Salcap Property Holdings Pty Ltd v JSquared Projects Pty Ltd

NCAT Consumer and Commercial|2024-02-14

REASONS FOR DECISION

This is an application brought under the Home Building Act 1989 (NSW) (the HB Act). The dispute involves a duplex home in a suburb of Sydney (the property) which was renovated in 2019. The applicant owner, who purchased the property in 2020, alleges that the building works are defective and in breach of the statutory warranties in s 18B(1) of the HB Act. The alleged defects largely involve waterproofing and water ingress issues.
The applicant seeks a money order in the sum of $451,306.64.
In these reasons any reference to "the owner" is a reference to the applicant, SalCorp Property Holdings Pty Ltd, and any reference to "the builder" is a reference to the respondent, JSquared Projects Pty Ltd.
Another relevant person in these proceedings is the owner's predecessor in title to the property. The owner's evidence includes serious criminal allegations against that individual. As that individual is not a party to the proceedings and was not a witness, I have decided for privacy reasons not to include his name in these reasons. I will instead refer to him as "the former owner".
The dispute relates to seven alleged defects. Prior to the hearing the parties' respective experts conducted a joint conclave during which the issues in dispute were narrowed to some extent. The experts agree on a scope of work for several of the seven defects alleged. There are varying degrees of disagreement between the experts in relation to the remaining defects.
The issues which I must decide are: 1. Whether the builder is the correct respondent (ie whether the owner has a cause of action in respect of the statutory warranties against the builder). 2. Whether all of the defects alleged by the owner are "major defects" (failing which it is common ground that the application will have been brought out of time). The builder concedes that five of the seven alleged defects are major defects but says that the defects which the parties refer to as "mould remediation" and "wet areas" do not involve major defects. 3. Whether, in relation to each of the defects which are not agreed, the owner has established a breach of one or more of the statutory warranties contained in s 18B(1) of the HB Act. 4. What works are required to remedy the established or agreed breaches. 5. Whether the Tribunal should make a work order or a money order in respect of any agreed or established breaches of the warranties.

Evidence

The owner relied on the lay evidence of Mr Soularis who is the sole director of the owner. The owner also relied on an expert building report of Mr Richard Noonan dated 23 August 2023, and on an expert building report and two supplementary reports of Mr Steven Nakhla of SJN Building Consultants, respectively dated 3 October 2023, 9 October 2023 and 30 November 2023. Attached to Mr Nakhla's report of 3 October 2023 is a "mould" report of Mr Rob Seymour (of PureProtect Pty Ltd) dated 19 June 2022.
The builder did not rely on any lay evidence. It relied on an expert building report of Mr John Riad dated 20 December 2023, and on a mycology expert report of Mr Vincent Neil dated 2 December 2023.
The parties also relied on a joint conclave report which was signed by Mr Nakhla, Mr Noonan and Mr Riad on 12 February 2024 (the conclave report).
At the hearing Mr Soularis was cross-examined by the builder's counsel. Mr Noonan, Mr Nakhla and Mr Riad were cross-examined simultaneously by the parties' respective counsel.
The owner did not require Mr Neil for cross-examination and the builder did not require Mr Seymour for cross-examination.

Background facts

The background facts are as follows. I have made these findings of fact on the basis of the owner's points of claim (to the extent they have been agreed in the builder's points of defence) and, to the extent there is no agreement, on the basis of Mr Salouris' affidavit and its attachments. Although Mr Salouris was cross-examined at the hearing, the bulk of his evidence was unchallenged, and I have accepted his evidence in relation to the background matters set out below: 1. The respondent is a licensed builder. Its previous name was Johnny Helou Building Services Pty Ltd. 2. In November 2018 the former owner entered into a written contract with the builder to carry out renovations, additions and alteration work at the property (the contract). The contract price was $180,000 (inclusive of GST). 3. On or about 3 July 2019 an occupation certificate was issued in respect of the property naming the builder as the principal contractor. 4. On or about 17 June 2020 the owner and the former owner entered into a contract for sale and purchase of the property. Settlement occurred in or about September 2020. 5. On 17 September 2020 a "Home Building Compensation Fund Certificate" was issued in respect of the works which had been carried out at the property. The certificate names the builder as the principal contractor. 6. The property was purchased by the owner subject to an existing residential tenancy agreement. In around March 2022 the tenant provided vacant possession of the property after making complaints about various issues with the property including in relation to water ingress. 7. On 2 April 2022 Mr Salouris and his family moved into the property. 8. On 21 April 2022 Mr Salouris lodged a complaint with NSW Fair Trading and engaged SJN Building Consultants (Mr Nakhla) to provide a report, which was issued on 11 May 2022. The report identified multiple issues including water ingress due to roofing defects and mould and deterioration of linings to wall and ceiling linings. 9. On 14 May 2022 Mr Salouris provided a copy of the report to the builder. 10. On or about 17 May 2022 Mr Helou (director of the builder) said to Mr Salouris words to the effect: I did not build the house. It was built by [the former owner] and I agreed to provide my builder's licence for him to use. There is a statutory declaration between me and [the former owner] stating all other defects or remediation costs should be borne by [the former owner]. 1. Following various interactions between the parties regarding alleged defects, in early June 2022 Mr Helou said to Mr Salouris words to the effect: The top priority is to replace the roof with a new one, which would stop water ingress into the property, and from there further remediation works can commence. 1. In June 2022 the builder commenced rectification works at the property. The works completed by the builder included replacement of the roof. 2. On 10 June 2022 Mr Salouris entered into a residential tenancy agreement for another dwelling and temporarily relocated his family. 3. On 13 September 2022 a senior building inspector from NSW Fair Trading visited the property. The building inspector said to Mr Salouris words to the effect "given that you are dealing with the builder directly to remediate the property, there was no need for me to issue a rectification order". The inspector later issued a "complaint investigation report" which stated: "Defective and/or consequential damage and/or incomplete items have been determined but cannot be attributed to be the responsibility of the trader based on evidence provided". 4. On or about 27 October 2022 the former owner was arrested following an alleged assault of Mr Salouris with a pickaxe. The former owner was released on bail. The criminal proceedings were due to be heard in December 2023. There is no evidence before me as to whether the criminal proceedings against the former owner have been finalised, or if so, what the verdict was. 5. On 11 November 2022 Mr Salouris' solicitors, under instruction from Mr Salouris, issued a letter to the builder's solicitors instructing the builder not to carry out any further works, and requesting that the builder remove all of its equipment from the site. 6. The builder has not returned to site to carry out any works since that time. 7. These proceedings were commenced in May 2023.

