MDR Design and Construction Pty Ltd v Ferguson

Grounds of appeal

1. The Builder specified five grounds of appeal in the Notice of Appeal lodged on 30 August 2023. The first ground of appeal was that the Tribunal erred in finding that the landscaping was irrelevant to the determination of whether the Builder was liable in relation to waterproofing the walls of the building. The second ground of appeal was linked to the first ground. The Builder contended that, as a result of the first contended error, the Tribunal erred in failing to make a number of necessary findings, namely as to whether the landscaping undertaken by the Owners was contrary to the requirements of the NCC, whether the landscaping altered the finished ground level as constructed by the Builder in accordance with the engineer's drawings, as to whether the Builder was required to waterproof the vertical edges of the slab and the effect of the landscaping on the water ingress to the building and the moisture retained in the walls.
2. The third ground of appeal was that there was no evidence capable of supporting the finding that the solution for the permeability defect in relation to the walls put forward by the Builder's expert, namely rectifying the defective windows, was partial.
3. The fourth and fifth grounds of appeal were also to some extent linked to the first and second grounds of appeal. In its fourth ground of appeal the Builder contended that the Tribunal erred in implicitly finding that the landscaping was irrelevant to the determination of the appropriate method of rectification and an appropriate measure of damages by way the money order. Specifically, the Builder contended that the money order was unreasonable as it provided a gratuitous benefit to the Owners to remedy defects caused by landscaping constructed by them and for which the Builder was not responsible.
4. The fifth ground of appeal was that the Tribunal erred in failing to determine whether the installation of a damp proof course was required under the terms of the contract or by virtue of the implied warranties under the HBA. Again, the Builder contended that this error meant that the money order was unreasonable as it awarded an amount in excess of what the Owners would have obtained under the contract and provided a gratuitous benefit to remedy defects caused by the landscaping for which the Builder was not responsible.

The hearing of the appeal

1. On 13 September 2023 the Appeal Panel made orders and directions for the conduct of the appeal. Order 4 required the Builder to lodge with the Appeal Registry and give to the Owners by 4 October 2023, among other things, its written submissions in support of the appeal, all the evidence given to the Tribunal at first instance on which it was intended to rely, and a typed transcript of the relevant parts of the hearing if what happened at the hearing at first instance was being relied upon by the builder in the appeal.
2. On 26 October 2023, the appeal was listed for a compliance hearing on 1 November 2023, due to the non-compliance by the Builder with the orders made on 13 September 2023. The Builder lodged its written outline of submissions on 27 October 2023. On 31 October 2023 the Appeal Panel made orders by consent , among other things, extending the time for compliance by the Builder with Order 4 made on 13 September 2023 until 30 October 2023.
3. The appeal was heard on 9 November 2023. At the time that the hearing of the appeal commenced, the Builder had not lodged any of the evidence given to the Tribunal at first instance or a transcript of the hearing. After the hearing of the appeal commenced the Builder sought to hand up an Appeal Book comprising 2441 pages in four volumes.
4. Counsel for the Builder was asked why the Builder had not complied with the orders made by the Tribunal. The explanation was that there had been some misunderstanding by his instructing solicitors as to when a Reply to Appeal had been lodged by the Owners to the Notice of Appeal. This was plainly a wholly unsatisfactory explanation. Even if the Owners had not lodged a Reply, this would not excuse the Builder from complying with the Tribunal's orders. It must have been obvious to the Builder's legal representatives that the grounds of appeal made it necessary for the Builder to provide the Appeal Panel with the evidence at first instance and the transcript of the hearing.
5. The late provision of the Appeal Book meant that the Appeal Panel could not properly prepare for the hearing of the appeal. Counsel for the Owners was also obviously inconvenienced by the late provision of the Appeal Book. We indicated that we would reserve our decision on whether to permit the Builder to rely on the Appeal Book and that if we chose to permit it we would only take into account those parts of the Appeal Book which were drawn to our attention during the hearing of the appeal.
6. As it turned out, the Appeal Book contained only the evidence and submissions at first instance, the transcript of the hearing and the submissions on appeal. Both counsel referred extensively to the Appeal Book in the course of their oral submissions. We have decided to permit both parties to rely on the contents of the Appeal Book to the extent to which the contents were drawn to our attention during the course of the hearing of the appeal.
7. Not only did the late provision of the Appeal Book mean that the Appeal Panel was unable to properly prepare for the appeal. It also meant that the efficient conduct of the hearing of the appeal was compromised because extensive material was drawn to our attention for the first time during the hearing which we had no opportunity to previously absorb and consider. This material required close assessment after the hearing had concluded.
8. We consider further the implications of this breach of the Tribunal's orders later in these reasons on the question of costs.

