Martignago v Visual Building Construction Pty Ltd

Evidence

1. In determining the Application, the Tribunal has had regard to the following: 1. The matters stated in the Application filed on 29 September 2021. 2. The points of claim dated 20 January 2022. 3. An affidavit of the applicant sworn on 20 April 2022. This was marked Ex A1 at the hearing on 6 July 2022. 4. An expert's report dated 28 March 2022 prepared by Bruce Frizzell, a building consultant. Mr Frizzell acknowledges in his report that he has read the Experts' Code of Conduct and agrees to be bound by it. This was marked Ex A2 at the hearing on 6 July 2022. 5. An expert's report dated 10 June 2022 prepared by Roger Dohnt, a structural and civil engineer. Mr Dohnt acknowledges in his report that he has read the Experts' Code of Conduct and agrees to be bound by it. This was marked Ex A3 at the hearing on 6 July 2022. 6. The written submissions prepared on behalf of the applicant by Mr Davie dated 5 July 2022.
2. The findings made by the Tribunal on the basis of the above evidence is set out below.
3. For completeness I note that my review of the file indicates that no material has been provided by the respondent.

Jurisdiction

1. Section 48K(1) of the Home Building Act 1989 (NSW) (HBA) provides that the Tribunal has jurisdiction to hear and determine a building claim.
2. The Tribunal's jurisdiction to determine a building claim is subject to whether certain time limits for the making of the claim are complied with.
3. Section 48K(7) of the HBA provides that the Tribunal does not have jurisdiction to determine any building claim for a breach of a statutory warranty if the claim is made after the period provided by section 18E for commencing such a proceeding.
4. The provisions of section 18E(1)(a), (b) and (c) of the HBA are to the effect that proceedings for a breach of statutory warranty must be commenced before the end of the "warranty period". The warranty period is a period of six years for a breach that results in a major defect or two years in any other case. The warranty period starts on completion of the work to which it relates
5. The definition of "major defect" in s 18E(4) of the HBA includes the following: major defect means - (a) a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause - (i) the inability to inhabit or use the building (or part of the building) for its intended purpose, or (ii) the destruction of the building or any part of the building, or (iii) a threat of collapse of the building or any part of the building…
6. The definition of "major element" of a building includes the following: major element of a building means - (a) an internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams), or (b) … (c) waterproofing…
7. I am satisfied from the expert evidence, which is reviewed below, that the defects identified by applicant are major defects.
8. Mr Frizzell has identified defects in the waterproofing of the building works. Water proofing is defined to be a major element of a building. Mr Frizzell has identified in his report that the failure of the water proofing has resulted in water escaping from the bathrooms in the building resulting in mould, water stains and cracking in parts of the building. I also accept the evidence of the applicant, that because of the escape of water from the first-floor bathroom, the applicant and his family have not been able to use the first-floor bathroom. Having regard to both the expert and lay evidence, I consider that the defects in the water proofing have caused, or are likely to cause, the inability to use at least part of the building for its intended purpose.
9. The defects identified by Mr Dohnt are in relation to the slab edge beam, roof framing and floor framing. These are load bearing components of the building which are essential to its stability. They are therefore a major element of the building. I am also satisfied from Mr Dohnt's description of the defects that they are likely to cause the destruction of at least part of the building or a threat of collapse of at least part of the building.
10. The building works were certified as sufficiently complete for the issue of an occupation certificate on 22 December 2015. I find that this is the relevant date for the completion of the works for the purposes of s18E(1)(c ) of the HBA.
11. The Application was filed on 29 September 2021. I therefore find that the proceeding was commenced within the 6 years period commencing on 22 December 2015.
12. For the above reasons, the Tribunal has jurisdiction to hear and determine the Application pursuant to section 48K of the HBA.