Is the builder the correct respondent?

It is common ground that the owner did not contract with the builder in respect of the building works. However, the owner brings this application as successor in title pursuant to s 18D of the HB Act.
The builder submits that the owner is not entitled to the benefit of the statutory warranty as against the builder. The builder's position is that as the former owner, and not the builder, physically performed the building work which is the subject of this dispute, the builder owes no obligations to the former owner with respect to the statutory warranties. It says that as the former owner is not entitled to the benefit of the statutory warranties and the owner, as successor in title, has only the same entitlement as the former owner with respect to the statutory warranties, that the successor in title provisions therefore do not extend to protect the owner vis a vis the builder.

The statutory provisions

Section 18B(1) of the HB Act states: Warranties as to residential building work (1) The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work - (a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract, (b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new, (c) a warranty that the work will be done in accordance with, and will comply with, this or any other law, (d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time, (e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling, (f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder's or person's skill and judgment.
Section 18D of the HB Act extends the protection afforded by s 18B to successors in title. It relevantly provides: 18D Extension of statutory warranties (1) A person who is a successor in title to a person entitled to the benefit of a statutory warranty under this Act is entitled to the same rights as the person's predecessor in title in respect of the statutory warranty.
The effect of these provisions is that if the holder of a contractor licence (or a person required to have a contractor licence) enters into a contract to do residential building work, then: 1. the statutory warranties set out in s 18B will be implied into that contract; and 2. any successor in title to the person entitled to the benefit of the statutory warranty will also be entitled to the benefit of the statutory warranties.
The builder says that the warranty provisions in s 18B(1) require the contractor to "perform the work" in the manner required by the warranties so that if the contractor did not physically "perform" the relevant work pursuant to the contract, it will not be bound by the warranties as to performance.
Whilst the contemporary approach to statutory construction requires both the text and the context and purpose of the relevant statutory provision to be considered (see SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; (2017) 347 ALR 405 at [14]), there is no principle of statutory construction that allows the meaning of a provision in a statute to be altered by the addition of one or more words. This is, in effect, what the builder invites me to do.
In my view, the meaning of s 18B(1) is clear. The warranties as to performance are in respect of the work done. Specifically, ss 18B(1)(a), (1)(c) and 1(d) state that there is a warranty that the work "will be done" in the way specified. They do not refer to the work having been "performed by" the holder of the contract licence. The clear meaning and intent of the words is that the contractor is responsible for ensuring the works are done in the required manner regardless of who physically performed them.
Thus, whether or not the works were physically performed by a person other than the contractor is irrelevant for the purposes of s 18B(1). Accordingly, even if some or all of the works in this case were physically performed by the former owner, this is not relevant to determining whether the owner is entitled to the benefit of the statutory warranties as against the builder.

What are the relevant facts?

The relevant facts are as follows: 1. The builder was at all relevant times the holder of a contractor licence. 2. The former owner entered into a contract with the builder pursuant to which the builder agreed to undertake the building works. This is not disputed and in any event is conclusively established by: 1. the contract, which is in writing and signed by the former owner and by Mr Helou on behalf of the builder; 2. the occupation certificate issued on 3 July 2019 which specifies that the builder is the "principal contractor" and references the builder's licence number; 3. the Home Building Compensation fund certificate issued in respect of the building works which specifies the builder as the principal contractor and references the builder's licence number; and 4. the fact that when the defects were reported to the builder by the owner, the builder treated them as its responsibility and commenced rectification works. 1. The owner is the successor in title to the former owner.
One of the submissions put by the builder in relation to this issue is that the builder only undertook the rectification works because it was being paid by the former owner to do so. It says the former owner "would not have been paying the Respondent to rectify defective work performed by the Respondent". Its basis for this assertion is Mr Salouris' affidavit which states that after Mr Salouris was assaulted by the former owner, he was informed by a representative of NSW Police that the former owner had said that his motive for the attack was that "he had paid $80,000 so far and you still wanted more".
The respondent's submission in this regard is perplexing. Firstly, the evidence it relies on to establish that the former owner was paying the builder to perform the works is highly speculative and based on hearsay. There is no evidence from any representative of the builder or from the former owner as to any arrangement between the builder and the former owner.
Secondly, it is not clear how any such arrangement would be relevant in these proceedings. The builder does not deny that it entered into a contract with the former owner and in any event, for the reasons explained, the evidence of a contract is conclusive. Thus, under s 18B(1) of the HB Act, the former owner was entitled to the benefit of the statutory warranties whether or not he or another person physically performed the work. It was not possible for the former owner and the builder to contract out of the builder's obligations under s 18B as, pursuant to s 18G, "a provision of an agreement or other instrument that purports to restrict or remove the rights of a person in respect of any statutory warranty is void". One of the reasons for this is to ensure that the benefit of the statutory warranties will extend to any successor in title.

