Lotus Constructions Pty Limited v Director-General, Department of Finance And Service, NSW Fair Trading

Court of Appeal (NSW)|2013-05-31

The Proceedings 1Mr Chand is the sole director and supervisor of Lotus Constructions Pty Limited ('Lotus'). On 8 March 2013 NSW Office of Fair Trading ('OFT') pursuant to s.62 of the Home Building Act 1989 ('the Act'), dealt with two complaints from consumers against Lotus, namely, a complaint from Ashleigh McKertish (the 'McKertish complaint') for work carried out by Lotus at Plympton ('the McKertish premises') and a complaint from Rahul Nandan ('the Nandan complaint') for work carried out by Lotus at Blacktown ('the Nandan premises'). 2The Respondent found that Lotus had breached the statutory warranties under s.18B(a) of the Act in carrying out work at the McKertish premises. It found in respect of the Nandan complaint that Lotus had breached the statutory warranties under s.18B(a) and (d) of the Act in relation to the Nandan premises and that Lotus was therefore guilty of improper conduct within the meaning of s.51(1)(c) of the Act. It also found that Mr Chand was the nominated Supervisor of Lotus at all material times. 3Lotus was ordered to pay a penalty of $7,000.00 to the Commissioner of the OFT ('the Lotus decision') and Mr Chand, as the director and nominated supervisor for Lotus was ordered to pay a penalty of $3,500.00 ('the Chand decision').

Legislation Section 18B Warranties as to residential building work (1) The following warranties by the holder of a contractor licence... are implied in every contract to do residential building work: (a) a warranty that the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract, ... (d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time ... 51 Improper conduct: generally (1) A holder of a contractor licence who is authorised ... to do residential building work ... is guilty of improper conduct if the holder: ... (c ) breaches a statutory warranty ... (3) It is a sufficient defence to a complaint that the holder of a contractor licence has been guilty of improper conduct as referred to in subsection (1)(b), (c) or (d) in connection with work undertaken by the holder, if the holder proves to the satisfaction of the Director-General that the holder did all that could reasonably be required to ensure that a nominated supervisor for that work would exercise such degree of control over the doing of the work as would be necessary to prevent the occurrence of the improper conduct. 53 Improper conduct; nominated supervisors (1) The holder of a supervisor certificate who has control over the carrying out of residential building work ...is guilty of improper conduct if: ... (b)a breach of a statutory warranty occurs in the course of doing that work, or .... 54 Improper conduct: members of partnerships or officers of corporations (1) An individual who is a member of partnership or an officer of a corporation that is the holder of a contractor licence is guilty of improper conduct if the holder does any of the things referred to in section 51 or 52. 56 Grounds for taking disciplinary action against holder of a contractor licence The Director-General may take disciplinary action under section 62 against the holder of a contractor licence on any of the following grounds: ... c)that the holder is guilty of improper conduct ...

Background 4In October 2010, Mr McKertish lodged a complaint with the Respondent, alleging defective work carried out to the McKertish premises under a contract with Lotus dated 4 September 2009for the construction of a dwelling. Mr C. Nicholson, Senior Building Inspector of the OFT ('the inspector') conducted a site inspection on 19 November 2010, and produced a Building Inspection Report of his observations. 5On 15 November 2011, Mr Nandan lodged a complaint with the Respondent, alleging defective work and non-completion of work under a contract with Lotus dated 4 February 2011 for the construction of a dwelling at the Nandan premises. The inspector conducted site inspections on 13 December 2011 and 16 February 2012, and produced a Building Inspection Report of his observations. 6A Notice to Show Cause was issued to Lotus and Mr Chand on 7 September 2012 setting out the grounds for disciplinary action, under s.18B(a) and s.18B(d) of the Act. (An additional ground was included in the Notice, but was subsequently withdrawn.) 7The Respondent received submissions from the solicitors for the Applicants which it considered did not substantively address the allegations set out in the Notice to Show Cause. Rather, they provided information about Lotus' financial and employment aspects, and that the 2 complainants were by then satisfied with the rectification of the works. 8On 28 February 2013, the delegate made the determinations about which the Applicants now seek review. 9The matters were heard by Judicial Member Huntsman on 31 May 2013. Submissions were to follow. In the meantime, Judicial Member Huntsman became unavailable to determine the proceedings. I was appointed pursuant to s.79(1) of the Administrative Decisions Tribunal Act 1997 to determine the matter, subject to the consent of the parties, which was provided. 10I was provided with the transcript and exhibits and the parties made written submissions.

