Petropoulos v CPD Holdings Pty Ltd t/as The Bathroom Exchange

Solicitor: Gerald Aronstan Solicitor & Attorney (Respondents) File Number(s): AP17/45447 Publication restriction: Nil Decision under appeal Court or tribunal: Civil and Administrative Tribunal Jurisdiction: Consumer and Commercial Division Citation: Unreported Date of Decision: 22 September 2017 Before: M Eftimiou File Number(s): HB 16/09770 HB 16/16583

Overview

1. A builder, CPD Holdings Pty Ltd t/as The Bathroom Exchange, renovated a bathroom and an ensuite bathroom for a homeowner, Ms Petropoulos. The contract for residential building work specified 900 mm x 900 mm areas for shower recesses. When the renovations were complete, the dimensions for the shower recesses was 850 mm x 850 mm. The Tribunal at first instance dismissed the homeowner's claim, other than making a work order under s 48O of the Home Building Act 1989 (NSW) (HBA), that the builder repair a chip on the bath.
2. The homeowner appealed from the Tribunal's decision. In an earlier decision we decided that by making the shower recesses smaller than the dimensions specified in the contract, the builder had breached a statutory warranty: Petropoulos v CPD Holdings Pty Ltd t/as The Bathroom Exchange [2018] NSWCATAP 72 at [31]. That warranty was that "the work will be done … in accordance with the plans and specifications set out in the contract" in respect of the size of the shower recesses: HBA, s 18B(1)(a). We dismissed the remaining grounds of appeal.
3. We have decided to deal with the question of an appropriate remedy for the breach of the statutory warranty by way of a new hearing: Civil and Administrative Tribunal Act 2013 (NSW) (NCAT Act), s 80(3). We have also decided not to permit fresh evidence on the new hearing. Evidence as to the appropriate remedy has been given in the proceedings before the Tribunal. The "just, quick and cheap resolution of the real issues in the proceedings" suggests that the parties should not be given an opportunity to re-run their case on appeal: NCAT Act, s 36(1). Despite making a direction that no fresh evidence be filed, the homeowner purported to rely on fresh evidence from her expert building consultant, Mr Coombes dated 28 May 2018. We have not considered that evidence.
4. The issues in these proceedings are: 1. Has the homeowner waived any right she may have to damages? 2. What remedy, if any, is appropriate for the breach of the statutory warranty? In particular: 1. Should the Tribunal award damages, rather than making a work order? 2. Is the work proposed by the homeowner necessary to produce conformity with the contract? 3. Is altering the size of the shower recess areas unreasonable, impractical, unfair or inequitable? 4. Is a limited work order a reasonable course to adopt? 5. Should the homeowner be awarded damages for consequential loss?

Has the homeowner waived any right she may have to damages?

1. The builder submitted that, based on the factual findings made at first instance, the homeowner "informally agreed to or approved the supply and installation of showers 850 mm x 850 mm". According to the builder, that conduct constituted waiver of any right to damages: Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46; (2013) 250 CLR 303 at 315; Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570 at 599-600.
2. Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd is a case about whether client legal privilege had been waived by a firm of solicitors disclosing documents to the solicitors for an opposing party. Waiver in that context is about abandoning a right or privilege. Similarly, in the context of contractual obligations, a right such as the right to terminate a contract for breach or repudiation, may be waived: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570 at 599-600. The waiver has to be carried out by an intentional act whereby a person abandons a right by acting inconsistently with that right. The builder identified the right to damages as being the right which the homeowner has waived.
3. Section 48O of the HBA gives the Tribunal a discretion to make certain orders if the builder has breached a statutory warranty. Neither that provision, nor any other written or unwritten law, gives the homeowner a right to a remedy for breach of a statutory warranty. Consequently, the doctrine of waiver does not apply.

What remedy, if any, is appropriate for the breach of the statutory warranty?

Parties' submissions

1. The homeowner submitted that she should be awarded damages for the cost of completely re-constructing the ensuite and bathroom with 900 mm x 900 mm shower recess areas. The builder submitted that the homeowner should not receive damages because the rectification work proposed by the homeowner is clearly unreasonable. Instead, the builder submitted that a work order should be made to make the shower recesses bigger, in accordance with the evidence given by builder's expert, Mr Gray, at first instance.

