Owners of Strata Plan 41100 v Pender & Sons Pty Ltd

District Court of NSW|2009-02-20|Before: Bryson JA, Santow JA, Jerrard JA, Wiliams JA, McMurdo J

CITATION: Owners of Strata Plan 41100 v Pender & Sons Pty Ltd [2009] NSWDC 59

HEARING DATE(S): 20 February 2009 and 5 March 2009

DECISION: Appeal is dismissed; parties to be heard on costs before final orders are made.

LEGISLATION CITED: Consumer, Trader and Tenancy Tribunal Act 2001, ss 67(1), 67(3), 67(7) and 68 Home Building Act 1989, ss 18B, 48A(1)(a), 48K and 92

Bowes v Shand [1877] 2 App Cas 455 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Cable v Hutcherson (1969) 123 CLR 143 Chapman v Taylor [2004] NSWCA 456 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 CASES CITED: Hospital Products Pty Ltd v United States Surgical Corporation (1984) 156 CLR 41 Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd [2006] QCA 159 Kalokerinos v HIA Insurance Services Pty Ltd [2004] NSWCA 312 Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409 Miller v Commissioner of Police [2004] NSWCA 356 Skinner & Edwards (Builders) Pty Ltd v Australian Telecommunications Corporation (1992) 27 NSWLR 567 Victims Compensation Fund Corporation v District Court of New South Wales [2002] NSWCA 355

Owners of Strata Plan 41100 - Plaintiff PARTIES: Pender & Sons Pty Limited - First Defendant Vero Insurance Limited - Second Defendant Consumer, Trader and Tenancy Tribunal - Third Defendant

Mr TJ Hancock for Plaintiff COUNSEL: Mr N Carney for First Defendant Ms M Dolenec for Second Defendant Submitting appearance for Third Defendant

Hicksons Lawyers for Plaintiff SOLICITORS: Georgiadis and Baker for First Defendant Mills Oakley Lawyers for Second Defendant Crown Solicitor for Third Defendant

1 This is an appeal by the body corporate as the owners of a block of townhouses at Alexandria against a decision of the Consumer, Trader and Tenancy Tribunal (per Mr John Bordon, Senior Member) given on 11 July 2008 in which its application for damages against the builder and the home owners warranty insurer as to certain underpinning work to the foundations of three units in the complex was dismissed. The appeal was brought pursuant to s 67(1) of the Consumer, Trader and Tenancy Tribunal Act 2001 which enables a party in the proceedings who is dissatisfied with the decision to appeal to this Court where the Tribunal decides a question with respect to a matter of law. If the appeal be allowed, an order was sought under s 67(3)(b) of the statute for the Court's decision to be remitted to the Tribunal for a rehearing of the proceedings according to law.

2 It was common ground that the only basis for an appeal was, as the statute says, on "a question with respect to a matter of law." In other words, the issue between the parties raised by the challenged decision must relate to a question of law and even though express reference to it may not have been made so long as something with respect to it had to be decided in order to dispose of the proceedings: Kalokerinos v HIA Insurance Services Pty Ltd [2004] NSWCA 312 in para [47] per Bryson JA, with whom Santow JA agreed. In Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd [2006] QCA 159 in para [4], Jerrard JA, with whom Wiliams JA and McMurdo J agreed, held that the correct construction of a contract involved a pure question of law. Further, in terms of authority, and about which there was no issue, the misapplication of legal principles, as opposed to their mere misdescription, constitutes an error of law: Skinner & Edwards (Builders) Pty Ltd v Australian Telecommunications Corporation (1992) 27 NSWLR 567 at 572 per Cole J; and, in showing that an error of law had occurred by applying a wrong principle of law, it was necessary to demonstrate that the decision-maker had done so from what was said or because the ultimate result, associated with the facts expressly or impliedly found, indicated a wrong principle had been applied: Chapman v Taylor [2004] NSWCA 456 in para [33] per Hodgson JA, with whom Beazley and Tobias JJA agreed. Those matters are relevant to take into account in determining the issues raised in this appeal.

3 The block of townhouses was constructed in 1991 and the plaintiff, the Owners of Strata Plan 41100, owned Units 38, 40 and 42 Brandling Street, Alexandria; it was the applicant before the Tribunal. The plaintiff engaged Pender & Sons Pty Limited, the first defendant and the first respondent at first instance, to perform the subject underpinning work after differential settlement of the foundations of the building occurred prior to 2000 and cracks appeared in the units concerned. The work was done by the first defendant in early-2002 but, on fresh cracks appearing, the plaintiff commenced the proceedings in the Tribunal in November 2005 for compensation as a "building claim" pursuant to ss 48A(1)(a) and 48K of the Home Building Act 1989 by reason of an alleged breach of contract by the first defendant. The claim was for $196,594 for the cost of rectifying the works. The second defendant, Vero Insurance Limited, was the home owners warranty insurer and was joined to the proceedings before the Tribunal as the second respondent for indemnity under a home building insurance policy pursuant to s 92 of the Home Building Act. The Tribunal on 11 July 2008 dismissed the plaintiff's claim and on 7 October 2008 ordered it to pay the costs of the respondents.