Evidence 11Evidence was given by the inspector and by Mr Chand. 12The following documents were tendered:

Affidavit of Sunil Chand sworn 28 May 2013 (A1)
Page 236 of the Respondent's Bundle of R1 (A2)
Letter to OFT from Solicitors for the Applicants dated 19October 2012 (A3)
Respondent's documents (R1)

General evidence of Mr Chand 13Mr Chand gave evidence that he originally qualified as a carpenter and joiner in Fiji and, following his arrival in Australia, attended Bankstown TAFE and undertook further studies so that he could obtain a Builders Licence. 14Lotus obtained its licence in 2002. Since that time Lotus has undertaken approximately 200 building projects consisting of new homes, renovations, multi-storey buildings, townhouses, villas, childcare centres and commercial fit-outs. It had undertaken projects when other builders would not because of site difficulties, for example a new home where the site sloped steeply up from the street. 15He gave evidence that Lotus has never been declined Home Warranty Insurance; it endeavours to use specialised sub-contractors on a regular basis; and it employs apprentices and hosts high school students on a regular basis.

The McKertish complaint 16On 19 July 2010 Mr McKertish complained to the Applicants about various aspects of the works. In October 2010 Mr McKertish lodged a complaint with the Respondent about Lotus. He complained about the bricks used which had a variation in colour, that a lot of the bricks were chipped and that the mortar between the bricks was faulty. 17Following inspection, Lotus was found to have breached s.18B(a) of the Act in respect of the following:

Item 1: Pig in brickwork - not in accordance with Building Code of Australia -Vol. 2 - 2009, Part 3.3.1, and AS3700-2001, clause 4.9.1
Item 2: Weep holes in external brickwork partially blocked by mortar - not in accordance with BCA, Part 3.3.4.3
Item 3: Perpend joints excessive - not in accordance with BCA, Part 3.3.1
Item 4: Excessive bed joint in brickwork - not in accordance with BCA, Part 3.3.1
Item 5: Insufficient slope in brick sill - not in accordance with BCA, part 3.3.4.12 & fig. 3.3.4.8
Item 6: Numerous chipped bricks - not in a work in a proper and workmanlike manner
Item 7: Brick laid back to front - not in a work in a proper and workmanlike manner
Item 8: Hearting shown in face bricks - not in a work in a proper and workmanlike manner
Item 9: Mortar joints damaged - not in a work in a proper and workmanlike manner
Item 10: Crack in face brickwork - not in a work in a proper and workmanlike manner
Item 11: Gaps in face brickwork - not in a work in a proper and workmanlike manner
Item 12: Uncleaned face brickwork - not in a work in a proper and workmanlike manner
Item 13: Holes in brickwork not filled - not in a work in a proper and workmanlike manner
Item 14: Excessive gaps between window frame and brickwork - not in a work in a proper and workmanlike manner
Item 15: Excessive gap between double doors in hallway - not in a work in a proper and workmanlike manner
Item 16: Separation gap between cornice and ceiling lining in hallway - not in a work in a proper and workmanlike manner
Item 17: Collar not fitted to laundry door handle - not in a work in a proper and workmanlike manner
Item 18: Excessive hole through plasterboard - not in a work in a proper and workmanlike manner
Item 19: Kitchen cupboard doors require adjustment - not in a work in a proper and workmanlike manner
Item 20: Cracked grout joints to kitchen tiling - not in a work in a proper and workmanlike manner 18The majority of the defects identified related to the brickwork. In respect of each the inspector prepared a photographic report dated 5 May 2011 (part of R1). Each series of photographs was accompanied by an explanation of why the work was considered defective and identified the appropriate standard. In his evidence the inspector identified three main issues: Item 1, Item 2 and Item 5.
Item 1 - 'pig in brickwork', it was explained, means the brickwork was out of level by one complete course around the circumference of the building and that this had been addressed by excessive mortar packing under the window sill. Mr Chand said that the windows could have been of different sizes. The inspector said in cross-examination that he had not measured the windows and that the mortar packing may have been done because the windows were of different sizes, although they were supposed to be of the same size. Mr Chand was critical of the method used by the inspector to measure the brickwork. The inspector said that he considered the brickwork on the rear wall was severely out of level, irrespective of how it was measured.
Item 2- weep holes in external brickwork partially blocked by mortar. The inspector said that this would not allow moisture in the cavity to be released. When water came in the joint would become saturated and would expand and, in the long term, a crack would develop. Mr Chand said that about every 1200 millimetres there are weep holes in every single storey house. The photograph showed one weep hole only and it was not correct to say that one weep hole will stop water from draining. Mr Chand said he did not see any other weep holes with mortar in them.
Item 5 - insufficient slope in brick sill. It was explained that the slope meant that runoff would go back into the wall rather than away from it. Mr Chand said that they had made a flush seal because the house was only 900 millimetres from the fence line and it would otherwise protrude and be dangerous. It would be rare for rain to get in. 19In relation to other Items the inspector said:
Item 6 - numerous chipped bricks. Chipped bricks are not unusual but the number of chipped bricks was unreasonable and that some of the damaged bricks were laid in that damaged state, rather than discarded or otherwise used unobtrusively.
Item 7 - brick laid back to front. Bricks have one smooth face and one rough side and the bricklayer will pick the best side. Here there were several bricks laid back-to-front with the rough face outwards. If the brick had 2 rough faces it should have been discarded.
Item 8 - Hearting shown in face bricks. This related to red colouration which occurs as a result of the brick being under-baked during manufacture. He said this is a fairly minor issue but he had responded to it as part of the McKertish complaint. Mr Chand said that sometimes the hearting does not appear until after the bricks are laid.
Item 9 - Mortar joints damaged. The inspector explained that this often occurs during clean-up of brickwork, but normal procedure is to repair the mortar.
Item 10 - crack in face brickwork. In the Department's Guide to Standards and Tolerances cracks exceeding one millimetre are considered to be defects. While this crack was less than one millimetre the inspector considered it unreasonable to hand over a new home with that sort of defect. He provided an analogy of buying a new car with a scratch. He agreed in cross-examination that this was a subjective assessment. Mr Chand said it was only a hairline crack.