Evidence

1. Both experts appeared at the hearing before the Member, and were cross-examined. The Appeal Panel has a copy of the transcript of evidence. The documents filed by the parties in the Appeal Panel contained a copy of the documentary evidence relied on by the parties before the Member, including witness statements and expert reports.
2. The homeowner's expert, Mr Coombes, prepared three expert reports dated 14 July 2015, 22 December 2015 and 9 July 2016. In his first report Mr Coombes expressed the view at 2.2 a. that: Due to the nature and extent of the defects discussed in section 2.1 of this report, I consider it to be quite impractical to prepare a scope of work and estimate for each individual issue separately. I have therefore prepared a separate scope of work for each wet area which addresses each defective issue within that wet area.
3. In his report of 14 July 2015, Mr Coombes asserted that defective work involved: (i) lipping to floor and wall tiles; (ii) uneven application of sealant at the joint at vertical wall intersections; (iii) excessive thickness of grey sealant between the floor tiles and bottom row of wall tiles in the ensuite and bathroom; (iv) the floor size of each shower within the main bathroom and ensuite was 850 mm x 850 mm rather than 900 mm x 900 mm; (v) installation of the bath did not conform with Australian Standards; and (vi) there was a chip and scratch on the bath.
4. In respect of the defect regarding the size of the shower recesses, Mr Coombes stated: "How can this defect be rectified? a. This defect can only be rectified by removing the floor tiles, water stop, bedding mix and waterproofing in each room and relaying all to the correct set out and dimensions. What is the scope of works and the estimated cost of rectification? a. The scope of works for rectification is set out in section 2.2 of this report and the estimated cost is included in the table set of under section 2.3"
5. In 2.3 of his report, Mr Coombes asserts that his "preferred method" of rectification was to "strip out the entire bathroom and ensuite and undertake the works again". He provided a scope of works and costings for the bathroom of $13,792.48 and the ensuite for $11,245.96 being a total cost of $25,038.44. In the alternative, Mr Coombes proposed a scope of works that did not involve a complete strip out and replacement of the entire ensuite and bathroom, but still involved very significant work and was costed at $10,257.88 for the bathroom; and $8,909.19 for the ensuite.
6. In his report dated 22 December 2015, Mr Coombes focussed on gaps in tiles and falls towards the floor waste in the ensuite and bathroom. No further reference was made to the dimensions of the shower recess areas.
7. In his report of 9 July 2016, Mr Coombes responded to the opinion of the builder's expert, Mr Gray. Nothing further was relevantly opined by Mr Coombes on the issue of the size of the shower recesses, or the method of rectification.
8. The builder's expert witness, Mr Gray, prepared two reports dated 26 May 2016 and 30 August 2016.
9. In his report of 22 May 2016, Mr Gray adopted the assumption that the homeowner had instructed the builder to "make the shower screen exactly the same size as the previous shower" and to provide increased space to walk between the vanity units and the external corners of the proposed shower screens in both rooms. Mr Gray stated: "This is not a defect, there is no loss or damage to the owner but a discussed sensible outcome regarding practical sizing of the shower recess".
10. In an experts joint conclave report dated 15 September 2016, Mr Coombes claimed that the shower enclosures should be 900 mm x 900 mm as specified in the contract. The experts were unable to agree on that issue.
11. There was no discrete evidence from the homeowner's expert about the work involved and cost of work to increase the dimensions of the ensuite and shower recess areas to make them 50 mm x 50 mm bigger. Rather, Mr Coombes continued to take the view that, due to all the alleged defects, and in particular due to the lipping of tiles, the ensuite and the bathroom required complete stripping out and replacing.
12. The only evidence that focussed on precisely what work was necessary and appropriate to increase the dimensions of the ensuite and shower recess areas was the evidence that Mr Gray gave during cross-examination (transcript pp 125-129). The relevant evidence was as follows: "Homeowner's Counsel: I want you to assume that the contract with then (sic) a 900 x 900 shower screen should have been installed? You'd agree with me that being the case you would have to do something then rectify that floor of those floors and get rid of those water bars? Mr Gray: The shower barrier is in place for an 850 x 850 shower- Homeowner's Counsel: But I'm asking you to assume that- Mr Gray: Then obviously, if you're going to put a larger shower in you would have to modify it-or a smaller shower, you would have to modify it. Homeowner's Counsel: That's right. And you've said that the water bars, that the waterproofing would go up- you put the bar in, you put the waterproofing up and the screed over the top, right? Mr Gray: Sure. Homeowner's Counsel: So, if the shower was going to be 900 or any type, if the shower were going to be something different, in order to rectify that, because obviously you couldn't leave it as if it was a bigger shower screen. Mr Gray: No. It would need to be removed and replaced. Yes. Homeowner's Counsel: And what work do you say would need to be done to remove and replace the floor tiles? You have to remove the floor tiles wouldn't you? Mr Gray: Just the tiles around the angle, and bedding around the angle and just remove and replace that if that was the case. … Homeowner's Counsel: And the waterproofing? Mr Gray: Yes. Well, you wouldn't have-okay. So it's an isolated repair. It's not a repair of the whole floor. It would be just isolated to those tiles either side of that angle and that they would be removed and that the membrane would be-the angle would be put into a new place. The membrane would be repaired and the tiles replaced around it. Homeowner's Counsel: But there's always a problem, isn't there, trying to repair an existing membrane because the membrane would exist over the length of the floor, wouldn't it? The waterproofing membrane would exist over the entire floor. Mr Gray: Yeah, but you can overlap them. You can repair membranes. Homeowner's Counsel: You can repair them, but there's always a danger, isn't there, of leakage where that occurs? Mr Gray: Umm. Well, I've been involved in a lot of jobs where the repairs have been done, in swimming pools of a very similar nature, even in swimming pools. So they're reliable methods of doing this way. Homeowner's Counsel: And that also assumes, doesn't it, that you would be able to-and same with the screed, you'd have to kind of they relay the screed in a certain way? Mr Gray: Well, yeah, this is not a big deal".
13. The homeowner's counsel then cross examined Mr Gray on whether there were sufficient replacement tiles from the 2014 batch to replace the tiles in accordance with Mr Gray's proposed scope of works, and match the existing tiles that did not require replacement. Mr Gray stated that he believed there were "about 20 odd meters or something that was still available", which was sufficient. In response to questions from the homeowner's counsel Mr Gray gave the following evidence: Mr Gray: The manufacturer at the time had sufficient tiles to do the work. I'm not sure whether they're currently available, whether they've been bought, put aside, or set aside or what. I have no knowledge of that at the moment".
14. The homeowner submitted that the method of rectification by the builder's expert, Mr Gray, that the removal and retro-fitting of water angles could be done in a manner that involved the cutting and patching of the existing waterproof membrane, was a "patch repair" and was inappropriate.