Conclusion in relation to the builder as respondent

Applying the law to the factual situation I am satisfied that the warranties in s 18B(1) are implied into the contract between the former owner and the builder, and that, pursuant to s 18D, the owner is entitled to the benefit of those warranties.
For all of these reasons I am satisfied that the builder is the correct respondent.

The legal principles

The principles applicable to determining whether there has been a breach of the statutory warranties in s 18B of the Act were summarised in Deacon v National Strategic Constructions Pty Ltd; National Strategic Constructions Pty Ltd v Deacon [2017] NSWCATAP 185 (Deacon) as follows (at [46]): Although objective standards such as Australian Standards, the Building Code of Australia and the Guide are of significant relevance in establishing whether work has been performed in a proper and workmanlike manner (Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61 at [10]), the absence of such evidence does not automatically mean a homeowner has failed to establish breach of statutory warranty. In our view, the relevant principle was succinctly stated by Senior Member Goldstein in G MacFayden and Anor v G Tadrosse [2014] NSWCATCD 194 at [46] as follows: …[E]vidence that work does not comply with the Building Code of Australia would establish a basis for a finding that sub section 18B(c) of the Act has been breached. Evidence of the details in which work does not comply with the contractual plans and specifications would form the basis for a finding that sub section 18B(a) of the Act has been breached. Evidence of work not being carried out in a proper and workmanlike manner would in my view involve identification of the work in question, a statement of how the expert would expect it to be carried out in in a proper and workmanlike manner and then identification of the factors which establish that the way in which the work has been carried out falls short of it being carried out in a proper and workmanlike manner. Evidence of this nature, if accepted, would form the basis for a finding that sub section 18B(a) of the Act has been breached.
As was also set out in Deacon, the Tribunal, when considering whether breach of s 18B of the HB Act has been established, must consider and make findings in respect of: 1. whether the owner has established on the balance of probabilities that works have not been performed in accordance with s 18B of the HB Act; and 2. if a 'defect' (in the sense of failure to comply with s 18B of the HB Act) is established, what is the appropriate method to rectify that defect.
The method of rectification is the work necessary to achieve compliance with the contract, provided that method is a reasonable course to adopt (Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 at 617-618).
There may be situations where experts identify more than one method of rectification to produce conformity with the contract and the Tribunal must assess the evidence to determine which method (and cost) is the most appropriate to produce conformity. The Tribunal must, in such cases, determine the appropriate method of rectification and be satisfied that it is not an unreasonable course to adopt: Deacon at [28].
In relation to time limits, s 18E of the HB relevantly states: (1) Proceedings for a breach of a statutory warranty must be commenced in accordance with the following provisions - (a) proceedings must be commenced before the end of the warranty period for the breach, (b) the warranty period is 6 years for a breach that results in a major defect in residential building work or 2 years in any other case … (4) In this section - major defect means - (a) a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause - (i) the inability to inhabit or use the building (or part of the building) for its intended purpose, or (ii) the destruction of the building or any part of the building, or (iii) a threat of collapse of the building or any part of the building, or (b) a defect of a kind that is prescribed by the regulations as a major defect, or (c) the use of a building product (within the meaning of the Building Products (Safety) Act 2017) in contravention of that Act. … major element of a building means - (a) an internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams), or (b) a fire safety system, or (c) waterproofing, or (d) any other element that is prescribed by the regulations as a major element of a building.
There is no dispute that in this instance the claim has been brought within the warranty period for major defects, but outside the warranty period for non-major defects, and that therefore the builder will only be liable for agreed or establish defects which are major defects. The parties agree that all the defects other than those described as "wet areas" and "mould remediation" are major defects.
I will turn now to deal with each of the alleged defects and, where relevant, whether the claim in relation to those defects has been brought within time.
However, before doing so, I will briefly address the credentials of the respective experts.
The homeowner relied on the evidence of two experts - Mr Nakhla and Mr Noonan.
Mr Nakhla is a builder by profession. He has worked in the building construction industry since 2004. He is a licensed builder and an accredited building consultant. His qualifications include practical experience in construction.
Mr Noonan is a structural engineer. He has over 25 years' experience acting as a design engineer in commercial and residential projects, and 15 years' experience consulting on structural, civil and geotechnical engineering projects.
Mr Riad is a civil engineer. Whilst he is not a builder he has at least 15 years' experience in building and remediation projects, including considerable experience consulting in relation to waterproofing issues.
The owner's counsel invites me to find that Mr Nakhla's evidence is to be preferred to that of Mr Riad because most of the defects require the expertise of a builder rather than that of a civil engineer. The owner also submits that Mr Riad's answers in cross-examination were discursive and at times rambling in the face of relatively simple questions, and that by contrast Mr Nakhla was to the point and responsive.
Whilst I accept that Mr Nakhla is a licensed builder and that Mr Riad is not, Mr Riad has extensive experience in the building industry including as a consultant in relation to remediation issues involving waterproofing defects. I am not satisfied that Mr Riad's professional background is on its own a sufficient basis for preferring Mr Nakhla's evidence. I also accept that Mr Riad and Mr Nakhla had different styles when answering questions in cross-examination and that Mr Nakhla's responses were briefer and more direct. However, I do not agree that this is a reason for preferring Mr Nakhla's evidence over Mr Riad. Mr Riad's different communication style did not render his evidence less reliable or cogent than that of Mr Nakhla.