The Applicable Law

1. Section 18B of the HBA provides as follows: 18B Warranties as to residential building work (1) The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work - (a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract, (b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new, (c) a warranty that the work will be done in accordance with, and will comply with, this or any other law, (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, (e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling, (f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder's or person's skill and judgment.
2. Section 18D of the HBA provides as follows: 18D Extension of statutory warranties (1) A person who is a successor in title to a person entitled to the benefit of a statutory warranty under this Act is entitled to the same rights as the person's predecessor in title in respect of the statutory warranty. (1A) A person who is a non-contracting owner in relation to a contract to do residential building work on land is entitled (and is taken to have always been entitled) to the same rights as those that a party to the contract has in respect of a statutory warranty.
3. Section 48MA of the HBA provides as follows: 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.

Findings of Fact

1. On or about 15 May 2015, Matthew Alexander engaged the respondent to construct a two-storey residential dwelling on land in Riverstone in New South Wales. The certificate in respect of the home warranty insurance indicates that the contract sum was $170,000.
2. The respondent appears to have undertaken the building works in the period between about May 2015 and December 2015. This is evidenced by various certificates which were issued in respect of the building works during this period. On 15 May 2015, John Hanna, a consulting engineer, certified that he had carried out an inspection of the footings and slabs. On 29 May 2015, Mr Hanna certified that he had inspected the walls and roof framing. On 22 October 2015, a certificate was issued in respect of waterproofing services. On 3 November 2015, a certificate was issued in respect of the electrical works. On 18 November 2015, a certificate was issued in respect of glazing works.
3. On 21 December 2015, Mr Alexander applied for an occupation certificate.
4. On 22 December 2015, an occupation certificate was issued in respect of the building works carried out on the premises by the respondent.
5. I note that the certificate in respect of the home warranty insurance states that the contract date is 15 May 2016. I find that this is an error. The evidence which I have referred to above indicates that the building works were carried out in the period between May and December 2015 and that the works had reached a sufficient state of completion in December 2015 to warrant the issuing of an occupation certificate. It is for this reason that I have found that the relevant contract date was 15 May 2015.
6. On or about 10 January 2018, the respondent's builder's license was cancelled.
7. At some stage, the evidence does not indicate when, the property was acquired by Mr and Mrs Chaloner.
8. On 26 July 2021, the property was purchased by the applicant.
9. Shortly after purchasing the property, the applicant became aware of various aspects of the building works which gave him cause for concern. He engaged Mr Dohnt and Mr Frizzell to investigate his concerns. This ultimately led to the preparation of expert evidence by Mr Dohnt and Mr Frizzell which has been relied upon by the applicant in this proceeding.
10. In his report, Mr Frizzell identifies two defects in the building works, both of which relate to waterproofing.
11. The first defect identified by Mr Frizzell relates to the water proof membrane in the bathroom. Mr Frizzell gives evidence that this has failed allowing water to penetrate into the laundry ceiling beneath the bathroom thereby causing damage to the laundry ceiling. Mr Frizzell considers this to be a failure to comply with Performance Requirement P2.4.1 of the National Construction Code which states that "water must be prevented from penetrating - (a) behind fittings and linings; or (b) into concealed spaces…".
12. Mr Frizzell has also identified a defect to the water proof membrane in the ensuite bathroom. He states that this has also failed allowing water to penetrate outside of the shower and causing damage to the vanity, timber door jamb, architraves and the garage bulk head soffit which is beneath the ensuite bathroom. Mr Frizzell also considers this to be a failure to comply with Performance Requirement P2.4.1 of the National Construction Code.
13. Mr Frizzell has included photographs in his report which depict mould and water stains to the underside of the bathroom flooring substrate and cracking and water stains to the bulk head ceiling beneath the ensuite bathroom.
14. Mr Frizzell has estimated the cost of rectifying the defects in the waterproofing in the sum of $36,542. This sum is inclusive of preliminaries, contingency, builder's margin, GST and home warranty insurance. Mr Frizzell provides a breakdown for how he has arrived at this sum.
15. In his report, Mr Dohnt has identified defects to the slab edge beam, the roof framing and the floor framing. In particular, he states that the slab edge beam has not been constructed in accordance with the engineer's drawings. In respect of the floor framing, he states that this has not been designed adequately to bear the roof loading resulting in significant deflections of the floor and cracking of the plasterboard. Mr Dohnt considers that further damage and cracking is likely to occur if additional framing is not installed. Mr Dohnt considers these defects to be to a major element essential for the support and stability of the load bearing component of the building.
16. Mr Dohnt states that in his opinion the cost of rectifying the defects identified by him is $23,970, which is inclusive of builder's margin and GST.

