Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23 | Case summary

Substantive appeal

The grounds of appeal specified in the Notice of Appeal are: 1. The Tribunal erred in law in finding that the preferred outcome set out in s 48MA of the Home Building Act, 1989 (HB Act) should not be applied and that a work order should not be made. 2. The Tribunal erred in law by making a money order under s 48O of the HB Act.
The builder claims that the Tribunal's discretion miscarried by: 1. Considering the builder's compliance record in respect of unrelated matters; and 2. Failing to give appropriate weight to the fact that there were no outstanding issues in respect of the builder's licence.
The builder also seeks leave to appeal on the basis that the decision is not fair and equitable in that the decision: 1. Places too much weight on the builder's compliance record in determining the appropriateness of applying s 48MA; and 2. Places too little weight on the fact that the builder had: 1. No current licensing issues; 2. Significant resources such that it could comply with a work order; and 3. Had attended to other defects complained of in the case.
In written submissions, the builder argued: 1. Under s 48MA, the Tribunal must have regard to the principle that rectification of defective work by the responsible party is the preferred outcome. An owner must rebut the presumption that a rectification order should be made. 2. The builder's situation can be distinguished from the case dealt with by the Appeal Panel in 3D Design & Build Pty Ltd v Lynch [2016] NSWCATAP 229, which is not authority for the proposition that the Tribunal may consider the builder's historical non-compliance record in relation to unrelated matters. 3. The Tribunal relied on the fact that the homeowners had to make two complaints to Fair Trading and commence proceedings to resolve defects issues. The difficulty with this as a relevant consideration is that if it should weigh against a work order being made, s 48MA would have no work to do, as the Tribunal would ordinarily only make such an order once an application was made and determined after a Tribunal hearing. 4. Factors suggestive of an impediment to an order being made pursuant to s 48MA include: 1. The builder not having a licence to complete the work; 2. The builder having a financial inability to complete the work; 3. The relationship between the homeowner and the builder having broken down; 4. Where there is no acknowledgement by the builder that work is sub-standard; 5. Where the builder appears incapable of completing the work with due care and skill.
The builder submitted that none of the above factors applied in this case.
It was submitted in support of the builder's application for leave to appeal that the Tribunal failed to weigh competing factors and evidence appropriately in determining whether an order should not be made in accordance with s 48MA. It was for the homeowners to establish that it was not appropriate for such an order to be made.
At the hearing, the builder sought leave to adduce fresh evidence in the form of the statement of the builder's managing director, Michael Kulakovski, dated 5 September 2017 and the statement of the builder's dispute resolution/human resources manager, Louise Bonus, dated 7 September 2017. It was submitted that this evidence "speaks to matters that occurred since the hearing" and concerned the size of the builder and its readiness, willingness and ability to carry out a work order.
In oral submissions, the builder reiterated matters raised in its written submissions. In this regard the builder developed its argument concerning its license history. The builder submitted that the prior misconduct would be relevant in respect to penalty proceedings. However, in the present proceedings, there was no rational basis for considering the builder's prior misconduct which was entirely irrelevant. It was stated that this would have been the case even if a representative of the builder had been asked about the history of non-compliance in cross-examination and it was revealed that the builder had not altered its practice. It was conceded by the builder's Counsel that he had no authority for this proposition.
In the alternative, it was submitted that if builder was wrong in its principal submissions, too great a weight had been placed on these factors, which were not sufficient to displace the preferred outcome, and too little weight was placed on the builder's current history and on the evidence of its resources. The builder's Counsel conceded that the evidence in relation to the builder's resources, which was led through Ms Refalo, was scanty and did not deal with the builder's financial resources.
Finally, the builder submitted that the factors that should have caused the Tribunal to make a work order were Ms Refalo's evidence, the fact that the builder had done some rectification work, the fact that the brickwork was the only major issue and that there were only another four defects which had not resolved. Orders were made in favour of the builder in relation to those defects.
In making these submissions, the builder's Counsel said the builder did not contend that that the Tribunal's decision was manifestly unreasonable.