4 The present appeal was filed by way of summons on 8 August 2008 and process was amended on 10 October 2008 to add the Tribunal as the third defendant. On 16 October 2008 the Tribunal filed a submitting appearance, save as to costs. The appeal was thus argued by the first and second defendants who sought orders for its dismissal with costs.

5 The parties provided a statement of agreed facts in the following terms: "1. The plaintiff is a strata corporation which owns Units 38, 40 and 42 Brandling Street, Alexandria.

Prior to 2000, evidence of differential settlement of the foundations of the units was apparent, and the plaintiff sought advice and quotations from a number of builders for the control of future settlement movements.

The plaintiff sought quotations and advice from builders including Costin Structural Pty Ltd and McDonald Contracting Pty Ltd.

In about July 2001, the plaintiff sought a quotation from the first defendant.

In 2001, Costin recommended a possible need to underpin all of the foundations to a depth of 6m. The first defendant was unaware of the recommendation.

The plaintiff obtained a report from Jeffery & Katauskas Pty Ltd dated 28 September 2001 ('J & K Report').

On 10 October 2001, Alex Rubin who was a director of the plaintiff sent a fax to McDonald Contracting. The first defendant does not recall receiving that fax.

On 29 October 2001, the plaintiff sent a copy of the J & K Report to the first defendant.

The first defendant sent two quotations to the plaintiff in letters dated 14 November 2001.

The first defendant sent a clarification of the extent and type of underpinning proposed to the plaintiff in a letter dated 3 December 2001.

On 4 December 2001, the plaintiff and the first defendant signed a standard form written small building works contract.

The Tribunal found at page 4.2 of its reasons (and the parties agreed) that the contract between the plaintiff and the first defendant was express and in writing, and is to be found in: (a) the written small building works contract; (b) the two letters dated 14 November 2001; (c) the letter dated 3 December 2001; and (d) the J & K Report.

The longer quotation letter dated 14 November 2001 from the first defendant to the plaintiff includes the following statements: - Scope of works: As detailed in report from Jeffery and Katauskas Pty Ltd. - Procedure: Provide a structural engineers plans and specifications including inspection during progress and certificate of compliance on completion.

The first defendant engaged Mr D J Hall, a structural engineer, who prepared plans and specifications dated 20 December 2001.

The second defendant wrote a job specific home building policy dated 18 January 2002.

The first defendant did the work in early-2002.

In about August 2002, the plaintiff complained that fresh cracks had begun to appear in the building."

(There then followed in the statement specified findings by the Tribunal but about which there was apparent disagreement as to their status, relevance and whether they were findings of fact or of law or of a mixture of both; they are therefore omitted from this recitation and will be dealt with later.)

6 The errors of law said by the plaintiff to have been made by the Tribunal, and hence as grounding the appeal, were threefold: first, in construing the terms of the written contract between the parties the Tribunal took account of the subjective beliefs of the parties; second, in construing the terms of such contract the Tribunal took account of a pre-contractual document which was not part of the contract being known only to one party, the plaintiff; and, third, the Tribunal misconstrued the terms of the documents which comprised the contract.

7 It is convenient to observe at this point, and as was recognised by the Tribunal in its decision, that the contract between the parties was comprised of the five documents referred to in paragraph 13 of the statement of agreed facts. However, as the Tribunal added, "While it is accepted that those are the relevant documents, there is an issue as to what precisely was the contract" (emphasis in original). In that respect, it is helpful to highlight, as dealt with in paragraph 14 of the agreed facts, that the scope of the works to be performed by the first defendant was "as detailed in the report from Jeffery & Katauskas Pty Ltd" and the procedure included a requirement on the first defendant to "provide a structural engineers plans and specifications, including inspection during progress and certificate of compliance on completion." From those terms, the plaintiff's case to the Tribunal in a principal respect was that the contract was a typical "design and construct" contract which required the first defendant as the builder to produce a satisfactory result, which was not achieved as evidenced by the further cracking, and to do so by its structural engineer's plans and specifications. On the other hand, the first and second defendants adopted the position that the contractual terms required the first defendant to perform the works in accordance with the specifications provided by the plaintiff and this they did.

8 It is necessary also to point out that the express terms of the subject contract as to residential building work included an implied term pursuant to s 18B(f) of the Home Building Act to the effect of "a warranty that the work … will be reasonably fit for the specified purpose or result." That statutory warranty is subject to the satisfaction of two conditions, namely, that the owner expressly makes known to the builder the desired purpose or result and that the owner relies on the builder's skill and judgement.

9 In a detailed and comprehensive decision, the Tribunal identified the nature of the application before it, the defences raised by the builder and the statutory insurer, the agreed terms of the small building works contract, the positions taken by the parties and the effect of the Jeffery & Katauskas Pty Limited report (the J&K Report) in determining the scope of the works to be done. The decision then reasoned the Tribunal's conclusion leading to the dismissal of the claim. There is a need to consider each of those aspects in turn and to apply what the Tribunal found to the three grounds of appeal.