Statutory powers of Tribunal when determining a building claim

1. Section s 48O of the HBA gives the Tribunal power to make various orders when determining a building claim. 48O Powers of Tribunal (1) In determining a building claim, the Tribunal is empowered to make one or more of the following orders as it considers appropriate: (a) an order that one party to the proceedings pay money to another party or to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person, (b) an order that a specified amount of money is not due or owing by a party to the proceedings to a specified person, or that a party to the proceedings is not entitled to a refund of any money paid to another party to the proceedings, (c) an order that a party to the proceedings: (i) do any specified work or perform any specified service or any obligation arising under this Act or the terms of any agreement, or (ii) do or perform, or refrain from doing or performing, any specified act, matter or thing. (2) The Tribunal can make an order even if it is not the order that the applicant asked for. (3) Sections 79R and 79T-79V of the Fair Trading Act 1987 apply, with any necessary modifications, to and in respect of the determination of a building claim.
2. As far as possible, the homeowner should be put back in the position he or she would have been in had the builder not breached the statutory warranty. The measure of damages is not the diminution in value of the building, but rather the cost of rectification. In Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36 the High Court set out the principles for assessing damages for breach of contract in building cases. At p 617 the Court (Dixon CJ, Webb and Taylor JJ) held that the owner is entitled to "the reasonable cost of rectifying the departure or defect so far as that is possible". At p 618-619, the High Court endorsed the proposition that: The measure of the damages recoverable by the building owner for the breach of a building contract is … the difference between the contract price of the work or building contracted for and the cost of making the work or building conform to the contract, with the addition, in most cases, of the amount of profits or earnings lost by the breach.
3. The High Court went on to qualify this proposition in the following way at p 618: The qualification, however to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt.
4. In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at 288; [2009] HCA 8 at [15] the High Court held that the test of "unreasonableness" is only satisfied by "fairly exceptional circumstances". (See also Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd [2017] NSWCA 27 at [186].)
5. Section 48O(1)(c)(i) allows the Tribunal to make what is known as a 'work order'. As these proceedings involve a finding 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 of the HBA states: 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.
6. In Leung v Alexakis [2018] NSWCATAP 11 at [140] the Appeal Panel summarised this provision to mean that "... unless the facts of the particular case make it inappropriate to order rectification of the defective work by the responsible party, an order should be made in terms that give effect to the principle". In Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23 at [46] the Appeal Panel set out various relevant considerations when considering whether to make a work order. Those considerations include "whether there is a reasonable basis for any objection raised by the homeowner to the builder being permitted to rectify the defective work, the terms of any order, whether the builder is willing to return and whether such an order would support a timely and cost effective resolution of the dispute".
7. Any work order must focus on rectification of the particular defect that has been found. Exercise of the discretion to make a work order is "subject to requirements of certainty, practicality, and enforceability": Catapult Constructions Pty Ltd v Denison [2018] NSWCATAP 158 at [61]. The evidentiary onus is on the homeowner to set out an appropriate method of rectification: Denison at [59].
8. When exercising its discretion to make a work order, and formulating the content of the order, the Tribunal is to have regard to the provisions of the Fair Trading Act 1987 (NSW) that the work order is "fair and equitable to both parties": HBA, s 48O (3); Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23 at [25]. Further, the Tribunal may make a work order even if it is not the order that the homeowner seeks in the proceedings: HBA, s 48O (2) HBA.

