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[2005] NSWCA 303
Court of Appeal (NSW)
2013-05-31
Original judgment source is linked above.
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:
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:
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:
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:
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
Lotus Constructions Pty Limited
Director-General, Department of Finance And Service, NSW Fair Trading
(1938) 60 CLR 336