10 It is to be interposed for completeness that after reaching its substantive conclusion the Tribunal considered the cause of the further cracking but found it unnecessary to determine the question. As the Tribunal said: "I agree that it is not necessary for the Tribunal to determine the cause of the cracking. It is open to me to find that the claim should be dismissed on the basis that the owners have not proved the cause of the cracking and therefore failed to make good the alleged breaches of the statutory warranties by Penders. I have, however, considered both the evidence and submissions in relation to the likely cause being the severe drought period experienced in Sydney combined with the close proximity of the 2 Meleauca (sic) trees and the zone of influence in the area of the dwellings with the most cracking. It is at least a competing probable cause."

11 By reason of what was apparently seen from the evidence as the poor design carried out in the original construction of the building leading to problems with the foundations, the Tribunal thought there was added uncertainty as to the probable causes of the cracking. Of course, the plaintiff at first instance had the onus of establishing its case. The cause of the cracking, in my view, was a bald question of fact and not, therefore, reviewable in this appeal. I did not understand the plaintiff to suggest otherwise. However, the finding as to the cause of the cracking relates to submissions put by the defendants on the appeal that the appeal was futile, and should therefore fail, because the Tribunal dismissed the original claim not because of any error made in the construction of the contract but because the plaintiff failed to prove causation. The plaintiff, for its part, said the futility point involved irrelevant questions of fact and if otherwise its submissions succeeded the matter would have to be remitted to the Tribunal for a rehearing: see s 67(3)(b) of the Consumer, Trader and Tenancy Tribunal Act; on a rehearing fresh evidence, or evidence in addition to or in substitution for the evidence on which the original decision was made, may be given: see s 67(7) of the statute. This aspect will be dealt with later in light of the views reached on the questions of law.

12 Application to the Tribunal: The claim by the plaintiff for compensation was described by the Tribunal from particulars given by the plaintiff as being based on a failure by the first defendant to properly design and construct the underpinning so that the statutory warranty implied by s 18B of the Home Building Act was breached and the work was not performed in a workmanlike manner and in accordance with the plans and specifications; negligence and res ipsa loquitur were also relied on but, for present purposes, those two aspects may be put to one side.

13 Defences raised to the application: The first defendant denied any breach of the contract in that the underpinning work was not defective and conformed with the design. In addition, the builder relied upon the plaintiff's engineer in giving the quotation and the plaintiff engaged its own geotechnical engineer; as a builder, the first defendant constructed the underpinning in accordance with the structural engineer's specifications; and the subsequent cracking about which complaint was made was caused by water percolating through the foundations after completion of the work.

14 As to the insurer, the second defendant, it was recorded in the decision as adopting the builder's defences so that it was not liable under the policy of insurance to indemnify if those defences succeeded. The second defendant alleged the further cracking occurred because of the drought conditions and the presence of trees.

15 The contract between the parties: As the agreed facts indicated, the terms of the contract between the plaintiff and the first defendant, and as stated in the Tribunal's decision, comprised the standard form of small building works contract, quotation letters, a letter clarifying the works and the J & K Report. Principally, the Tribunal noted from one of the quotation letters of 14 November 2001, as incorporated into the small building works contract dated 4 December 2001, that the scope of the works was "as detailed in the Jeffery & Katauskas report dated 28 September 2001." The Tribunal acknowledged that it was agreed the contract was as evidenced by and contained in those documents. However, as the Tribunal correctly observed, there was, in effect, an issue as to what the contractual terms actually meant.

16 Positions taken by the parties: As to the nature of the contract, the Tribunal attended to the competing positions of the parties. The plaintiff's approach was put by it in this way: "The owners claim that this is a typical 'design and construct contract' where it is incumbent on the builder to produce a satisfactory result. It was manifestly not a case where 'the promise was only to do the work described in the agreed drawings, the (owners) being satisfied, on their own engineer's advice, that the work so done would operate or carry out this scheme or project that they proposed:' Cable v Hutcherson ((1969) 123 CLR 143). The owners did not give Penders any drawings or specifications. Penders itself expressly undertook that task. The 14 November 2001 quotation expressly provided that Penders must 'provide structural engineers plans and specifications including inspection during progress and certificate of compliance on completion.' " ( original emphasis )

17 The Tribunal detailed at some length the contrary approach by the first defendant. Fundamental to that approach, as the Tribunal noted, was that "according to Penders the true nature of the contract was that it was one for a particular job, namely partial underpinning as per specifications of the J & K report…Penders did what they were told as opposed to the owners telling them what they needed. The contract, it is argued, was almost identical to the contract in Cable v Hutcherson."