Discretion issue

The builder contends that the Tribunal's discretion miscarried because, in exercising that discretion, the Tribunal: 1. had regard to irrelevant considerations, namely the builder's record in respect of disciplinary action taken against it in connection its license and with previous building work thereunder; and 2. failed to give appropriate weight to various facts including the evidence of Ms Refalo and, if relevant, that there were no outstanding issues concerning disciplinary action in respect of the builder's building license.
Both parties agree that the principles applicable to the Appeal Panel intervening in circumstances of an alleged miscarriage in the exercise of a discretion are those set out in House v R [1936] HCA 40; (1936) 55 CLR 499. At 504-5 the High Court said: But the judgment complained of, namely, sentence to a term of imprisonment, depends upon the exercise of a judicial discretion by the court imposing it. The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.
Section 48O of the HB Act provides the order making power for the Tribunal to resolve building claims under that Act. This section is in the following terms: 48O Powers of Tribunal (1) In determining a building claim, the Tribunal is empowered to make one or more of the following orders as it considers appropriate: (a) an order that one party to the proceedings pay money to another party or to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person, (b) an order that a specified amount of money is not due or owing by a party to the proceedings to a specified person, or that a party to the proceedings is not entitled to a refund of any money paid to another party to the proceedings, (c) an order that a party to the proceedings: (i) do any specified work or perform any specified service or any obligation arising under this Act or the terms of any agreement, or (ii) do or perform, or refrain from doing or performing, any specified act, matter or thing. (2) The Tribunal can make an order even if it is not the order that the applicant asked for. (3) Sections 79R and 79T-79V of the Fair Trading Act 1987 apply, with any necessary modifications, to and in respect of the determination of a building claim.
Section 48MA of the HB Act provides: 48MA Rectification of defective work is preferred outcome in proceedings A court or tribunal determining a building claim involving an allegation of defective residential building work or specialist work by a party to the proceedings (the responsible party) is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome.
The operation of these provisions was recently considered by the Appeal Panel in Leung v Alexakis [2018] NSWCATAP 11. In that case, the Appeal Panel decided: 1. There was a discretion to be exercised under s 48O(1) which permits the Tribunal to make an order for compensation, an order in the nature of a work order or some other order of the type set out therein: at [139]. 2. Section 48MA operated in the manner of akin to a presumption, such that "unless the facts of a particular case make it inappropriate to order rectification of the defective work by the responsible party, an order should be made in terms that give effect to the principle": at [140].
In making this decision, the Appeal Panel in Leung also noted that the provisions of s 79U of the Fair Trading Act, 1987 (FT Act) apply because of s 48O(3) of the HB Act. However, in Leung it was unnecessary to determine whether s 48MA was a section that otherwise modified the manner in which that section was to apply: at [21].
Relevant to the present appeal, s 79U of the FT Act provides as follows: 79U Matters to be considered by Tribunal when making orders (cf CC Act 1998, s 13) (1) When making any orders under this Division, the Tribunal must be satisfied that the orders will be fair and equitable to all the parties to the claim. (2) Without limiting subsection (1), when determining whether or not to make an order under this Division, the Tribunal is to take the following factors into consideration if they are material to the particular circumstances of the case: … (g) the conduct of the parties to the claim in relation to similar transactions to which any of them has been a party, ….
The builder contended that its conduct in unrelated transactions, namely other building projects in which it had been involved, was not a relevant consideration to determining what orders should be made. Having regard to the clear terms of s 79U(2)(g), in our opinion this submission cannot be correct.
In the FT Act, the Tribunal is given a wide range of powers under s 79N in determining consumer claims. These include the power to make the following types of orders: (a) an order that requires a respondent to pay to the claimant a specified amount of money, (b) an order that requires a respondent to perform specified work in order to rectify a defect in goods or services to which the claim relates, (c) an order that requires a respondent to supply to the claimant specified services other than work.
As s 79U makes clear, the conduct of suppliers of goods and services in previous, albeit unrelated transactions, is relevant in determining what orders should be made.
In connection with a claim arising from the supply of building goods and services, there is no reason any necessary modifications of the type contemplated by s 48O(3) to the operation of the FT Act would exclude such a matter from consideration.