Should the Tribunal award damages, rather than making a work order?

1. We must have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome. There are no reasons why the builder should not be permitted to rectify the defective work. The builder is licensed and is prepared to return and perform rectification work if ordered to do so. There is no history of intimidation on either side or any other reason which would make this option impractical, unfair or inequitable.

Is the work proposed by the homeowner necessary to produce conformity with the contract?

1. Based on Mr Coombes' evidence, the homeowner submits that the bathrooms should be totally removed, that there should be re-waterproofing, re-tiling, reconstruction of the shower recess areas and installation of new components. Mr Coombes expresses the opinion in his report of 14 July 2015, that the defect "can only be rectified by removing the floor tiles, waterstop, bedding mix and waterproofing in each room and relaying all to the correct set out and dimensions". He does not explain why such extensive work is necessary. The majority of Mr Coombes' reports, and his evidence involved alleged defects (such as defective tiling) that were rejected by the Tribunal at first instance and by the Appeal Panel on appeal.
2. The sole defect (other than very minor damage to a bath) is that the ensuite and shower recess areas are 850 mm x 850 mm rather than 900 mm x 900 mm. We are not satisfied that the scope of works identified by the homeowner's expert is necessary to produce conformity with the contract.

Is altering the size of the shower recess areas unreasonable, impractical, unfair or inequitable?

1. Firstly, the builder submits that the rectification work proposed by the homeowner is unreasonable because increasing shower recess areas to 900 mm x 900 mm would have the consequential effect of reducing the space between the showers and the toilets, detracting from the "fitness for purpose" of the ensuite and bathroom. The homeowner did not submit that an increase in the size of the shower recesses would make the bathrooms unfit for purpose. In those circumstances, we do not accept the builder's submission.
2. Secondly, the builder submitted that the homeowner agreed to the installation of shower recess areas with the smaller dimensions. There was a factual dispute between the parties as to whether or not the homeowner had orally agreed to vary the size of the shower recesses from 900 mm x 900 mm to 850 mm x 850mm. Any oral agreement made by the homeowner and the builder is irrelevant to the question of whether the size of the shower recess areas should be modified. The Appeal Panel has found that the alteration to the size of those areas constitutes a breach of a statutory warranty.
3. Thirdly, the builder submitted that the current 850 mm x 850 mm shower recess areas were of adequate size, and "there cannot be any suggestion that this is an impracticably small shower area". The builder's opinion about the adequacy of the size of the existing shower area is irrelevant.

Is a limited work order a reasonable course to adopt?

