was installed against the walls. There is no evidence who installed the sheeting but it was Mr Ming who did the defective drainage work outside the walls. Significant water penetration has occurred and both experts agree that rectification work is required.
[90]
Mr Novak has quoted on removal and replacement of the damaged flooring, skirting boards and substrate and installation of an approved membrane system to the external wall and the reinstatement of the garden beds, all at a cost of $31,475. Mr Lees said that from the limited inspection that was conducted there was no indication that the waterproofing system was inadequate and he has costed for the excavation and exposing of the waterproof system. He then provided for a scope of works if that is found to be inadequate. His scope of works did not include the reinstatement of the internal fittings and he arrived at a figure of $11,595. I accept Mr Novak's opinion that there is a significant problem and I think on balance I will allow $30,000 for this item. This is in addition to the amount of $14,525 that the Owner has already spent on 26 March 2010 in reinstating this floor.
[91]
Both experts agree that water is penetrating the garage at the north-west corner due to an inadequate flashing of the box gutter. There is no evidence as to who is responsible for this work. Mr Lees assessed this at $757 and Mr Novak at $597. I will allow $675.00.
[92]
There are cracks around the pipe penetration to the side of the Unit. There is no evidence as to who is responsible for this work but it is likely to have been the renderer. Mr Novak suggests fitting a collar around the pipe and the installation of a coloured flexible sealant and making good the crack to the render. He has assessed a figure of $650. Mr Lees says that minor patching is required which he has included the figure for Item 6. I accept Mr Lees' opinion and note that the renderer will be on site anyway. I do not think that I should make an additional allowance for this item.
[93]
This also requires work but again, this will be included in the earlier figure.
[94]
The timber stairs are required to have treads with a slip resistant finish. The stairs were supplied and installed by a stair manufacturer engaged directly by Mrs Xiao. Both experts agreed on what had to be done but the figures vary greatly, with Mr Novak assessing $1,100 and Mr Lees $516. From the description of the work involved I will accept Mr Lees' figure.
[95]
Both experts agree that the paintwork is of a low standard. Mr Ma said that the paintwork was done by the Third Joined Party but Mr Kettyle said that he saw Mr Ming doing painting. Work is required including further patching and painting. Mr Novak assessed it at $18,500. Mr Lees assessed it at $12,719 but acknowledged it would be more if the Owner and her family remained in the Unit whilst the work was done. I will allow $15,000.
[96]
The staining and painting of the internal timber features is not done in a proper manner and requires sanding and repainting. This was also done by the Third Joined Party or Mr Ming. Mr Novak has allowed $3,450 and Mr Lees $2,111. The painter will be on site anyway to attend to the other items. I will allow $3,000.
[97]
Many doors have unacceptably wide margins and need to be removed and replaced. They were installed by Mr Ming and workers from the factory. Mr Novak has costed this item at $2,895 and Mr Lees at $2,353. I will allow $2,600.
[98]
The panel has been installed without a bottom channel. This was also installed by Mr Ming and workers from the factory. Mr Novak said that a channel should be installed. Mr Lees says that the screen is not unstable and not leaking, although the silicon is somewhat unsightly. He suggests simply installing a polished aluminium trim on the outside of the shower screen. The method of installation of the shower panel was not detailed in the plans. I will allow Mr Lees' figure of $205.
[99]
There are bowed cornices in the family room and in bedroom four. Whether this was a plastering defect or a carpentry defect is unclear. The carpenter was a man called Stephen Long and the plasterer was a man whose name Mr Ma cannot recall. Both were engaged directly by Mrs Xiao. Mr Novak says that this will involve the removal and replacement of the cornices. Mr Lees suggests the deviation could be concealed by removing and replacing the cornices and he has suggested that this could be done at a figure of $382. I think that a defect should be rectified rather than concealed and I will allow Mr Novak's figure of $3,420.
[100]
Item 25 - Lounge/family room/entry/passage walls
[101]
The alignment of these walls is out of square. Mr Ma said that this was because the carpenter, Mr Long, failed to square the framing and the plasterer failed to pack it out. Mr Novak has costed for the removal of the plaster lining, architraves and skirting boards, the packing up where necessary and installation of new plasterboard architraves and making good. Mr Lees agrees with the general scope of works but at first he assessed only $1,120 for the work instead of Mr Novak's figure of $4,650. On site he acknowledged there was an extra wall that would need to be done. Taking that into account I will allow a figure of $2,000.