To the contrary, both the FT Act and the HB Act are legislation that have a consumer protection purpose. In this context, the repeated failure of a builder to comply with its obligations under consumer contracts may be relevant to determining what form of order should be made. This is because a builder's licence history may, at least, be relevant to demonstrate a continuing incapacity or lack of preparedness to meet contractual obligations, statutory obligations (including statutory warranty and licensing requirements) and/or comply with rectification orders issued under s 48E or orders of the Tribunal made under the HB Act.
Secondly, in our view, the language of s HB Act does not indicate such exclusion or modification. Our reasons for this view are as follows: 1. While the Tribunal is required to have regard to the principle of the "preferred outcome" s 48MA does not expressly exclude consideration of a builder's licence history. 2. There is no necessary intention disclosed by the HB Act, in s 48MA or otherwise, by which it might be inferred such an exclusion was to operate: 3. Reference to extrinsic material, including the Second Reading Speech for the Home Building Amendment Act, 2014 (by which s 48MA was enacted), does not support such an implication. In this regard, as referred to by the Tribunal in Leung at [132], the Minister for Fair Trading said on 6 May 2014: (1) A homeowner should not to be permitted to unreasonably refuse a builder access to a building site to rectify defective work; (2) s 48MA was intended to ensure that, at least, "builders" who were liable to a person for defective work, should be able to return to carry out necessary rectification work if they are willing; and (3) the amendments were to "further support the timely and cost-effective resolution of disputes".
In relation to this last point, the Minister made clear s48MA was to operate as a preference, not an absolute right. It was to prevent unreasonable refusal of a homeowner to permit access to a building site to a builder who was willing to carry out rectification work.
The builder accepted in its submissions that capacity to perform the work was a relevant factor in the exercise of the discretion and in the determination of whether the preferred outcome principle should be displaced. In these circumstances, although care needs to be taken in evaluating past conduct in unrelated projects, there seems no reason in principle why, in evaluating capacity, a continuing failure or incapacity to perform contractual and statutory obligations in separate projects should be treated in a manner different to that where a builder fails or fails repeatedly to perform contractual and statutory obligations under a single project. Certainly, there is no basis to conclude the legislature intended to exclude factor 79U(g) in determining what orders should be made.
It follows that we do not accept the submission that the builder's licence history is irrelevant to the exercise of discretion under s 48O when considering whether the preferred outcome principle under s 48MA should be displaced in this case.
The next ground raised was that improper weight was given to the factors to which the Tribunal referred.
The evaluation of this ground requires a consideration of the facts not in dispute and those factors in favour of and against the making of a work order.
The facts not in dispute were as follows: 1. The parties entered into a contract on 25 March 2011, the contract price being $296,500.00 inclusive of GST: at [2]. 2. The builder commenced work on 21 July 2011 and practical completion was achieved on about 22 June 2012: at [2]. 3. An issue arose about the defective brickwork which led to a complaint by the homeowners to the Department of Fair Trading on 26 March 2012. In consequence of a site meeting on 5 June 2012, the builder undertook some rectification work of the brickwork: at [36]. 4. On 18 September 2012 the homeowners forwarded a defects list to the builder in accordance with clause 29 of the contract: at [36]. 5. On 20 February 2013, a further complaint was made to the Department of Fair Trading in consequence of which a rectification order was issued. On 18 October 2013, the builder wrote to Mr Marsden stating that it had "fully complied with the defects list issued and the rectification order and that the brickwork was compliant and that they were unable to assist any further": At [36]. 6. The proceedings were commenced on 23 June 2015: at [1]. 7. Each party engaged an expert to provide evidence on their behalf in connection with the proceedings. Mr Iskowicz was the expert for the homeowners. Mr Capaldi was the expert for the builder: at [15] 8. Mr Iskowicz said that the brickwork needed to be redone. Mr Capaldi said that the appropriate method of rectification was rendering of the brickwork: at [11]. 9. The hearing occurred on 5 December 2016. At the hearing the builder conceded that the works should be completed in accordance with the method of rectification proposed by the homeowners' expert, Mr Iskowicz. The experts agreed that the cost of carrying out this work was $108,874.60: at [12]. It was agreed that to this amount there needed to be added preliminaries of 10%, 30% for builders margin and 10% for GST: at [50]. 10. The Tribunal made an award for this amount and for five additional items: balcony drainage ($1820), entry and threshold tiling ($1160), timber joinery doors ($1960), internal painted finishes ($5500) and air-conditioning ($810). The Tribunal determined the total of these amounts plus preliminaries, builder's margin and GST to be $215,130.71: at [49]-[50]. 11. The Tribunal also awarded $16,640 as damages for rent, the Tribunal accepting the evidence of Mr Iskowicz that it would be necessary for the homeowners to vacate the premises in order for the brickwork to be reconstructed: at [51]. 12. Consequently, the total award for compensation was $231,770.71.