Item 11: Gaps in face brickwork. The inspector characterised this as 'untidy work', which looked like a lump of cement had not been wiped off and had gone hard before laying the dampcourse. He said the issue was minor. Mr Chand claimed that it was a termite barrier and in cross-examination the inspector conceded it may have been a termite barrier and not a dampcourse but that type could be used for both purposes.
Item 12: Uncleaned face brickwork. The inspector considered there was no reason why a portion of the premises were not cleaned when the balance had been adequately cleaned. Mr Chand claimed that the owner had splashed the area with concrete when he did the pathway at the side of the house himself.
Item 13: Holes in brickwork not filled. The inspector considered it normal for extrusion holes, that look untidy, to be filled. They can harbour spiders and insects.
Item 14: Excessive gaps between window frame and brickwork. The inspector said it was a normal easy procedure to install a 'storm mould' to block off holes.
Item 15: Excessive gap between double doors in hallway. The inspector said this was identified during the 90 day defect period. The doors required adjustment because there was a gap between the doors leading from the hallway. The McKertishs complained of a draft. Normally, he said, a small 'rebate' (recess) would be made so the doors would fit together. He said his was a minor issue. It was suggested to him in cross-examination that the doors had been privately installed by the McKertishs, but he said he did not think that was possible. There was considerable discussion about whether the doors were those in the hallway or those leading into the theatre.
Item 16: Separation gap between cornice and ceiling lining in hallway. The inspector found there was a hairline crack between the cornice and the ceiling. It was a 'five minute' job to fix.
Item 17: Collar not fitted to laundry door handle - Self- explanatory. Mr Chand claimed that after handover someone must have changed the locks and forgotten to put the collar back on.
Item 18: Excessive hole through plasterboard. The hole for the telephone connection was made too large. The inspector said it was 'not a problem' but should have been rectified. He agreed in cross-examination that he did know who had installed the phone or when it was installed, but that it was probably Telecom (sic). However in his experience Telecom install the cables before the plasterboard installers put the holes in the wall for the cables, although that is subject to whether they have been told where the phone is to be. Mr Chand said it is the responsibility of the person fitting the phone to place the phone directly over where the builder brings the cables out of the wall. In this case the phone was moved so it did not cover the hole.
Item 19: Kitchen cupboard doors require adjustment. The inspector said that cupboard doors tend to come loose and it is normal procedure for screws to be tightened during the 90 day defect period so as to adjust the doors.
Item 20: Cracked grout joints to kitchen tiling. The inspector found that normal cement had been used instead of flexible grout which would ordinarily be used when joining different materials. This was a 90 day defect item. 20The inspector conceded in cross-examination that the issue with the brickwork was mainly aesthetic and that there was no suggestion of structural defect in relation to the work. However it was reasonable for a builder to construct a dwelling without cracks, and with the bricks cleaned, and mortar that may have been blown out by the cleaning fixed, and without chipped bricks being noticeable. The excessive mortar between the bricks could be a structural issue. In cross examination the inspector confirmed that there had been no independent testing of the brickwork and/or mortar. There was no evidence that the inspector considered that the brickwork needed to be demolished and rebuilt. 21The Applicant submitted that the examples of defects are within tolerances and are minor in nature. During Mr Chand's evidence, he challenged some of the conclusions of the inspector. The Respondent asked me to note that these challenges had not been raised during the disciplinary process as a response to the Notice to Show Cause. 22Mr Chand also stated that ultimately, he and the homeowner had resolved the dispute by arranging for the outer brickwork to be rendered, thereby covering up the various visual issues with the brickwork. Letters were provided from Mr McKertish that the work had been carried out to their satisfaction and confirming that all rectification work had been completed. The external brickwork of the house was completely rendered at no cost to the McKertishs, albeit about 2 years after they had complained to the Department. 23The Applicant made a number of submissions about what could be described as procedural issues associated with receipt of Show Cause Notices and the timing of Rectification Orders such that Mr Chand and Lotus had reasonable grounds not to comply with the Rectification Order. I do not consider these submissions to be relevant because the Respondent has not alleged any delay in respect of the McKertish complaint.