[102]
Holes have been cut into the inside of the kitchen cupboard and the damaged sections need to be removed and replaced. The joinery was installed by Mr Ming and workers from the factory. Mr Novak has assessed this at $1,110. Mr Lees has assessed it at $700. After inspecting the damage and listening to the experts on site it appears that it is a costing difference. I will allow Mr Lees' figure.
[103]
The kitchen drawers do not remain closed. Again, the joinery was installed by Mr Ming and workers from the factory. Mr Novak has costed for the removal and replacement of the drawers. Mr Lees says that the runners require adjustment to ensure that they do not self open. There was a dispute as to whether soft-close drawers were specified. Mr Novak's figure is $2,650 and Mr Lees' figure is $1,117. I accept Mr Lees' evidence that the drawers simply require adjustment and will allow his figure of $1,117.
[104]
The plans required two sets of bi-fold doors to the family room. Instead cheaper French doors have been installed. They are also out of alignment and require adjustment. Mr Ma said that he advised Mrs Xiao that the plans required bi-fold doors but she refused to supply them because they were too expensive. Mr Novak has costed for the removal of the existing doors and the replacement with bi-fold doors and making good at a figure of $22,650. Mr Lees agreed that the drawings showed that bi-folding doors were to be installed but says that the doors that have been installed simply required adjustment which he has costed at $826. The Owners having bought off the plan are entitled to receive what the plans required and I will allow Mr Novak's figure.
[105]
Two kitchen cupboard doors were damaged during installation. It is uncertain how this happened and I do not think that I can be satisfied that it occurred before the Owner took possession. In the absence of evidence of defective workmanship I cannot allow this item.
[106]
The drawings showed that there should be cupboards above the cook top and none have been installed. The joinery was installed by Mr Ming and workers from the factory. Mr Novak costed the installation at $1,475. Mr Lees agreed that they were shown in the drawings and if they are required to be installed that figure is reasonable. I will allow Mr Novak's figure.
[107]
Mr Novak says that the north side of the kitchen bench has not been finished in the same high gloss coating as the balance of the kitchen joinery. Mr Lees says that the gloss finish to the cupboards is satisfactory and I accept his opinion. This item will not be allowed.
[108]
The pantry shelving has been constructed using painted timber shelving. No sliding storage baskets have been provided. This was done by Mr Ming and workers from the factory. Mr Novak has assessed the cost of providing a high standard fit-out with the removal of the timber shelving and the manufacture and installation of laminated shelves baskets and making good, at a total cost of $3,490. Mr Lees says that what has been installed is functional and details of the specifications have not been provided. I accept Mr Lees' evidence that the pantry as constructed is functional but it is certainly poorly built and not of the high standard that was represented before the Owner signed the contract. I accept that what has been provided is neither in accordance with the plans nor to the standard of the reasonably competent builder. As to the rectification cost I accept Mr Lees' figure of $3,150.
[109]
The wardrobes have been constructed using painted timber shelving without any storage drawers. Mr Novak assessed a figure of $6,345 for the provision of a high standard fit-out which will involve the removal of the existing shelving and the manufacture and installation of laminated shelves and doors and making good. Mr Lees says that the shelving in the wardrobe is satisfactory but says that if a high standard is required, that will cost $5,201. I do not think that the existing shelving is in accordance with the plans or to the standard of the reasonably competent builder. I will allow Mr Lees' figure of $5,201.
[110]
Mr Novak criticised the standard of finish of the wardrobe doors and said they did not have grab handles which is a safety hazard. Mr Lees agreed that pulls need to be installed to the wardrobe doors but says that the doors themselves are satisfactory. I accept Mr Lees' evidence and will allow his figure for rectification of $642.
[111]
The range hood rattles when switched on. Mr Novak quoted the replacement of the range hood but I accept Mr Lees' evidence that it is simply unbalanced and requires replacement of a blade at a cost of $375. I will allow that figure.
[112]
The glass splashback is chipped on the rear face. Both experts agree on this item although there was a costing difference. I think I should allow Mr Lees' figure of $994.
[113]
In order to obtain an Occupancy Permit, the Building Surveyor required sections of the brickwork to be demolished and re-built. I assume that was done but, notwithstanding that, the standard of the brickwork is still poor on the south elevation and the north side of the family room.