18 The first defendant's position was expansively dealt with by the Tribunal in a number of respects, in the context that it did not believe its task was to stop all cracking, commencing with pre-contractual steps taken by the plaintiff to arrest the cracking by obtaining recommendations from consultant structural engineers. For instance, the plaintiff obtained a report from Costin Structural Pty Limited of a possible need to pier to 6 metres but the first defendant was not provided with and was unaware of that report. In the result, the plaintiff was said to have advised McDonald Contracting, as a possible tenderer for the work, "as a compromise it is specified what the depth to which the piers must go to" - the first defendant was unaware of the contents of that advice. In any event, in inviting the first defendant to quote on 20 July 2001 the plaintiff was recorded by the Tribunal as specifying the scope of works as "construct underpinning to front walls, pathway walls and intermediate walls." In this historical pre-contractual period, the Tribunal referred to the decision by the plaintiff to seek advice from a structural and geotechnical engineer that would specify the correct works to be carried out. And, so, the J & K Report came into existence which, as the first defendant argued to the Tribunal, became fundamental to the contract in terms of the reliance on it for the scope of work. From this, the Tribunal noted the first defendant's position as follows: "The scope of work was specified to be partial underpinning of the building. The contract between the two parties consisted of a written quote dated 14 November 2001, its acceptance by a signed standard form of contract and the J & K report. The J & K report spells out the compromise. Penders did the work as specified. The risk which the owners were aware of through their reports and knowledge could have been avoided by checking the soil profile. The J & K report refers to the lack of such data. The owners from their knowledge of previous reports unknown to Penders should have contracted to underpin the structure to a depth of 6 metres if necessary (Costin)."

19 Thus, it will be apparent from the historical progress of this matter as recited by the Tribunal that the first defendant's submissions were viewed by it as stressing the importance of the J & K report, a report which was expressly part of the subject building contract. As the Tribunal recorded in stating the first defendant's position: "It (the J & K Report) was central to the preparation of Pender's quotation. The evidence of Kieran Pender was that 'the most important was what type of underpinning was to be undertaken.'…

Penders also make reference to Kieran Pender's evidence that he took into account in preparing the quotation the recommendation by J & K of a minimum founding level for underpins of 2.0 metres below ground level (apparently the first defendant actually took the depth to 2.2 metres)…"

20 The Tribunal recorded that the second defendant relied on the scope of works being "as detailed in the report of Jeffery & Katauskas" and that "it was J & K's assessment that the depth of 2.0 metres would be sufficient to control the future settlement movement caused by the reactive soils."

21 In reply to the contentions of the builder and the insurer, the Tribunal recorded the plaintiff's submissions in this way:

"…when the contractual documents are read together, the design and specifications of the underpinning were not incorporated into the contract. Penders was contractually bound to provide them through an engineer of its own choosing. The owners contend that the J & K report, at best, provided guidance as to a preliminary design but left the final design decisions to the engineer engaged by Penders and left Penders with the obligation of constructing the underpins in accordance with those designs and specifications. Penders had engaged D.J. Hall Structural Engineers to perform the task of preparing the plans and specifications. The owners had no contractual relationship with Mr Hall or his firm…The owners contend that Mr Hall asserted the right to make the final decision about the depth and base on the pillars as being an uncontentious proposition. This does not relieve Penders of the obligation to perform the work in accordance with the contract. If Mr Hall's designs and specifications were not capable of producing the result which Penders contracted to produce they would have breached the contract."

22 The Jeffery & Katauskas report: After recognising the importance of the J & K Report in determining what the contract between the parties was, the Tribunal attended to what it said. On this, the parties were widely apart so that it is necessary to review the effect of the J & K Report.

23 Essentially, as the Tribunal recognised, the plaintiff argued that the J & K Report itself did not contain any plans or specifications but rathe recommended a structural engineer prepare designs for the underpins. That, as it transpired, was the role of Mr Hall as provided for in the procedure stated in the first defendant's accepted quotation in the letter of 14 November 2001 and as forming part of the eventual contract. The plaintiff put that it would have been impossible for the work to have been performed by the first defendant only on the basis of the J & K Report so that its recommendations were for a preliminary design only based on usual experience and, it was emphasised, a structural engineer should prepare the designs. In other words, the Tribunal noted the plaintiff's case as being that the J & K Report in terms "identified the problem and the required result for them did not define how the result was to be achieved…that result was to be achieved…ultimately in Pender's hands, advised by Mr Hall…"

24 The J & K Report, after a site visit on 21 September 2001 by one of its directors Mr BF Walker (a consultant geotechnical and environmental engineer), stated its task was to provide opinion and comment on: + "The nature of the underpinning requirements for the building. + Whether underpinning should be continuous or not. + Required depth for underpinning. + The extent of underpinning. + The possible effect of the melaleuca trees on the clay foundation."

25 In summary, its recommendations as to the proposed underpinning in presently relevant respects were - (i) It was appropriate to provide underpinning to the walls supported on the high level footings to control future settlement movements.

(ii) The underpinning should be founded at a similar level to the basement structure for uniformity of future support and potential movements.

(iii) At the northern end underpinning to about 3.0 metres below ground level would be required and along the southern side at about 2.2 metres. General experience in Sydney has been for seasonal shrink/swell movements to about 1.5 metres below surface level. Therefore, as a compromise, a minimum founding level for underpins at 2.0 metres below ground level was recommended.