The Nandan complaint 24On 11 October 2011 Mr Nandan complained to the Applicants about various aspects of the works. On 15 November 2011 Mr Nandan lodged a complaint with the Respondent. Following inspection, a Rectification Order was issued, dated 16 December 2011. 25The inspector's evidence was that there had been a breach due to the non-compliance with the Rectification Order which had provided that the work required to be rectified was to be completed by 14 February 2012. By March 2012 a number of items identified for rectification had still not been addressed. The work was ultimately completed to the homeowner's satisfaction but not within the time specified in the Rectification Order. 26The Respondent found a breach of s.18B(d) of the Act in respect of:

Item 1: Gap between back wall cupboard and kitchen wall
Item 2: Soft catches in kitchen cupboards
Item 3: Laundry floor not cleaned 27In relation to Item 2, that the kitchen doors and cabinets were not "soft-closing", the Builder's specification (at page 171 - R1) makes no reference to "soft-closing" drawers and doors. The inspector conceded that he had accepted the homeowners' information that these had been agreed on. The inspector agreed with the proposition (and Mr Chand's evidence confirmed) that this feature would have been an extra cost to the homeowners. The inspector maintained that the kitchen cupboard doors he observed did not have any handles or other device to control their aperture at all. The cupboards would just swing open; "the wind could open them". A competent builder ought to provide some mechanism for either handles or spring-loaded hinges. Mr Chand said the doors had a groove at the top which is how the doors open and no handles were required at all. He said that all the hinges were spring-loaded. They would stay shut. The only difference was that they bang when closed, unlike the 'soft-close' ones that make no sound. They would not 'open by the wind'. He said the soft closures have since been provided by a kitchen contractor who was his subcontractor, and as part of his contract. 28As to whether there was a problem complying with the Rectification Notice Mr Chand gave evidence that there were time restrictions imposed by the homeowners in carrying out any rectification works. Mrs Nandan was said to work nightshift so work could only be done in the afternoons - "1 or 2 o'clock or 3 o'clock". The Nandans wanted work done on Saturdays, but he said, Lotus only works Monday to Friday and for 38 hours a week. 29There was no evidence that Mr Chand or Lotus had contacted the Department about the work restrictions or that Lotus would be closed for the Christmas break and not resume until 14 February 2012. Mr Chand thought that they may have closed already by the time the Notice was received on 19 December 2011. Nor was there evidence that he contacted the Department to advise that he considered that the work in relation to the soft closures was not within the scope of the contracted building works. 30There was also considered to be a breach of s.8B(a) of the Act in respect of:
Item 4: Driveway not constructed as per specifications
Item 5: Front porch and steps out of square
Item 6: Roof tiles not sitting flat
Item 7: Calcium staining on concrete and stencil pattern
Item 8: Brickwork not properly cleaned 31The inspector conceded that he no longer considered that item 8 of his report was a defect. This item was therefore not pressed. 32The following were regarded by the inspector as the major issues:
Item 4 - Driveway not constructed as per specifications. The photograph of the driveway showed it curving in a different direction to the plan. As a result only one vehicle, instead of the planned 2, could fit on the driveway. Mr Chand conceded that he was present when the driveway was poured. His recollection was that he spoke with the owners and there was no objection to the shape. During cross-examination, it was put to the inspector that the driveway drawing relied on by him to determine that the driveway had not been constructed as agreed, was not the correct one. In response, while the inspector could not recall if the plans were discussed with the builder's representative, Mr Azzizi, were the council approved plans, he noted that during the site inspection, Mr Azzizi had not disputed that the drawing was that agreed to by the parties. Mr Chand said he did not know if Mr Azzizi was there or not and ordinarily the builder's representative would sign the inspection report and Mr Azzizi had not done so. I was referred to the photographs of the driveway as constructed and in photograph 6 and 7 is a copy of the drawing showing a convex shape on the right hand-side of the driveway as it approaches the street. The Applicants submitted that there is no suggestion that the driveway is not fit for purpose. The Applicants invited attention to the commentary provided by the inspector below photograph 7 that "the work as it has been carried out detracts from the overall appearance of the contracted works". Mr Chand said that even if the driveway were convex, rather than concave there would still not be enough room for 2 cars. The rectification that has been undertaken is quite different from the plan, in order to achieve parking for 2 cars.
Item 5 - Front porch and steps out of square. The inspector found the steps had been built out of square with the house and was 'twisted' to the right. It was unsightly, was poor building practice and would be likely to make subsequent installation of a handrail difficult. The inspector did not think this amounted to a structural defect in terms of whether the steps would collapse or that they were unsafe. He did not know if the builder was aware there was going to be a handrail. Mr Chand said that the inspector had measured with a very small steel square on a pier at the side which was an inappropriate way to measure for squareness. It was pointed out that not all of the photographs showed measurement from the pier and that some showed measurement from the steps themselves. He claimed there was no basis for saying that the stairs were not square, and anyway, as the stairs were one metre wide and the house was 12 metres wide, if did not matter; it was not, according to Mr Chand, a major concern. Mr Chand denied that the owners had ever told him they intended to have a handrail; there was no statutory obligation to have one and it was not on the plan.
Item 7- Calcium staining on concrete and stencil pattern. Mr Chand agreed with the inspector that the likely cause was either leaching from the cement when the lime is not fully dissolved on mixing, or by using internal, instead of external glues on the steps. The inspector considered that for new premises it was the builder's responsibility to clean the steps of the staining, which is usually done by water-blasting. If the staining occurs, say 3-4 years after completion then it would be the owner's problem. The photographs of the staining were taken about 9 months to a year after the house was built. He said that either it was "caused by the builder not carrying out the work in a proper and workmanlike manner in the first place ...and it's a defect and it's his responsibility to rectify it" or "it's caused by the cement and the mortar not being mixed properly well (sic) then it goes back to the fact that it's defect in that it's not work carried out in a proper and workmanlike manner". He said that if the builder provided the product and it failed it was the builder's responsibility. Just because the manufacturer says it's suitable does not necessarily make it suitable. Mr Chand said that the longer the calcium is left, the harder it is to remove. Mr Chand says they go regularly to monitor the staining. He said once the staining stops they will clean it. 33Mr Chand noted that Mr Nandan and his wife were happy with the work carried out by Lotus and that further works have been attended to which included the replacement of 2 or 3 vanities as the paint was peeling from their skins. These works were not the subject of the Rectification Order.