Submissions

1. The Builder clarified at the hearing of the appeal that the financial impact of the issues raised by the appeal was the amount included in the money order for the chemical damp proof course, namely $60,360. The Builder submitted that this work was not necessary to rectify any water ingress caused by the Builder. There was no challenge by the Builder on appeal in relation to the balance of the money order made by the Tribunal, although the Builder maintained ( faintly) that a work order should be made for the balance of the work excluding the chemical damp proof course.

Grounds 1, 2,4 and 5

1. The Builder submitted that the Tribunal had erroneously found that the only relevant issue to determine was whether the Builder had complied with its obligations in relation to waterproofing the walls under section 18B HBA or otherwise, irrespective of the cause of the water ingress or which party was responsible for it. The Builder submitted that if actions and work by the Owners were entirely irrelevant, then the Owners could build a pool contrary to the contract, the construction plans and any relevant building standards, one side of which was the external wall of the house, and, because the external walls were supposed to exclude water the Builder would be responsible for any resulting water ingress. The Builder submitted this could not be the correct outcome.
2. The Builder submitted that the Tribunal could not determine if a chemical damp proof course was an appropriate remedy without determining that the cause of the water ingress was due to rising damp through the slab rather than through the side of the building due to the landscaping. The Builder thus submitted that the Tribunal failed to make necessary findings about the cause of the water ingress.
3. In relation to grounds 4 and 5, the Builder also submitted that the Tribunal should have first determined what was required under the terms of the contract in order to determine whether a particular remedy would result in a substantially similar house. Then, so it was submitted, the Tribunal ought to have determined whether the difference between what was constructed and that which was required under the contract was the sole result of the builder breaching section 18B HBA, or as a result of the Owners' conduct and, if both, the relevant proportions of responsibility to determine the appropriate remedy.
4. In written submissions in reply ( served a day late on the morning of the appeal hearing), the Builder also sought to characterise the asserted error of the Tribunal in failing to make necessary findings about the cause of the water ingress as a failure to consider a submission by the Builder that the Owners had breached a duty to mitigate their loss. The Builder also sought in its submissions in reply to characterise the asserted error of the Tribunal as a failure to provide adequate reasons.
5. The Owners submitted that there were two issues on which the building experts disagreed: first , whether there was only water entry through the windows, and secondly, whether there was rising damp through the slab. The Owners submitted that there was no discussion at all in the experts' reports about water ingress due to the landscaping and thus no expert evidence to support a finding that the landscaping was causative.
6. The Owners submitted that ,as the Tribunal found, the Nu-Rock wall blocks needed to be impermeable. It was not at all similar to brick or brick veneer buildings which are permeable and through which water egress is permitted through weep holes.
7. The Owners submitted that the Tribunal had made a finding of fact that there was rising damp in the building and relied on the Reasons of the Tribunal at [32]. In these circumstances, the Owners submitted that there was no alternative means of rectifying the problem other than a chemical damp proof course.
8. The Owners submitted that in these circumstances, it was irrelevant if the landscaping was also a cause of water ingress. The Owners submitted that if a plaintiff is able to establish that the defendant's breaches of contract are a cause of a particular loss, and the plaintiff will be entitled to be compensated in respect of that loss notwithstanding that there may have been other concurrent causes: Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322.
9. The Owners submitted that whilst the building contract did not make provision for a damp proof course, this did not mean that the installation of a damp proof course was not the appropriate and necessary remedy to rectify the breach by the Builder.
10. The Owners did not submit that they were prejudiced by the late contention that the Tribunal ought to have determined that the owners had failed to mitigate their loss. They submitted that this contention did not take the matter any further than the Builder's submission that water ingress was due to the landscaping. However the Owners submitted that they may be prejudiced by the new contention in the Builder's submissions in reply that the Tribunal's alleged error should be characterised as a failure to give adequate reasons.
11. In reply, the Builder submitted that the Tribunal had not made any finding that there was rising damp in the building and all that the Tribunal had done at [32] of the Reasons was to record a submission by the Owners.