Factors identified by the Tribunal which supported making a work order were: 1. The evidence of Ms Refalo that the builder wish to return to the site to rectify the work; 2. The builder had made submissions to the effect that it knows the job, it can keep the costs down and absorb costs and that it is difficult for an alternative contractor engaged by the homeowners to fix another builder's work.: at [42]. 3. The renewal proceedings (a reference to cl 8 of Sch 4 of the NCAT Act) provide a remedy to the homeowners in the event there is a failure to comply with any work order directed to the builder.
The Tribunal identified the following factors as weighing against the making of a work order : 1. The builder's compliance record. Although the Tribunal accepted there were no current outstanding issues in relation to its licensing, the licensing history reveals the builder has a history of not complying with a Tribunal order and/or Fair Trading rectification orders: at [46] 2. The directors did not appear or give evidence in relation to the issues of non-compliance: at [46]. 3. While the builder had rectified some defects in the present dispute, it had failed to rectify the most significant item, being the defective brickwork: at [48]. 4. The homeowners had to make complaints to the Department of Fair Trading and commence the present proceedings in order to resolve the defects issue: at [48]. 5. It was not until the morning of the hearing that the builder agreed to the homeowners' proposed method of rectification in relation to the brickwork: at [12]. 6. The homeowners might have the benefit of the renewal provisions in the NCAT Act. However, the builder's previous failure to rectify the brickwork and its failure to comply with the Department of Fair Trading Rectification Orders in the present case made a work order inappropriate. At [48]
The builder contends inappropriate weight was given by the Tribunal to these factors and, in deciding to make an order different to the preferred outcome, the discretion of the Tribunal miscarried.
While not appropriate to seek to define all circumstances that might justify a court or tribunal making an order that departs from the preferred outcome, it is necessary to give some consideration to the nature of the obligation imposed on the court or tribunal by s 48MA.
First, the principle, by its terms, only applies "in determining a building claim involving an allegation of defective residential building work or specialist work". It is not expressed to apply where, for example, the building claim only involves an allegation of incomplete residential building work or specialist work. That is not to suggest s 48O does not otherwise permit a work order in respect of work found to be incomplete
Second, s 48MA is directed towards the remedy or "outcome" to be provided by the court or tribunal where a claimant establishes the responsible party has carried out defective residential building work or specialist work. In this sense, it is not properly described as a "presumption". Rather, it is a remedy to be "preferred" to other forms of order which the court or tribunal might make.
Third, while s 48MA provides the court or tribunal "is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome", the section does not mandate that a work order must be made in all cases. Further, the section does not confine the form of orders that may be made under s 48O, including an order that defective work be rectified by the responsible party engaging another person to carry out that work on behalf of the responsible party.
Fourth, the term "preferred" is not defined. The HB Act and Regulations do not specify circumstances in which the preferred outcome is not to be adopted. However, guidance as to the meaning of "preferred" and the circumstances that would justify an order for a different outcome is found in the second reading speech where the Minister for Fair Trading makes clear that the purpose of the amendment was to: (1) prevent a homeowner from unreasonably refusing a builder access to a building site to rectify defective work; (2) permit a builder to return to carry out necessary rectification work if they are willing; and (3) support the timely and cost-effective resolution of disputes.
That is, in deciding what order should be made, a court or tribunal may consider whether there is a reasonable basis for any objection raised by the homeowner to the builder being permitted to rectify the defective work, the terms of any order, whether the builder is willing to return and whether such an order would support a timely and cost effective resolution of the dispute.
The builder says that the Tribunal's reasons disclose an error of law in failing to afford appropriate weight to the fact that there were no outstanding issues in respect of the builder's licence or alternatively, that leave to appeal should be granted because the decision of the Tribunal was against the weight of evidence.