Not carrying out work in a proper and workmanlike manner 34The Respondent submitted that the evidence filed by the parties together with the evidence given at the hearing is sufficient for the Tribunal to find that the allegations by the Respondent have been made out to the requisite standard, namely, that set out in Briginshaw v Briginshaw (1938) 60 CLR 336, that the Tribunal can be comfortably satisfied on the balance of probabilities in finding that the allegations have been made out in light of the seriousness of the facts to be proved and the consequences for the person against whom the finding is made. 35In relation to the McKertish premises, 3 major issues were identified: Items 1, 2 and 5 - pig in brickwork, weep holes in external brickwork partially blocked by mortar, and insufficient slope in brick sill, respectively. 36As regards Item 1, Mr Chand sought to excuse the excessive mortar packing under the window sill on the basis that the windows may have been of different sizes, but the evidence was that they were supposed to be the same size. He was critical of the method used by the inspector to measure the brickwork. Importantly though, the evidence of the inspector, which I accept, was that the brickwork on the rear wall was severely out of level, irrespective of how it was measured. 37As regards Item 2the inspector's report noted that there were 'several' blocked weep holes. He described the consequences of blocked weep holes, namely that moisture in the cavity could not then be released, leading ultimately to cracked joints. Mr Chand's evidence was that there would have been multiple weep holes but the photograph depicted only one that was blocked, that he did not see any other blocked weep holes, and that one blocked weep hole would not affect water from draining. I do not consider it necessary that the inspector include a photograph of more than one of the blocked weep holes he observed. Mr Chand, in denying that one blocked weep hole would not affect drainage, did not address the effect of multiple blocked weep holes. I accept the inspector's evidence that there were several weep holes and that the effect was as he described. 38As to Item 5 Mr Chand claimed that to angle the slope otherwise would be hampered because of the proximity to the fence. He did not deny that the slope meant that runoff would go back into the wall rather than away from it, claiming only that it would be 'rare' for rain to get in. I reject his explanation and his apparent acceptance that rain getting in, albeit 'rare', was satisfactory. 39In relation to the Nandan premises the inspector identified 3 major issues: Items 4, 5 and 7 - driveway not constructed as per specifications, front porch and steps out of square, and calcium staining on concrete and stencil pattern, respectively. 40In relation to the driveway, according to the plan it was to curve in a different direction. I do not accept that when Mr Chand spoke with the owners they did not object to the change, when the result of the change was that only one, and not 2 vehicles could be accommodated as had been planned; it is unlikely that the owners would have specifically raised their concerns with the Respondent if they had agreed otherwise. I also do not find any basis for the contention that the driveway drawing relied on by the inspector was not the correct one. 41I accept, as the Applicants submitted, that what has been constructed as the driveway may be fit for that purpose. Mr Chand asserted that even if the driveway were convex, that is, in accordance with the plan, there would still not be enough room for 2 cars. The inspector was not cross-examined about the feasibility of the plan to achieve that outcome, so the only evidence in that regard is Mr Chand's assertion. Neither was it put to the inspector that the rectification that has been undertaken needed to be quite different from the plan, in order to achieve parking for 2 cars. The inspector had observed that the driveway, as constructed, detracted from the overall appearance of the contracted works. More importantly, it was not constructed in accordance with the plan. 42As to the front steps, the inspector's evidence was the steps had been built out of square with the house and were 'twisted' to the right. I accept that while this may not be a structural defect in terms of whether the steps would collapse or that they were unsafe, it was noticeable. I accept his evidence that it would be likely to make installation of a handrail difficult if the owners later wanted one added. It seemed to me that Mr Chand did not deny that difficulty but instead focussed his evidence on denying that he knew the owners intended to have a handrail, that there was no statutory obligation to have one, and it was not on the plan. The difficulty associated with installation of a handrail is indicative to me that the steps were out of alignment as the inspector alleged. Mr Chand sought to criticise the inspector's methodology and, dismissively, claimed it was not a major concern, having regard to the width of the house. 43As to the staining on concrete, it was common ground that this is not an unusual problem, and the cause in this case, was unclear. The photographs of the staining were taken about 9 months to a year after the house was built and it was the inspector's view that it was the builder's responsibility to rectify it in the period up to about 3 years from construction. Mr Chand's attitude that it is sufficient that his company regularly 'monitors' the staining and that it will clean it once the staining stops, is difficult to reconcile with his view that the longer the calcium is left, the harder it is to remove. His account suggests to me that it is incumbent on the builder to attend to it as soon as possible after it appears, especially as this is a known problem, and that this did not occur. 44At each premises there were also multiple lesser issues identified by the inspector. While the Applicants may have an explanation for some of the defects listed in the inspector's reports, the overall evidence points to 2 dwellings not built in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contracts. 45I find that Lotus was guilty of improper conduct as defined in s.51(c) of the Act in that there was a breach of the statutory warranty under s.18B(a) to perform work in a proper and workmanlike manner in respect of the McKertish premises and also the Nandan premises. 46Further, I find that Mr Chand had control over the building work when the breach of a statutory warranty occurred in the course of doing that work. As a consequence he also is guilty of improper conduct:s.53(1)(b).