1. We are satisfied that the appropriate method of rectification is the method set out in the oral evidence of Mr Gray given in cross-examination. Although the homeowner has submitted the proposed method of rectification is a "patch job" with potential further problems regarding the waterproofing membrane, there is no evidence to support that submission. We accept that it may be difficult for the builder to obtain precisely matching tiles, but even if they cannot be obtained, it is reasonable to attempt to match the tiles rather than ordering that each bathroom be completely re-tiled.
2. We are satisfied that an appropriate time frame for the builder to perform the rectification work is 7 weeks from the date of this decision.

Should the homeowner be awarded damages for consequential loss?

1. As well as damages, the homeowner submitted that she should be awarded "consequential loss" of $100 pw from 11 August 2014 to date. The homeowner acknowledged that the contract between the parties makes no reference to damages for "consequential loss" but submitted that such damages can be awarded under "the principles in Hadley v Baxendale (sic) or in the alternative pursuant to s 236 of the Australian Consumer Law 2010". The homeowner claims that the builder did not "challenge" the issue of consequential loss or the amount claimed. The homeowner cites Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 as authority to support the proposition that damage for "consequential loss" should be awarded.
2. According to the builder, the Appeal Panel should not award the homeowner damages for consequential loss because it was "an entirely new matter raised (in further submissions) and not pursued below and is unsupported by any evidence".
3. We are not satisfied that any damages should be awarded for "consequential loss". Damages for "consequential loss" such as the cost of a homeowner having to move out of a residence while rectification work is being performed, may be awarded for breach of the statutory warranties in s 18B(1) of the HBA (see Deacon at [96]-[103]). However, there is no evidence to establish any basis for the homeowner to be awarded "consequential loss" damages of $100 pw in the circumstances of this matter.

Costs

1. The parties agreed that rule 38 of the Civil and Administrative Tribunal Rules 2014 (NSW) ('the NCAT Rules') applies, by reason of rule 38A of the NCAT Rules. Rule 38 of the NCAT Rules states as follows: (1) This rule applies to proceedings for the exercise of functions of the Tribunal that are allocated to the Consumer and Commercial Division of the Tribunal. (2) Despite section 60 of the Act, the Tribunal may award costs in proceedings to which this rule applies even in the absence of special circumstances warranting such an award if: (a) the amount claimed or in dispute in the proceedings is more than $10,000 but not more than $ 30,000 and the Tribunal has made an order under clause 10(2) of Schedule 4 to the Act in relation to the proceedings, or (b) the amount claimed or in dispute in the proceedings is more than $ 30,000
2. We have stipulated a timetable for the provision of written submissions including submissions as to whether any application for costs should be determined without a hearing.

Orders

1. The Appeal Panel makes the following orders: 1. The First Respondent, CPD Holdings Pty Ltd t/as The Bathroom Exchange is to perform the following work ('the rectification work') using suitably licensed tradespersons and with due care and skill at the residence of the Appellant, Thea Petropoulos, on or before 7 weeks from the date of this decision: 1. Remove necessary tiles, bedding and screed adjacent to the water angle of the ensuite and shower recess areas. 2. Remove and replace the water angles and any necessary water bars of the ensuite and shower recess areas to ensure the dimensions of the ensuite and shower recess areas support the installation of 900 mm x 900 mm x 200 mm custom glass shower screens. 3. Ensure that any waterproof membrane affected by the work is adequately repaired so that it functions effectively as a waterproofing mechanism and the area is adequately waterproofed. 4. Replace all necessary tiles, bedding and screed. Replacement tiles are to be of the same colour, dimensions and type as the tiles which have been removed, or if no identical replacement tiles are available, of a colour that most closely matches the tiles which have been removed. 5. Install 900 mm x 900 mm x 200 mm custom glass shower screens. 6. Repair chip on bath. 7. Remove all debris and leave site in a clean condition. 1. The Appellant, Thea Petropoulos, is to provide reasonable access so that the rectification work can be performed. 2. By 19 October 2018 each party is to give to the Tribunal and the other party written submissions, not exceeding 6 pages, setting out any application for costs and the grounds for such an application. The submission is to include the party's views on whether a hearing should be dispensed with in accordance with s 50 of the Civil and Administrative Tribunal Act 2013 (NSW). 3. By 2 November 2018 each party is to give to the Tribunal and the other party written submissions, not exceeding 6 pages, in response to any application for costs.

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: 08 October 2018