Ground 3

1. The Builder submitted that the solution proposed by its expert, Mr Coombes, was not "partial" and went well beyond replacing the windows. It included repairing the external render and repainting the whole of the external walls with an appropriate primer and acrylic topcoat.
2. The Owners submitted that the Tribunal's characterisation of the Builder's solution as partial was correct .The Owners submitted that it was implicit in the arguments put forward by the Builder in relation to landscaping and the adequacy of the vapour barrier under the slab that there was water ingress other than solely by reason of the defective windows.

Leave to appeal

1. The Owners submitted that the Builder's challenges, expressed in various ways, to the Tribunal's findings as to the cause of the water ingress were challenges to a finding of fact: March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 at 517 - 519. It followed, so the Owners submitted, that the Builder required leave to appeal.
2. The Owners also submitted that the question raised by the third ground of appeal as to whether the solution for the permeability defect put forward by the Builder's expert was "partial" was a question of fact, requiring leave to appeal.
3. The Builder submitted that all of the grounds of appeal raised questions of law. In relation to grounds 1,2, 4 and 5 the Builder submitted that the Tribunal's conclusion that the landscaping was irrelevant or otherwise unnecessary to take into account was a failure to address a question of causation or alternatively a failure to consider the Owners' duty to mitigate its loss. In either case it was a failure to address a relevant consideration and thus a question of law. The Builder submitted that its alternative characterisation of the issue ( raised in its submissions in reply) as a failure to provide adequate reasons was also a question of law.
4. In relation to ground three the builder submitted that there was no evidence to support the finding that the builder's solution was partial and that this ground therefore also raised a question of law: Kostas v HIA Insurance Services Pty Ltd [2010) 241 CLR 390 at [91].
5. Insofar as any of the grounds of appeal required leave to appeal, the Builder sought such leave.

Analysis

1. It is convenient to focus on the issue raised by grounds 1 and 2 of the appeal. Putting to one side the alternative ways in which the Builder sought to characterise this issue, at its core, the Builder's primary contention was that the Tribunal ought to have made findings as to whether the cause of water ingress at sites other than the windows was due to the landscaping. More fundamentally, these grounds raise the issue of whether the Tribunal failed to ask and determine the correct question, namely what was the cause of the water ingress at sites other than the windows.
2. The practical scope of the dispute between the parties raised by the appeal is whether the Builder should be responsible for the cost of providing a chemical damp-proof course. The Owners contended that a damp-proof course was required because there is rising damp in the building. This was a contention which the Builder disputed, asserting in its submissions to the Tribunal that water ingress at sites other than the windows was due to the landscaping installed by the Owners.
3. At [32] of the Tribunal's Reasons, the Tribunal stated: "The owners' expert said that a chemically - injected damp course was required to prevent visible and observed rising damp as shown by damage in areas where there were not windows (defects in windows being an agreed source of water entry)."
4. Contrary to the submission of the Owners, we are unable to read this passage as a finding of fact by the Tribunal that there is rising damp in the building. We consider that in this passage, the Tribunal is simply recording the opinion of the Owners' building expert that a damp-proof course was required to address a problem of rising damp. This is emphasised by the Tribunal going on at [33] to record the differing opinion of the Builder's expert on this issue.
5. We are not able to discern anywhere else in the Reasons a finding of fact that there is rising damp in the building. Indeed the Tribunal did not make any finding as to the cause of water ingress at sites other than at the windows ,except in the sense of finding that the Nu-Rock wall blocks were permeable and permitted water ingress. The Tribunal concluded that a finding that the blocks were permeable was sufficient to sheet home liability to the Builder for all the rectification work sought by the Owners. However, as was the Owners' case, the Builder could only be liable for installing a chemical damp proof course if there was rising damp in the building.
6. The Tribunal relied on a passage in the evidence of Mr Coombes ( set out above at [13] ) as an acceptance that the wall blocks were permeable. However, in that passage Mr Coombes did not accept that there was rising damp but agreed that water was penetrating from outside the building. He agreed that if waterproofing had been properly applied there would not be any water ingress. His concessions were consistent with his opinion that a water -resistant coating was required to rectify the problem. It did not follow from his evidence that a chemical damp proof course was required to rectify rising damp.
7. We have concluded, with respect, that the approach taken by the Tribunal was erroneous. The only correct reason to order the Builder to pay for a chemical damp-proof course was if there was rising damp due to water ingress from the slab. A finding that there was rising damp was open on the evidence but it was not made.
8. If the Tribunal had made a finding that a cause of the water ingress was rising damp, then we would have accepted the submission of the Owners that this would have a sufficient basis to require the Builder to pay for a chemical damp- proof course ,even if another cause of the water ingress was the landscaping constructed by the Owners. However the Tribunal did not make a finding that a cause of water ingress was rising damp, so the principle illustrated by Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322 has no application.
9. Alternatively, if the Tribunal had found that the sole cause of water ingress at sites other than the windows was due to the landscaping, then we would have accepted the submission of the Builder that there would have been no basis to order the Builder to pay for a chemical damp- proof course. Even with the use of Nu-Rock wall blocks, it is not the case that the statutory warranties, such as due skill and care and fitness for purpose, operate to impose liability on the Builder for water permeability even if the cause of that permeability is wrongful conduct by the Owners.
10. However as no findings as the cause of water permeability at sites other than the windows were made , there is presently no basis to order the Builder to pay for the cost of a chemical damp-proof course.
11. We consider that the failure of the Tribunal to make findings about the cause of water permeability at sites other than the windows should be characterised as a failure to ask the correct question or a failure to take into account a relevant consideration. We consider therefore that it was an error or law, and thus leave to appeal is not required.
12. In the circumstances it is unnecessary to address the other grounds of appeal. However had it been necessary to address grounds 4 and 5, we would have accepted the Owners' submission that whilst the building contract did not make provision for a damp proof course, this did not mean that the installation of a damp proof course would not be the appropriate remedy if it had been found that the Builder had been in breach of the contract due to rising damp in the building.