Not carrying out work with due diligence and within reasonable time 47The Respondent alleged that the Applicants breached the statutory warranties set out in s.18B(d) of the Act by not carrying out work with due diligence and within reasonable time in relation to building work at the Nandan premises. 48The Applicant submitted that there is no complaint that the works were not completed in a timely or diligent fashion and therefore the complaint by the Respondent in respect of a breach of s.18B(d) of the Act must fail. 49Lotus entered a contract with the Nandans on 4 February 2011. The contract period was 180 days, which would suggest completion may have been expected by early August 2011. Mr Nandan emailed a letter of complaint to Mr Chand on 11 October 2011 listing a number of matters which, in his view, were either incomplete or defective. Mr Nandan wrote that he had attempted to contact Mr Chand over the previous 2 weeks without success. I did not understand Mr Chand to dispute this. On 15 November 2011 Mr Nandan lodged his complaint. Following inspection, Rectification Orders were made on 19 December 2011 in respect of 10 Items which were to be completed by 14 February 2012. When inspected again on 22 March 2012 3 Items were outstanding which the inspector considered were part of the contracted works. 50There did not appear to be any challenge in respect of the Item 1: Gap between back wall cupboard and kitchen wall, nor Item 3: Laundry floor not cleaned. 51As to Item 2, that the kitchen doors and cabinets were not 'soft-closing', because the specifications make no reference to 'soft-closing' drawers and doors I accept that this feature would have been an extra cost to the homeowners. There was no evidence as to when this change to the contract had been made. The inspector's identified concern however was that the kitchen cupboard doors he observed did not have any handles. I accept Mr Chand's evidence that the doors had a groove at the top which is how the doors open and no handles were therefore required at all. I cannot be reasonably satisfied, in the absence of evidence about the amended contractual arrangements in respect of the 'soft-closing' doors that there was a breach in respect of the alleged non-completion of the 'soft-closing' doors within a reasonable time. 52In Hometeam Constructions Pty Ltd v McCauley[2005] NSWCA 303 McColl JA considered the issue, and referred to Re Stewardson Stubbs &Collett Pty Ltd & Bankstown Municipal Council[1965] NSWR 1671where Moffitt J observed [at 1675 - 1676] that: ... [T]he question of what precisely constitutes a failure to proceed with reasonable diligence is a matter of some difficulty. However, it is an allegation of a general failure to proceed with that degree of promptness and efficiency that one would expect of a reasonable builder who has undertaken a building project in accordance with the terms of the contract in question. 53As to whether there was a problem complying with the Rectification Notice, Mr Chand asserted that compliance was affected by restrictions imposed by the homeowners. Notwithstanding that limitation there was no evidence that the Department was contacted about those restrictions. Further, I do not accept that an extended Christmas closure or the company's standard working week excuses the non-completion of outstanding aspects of the contract that had been identified in the Rectification order. The main work had taken about 4 months to complete and rectification occurred about 8 or 9 months later. 54I find that the Applicants were guilty of improper conduct as defined in s.51(c) of the Act in that there was a breach of the statutory warranty under s.18B(d) to do work with due diligence and within a reasonable time.

Penalty 55In deciding whether disciplinary action should be taken and, if so, what form that should take, I note that the object of sanctions under the legislation is to protect the consumers of home building services and not to punish: Pilipczyk& anor v Commissioner for Fair Trading, NSW Office of Fair Trading[2007] NSWADT 85. 56Section 62 of the Act sets out the disciplinary action which may be taken: (a) determine to take no further action against the holder, (b) caution or reprimand the holder, (c) make a determination requiring the holder to pay to the Director-General, as a penalty, an amount not exceeding $11,000 (in the case of an individual) or $50,000 (in the case of a corporation) within a specified time, (d) vary the authority held by the holder, by imposing a condition on the authority, including a condition requiring the holder to undertake a course of training relating to a particular type of work or business practice within a specified time, (e) suspend the authority for a period not exceeding its unexpired term, (f) cancel the authority, (g) disqualify the holder, either temporarily or permanently, from being any one or more of the following: (i) the holder of any authority, or any specified kind of authority, (ii) a member of a partnership, or an officer of a corporation that is a member of a partnership, that is the holder of an authority, 57I was referred to Director-General, Department of Fair Trading and Gary Samuel Leonard Cohen [2000] NSWFTT 3 (27 April 2000) ('Cohen') where,at [60]) the Fair Trading Tribunal outlined a series of factors which might be relevant to the assessment of an appropriate penalty:

the nature, width and extent of the contraventions
the loss or damage and prejudice in consequence of the contraventions
the circumstances in which the contraventions took place
whether the licensee has been found to have engaged in any similar conduct
the presence of fraudulent or dishonest intent and deliberation on the part of the licensee
the extent of carelessness or wilfulness of the conduct
the efforts made to correct the situation and what measures have been taken by the licensee
what consciousness the licensee (a) had (b) displayed, of its obligations under the relevant statute and to the owners
the effect upon the licensee
antecedents
attitude, building history and future compliance
the penalty range. 58The Tribunal in Ng & Anor v Commissioner for Fair Trading, NSW Office of Fair Trading & Anor(2007) NSWADT 259added two further factors, being:
any gain made as a result of the contraventions; and
the degree of cooperation with the authorities. 59In Cohen the key consideration in assessing the appropriate penalty was that it should be proportional to the nature of the improper conduct viewed as a whole: at [62]. 60At the outset, I note that there was no evidence of dishonesty in the performance of work. That said, I consider that the improper conduct of Lotus (and Mr Chand)should not be regarded as trivial as there were several failures to perform work in a proper and workmanlike manner at both the McKertish and Nandan premises. Further, despite requests for rectification by the homeowners, intervention was required by the Respondent in order to have the matters attended to. Even then, there was delay in attending to some of the outstanding items. 61I accept that the number of complaints against Lotus may not be large given the number of jobs said to be undertaken by the company, but there was no evidence that these were the only complaints against Lotus or Mr Chand. However, accepting that to be the case, it is cold comfort to the McKertishs and the Nandans that they are the 'first' to have been found to be legitimately dissatisfied with the Applicants' workmanship and timeliness. I accept though that all the work has now been completed to their satisfaction. 62I accept that Lotus may have undertaken difficult projects, but there was no evidence that either of these sites presented any particular complexity. I accept that Lotus has never been declined Home Warranty Insurance. I accept that that it endeavours to use specialised sub-contractors, although one would hope that this was more than an aspiration in relation to specialised work. I accept that Lotus engages apprentices and work-experience students, but this is of limited relevance. 63Although I did not have the benefit of assessing Mr Chand's oral evidence at the hearing myself, his attempts to distance himself from the identified issues, as far as I could see from the transcript, was less than impressive. From the papers he also does not appear to have been especially co-operative with the Department, particularly in apparently not raising matters by way of explanation when he had the opportunity to do so. 64Determination of an appropriate penalty must be made both with regard to the particularities of the individual case as well as a more general and comparative assessment of the offences: Director-General v Festa and Maintenance Exteriors Pty Ltd [2000] NSWFTT 18 (18 December 2000) at [52].In Director-General of Department of Fair Trading v Wayne James O'Connell [2000] NSWFTT 20 (8 November 2000),for example, the builder was found not to have constructed the footings, brick piers and concrete pad footings to the dwelling in a proper and workmanlike manner and in accordance with the plans. The builder was disqualified from holding a building licence for 18 months. In Woolley v Commissioner for Fair Trading [2005] NSWADT 127, on the other hand, the builder was fined a total of $2,500 for entering into a contract without insurance and for contracting for work beyond authority of his licence. in that case, there was no suggestion that the work performed was inadequate, and the owner who contracted with the builder did so with the knowledge that no insurance had been arranged. 65Section 62 of the Act sets out the types of disciplinary action that may be taken. It is clear that the list of available options range from those appropriate in relation to very minor matters, to those appropriate for the most serious of conduct. In this instance, the Respondent imposed a pecuniary penalty: $7000 out of a maximum of $50,000 (Lotus) and $3500 out of a maximum of $11,000 (Mr Chand). 66Taking into account all the relevant evidence, I am satisfied the public interest requires a monetary penalty. Taking no further action or a reprimand is not appropriate because of the number of defects and the time to ultimately resolve the Nandan issues. Notwithstanding my findings in relation to the 'soft-closing' cupboards, I consider that the penalties imposed by the Respondent are proportional in terms of the overall nature of the defects and the delay in attending to the remaining matters. Further, the Applicants have not provided any evidence that they are unable, with reference to their financial situation, to make such payments. 67I am satisfied that the penalties imposed by the Respondent are appropriate.

DECISION 68The correct and preferable decision on the evidence overall in this matter is that the decision under review is affirmed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 November 2013

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