Is there defective residential building work?

1. Based on the evidence reviewed above, including the uncontested expert evidence of Mr Frizzell and Mr Dohnt and the photographic evidence included in their reports, I am satisfied that the respondent breached the warranties stipulated in s18B of the HBA.
2. I have reviewed each item identified as defective in the reports of Mr Frizzell and Mr Dohnt. I am satisfied from the description and explanation which they provide in respect of each of these items that they did not comply with acceptable building practice. There is no expert evidence to contradict that of Mr Frizzell and Mr Dohnt. Having regard to the detailed explanations (which I have summarised above) as to why they consider the identified items to be defective and the photographs contained in their reports, I accept their evidence.
3. Having regard to the above factors, the respondent did not do the work with due care and skill (for the purposes of s 18B(1)(a) of the HBA), materials supplied by the respondent were not suitable for the purpose for which they were used (for the purposes of s 18B(1)(b) of the HBA), and the work did not result in a dwelling that is reasonably fit for occupation as a dwelling (for the purposes of s 18B(1)(e) of the HBA).
4. I therefore conclude that the respondent breached the warranties stipulated in s 18B of the HBA in relation to the works carried out by the respondent.

Should a work order or money order be made?

1. Section 48MA of the HBA provides that in respect of defective residential building work, the Tribunal is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome. Section 48MA does not prescribe or mandate a work order as the appropriate remedy for defective residential building work: Galdona v Peacock [2017] NSWCATAP 64 at [65]. The Tribunal is to make a discretionary decision. One of the factors relevant to the exercise of that discretion is the "preferred outcome" identified in s 48MA. The authorities have also identified other factors as being relevant to the exercise of the discretion.
2. In Kumar v Sabharwal [2017] NSWCATAP 200 at [30], the Appeal Panel considered that the fact that the builder was no longer licensed as being relevant to exercising the discretion not to order the preferred outcome of rectification by the builder.
3. The exercise of the discretion under s 48MA was also considered by the Appeal Panel in Galdona v Peacock [2017] NSWCATAP 64. At [64], the Appeal Panel said: First, the relationship between the parties had broken down. Secondly, the appellants did not acknowledge the poor standard of the work they had carried out. Thirdly, the Tribunal Member had severe reservations as to the appellant's ability to rectify the work with due care and skill. These findings were in our view sufficient to justify a decision that the preferred outcome of rectification by the appellants should not be ordered.
4. In Morrison v Moss [2019] NSWDC 746 at [453], Abadee DCJ considered one of the factors relevant to the discretion as being whether the owner can have confidence that the rectification work will be performed properly by the builder who originally did the work.
5. In my opinion, a work order is not appropriate in the present circumstances. The respondent is no longer licensed to perform the required rectification works.
6. However, even if the respondent remained licensed, I would still have had reservations as to the respondent's ability or willingness to rectify the work with due care and skill. The respondent has not acknowledged the defects in the work carried out. The respondent's director has not participated in the processes of the Tribunal. He has not served any evidence on behalf of the respondent. He failed to appear at the hearing on 6 July 2022 and did not provide any explanation for his failure to appear. In these circumstances, neither the Tribunal nor the applicant can have any confidence that the rectification work will be performed properly by the respondent.

What is the reasonable cost of the rectification work?