(iv) The underpinning need not be of a continuous form and underpins would be anticipated spaced at about 1.5 metre centres; the spacing would be determined by the structural capacity of the existing footings.

(v) In the absence of subsurface data, suitable design bearing pressures for the underpins could not be confirmed but, based on usual experience, underpins founded at 2.0 metres below existing ground level could be adopted for preliminary design. The nature of the founding strata would require confirmation during construction.

(vi) A structural engineer to prepare designs for the underpins.

26 In its decision, the Tribunal referred to and accepted as accurate the submissions by the insurer as to the recommendations in the J & K Report. Those submissions, in essence, identified the recommendations as stated by me above from the J & K Report, particularly as I have emphasised them. Those aspects are matters of fact and, I think, the Tribunal has accurately recorded them.

27 Importantly, it may be discerned in essential respects from those recommendations that the J & K Report was suggesting underpinning of the building to a partial degree, and not of a continuous form, to the extent stated. Having in mind general experience where varying depths of underpinning were appropriate, a compromise on this site of a minimum founding level of 2.0 metres was recommended but subject to confirmation of the founding strata during construction. A structural engineer should prepare designs for the underpins. That, it seems to me, sufficiently identifies the scope of the works here.

28 Conclusions reached by the Tribunal: The Tribunal said after analysing and considering the submissions it accepted the "broad thrust" of the submissions by both the builder and the insurer. It was complained by the plaintiff on appeal that thereby the Tribunal had not itself reasoned the issues so that any infection in the submissions of the builder and of the insurer were errors adopted and made by the Tribunal. And, so the argument went, where those submissions dealt with irrelevant or inapplicable matters in reaching a decision then the Tribunal itself was to be found as making appellable errors of law as set out in the grounds of appeal. I do not agree. The Tribunal accepted the "broad thrust" of the defendants' submissions and not the detail, or even the generality, of each and every submission put. In my view, the formula used by the Tribunal, not uncommon in judgment writing but perhaps of arguable utility as shown by the present case, was a concise and compendious way of expressing its concluded view against the owners. Indeed, having approached the matter that way, the decision then went on to reason the issues by reference to particular aspects. At most, in my view, the earlier references by the Tribunal to particular aspects of the parties' submissions did not represent conclusive reliance on them but only as part of the context and reasoning process leading to those specified matters on which it did rely.

29 Those specified matters, as I have suggested, were then stated in the Tribunal's decision. In summary, although it was in issue that these were findings of law as said by the plaintiff or findings of fact (or, alternatively, findings of mixed fact and law) as said by the defendants, it was common ground that the Tribunal found - (a) The contracted scope of works was as detailed in the J & K Report.

(b) The builder was responsible for engaging a structural engineer to provide a design in accordance with the scope of works.

(c) The builder only undertook to provide a structural engineer's plans and specifications to give effect to the recommendations in the J & K Report.

(d) The purpose of the underpinning was an attempt to control future settlement of the building and it was to be done as detailed in the J & K Report.

(e) The purpose of the work that the owner made known to the builder was to install underpinning in accordance with the recommendations in the J & K Report.

(f) The nature of the founding strata would require confirmation during construction and this was done.

(g) The constructional contractual documents when read together specified the designer's specifications of the underpinning and were incorporated into the contract.

(h) The J & K Report was not just a guidance for a preliminary design.

(i) The structural engineer's role was specific and limited.

(j) The solution was a compromise to try to underpin the areas between Units 38 and 40 and not the rest.

(k) There was no onus on the builder to find a geotechnical engineer.

(l) There was no onus on the builder to override the J & K Report and repair the whole structure.

30 On those findings being made, it inevitably followed that the owners' application for compensation against the builder and, to the extent necessary, indemnity from the insurer was unsuccessful. The later finding that the owners had not established the cause of the further cracking only served to reinforce that conclusion. Nevertheless, the issue then arises whether, according to the grounds of appeal, any one or more of the Tribunal's findings represented a question with respect to a matter of law.

31 However, before turning to that issue it is convenient to first address the nature of the subject contract. This was central to many of the submissions put on appeal and comprehends the issue of the implied statutory inclusion in the contract of the express warranty under s 18B(f) of the Home Building Act that residential building work will be reasonably fit for the specified purpose or result.

32 It may be undoubted, in my view, that as a general proposition the terms of a contract involve a question of fact whereas the meaning or construction of those terms involves a question of law: see Bowes v Shand [1877] 2 App Cas 455 at 462; Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd [2006] QCA 159 per Jerrard JA in para [4]; Chapman v Taylor [2004] NSWCA 456 per Hodgson JA in para [25]; and Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 164 in para [27] per Heydon JA.