Item 1 - Terrace

The experts agree that the waterproofing works on the main bedroom terrace are defective (albeit for different reasons). They also agree on the scope of works proposed by Mr Riad which is set out in the conclave report under the heading "conclave comments".

Item 2 - Bedroom 3 balcony

This item involves the balcony's waterproofing membrane.
The experts agree that the waterproofing membrane is defective at the drain termination. They also agree that overflows are required to be installed.
However, the experts disagree on the method of rectification.
Mr Nakhla's method of rectification involves installation of a new waterproofing membrane. Mr Riad says the only necessary repairs are localised waterproofing repairs to the waste drain and installation of overflow provisions.
In cross-examination Mr Nakhla maintained that Mr Riad's proposed works would not adequately resolve the waterproofing issue. He says "waterproof membranes have to be installed as a monolithic membrane" and that such an installation "would retain in encapsulating the entire area being waterproof and allow it to function". However, Mr Nakhla has not provided a sufficient explanation as to why localised patching would not sufficiently address the defect, or why a monolithic membrane is required to produce conformity with the contract. He has not pointed to any standard or other prescription which supports his position.
Moreover, Mr Riad's report provides a clearer, more thorough explanation as to the nature of the defects he identified, as well as more detail as to the reasons for his various conclusions. Indeed, his report identifies an additional defect (failure to install overflow provisions) which is not identified in Mr Nakhla's report.
Although neither party has provided estimated costings for Mr Riad's proposed scope of works, it can be inferred that the more localised repairs he is proposing will be less costly than the more extensive repairs proposed by Mr Nakhla.
For all of these reasons I prefer Mr Riad's proposed scope of works to remedy the bedroom 3 balcony.

Item 3 - Wet areas

This item relates to the wet areas in four bathrooms - the office ensuite, the ground floor bathroom, the first floor bathroom and the first floor master ensuite.
The experts agree that the waterproofing in each of those bathrooms is defective.
They have agreed a scope of works in relation to the first floor master ensuite.
In relation to the remaining three bathrooms, whilst the experts agree that the waterproofing has failed, they disagree as to how it has failed, and what should be done to rectify the issue.

Is this part of the claim brought within time?

The parties disagree as to whether the defective wet areas involve a major defect. If not, the claim will be out of time.
The builder does not dispute that the alleged breach of warranty in relation to the wet areas results in a defect to the building's waterproofing which is a "major element" for the purpose of s 18E(4)(a). However, the builder says that the owner has not established that the defect otherwise falls within the scope of s 18E(4).
The builder submits "whatever defects are said to be present, they do not create an inability to use the building or part of the building for its intended purpose and are accordingly not major defects".
I do not accept the builder's position. Firstly, an inability to use the building or part of the building is not the only factor which is relevant for the purposes of establishing a major defect under s 18E(4). A defect in a major element will also be a major defect if it causes or is likely to cause the destruction of the building or any part of the building, or a threat of collapse of the building or any part of the building: s 18E(4)(a)(ii) and s18E(4)(a)(iii).
Secondly, it is not necessary for there to be evidence that the relevant effect has already occurred or is dire or imminent: Stevenson v Ashton [2019] NSWSC 1689, the Supreme Court (Harrison AsJ) at [74]-[76].
Here the only evidence in relation to this issue is contained in Mr Nakhla's report. He says the defective waterproofing "will allow water to pond and/or enter the structure which in turn will deteriorate the building materials over time and could lead to structural damage".
Mr Riad has not provided an opinion on this issue and Mr Nakhla was not challenged on this issue in cross-examination.
I am satisfied that Mr Nakhla's evidence in relation to this issue is comprehensible and that he reaches a conclusion which is rationally based, noting it is axiomatic that a key purpose of waterproofing is to prevent damage or destruction to the building due to water ingress. On the basis of Mr Nakhla's evidence, I am satisfied as to the civil standard of proof that the defective waterproofing in the wet areas is likely to cause the destruction of part of the building.
For these reasons I am satisfied that the defective waterproofing in the wet areas is a "major defect" for the purposes of s 18E(4) and therefore that this part of the claim has been brought in time.

The wet area defects - office ensuite, ground floor bathroom, first floor bathroom

Mr Nakhla says that in each of these bathrooms the floor tile gradient is inadequate, that the membranes are defective and that there is no protruding shower water stop angle. His recommended scope of works involves removing and replacing the existing membranes and tiles.
Mr Riad says the waterproofing membrane at the threshold of each bathroom is defective and that this can be remedied by localised patching. He says otherwise he identified no defects requiring rectification.