As we have stated above, it was not impermissible to consider the licence history of a builder in the context of the exercise of discretion under s 48O and in determining whether an order consistent with the principle in s 48MA should be displaced in favour of a money order being made against the builder. However, whether that historical material is relevant and the weight which is to be given to such evidence in a particular case, depends upon, amongst other factors, its content, the timeframe of the earlier alleged contraventions, whether the contravening conduct is related to the conduct the subject of the dispute and the purpose to which that evidence is otherwise put.
In the present case, it is clear from the Tribunal's reasons at [46] and [48] that the Tribunal had regard to the builder's history of non-compliance with both orders issued by the Tribunal and rectification orders issued under s 48E of the HB Act by officers of the Department of Fair Trading. The facts to which the Tribunal had regard included: 1. That a rectification order was issued to the builder under s 48E in respect of the work the subject of this dispute; 2. Following receipt of that rectification order the builder had informed the homeowners on 18 October 2016 that "the brickwork was compliant" and that the builder was "unable to assist any further"; 3. After these events but before the present proceedings were heard, the builder and its directors were found to be in breach of the HB Act in connection with other projects during the period 2015/16; 4. The directors did not give evidence concerning any of these matters; 5. The builder's only witness, Ms Refalo, was of "little assistance in relation to most of those issues because she had only been working with the (builder) for a short time": at [46].
This analysis shows that the conduct identified by the Tribunal arose in relation to the work which was the subject of the present dispute or was conduct in other projects that occurred thereafter, a matter demonstrating a continuing attitude of the builder not to comply with its obligations under its contract with the homeowners and under the HB Act.
The manner in which the evidence was used in this case is not shown to be improper or inappropriate. In this regard, the reasons are "not to be construed minutely and finely with an eye keenly attuned to the perception of error": see Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287, approved by the High Court in Minister for Immigration & Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259 at 272.
Further, a consideration of the whole of the reasons for decision, particularly the matters we have identified above, demonstrates that the exercise of the discretion was not based solely on the builder's record of complying with its obligations under the HB Act and any defaults in respect of unrelated projects.
It is self-evident that the brickwork was a significant defect. It had not been rectified following complaints. It was work that arose under a building contract dated 22 March 2011, which work was commenced on 21 July 2011 and said by the builder to have been practically complete on 22 June 2012. Despite rectification orders and complaints by the homeowners, all defects had not been rectified. This necessitated the commencement of proceedings in the Tribunal by the homeowners, the most significant item of claim being denied by the builder until the day of the hearing, namely 5 December 2016.
Up until the date of the hearing, the builder had either denied the existence of the defect and/or asserted that rectification work only required rendering that wall, not its reconstruction.
We should note at this point that the fact there is a dispute which has necessitated the commencement of proceedings by an aggrieved homeowner is not of itself sufficient to justify the Tribunal in departing from an application of the preferred outcome principle in S48MA. So much is clear from the fact the principle operates in connection with the determination of a building claim by a court or tribunal.
However, the facts which the Tribunal identified were relevant to determining what was reasonable in the circumstances. As the High Court makes clear in House v R, it is not sufficient to demonstrate that the Appeal Panel might take a different view of the facts. What must be demonstrated is the application of a wrong principle, considering extraneous or irrelevant matters in exercising the discretion or mistaking facts. In this case, no such error has been established, nor is it otherwise apparent.
The builder did not assert the decision of the Tribunal was manifestly wrong. Counsel was correct not to make such a submission.
There was no evidence to which we have been referred which would suggest that the cost of the builder carrying out the work itself was substantially less than the amount which has been awarded. There was no evidence to which we have been referred which would suggest that the builder could more quickly remedy the defective works than would occur if the homeowner engaged an independent contractor to do so.
In these circumstances, it could not be said that "the evidence in its totality preponderates against the conclusion found by the Tribunal at first instance" or that the builder may have suffered a substantial miscarriage of justice. It follows that the circumstances necessary for the grant of leave are not made out and leave to appeal should be refused: see Sch 4 cl 12 and Collins v Urban [2014] NSWCATAP 17 at [65]-[77]
Accordingly, this ground of appeal fails and leave to appeal should be refused.

Kurmond Homes Pty Ltd v Marsden

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