33 The terms of the contract here were as agreed as being comprised in the five documents specified in the agreed facts. The plaintiff submitted that the contract was a typical "design and construct contract" which required the builder to produce a satisfactory result; the first defendant, on the other hand, submitted that the contract was one to do the underpinning work in accordance with the scope of works specified in the J & K Report as incorporated in the contract. The findings of the Tribunal clearly show it categorised the contract in the latter way in favour of the builder. The distinction arose for determination in Cable v Hutcherson Bros Pty Ltd (1969) 123 CLR 143 in which the building contract described the work by reference to drawings and a written specification as to which the building contractor was required to "execute and complete the works shown on the contract drawings and described in the specification." The similarity with the subject contract here by identifying the scope of works as being detailed in the J & K Report with the provision of a structural engineer's plans and specifications will be obvious. It was held (at 151) by Barwick CJ, with whom McTiernan, Kitto, Menzies and Windeyer JJ agreed, that the contract involved a promise by the builder to do no more than carry out the specified work in a workmanlike manner. As the Chief Justice remarked, in a manner consistent I think with the contractual terms here: "The description of the 'works' in the portion of the articles of agreement…includes a reference to the specifications. The respondent's promise…is to do the work shown in the drawings and described by or referred to in the specification and conditions…"

34 It therefore follows, and I so find, that the Tribunal was correct as a matter of law in construing the contract as being one in which the builder promised to do the work in accordance with the scope of works specified in the J & K Report as designed by the structural engineer's plans and specifications. It was not a contract to achieve a satisfactory result.

35 The issue then arises of the effect on the contract of s 18B(f) as to the statutory warranty to make it one to produce a result reasonably fit for the specified purpose, namely, to arrest the cracking in the building. Such an implied provision did not arise in Cable v Hutcherson because it was not then enacted. The Tribunal found against the application of s 18B(f) in that the two statutory prerequisites were not met, that is, the owners must expressly make known to the builder the purpose or desired result and the owners must show that they relied on the builder's skill and judgement.

36 As indicated above, the Tribunal found on the evidence that the purpose made known to the builder by the owners was to perform the work in accordance with the J & K Report and that the owners relied not on the skill and judgement of the builder in respect of the scope of works but rather on the J & K Report. Those findings are findings of fact and it was not suggested for the plaintiff that they were not reasonably open on the evidence. Accordingly, no question of law arises on this aspect and s 18B(f) is to be found as inapplicable in this case.

37 As stated above, the plaintiff's summons on appeal effectively stated three grounds of appeal. Each may be considered in turn.

38 Ground 1 - Subjective beliefs of the parties: This ground pleaded an error of law by the Tribunal in reaching its decision by relying upon what was called the subjective beliefs of the parties in two respects: first, the belief of the builder that it did not believe the task it had was to stop all cracking in the building; and, second, the knowledge of the owners, unknown to the builder, of pre-existing engineering problems at the site where Costin as structural engineers engaged by the owners in 2001 had earlier suggested a possible need to pier to 6 metres.

39 For the plaintiff, reliance was placed on what was urged as the cardinal principle of contract law that a contract was to be construed objectively by reference to the words and actions of the parties at the time they made the contract. Reference was made, in particular, to Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 and, specifically, to what Mason J said at 352. Also, the plaintiff's counsel referred to the like proposition stated by Gibbs CJ in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 61-62. The second defendant, supported by the first defendant, put that the alleged findings by the Tribunal were not of that character at all but simply part of a summary of the parties' submissions; acceptance by the Tribunal of the "broad thrust" of the submissions put for the builder and insurer did not, so it was said, elevate those submissions into findings by the Tribunal.

40 I have earlier commented on the effect of the reference in the Tribunal's decision to the "broad thrust" terminology and will not repeat it. Suffice it to say, in my view, in no part of the Tribunal's reasoning dealing with its conclusion was any reference made to those earlier "subjective beliefs" of the parties. I am satisfied that those complaints by the plaintiff are not soundly made and no error of law has been shown. Ground 1 in the appeal therefore fails.

41 Ground 2 - Document known only to one party: This ground pleaded that the Tribunal in reaching its decision acted upon a facsimile transmission dated 10 October 2001 from a Mr Alex Rubin on behalf of the plaintiff to McDonald Contracting during the tendering process for the works in which the walls to be underpinned, the spans and the depth of the piers were specified. The transmission was found not to have been received by the first defendant and was not part of the contract.

42 Counsel for the plaintiff again relied upon Codelfa Construction (per Mason J at 352) to emphasise that in construing a contract recourse is to be had only to the facts known to both parties. Here, as it was submitted, the Tribunal relied upon the transmission to reach the significant findings that the plaintiff wanted the underpinning done cheaply and that the contract with the first defendant was a compromise of what was really required to do the job properly; that "compromise" approach was said to have been followed by the builder in the J & K Report which formed part of their instructions. In the result, the Tribunal concluded by agreeing with "the submissions by Penders that J & K were expert geotechnical engineers. Their compromise solution was to try to underpin the areas between 38 and 40 and not the rest." Counsel put that thereby the whole of the Tribunal's decision was "infected."