[114]
There was a bricklayer engaged who was on site and most of the brickwork was satisfactory but Mr Ma said that this brickwork was done by Mr Ming and workers from the factory. Mrs Xiao acknowledges having hired a machine to cut back some of the bricks. On one occasion Mr Ming asked Mr Ma to lay some bricks if he had nothing better to do but he refused. It is clear that all of the brickwork was not done by the bricklayer and I accept Mr Ma's evidence that Mr Ming and his workers were responsible for the defective brickwork.
[115]
Mr Novak's figure is $47,800. Mr Lees' figure is $28,589. The difference between the figures allowed by the experts seems to be a costing difference. I will allow $32,000.
[116]
Only one cooling register has been provided to service the kitchen/living room/study and dining room which is insufficient. According to Mr Ma, the heating and cooling was roughed in by man called Jim Higgins and finished by a contractor whose name he cannot recall. Both were engaged directly by Mrs Xiao. The problem appears to be more the limited scop of what ahs been provided rather than defective workmanship. Extra ducting is required and the experts agreed on a scope of works plus a figure of $3,770 and that shall be allowed.
[117]
The tiling to the walls and floors has not been set out correctly. The grout lines to the floor and walls the tiles do not align. No splashback has been provided behind the powder room basin. The tiling was done by the Third Joined Party. Mr Novak has quoted $8,750 for the removal and replacement of the tiling and making good. Mr Lees says that the non-alignment of the grout lines is not a reason to replace the tiles although acknowledged the splashback had to be provided. I accept that opinion and I will allow $750 for this item
[118]
The cistern to the toilet was installed using silicon instead of a fixing bracket to the wall. Mr Ma said that it was installed by the plumber. Mr Novak says that the cistern needs to be removed, the wall broken open and a nogging installed in order to provide a bracket to which the cistern can be fixed. Mr Lees says that the cistern was part of a "close couple" cistern that is supported on the toilet pan and the silicon fixing was used as stabilisation only. He costed for the installation of plaster anchors $98, compared to Mr Novak's costing of $435. I accept Mr Lees' evidence and will allow $98.
[119]
The stove top has been installed at an oblique angle to the wall instead of parallel. The stove was installed by Mr Ming and workers from the factory. Both experts agreed that it requires adjustment. One allowed $85 and the other allowed $53. I will allow $70.
[120]
The en suite bathroom window does not close correctly. It was installed by Mr Ming and workers from the factory. Both experts agreed on this item although, again, there was a difference in costing between $150 and $127. I will allow $140.
[121]
The laundry and toilet are adjacent to each other, the height of the door frames do not match. They were installed by Mr Ming and workers from the factory. Mr Novak has costed on the removal and rectification of the door and making good at $1,275. Mr Lees included in his figure for the other doors but as a stand-alone item agreed with Mr Novak's figure. I will allow the figure of $1,275.
[122]
The uprights of the retaining wall by the driveway next to the adjoining property were to be in-filled with red gum sleepers laid horizontally. The wall has been constructed instead using treated pine sleepers. This was done by Mr Ming and workers from the factory. The wall is also out of plumb and the sleepers have not been installed horizontally. Mr Novak has costed for the removal of the existing wall and the construction of a new sleeper wall for a figure of $26,650.
[123]
Mr Lees says that the treated pine sleepers are performing satisfactorily and should be accepted. He also points out that the wall in question is part of the common property.
[124]
The wall is out of perpendicular and although one may not consider it should be replaced simply on account of treated pine sleepers having been used instead of red gum sleepers it ought to have been constructed so as to be vertical. However Mr Lees is right that it is on the Common Property. This is a matter that will need to be pursued by the body corporate and not by the Owner.
[125]
The plans show that a large mature tree at the front garden was to be retained and also provide for extensive landscape planting. No landscaping has been carried out and the mature tree indicated on the drawing has been removed by the Builders. The landscaping was done by Mr Ming and workers from the factory. Mr Novak has quoted for $6,500 for landscaping including the planting of a mature tree. It appears from the evidence that the mature tree was hit by a truck and damaged and so had to be removed. There is no evidence that it was the fault of Mr Ming or Mr Ma that the tree damaged. Obviously, if it was dead it had to be removed. Some allowance should be made for the absence of proper landscaping which was not what the plans required nor to a good standard. I will allow for $2,500.