1. This then gives rise to consideration of the appropriate amount to order the respondent to pay the applicants.
2. Where a builder breaches a building contract, the owner is entitled to be compensated for the purpose of bringing the building works into conformity with the contract. This flows from the fundamental compensatory principle stated by the High Court in Haines v Bendall (1991) 172 CLR 60. At 63, Mason CJ, Dawson, Toohey and Gaudron JJ said: The settled principle governing the assessment of compensatory damages, whether in actions of tort or contract, is that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been in if the contract had been performed or the tort had not been committed... Compensation is the cardinal concept. It is the one principle that is absolutely firm, and which must control all else... [Citations omitted and emphasis added]
3. The application of the general compensatory principle in relation to a claim for breach of a building contract was considered by the High Court in Bellgrove v Eldridge (1954) 90 CLR 613.
4. The principles stated in Bellgrove v Eldridge, esp at page 617, may be summarised as follows. Where a plaintiff is entitled to have a building constructed in accordance with a contract, the plaintiff's damage is the loss sustained by the failure to perform this obligation. The loss can be measured only by ascertaining the work which is reasonably necessary to complete the building and rectify the defects complained of so as to give the plaintiff the equivalent of a building which is substantially in accordance with the contract.
5. The above principles apply to breaches of the statutory warranties. That is because the effect of section 18B of the HBA is to imply the statutory warranties within the contract. As Emmett JA said at [97] in Williams v Pisano (2015) 299 FLR 172; [2015] NSWCA 177: [97] Breach of a contractual warranty gives rise to an entitlement for damages measured by reference to the amount that is required to put the claimant in the position in which the claimant would have been had the warranty been performed.
6. Both Mr Frizzell and Mr Dohnt have estimated the reasonable costs of rectification of the defects which they have identified.
7. Both Mr Frizzell and Mr Dohnt have substantial experience in the building industry - some three decades in the case of Mr Frizzell and some four decades in the case of Mr Dohnt. They have set out in their report the nature and scope of the required rectification work. They have also provided a break-down showing how they have arrived at their estimate of the rectification costs. Having regard to these matters, I am satisfied that the estimates which they provide represent the reasonable costs of rectifying the defects identified by each of them.
8. For the above reasons, I consider the amount of $60,512 claimed by the applicant for the costs of the rectification works to be reasonable. Accordingly, the respondent is to pay the applicant the sum of $60,512 in respect of the rectification of the defects in the respondent's works.

Costs

1. Pursuant to r 38(2)(b) of the Civil and Administrative Tribunal Rules 2014 (the Rules), the Tribunal does not apply s 60 of the NCAT Act to matters allocated to the Consumer and Commercial Division of the Tribunal where the amount claimed or in dispute is more than $30,000 but rather has an unfettered discretion in relation to costs, although that discretion must be exercised consistently with judicial principle: see Lam v Steve Jarvin Motors Pty Ltd [2016] NSWCATAP 186 at [206].
2. The applicant seeks an order that the respondent pay his costs. That order is sought in the applicant's points of claim. I am satisfied that the respondent has been fairly on notice that a costs order has been sought by the applicant.
3. It has long been recognised that costs should follow the event, that is, the successful party should be compensated for costs incurred in the litigation by requiring the unsuccessful party to pay a successful party's costs in the absence of some unreasonable or wrongful conduct on the part of the successful party. In Latoudis v Casey (1990) 170 CLR 534 at 567, McHugh J said "the rational of the order [for costs] is that it is just and reasonable that the party who has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred".
4. The applicant has been successful in establishing that the respondent breached the statutory warranties stipulated in s 18B of the HBA, that a money order is appropriate and the amount of the money order sought by the applicant. It is just and reasonable that the applicant be compensated for the legal costs incurred in establishing his claim against the respondent.
5. I will make a costs order in favour of the applicant.

Orders

1. For the above reasons, I will make an order for the payment by the respondent to the applicant of $60,512, being the total of the rectification costs estimated by Mr Frizzell, ie, $36,542, and the rectification costs estimated by Mr Dohnt, ie, $23,970.
2. Accordingly, I make the following orders: 1. Visual Building Construction Pty Ltd (the respondent) must pay Moreno Martignago (the applicant) the sum of $60,512 within 14 days of the date of this order. 2. The respondent is to pay the applicant's costs of the proceeding on the ordinary basis, as agreed or assessed.

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

Amendments 29 August 2023 - Formatting amendments. 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: 29 August 2023