43 The second defendant, again supported by the first defendant, resisted this ground on a similar basis to that put in Ground 1. Specifically, it was submitted, in its reasons for decision the Tribunal did not make any finding that the plaintiff wanted the job done cheaply or that what it contracted for was a compromise. Indeed, it was the J & K Report itself which referred to a "compromise" and, even then, the compromise was its own expert opinion from experience as to the appropriate depth for piers in the Sydney area to a minium level of 2.0 metres and not from anything stated in the facsimile transmission.

44 For similar reasons expressed as for Ground 1, I am not satisfied Ground 2 has been established. The facsimile transmission from Mr Rubin to McDonald Contracting was not known to the first defendant and formed no part of the agreed contractual terms between the owner and the builder. At most, in my view, it represented a recitation by the Tribunal of background circumstances and context in which the parties later made their contract. Importantly, however, that was in terms of the scope of works as detailed in the J & K Report. The J & K Report itself talked about a "compromise" in respect of the underpinning to a depth of 2.0 metres but, as the second defendant correctly submitted, by reason of its own experience in the Sydney area of seasonal shrink/swell movements and not from what Mr Rubin said. I discern no irrelevant reliance by the Tribunal on Mr Rubin's communication. Therefore, Ground 2 has not been made good.

45 Ground 3 - Misconstruction of the contract: The plaintiff's basis for the challenge on this ground was that a reading of the contractual documents showed that the designs and specifications of the underpinning were not incorporated into the contract but only that the first defendant as the builder was bound to provide them through a structural engineer (it turned out to be Mr Hall) of its own choosing. Given that it would have been impossible for the builder to carry out the works only on the basis of the J & K Report, then the design for the underpinning was in the hands of the first defendant through its structural engineer both as to the preliminary design and during construction. To the extent the Tribunal construed the contract as requiring the works to be as detailed in the J & K Report, thus limiting the role of the structural engineer to giving effect to a design of the underpinning as recommended in the J & K Report, it erred as a matter of law because there were no designs or specifications stated in the J & K Report or in any of the other contractual documents.

46 For the defendants, the submission was that the Tribunal correctly construed the agreed contractual documents. In essence, it was put that the J & K Report provided the opinion and advice on the method of controlling the movement of the piers and the structural engineer provided the design and structural assessment to achieve the recommendations in the J & K Report. Those recommendations became part of the contract as the specified scope of works and the engineer's design was limited to achieving that scope of works as specified by J & K. In that sense, as it was put by the defendants, the contractual arrangement was similar to that in Cable v Hutcherson whereby the builder was found to have promised to do no more than carry out the specified works in a workmanlike manner. That, as it was said, the builder did here and such a finding by the Tribunal was an unappellable question of fact.

47 I have summarised earlier in paragraph 29(a) - (c), (e) and (g) - (i) the directly relevant findings of the Tribunal which affect this ground. In its decision, the Tribunal said: "Viewed objectively the contracted scope of works was as detailed in the J & K report. While Penders was responsible for engaging a structural engineer to provide a design, the engineer was to develop the design in accordance with that scope of works. Pender only undertook to provide a structural engineer's plans and specifications to give effect to the recommendations in the J & K report…Hall provided the design and structural assessment to achieve the recommendations of J & K…

…I must reject the submission by the owners that when the contractual documents are read together the design and specifications of underpinning were not incorporated into the contract and Penders was contractually bound to provide them through an engineer of its own choosing. I reject the proposition that the J & K report at best provided guidance as to a preliminary design but left the final design decisions to the engineer and left Penders with the obligation of constructing the underpins in accordance with those designs and specifications.

On my reading of the document (the J & K Report) I see that the structural engineer's role was specific and limited…Their (J & K) compromise solution was to try to underpin the areas between 38 and 40 and not the rest. J & K suggested, in the absence of information, to try to find adequate bearing pressures which were found and certified by Hall. I agree that this did not place the onus on Penders to get a geotechnical engineer, override the J & K report, repair and the whole structure…

In short, to read the J & K Report in the way that the owners suggest it should be read would give little or no content to the scope of works in the contractual documents between the parties. Looked at objectively, the contractual documents cannot sensibly be read as placing an onus on Penders to obtain a geotechnical engineer where there had been experts engaged by the owners, and what was needed to repair the whole structure."

48 I think the short answer against the plaintiff's submissions on appeal is that the Tribunal found the structural engineer's plans and specifications to be incorporated into the contractual arrangement. That, in my view, is an unappellable finding of fact: see Kalokerinos in para [61]. Once that be accepted, as I think it must, then it inevitably follows that the scope of works was as detailed in the J & K Report and the builder had a contractual obligation to engage a structural engineer to provide a design in accordance with that scope of works. In other words, and as the Tribunal found as a fact, the builder only undertook to engage the structural engineer to give effect to the accepted recommendations in the J & K Report. Ground 3 has not been established.

49 The second defendant submitted that even if one or more of the grounds of appeal be made out it was, in any event, futile to remit the matter to the Tribunal for a rehearing. That was so because the Tribunal found as a fact that the owners had not proved the cause of the cracking and therefore failed to make good the alleged breaches of contract. For the plaintiff, it was put that once a ground of appeal had been established then the appeal had to succeed and there was no option other than to remit the matter to the Tribunal for a rehearing. In view of the findings made disallowing the grounds of appeal it is strictly unnecessary to decide this issue, but, as it was fully argued, I think it appropriate to deal with it.