[126]
Mr Reid submitted that Mrs Xiao is vicariously liable for the negligence of Mr Ming. I think that is right. She conceived the scheme of purchasing the land and undertaking the construction of these units. It was she who managed the finances throughout and decided on the cheaper alternative of the French doors. She negotiated with and then decided not to engage Mr Ma because she thought he was too expensive. She induced Mr Ma to produce the sham contract in order to secure funding for the project. She was one of the unit holders in the unit trust of which the Developer was a mere trustee. It was she and her fellow unit holders that were intended to profit from the project and it was in her interest to maximize that profit which she sought to do at the expense of meeting the Developer's obligations to the Owner. She and Mr Ming ran the construction throughout with some assistance from Mr Ma although his advice was ignored at least some of the time. It is clear that whatever Mr Ming did he did with her knowledge and consent and on behalf of her as well as himself.
[127]
Ms Kirton submits that, if I should find any responsibility on the part of the Developer, Mrs Xiao or Mr Ming or any of them with respect to any of the loss or damage claimed, the claim is an apportionable claim within the meaning of Part IVAA of the Wrongs Act 1958 and that the liability should be reduced according to the relative responsibilities of the other concurrent wrongdoers.
(a) a claim for economic loss or damage to property in an action for damages (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care; and
[130]
(b) a claim for damages for a contravention of section 9 of the Fair Trading Act 1999.
[131]
(2) If a proceeding involves 2 or more apportionable claims arising out of different causes of action, liability for the apportionable claims is to be determined in accordance with this Part as if the claims were a single claim.
[132]
(3) A provision of this Part that gives protection from civil liability does not limit or otherwise affect any protection from liability given by any other provision of this Act or by another Act or law.
(1) A concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage that is the subject of the claim.
[135]
(2) For the purposes of this Part it does not matter that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died.
[136]
24AI Proportionate liability for apportionable claims
[137]
(1) In any proceeding involving an apportionable claim -
[138]
(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the loss or damage claimed that the court considers just having regard to the extent of the defendant's responsibility for the loss or damage; and
[139]
(b) judgment must not be given against the defendant for more than that amount in relation to that claim.
[140]
(2) If the proceeding involves both an apportionable claim and a claim that is not an apportionable claim -
[141]
(a) liability for the apportionable claim is to be determined in accordance with this Part; and
[142]
(b) liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant.
[143]
(3) In apportioning responsibility between defendants in the proceeding the court must not have regard to the comparative responsibility of any person who is not a party to the proceeding unless the person is not a party to the proceeding because the person is dead or, if the person is a corporation, the corporation has been wound-up."
[144]
In order for an apportionment to take place under these provisions a finding must be made on the evidence that the person to whom liability is to be apportioned is a concurrent wrongdoer, that is, a person whose acts or omissions caused, whether independently of or jointly with other concurrent wrongdoers, the loss or damage that is the subject of the claim.
[145]
Mr Ming owed a duty of care to the Owner to use reasonable care to avoid economic loss to her from a failure on his part to construct the Unit properly and according to the plans. "Properly" in this context means in a proper and workmanlike manner and using good and sufficient materials.
I am satisfied that he did not use reasonable care to avoid that loss. He embarked upon the construction without being a registered builder and used unqualified staff. It was not suggested that he had experience in building yet he ignored advice given to him by Mr Ma. In regard to the timber panelling, the deck and the bi-fold doors, he ignored the requirements of the plans, although he knew that the Unit had been sold to the Owner "off-the-plan".
The measure of damage is the cost of rectifying the defects and bringing the work into the condition that it ought have been if the duty of care had not been broken. That cost, after deducting what can be attributed to other parties, is $159,901.
[146]
What Mr Ming did was done with the knowledge and assistance with Mrs Xiao. She handled the money and he did the building work. It was a scheme by the two of them to construct these units under Mr Ming's direction using the labour force from the factory instead of a registered builder. What he did was done for her as well as for himself. There was no suggestion made on her behalf that Mr Ming did anything without her assent or authority. Her vicarious liability is co-extensive with the primary liability of her husband; that is, they are both equally liable for the same amount of $159,901.
Mrs Xiao is also liable for the loss occasioned by her misleading and deceptive conduct, which after apportionment, is the same figure.