Waterproofing membranes

Mr Nakhla says that when remediation works were being carried out by the builder, the waterproofing membrane was compromised by cutting the tiles, screed and membrane at the door threshold and applying a flexible sealant. He says "as soon as the membrane is cut, then it would be considered defective in its entirety as the membrane must be monolithic and cannot be patched in this way".
Mr Riad does not agree that the membrane must be monolithic. He says that localised patching of the waterproofing membrane is appropriate. Mr Nakhla's explanation for his opinion is inadequate. He refers to no standard or other prescription which supports his opinion regarding the waterproofing membranes. I am not satisfied as to the civil standard of proof that the cutting of the membranes renders it necessary to replace the entire membranes with monolithic membranes.

Shower stop angles

Mr Nakhla says the shower and bath enclosures to the wet areas "do not have a protruding shower water stop angle as required by AS3740". He refers to cl 3.13.4 of AS3740 which is entitled "Enclosed showers without hobs".
Mr Riad says the showers are unenclosed and that therefore the correct provision of AS 3740 is clause 3.13.5 which sets out the relevant requirements for unenclosed showers. Mr Riad says that as water stops have been installed along the opening of the unenclosed showers in accordance with clause 3.13.5 of the standard, no defect is present.
Mr Nakhla acknowledges that the showers are unenclosed and has not provided an adequate response to Mr Riad's evidence regarding compliance with clause 3.13.5 of the standard. I am not satisfied that cl 3.13.4 applies, and therefore do not accept that the absence of a protruding shower water stop angle is a failure to comply with the standard. I accept Mr Riad's evidence that the existing water stops comply with the standard.
For these reasons I am not satisfied that the absence of a protruding shower water stop angle breaches the implied warranties.

Floor tile falls

Mr Nakhla says the minimum required fall to the waste area according to AS 3740 cl 3.3 is 1:100, and that the falls in all the wet areas violate that requirement. Mr Riad does not dispute that the fall is less than the 1:100 requirement in the office ensuite and first floor bathroom but says he conducted a test which shows that the water "was seen to adequately flow into the floor waste and the remaining water was seen to be due to surface tension". He says residual water due to surface tension is permitted pursuant to AS 3740 and therefore there is no violation of the standard.
Mr Nakhla's report does not refer to any water testing, and he has not responded to Mr Riad's evidence regarding the results of Mr Riad's water testing or his conclusion regarding AS 3740. Thus, I am not satisfied as to the civil standard of proof that there has been a failure to comply with AS 3740 in the office ensuite and the first floor bathroom.
Regarding the ground floor bathroom Mr Riad acknowledges that the fall on the shower side does not meet the requirement of AS 3740. He says that the water was seen to pond on the shower recess surface and not flow into the floor waste. However, he says there is no "logical solution to the falls within the 'shower recess' as the bathtub would allow water to pond within it if not level hence not allowing it to drain effectively".
Mr Riad's evidence in relation to this issue is not helpful to the Tribunal. He acknowledges there is a failure to comply with AS 3740 but has offered no viable method of rectification, and has not adequately explained why he considers there to be no "logical solution".
As the parties agree that the falls in the ground floor bathroom violate the standard, and Mr Riad's scope of works does not address this defect, I prefer Mr Nakhla's scope of works in relation to the ground floor bathroom.

Conclusion in relation to wet areas.

For these reasons I prefer Mr Riad's scope of works in relation to the office ensuite and first floor bathroom and Mr Nakhla's scope of works in relation to the ground floor bathroom.
As mentioned, the parties have agreed to Mr Nakhla's scope of works in relation to the first floor master ensuite.

Item 4 - External walls

This defect involves water ingress which has been identified in bedroom 2.
The experts agree that there is water ingress, that the water ingress is due to defective work in breach of the implied warranties, that the defect is a major defect, and that this part of the claim has been brought in time.
However, they disagree as to the nature of the defect and the appropriate remedy. In summary, Mr Nakhla says the defect involves all of the external walls while Mr Riad says the defect merely involves the bedroom 2 window.
Mr Nakhla says that the external wall sisalation terminates short of the bottom plate with no bottom flashing to discharge water externally. He says the sisalation terminates into the structure and does not terminate into a flashing. He says that in bedroom 2 "sunlight was visible behind the wrap allowing moisture a direct path of travel". He says he "randomly cut penetrations in the wall and found the same flashing detail installed in all locations which [he] invasively inspected" (being the external walls to bedroom 2, bedroom 3, the master bedroom and the upstairs hallway). He says this causes water ingress through the wall "as the flashing would normally terminate the water externally".
Mr Riad's report does not address Mr Nakhla's conclusion regarding the way in which the external walls have been constructed. He says the water ingress is a localised issue in bedroom 2 only and that the cause of the water ingress is that the window sills of bedroom 2 have not been sealed, thus allowing for water to track underneath and penetrate into the room. He says that Mr Nakhla has incorrectly identified the sisalation and flashings as being the cause of the water ingress. He says "the Nakhla Report assumes there is water ingress and has not conducted any testing to clarify the claims in his report. I have not sighted any water ingress during the time of my inspection at any of the locations Mr Nakhla has stated within his report".
I prefer Mr Nakhla's evidence in relation to this issue. Although Mr Nakhla did not carry out water testing on all the walls, he identified a defect in the way in which the walls were constructed which he says renders the walls not waterproof. He identified this defect by carrying out invasive investigations into the external walls.
Mr Riad did not take issue with Mr Nakhla's investigations or with his conclusion regarding the defective manner of construction of the walls. Mr Riad also did not specifically disagree with Mr Nakhla's conclusion that the manner of construction renders the walls not waterproof. Mr Riad's only substantive objection to Mr Nakhla's opinion is that Mr Nakhla did not conduct testing to clarify the claims in his report and that Mr Riad did not "sight" any water ingress during the time of his inspection at any of the locations stated by Mr Nakhla in his report. Whilst this may be the case, Mr Riad did not carry out any testing of his own. Moreover, there is ample evidence in the parties' respective mould reports of there being water ingress in the external walls.
For these reasons I accept Mr Nakhla's evidence that the manner of construction of the external walls is defective, and renders the walls not waterproof. Mr Riad's proposed scope of works addresses repairs to the window only. He has not proposed a scope of works to rectify the defective external walls. Thus I accept Mr Nakhla's scope of works in relation to this item.