50 Section 67 of the Consumer, Trader and Tenancy Tribunal Act provides the relevant statutory scheme in this respect. If the Tribunal decides a question with respect to a matter of law a dissatisfied party to the decision may appeal to the Court against the decision: sub-s (1). After deciding the question the Court may, unless the decision is affirmed, make such order as should have been made by the Tribunal (para (a)) or remit it to the Tribunal for a rehearing of the proceedings (para (b)): sub-s (3). If a rehearing is held, fresh evidence or evidence in addition to or in substitution for the evidence on which the original decision was made may be given on the rehearing: sub-s (7).

51 It will be clear that whether a particular appeal has utility depends upon the nature of the appeal granted by s 67 and the relief available if successful. In Kalokerinos Bryson JA, Santow JA agreeing, said (in para [47]): "A decision on 'a question with respect to a matter of law' in s 67(1) must be a decision on something which arose or was in issue or was debated in the proceedings; something which had to be decided in order to dispose of the proceedings , whether or not it was expressly referred to in the decision. The Tribunal may decide on such issue without overtly referring to it…express advertence to the matter of law is not necessarily required, and the decision might be with respect to a matter of law even though the matter of law is not mentioned, if some decision with respect to it was necessarily involved in the decision ." ( emphasis added )

52 To a similar effect, in Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409 at 419, Moffitt P stated as follows: "It is not sufficient to show that some error of law appears in the judgment or during the course of the trial. The error has to be one upon which the decision depends, so the decision is vitiated by the error...It will not suffice to establish that one or some only of a number of alternate findings upon which the decision was given involved errors of law, if one alternative involved no error of law . Even if that alternative involved an error the appellant will fail if the error is of fact." ( emphasis added )

53 The Tribunal's finding that the owners had not established the cause of the cracking, a finding of fact, determined in an operative sense the dispute between the parties regardless of any alleged errors of law as said to arise here from the grounds of appeal or from the nature of the subject contract as one to achieve a particular purpose or as one to perform a specified job. In other words, that finding of fact disposed of the proceedings before the Tribunal and even if errors of law otherwise arose, as the grounds of appeal pleaded, they were not decisions, as Kalokerinos defined, "necessarily involved in the decision." And, as required by Leichhardt Municipal Council, "the error has to be one upon which the decision depends, so the decision is vitiated by the error"; an error of law will not suffice if some alternate findings supporting the decision involved no error of law. This, in my view, is the position in the present case.

54 It follows from this reasoning, on my approach, that s 67(1) in providing a right of appeal as to a question of law does so only in respect of such a question which necessarily had to be decided in the proceedings in order to dispose of them. The subject proceedings could properly have been disposed of by the factual finding as to the cause of the cracking not having been established by the owners regardless of any supposed question of law. If it were otherwise, then, in my view, any appeal would be academic and advisory only. As McColl JA said in Miller v Commissioner of Police [2004] NSWCA 356 in para [30], "the appeal is academic and should be dismissed." Her Honour there adopted what Heydon JA (with whom Sheller JA and Einstein J agreed) found in Victim's Compensation Fund Corporation v District Court of New South Wales [2002] NSWCA 355 in para [27] as to the nature of a judicial determination in finally deciding a controversy but not in an advisory or hypothetical way.

55 Such a construction of the right of appeal given by s 67(1) makes sense in terms of s 67(3) as to how the Court may dispose of an appeal and of s 67(7) in providing for a rehearing. If the question of law was unnecessary to dispose of the proceedings then any rehearing by the Tribunal on a remittance by the Court, in my view, would have no utility. Therefore, in the circumstances of this case, my view is that it would be futile to remit the matter to the Tribunal even if one of the grounds of appeal had been made out.

56 The provisions of s 68 of the statute, which provide for rehearings by the Tribunal, lend support to the approach I have expressed as to a s 67 appeal. It would be surprising, I think, if an advisory or ineffective decision on a question of law, even though erroneous and which was unnecessary to be decided to determine the issues, could give rise to a complete rehearing of the proceedings under s 67 when the facility for a complete or partial rehearing is provided by s 68 to do so but only to address a substantial injustice.

57 The only question with respect to a matter of law in the present proceedings, arguably so in light of the decision in Cable v Hutcherson but see Kalokerinos, was the construction of the building contract between the parties. Otherwise, the three grounds of appeal involved no question of law. In any event, the decision of the Tribunal that the plaintiff as the owners of the building had not established the cause of the cracking in the walls, a finding of fact, was unappellable and relevantly finally determined the dispute. Even if one of the appeal grounds had been made out as a question of law any rehearing would be futile.

58 The appeal must be dismissed. I see no reason why costs should not follow the event in the ordinary way but as the plaintiff wished to be heard on costs I will do so before making final orders.

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Judgment (106 paragraphs)

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Cases Cited (10)