Conclusions and orders

1. Although the Owner submitted, in passing, that a work order was an appropriate remedy rather than a money order, this was not a ground of appeal. In any event we see no error in the Tribunal's conclusion that a money order was appropriate in the circumstances. The only challenge by the Builder to the amount of the money order made by the Tribunal for $218,615.79 was that component representing the cost of installing a chemical damp proof course, for which $ 60,360 was allowed. We have decided that the Tribunal did not make the necessary finding of fact to justify an order requiring the Builder to pay the Owners for the installation of the chemical damp proof course.
2. In these circumstances it is necessary to remit the proceedings to the Tribunal to make findings in accordance with these reasons in order to determine whether the Builder should be required to pay an amount to the Owners for the cost of installing a chemical damp proof course. We see no reason why the Tribunal should be differently constituted in determining the remitted matter. Indeed we see considerable advantages in the same Tribunal Member determining the remitted matter ( if available to do so) as he has already heard the evidence. This may permit the Tribunal to determine the remitted matter without requiring further evidence from the parties, which would assist in reducing the further costs of the proceedings to the parties.
3. There is no reason why the Builder should not now be ordered to pay to the Owners that part of the money order made by the Tribunal which is not disputed, namely $158,255.79.
4. The costs order made by the Tribunal on 25 September 2023 will be set aside and it will be necessary for the Tribunal to reconsider the issue of costs after the determination of the remitted issue.
5. In relation to the costs of this appeal, whilst the Builder has been successful, his conduct of the appeal, and, in particular , his late service of the voluminous Appeal Book, was in breach of the Appeal Panel's directions and was unsatisfactory. It resulted in the appeal hearing being conducted inefficiently and led to considerable additional work for the Appeal Panel. In the circumstances our present view is that it is appropriate for the Owners to pay one half of the Builder's costs of the appeal as assessed or agreed.
6. Our present view as to the costs of the appeal was not a matter raised with the parties in argument during the hearing of the appeal. In these circumstances we will give the parties the opportunity to make written submissions in relation to the proposed costs order.
7. The orders of the Appeal Panel are : 1. Appeal allowed. 2. The order made by the Tribunal that the Builder pay the Owners $218,615.79 on or before 30 August 2023 is set aside. 3. The issue of whether the Builder should be required to pay the Owners for the cost of installation of a chemical damp proof course is remitted to the Tribunal to be determined in accordance with the reasons of the Appeal Panel. 4. Order that the Builder pay the Owners $158,255.79 within 28 days, being the Builder's non- disputed liability to the Owners in respect of the building contract dated 6 February 2019. 5. The costs order made by the Tribunal on 25 September 2023 is set aside on the basis that the whole of the costs of the hearing before the Tribunal at first instance will be determined after the issue remitted to the Tribunal has been determined. 6. The parties may lodge written submissions within 21 days in relation to the order for the costs of the appeal proposed in the reasons of the Appeal Panel.

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 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: 21 February 2024