Item 5 - Mould remediation

The parties agree that there is a mould infestation at the property.
Mr Nakhla and Mr Riad have agreed a scope of works to remedy the mould infestation which involves the works recommended by Mr Seymour, plus additional works agreed by Mr Nakhla and Mr Riad.
The only issue in dispute is whether this part of the claim was brought out of time.
The builder says "there is no acceptable evidence that the existence of mould created any inability to inhabit or use the building or any part of the building (other than the roof cavity where, self-evidently, nobody resides)".
Clearly the presence of mould is not in itself a major defect. Mould is not a "major element" of a building for the purposes of s 18E(4) of the HB Act. Indeed, mould is not a defect at all. Rather, like water damage, it is a problem which can require remediation as a consequence of water ingress into the building.
Thus, provided the mould infestation is caused by a breach of a statutory warranty, and the claim in relation to the relevant breach has been brought within time, the owner will be entitled to a remedy in respect of the mould remediation.
Here, Mr Nakhla says that mould has manifested throughout the home "due to the water ingress into the property from waterproofing and external walls". He was not cross-examined on this issue. Mr Riad has provided no opinion in relation to this issue. The evidence of both parties' mould experts is consistent with Mr Nakhla's evidence in this regard - ie that the mould infestation at the property has been caused by defective waterproofing.
I am satisfied therefore that the mould is caused by the defective waterproofing. The defective waterproofing is a major defect for the purposes of s 18E. Thus the claim in respect of mould remediation has been brought within time.

Item 6 - First floor wall bracing

There is no consensus between the experts in relation to this issue which involves bracing of the first floor front wall.
The owner's expert Mr Noonan says: The first floor front wall appears to have no wall bracing, from that evidence in the area where plasterboard has been removed. This wall, being the external wall, would normally require bracing. No evidence of a wall bracing plan has been provided, however the private certifier has [sic] provided an inspection report that the framing was inspected on 31/01/2019. This would normally require the certifier to check bracing is installed per a provided design. The certifying engineer has provided no certificate on wall bracing. Ideally the bracing plan should be sourced and complied with, or alternatively, a new bracing plan needs to be provided by the frame designer and additional wall bracing installed if found to be warranted.
Mr Riad disagrees. He says: Inspecting the First Floor Front Bedroom wall I have firstly observed that there are multiple openings within the walls. I refer to AS 1684.2 - 2010 Clause 8.3.6.7 which states "Where bracing cannot be placed in external walls because of openings or similar situations, a structural diaphragm ceiling may be used to transfer racking forces to bracing walls that can support the loads. Alternatively, wall frames may be designed for portal action".
Mr Riad goes on to say that: 1. Mr Noonan has failed to address the fact that the wall cannot be braced due to "multiple openings within the walls"; 2. he observed "no visual evidence of structural distress" and, considering the age of the works, "structural distress would have occurred by now if the structure was not able to handle racking forces adequately"; 3. the southern boundary wall is double skin masonry which will act as a "shear wall" which "is sufficient to withstand the subjected racking forces"; 4. Mr Noonan has not conducted any invasive investigations to confirm whether or not there is any bracing; 5. Mr Noonan's report has focused on locations that cannot have bracing due to openings; 6. The "Occupation Certificate Checklist" for the property indicates that a PCA inspector inspected the property on 31 January 2019 when the walls were exposed, and has marked it as satisfactory. The "Frame (Cut or Truss)" has been listed as a critical hold point which the PCA inspector marked as satisfactory.
During cross-examination Mr Noonan was asked by the owner's counsel what would be the effect of not bracing the first floor front wall. He responded: The effect of not bracing that wall is that the whole structure might not have enough bracing. It could be that they put extra bracing in the internal walls. I can't tell. I've got no bracing man who shows me where they've got it.
Mr Noonan was subsequently asked about the balance of the structure and whether, if there's no bracing in the end wall, that is indicative of anything as it relates to the rest of the structure. Mr Noonan responded: Well I can't comment on that because the plasterboard wasn't removed from the internal wall.
In its written submissions the owner submits that Mr Noonan's evidence, coupled with the fact that the builder failed to provide a structural certification or plans for the first-floor bracing, despite being on notice of the owner's complaint, are clear evidence that the bracing is defective.
I am not satisfied as to the civil standard of proof that this defect has been established. My reasons for this are as follows: 1. Mr Noonan's report say bracing would "normally" be required but does not go as far as to say that bracing is required in this instance. Further, his report does not address Mr Riad's opinion that in this instance bracing is not required by the relevant standard because there are multiple openings within the wall. Mr Noonan's report does not reference the standard and does not deal with this issue. 2. Mr Noonan's evidence does not provide a conclusive view as to whether there is adequate bracing or not. His report says the front wall "appears" to have no bracing. In his oral evidence Mr Noonan said the effect of not bracing the front wall "might" result in the structure not having enough bracing. However, he also conceded that extra bracing may have been placed within the internal walls. 3. Mr Noonan's report does not address the various matters which Mr Riad says provide comfort as to the structural adequacy of the walls. 4. Mr Riad's report provides significantly more detailed consideration of this issue. 5. The absence of certification and of bracing plans does not of itself establish the existence of a defect.
For these reasons this part of the claim is dismissed.