[147]
Ms Kirton submitted that as supervisor, Ma Constructions had a duty to ensure that the work was correctly carried out. I do not accept that submission. Its duty in contract was to comply with the statutory warranties set out in s.8 of the Domestic Building Contracts Act1995. That was a contractual obligation enforceable by the Developer and, because of s.9 of that Act, also by the Owner. It related only to the domestic building work that was the subject of the contract, that is, to his supervision under the contract (see Mrocki & Anor v Mountview Prestige Homes Pty Ltd[2012] VSCA 74).
Its duty of care was to carry out whatever work Mr Ma did in a proper and workmanlike manner. His job was to supervise the work of whoever was on site. He also undertook the scheduling of the work and contact with suppliers, tradesmen and workmen. It is important to bear in mind that the various suppliers, tradesmen and workmen were not employed by Ma Constructions but by the Developer. Any direction or instruction that he gave would be given as agent of the Developer. If any work were defective he could not require it to be corrected except as agent for the Developer. If the instruction were not complied with he could do nothing but make Mrs Xiao or Mr Ming aware of the fact and if they chose to ignore his advice there would be nothing that he could do.
He would have a duty to exercise reasonable care in identifying and pointing out anything that was wrong but he had no power to ensure that any directions that he gave were complied with or any advice that he gave was accepted. That was for Mrs Xiao and Mr Ming.
There is no direct evidence that I accept that any of the defects were a result of any bad workmanship of Mr Ma. I cannot infer from the mere fact that the work is defective and that Ma Constructions was contracted to be the supervisor that the defects must therefore be due to Mr Ma's bad workmanship because I accept his evidence that his advice was often ignored. His evidence in this regard is consistent with what he said on site to Mr Kettyle and the fact that Mr Kettyle had to take his complaints directly to Mr Ming.
In the absence of such an inference, there is no evidence that any of the defective workmanship arose as a result of bad supervision and so I cannot find any acts or omissions on the part of Ma Constructions that caused, independently of each other or jointly, any of the loss or damage that is the subject of the claim.
[148]
There was no appearance by any of the joined parties. In a normal case one might draw inferences from the description of the trades that all of the work of that nature was done by them but in view of the way this construction proceeded that would be dangerous.
The First Joined Party was the plumber. The only plumbing defects relate to external surface drainage and the toilet. Work was done by Mr Ming on the external drainage and the grading of the pathways has nothing to do with the plumber. Mr Ma said that the toilet was installed by the plumber and so the cost of rectification of that item, $98, shall be apportioned to the First Joined Party.
According to Mr Kettyle, not all the paintwork was done by the painter that was engaged, which was the Third Joined Party, Alfion Deco Aus Pty Ltd. I think it likely that the bulk of the painting would have been carried out by the Third Joined Party so I will apportion the two painting defects, being Items 20 and 21 one third to Mr Ming ($6,000) and two-thirds ($18,000) to the Third Joined party
However Mr Ma said that the stack stone was done by the Third Joined Party and so Item 11 will be apportioned to it, which is $9,500.
The Fourth Joined Party was the bricklayer. Most of the brickwork is to an acceptable standard but some is very poor. Mr Ming laid the lintels, which is part of the brickwork. It seems unlikely that a qualified bricklayer would have laid bricks on the lintels as Mr Ming had installed them without putting them in the correct way. Mr Ming invited Mr Ma to lay some bricks but he refused to do so. According to Mr Ma, the defective brickwork referred to in Mr Novak's report was carried out by Mr Ming and workers from the factory. I am not satisfied that it has been established that the bricklaying defects related to work done by the bricklayer so I cannot be satisfied that it is a concurrent wrongdoer..
[149]
Damages will be awarded as follows:
(a) In regard to the misleading and deceptive conduct and negligence, there will be an order against Mrs Xiao for $159,901. The same amount will be ordered against her and Mr Ming as damages for negligence.
(b) In regard to the claim against the Developer there will be an order for damages for breach of contract for the full amount of the loss, being $181,499. That claim is not apportioned because it is damages for breach of contract, not from a failure to take reasonable care.
[150]
There will be an order that the Developer pay to Ma Constructions $26,000.
The claim against Ma Constructions will be dismissed.
Costs will be reserved.
Parties
Applicant/Plaintiff:
Kettyle
Respondent/Defendant:
E. Cheong Garden Pty Ltd & Ors
Legislation Cited (2)
Environment Act 1987
Fair Trading Act 1999
Cases Cited (2)
Kettyle v E. Cheong Garden Pty Ltd & Ors (Domestic Building) [2012] VCAT 1097 (26 July 2012)