Item 7 - Ground level floor framing

The experts agree that the ground level floor framing is defective, and have agreed on a scope of works to remedy the defect as set out in Mr Noonan's report.

Should the Tribunal make a work order or money order?

By reason of s 48MA of the Act, the Tribunal must have regard to the principle that rectification of defective work by the responsible party is the preferred outcome.
In Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23 at [41]-[46] the Appeal Panel stated as follows: While not appropriate to seek to define all circumstances that might justify a court or tribunal making an order that departs from the preferred outcome, it is necessary to give some consideration to the nature of the obligation imposed on the court or tribunal by s 48MA. First, the principle, by its terms, only applies "in determining a building claim involving an allegation of defective residential building work or specialist work". It is not expressed to apply where, for example, the building claim only involves an allegation of incomplete residential building work or specialist work. That is not to suggest s 48O does not otherwise permit a work order in respect of work found to be incomplete. Second, s 48MA is directed towards the remedy or "outcome" to be provided by the court or tribunal where a claimant establishes the responsible party has carried out defective residential building work or specialist work. In this sense, it is not properly described as a "presumption". Rather, it is a remedy to be "preferred" to other forms of order which the court or tribunal might make. Third, while s 48MA provides the court or tribunal "is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome", the section does not mandate that a work order must be made in all cases. Further, the section does not confine the form of orders that may be made under s 48O, including an order that defective work be rectified by the responsible party engaging another person to carry out that work on behalf of the responsible party. Fourth, the term "preferred" is not defined. The HB Act and Regulations do not specify circumstances in which the preferred outcome is not to be adopted. However, guidance as to the meaning of "preferred" and the circumstances that would justify an order for a different outcome is found in the second reading speech where the Minister for Fair Trading makes clear that the purpose of the amendment was to: (1) prevent a homeowner from unreasonably refusing a builder access to a building site to rectify defective work; (2) permit a builder to return to carry out necessary rectification work if they are willing; and (3) support the timely and cost-effective resolution of disputes. That is, in deciding what order should be made, a court or tribunal may consider 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.
Whether the Tribunal departs from the "preferred outcome" involves the exercise of discretion (Leung v Alexakis [2018] NSWCATAP 11 at [139]; Robinson v Hindmarsh Construction Australia Pty Ltd [2021] NSWCATAP 51 at [66]). That exercise must of course be exercised judicially and not arbitrarily or capriciously.
In Denmeade v Travers [2023] NSWCATCD 3 at [38] the Tribunal identified considerations which may be relevant to the exercise of the discretion: Personal animosity is not sufficient to displace the primacy of a work order for defective work, as the test is objective and the flexibility of s 48O permits an order that the builder fulfil a work order by engaging another party to carry out the work order on behalf of the builder. However, relational breakdown is an element in objective assessment, as can be the builder's conduct in unrelated projects and as will be doubts about the builder's capacity (including being licensed) or skills to undertake the required remediation, the builder's attitude to the standard of work done and willingness to return and the likelihood of further dispute not meaning that a work order would be a timely or cost-effective resolution: Brooks v Gannon Constructions PL [2017] NSWCATCD 12 (appeal not affecting s 48MA decision); Galdona at [64]; BNT Constructions PL v Allen [2017] NSWCATAP 186 at [33]-[36]; Kumar v Sabharwal [2017] NSWCATAP 200 at [29]-[30]; Clements v Murphy [2018] NSWCATAP 152 at [30], citing with approval Kurmond Homes PL v Marsden [2018] NSWCATAP 23 at [31]-[32], [46]; Brennan Constructions PL v Davison [2018] NSWCATAP 210 at [15]-[21].
The owner submits that a money order rather than a work order should be made in the present case for the following reasons: 1. The builder has already attempted remediation works. His own expert has conceded that parts of those works (ie the terrace and the wet areas) are still defective. The owner says he is justified in having no confidence in the builder's skill or insight into the nature of the defects such that it would be reasonable for the Tribunal to make an order that the builder goes back to the site to do further works. 2. The case involves more than just a relationship breakdown. The owner was physically attacked and assaulted by an associate of the builder. The attack was in relation to the former owner's dealings with the builder as they concern the property. This is sufficient to ground a genuine fear in the owner that further works to the property by the builder may inflame the former owner and cause him to attend the property. This is a situation that the owner should not be placed in.
I have carefully considered the owner's submissions. However, I am not persuaded that the circumstances warrant a money order in place of a work order. My reasons for this are as follows.
Firstly, whilst I accept that Mr Salouris has a well-founded fear of the former owner, and that the former owner is an associate of the builder, the former owner is not an employee, director or other representative of the builder. There is no evidence that Mr Helou or any representative of the builder has at any time threatened, or acted inappropriately towards, Mr Salouris. Whilst it seems likely that the motive for the assault was in some way related to the arrangement between the former owner and the builder with regards to the property, the evidence in that regard is vague, indirect and based on hearsay. The evidence is insufficient to satisfy me that the former owner is more likely to be "inflamed" and return to the site if a work order as opposed to a money order is made.
In this regard the evidence refers to the former owner's bail conditions as including a requirement that neither the former owner "nor any of his friends" were to have any direct contact with Mr Salouris. The owner's solicitors, in an email exchange with the builder's solicitors in late 2021 and early 2022, said they had received instructions to this effect. No supporting documents in relation to the former owner's bail conditions have been provided to the Tribunal, and it appears that none were provided by the owner's solicitors in that email exchange. Thus, the only evidence before me in relation to this matter is indirect, hearsay evidence. I consider it highly unlikely that the court would have imposed a condition of bail which restricts the conduct of persons other than the accused, particularly where the restricted persons are unnamed and described only in generic terms. I am not satisfied that the former owner's bail conditions prevent representatives of the builder from having direct contact with Mr Salouris.
Secondly, the builder has exhibited a willingness to take responsibility for the defects as evidenced by the fact that it commenced rectification works, including replacement of the roof. It only ceased carrying out those works under instruction from the owner.
Thirdly, I am not satisfied that there are sufficiently serious concerns about the builder's ability to perform the works as would persuade me to find that the builder lacks the requisite ability to perform the necessary work with due care and skill. In this regard: 1. Although the experts have agreed a scope of works for the terrace, Mr Riad does not agree that the remedial works carried out by the builder were defective. Moreover, as Mr Riad correctly points out, the builder was not given the opportunity to finish the remedial works because on 11 November 2022 the owner's solicitors instructed the builder (through its solicitors) to remove its equipment and stop work. It is not sufficiently clear from the available evidence which remedial works on the terrace were complete at the time the builder was instructed to leave the site. 2. With regard to the wet areas, Mr Riad does not agree with Mr Nakhla (and for the reasons explained I am not satisfied) that the builder compromised the waterproofing by cutting the membrane. Although there is agreement that the builder used an inappropriate sealant at the door thresholds, this is to be viewed in the context that the builder carried out significant other remedial works (including replacement of the roof) which have not been challenged by the owner, and that the builder was not given an opportunity to complete the remedial works.
Fourthly, although there may be disagreement as to the extent of the defects and the appropriate way to rectify them, I can find no basis for finding that the builder does not acknowledge that the works are defective in a number of respects, nor that the builder is unwilling to remediate the works in accordance with an order of the Tribunal.
For all these reasons I am not persuaded that the circumstances justify displacing the primacy of a work order.
Neither party made submissions as to the length of time that the rectification works would require. However, there was limited evidence that the entirety of the rectification works, including the roof replacement, would likely take approximately six months. As some of those works, including the roof replacement, have already been done, I have determined that 14 weeks is an appropriate time frame for completing the remainder of the works.

Costs

The parties have foreshadowed making an application for costs. I am reserving the question of costs and making directions for the parties to exchange submissions on costs if they wish to do so.

Conclusion and orders

For these reasons I make the following orders. 1. Within 14 weeks of the date of these orders the respondent is to carry out the works specified in the Schedule attached to these orders, in a proper and workmanlike manner. 2. The application is otherwise dismissed. 3. If there is a costs application, the costs applicant is to file and serve submissions and documents on the costs application by 14 days from the date of these orders. 4. The costs respondent is to file and serve submissions and documents on the costs application by 28 days from the date of these orders. 5. The costs applicant is to file and serve costs submissions in reply by 35 days from the date of these orders. 6. The costs submissions of the parties are to state whether the parties seek an oral hearing on the issue of costs, or consent to the costs application being determined on the papers in accordance with s 50(2) of the Civil and Administrative Tribunal Act 2013 (NSW). 7. The Tribunal may determine it appropriate to deal with any costs application on the papers and without a further oral hearing. SCHEDULE Terrace The works set out in relation to "Item 1" in the conclave report under the heading "Conclave Comments". Bedroom 3 balcony The works set out in relation to "Item 2" in the conclave report under the heading "Respondent Comments". Wet area - first floor master ensuite and ground floor bathroom The works set out in section 8.3 of Mr Nakhla's report dated 3 October 2023. Wet area - office ensuite and first floor bathroom The works set out in relation to "Item 3" in the conclave report under the heading "Respondent Comments". External walls The works set out in section 8.4 of Mr Nakhla's report dated 3 October 2023. Mould remediation The works set out in relation to "Item 5" in the conclave report under the heading "Conclave Comments" (which include the works specified in the report of Mr Seymour of PureProtect dated 19 June 2022). Ground level floor framing The works set out in section 4.2 of the report of Mr Noonan dated 25 August 2023.

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: 20 December 2024

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