Smyth & McDonald v Mason & Mason Investments Pty Ltd t/as House Logic Solutions [2016] NSWCATCD 68 | Case summary

NCAT Consumer and Commercial|2016-03-03

REASONS FOR DECISION

This is an application by Dulcie Smyth, Dianne McDonald and Robert McDonald (the First, Second and Third Applicants respectively) for an Order from the Tribunal pursuant to sub-section 48O of the Home Building Act 1989 that will require Mason & Mason Investments Pty Ltd t/as House Logic Solutions (the First Respondent) to pay them the sum of $38,887.35 being a part refund of money they paid to the First Respondent for the construction of a secondary dwelling (a 'granny flat'), and other compensation to which they say they are entitled because the First Respondent failed to construct the secondary dwelling. The Applicants also seek an order from the Tribunal joining Mr Zachary Mason, the sole director of the First Respondent as a Respondent to their Application. This application was made to the Tribunal on 4 June 2015 (the application) and was originally dealt with in the Tribunal's Newcastle Registry.
For reasons that are set out following, the Tribunal was precluded from continuing these proceedings to finality against the First Respondent because the First Respondent was placed under administration after the Application was heard but before this decision was finalised. However, the Tribunal had decided to join Mr Zachary Mason, the sole director of the First Respondent, as a Respondent to the Application in his personal capacity. He is referred to in these reasons as the Second Respondent. The Tribunal was not prevented from continuing these proceedings to finality in so far as they involved the Second Respondent.
The Tribunal has decided that in the circumstances of this case the Second Respondent engaged in misleading and deceptive conduct contrary to section 18 of the Australian Consumer Law which resulted in substantial damage and loss to the Applicants. It has therefore made an order that the Second Respondent compensate the Applicants for this loss.

Procedural history of the application

The application was first listed before the Tribunal for conciliation and hearing on 1 July 2015 2015. Each Applicant attended in person. Mr Mason and a solicitor representing the First Respondent, Mr Cameron, attended by telephone. The dispute could not be resolved by conciliation. As a consequence, the Tribunal adjourned the Application for hearing and made orders requiring the parties to exchange and file their evidence by 15 July 2015 (the Applicants) and 12 August 2015 (the Respondents). The Tribunal also granted leave for the parties to be legally represented.
The Applicants complied with the directions made by the Tribunal for the filing and exchange of evidence. The Respondent did not.
The Application was next listed for directions on 26 August 2015. The parties attended that listing by telephone. The Tribunal adjourned the matter for hearing and made orders extending the time for the Respondent to file and serve its evidence to 3 September 2015. It noted for the record that the Respondent required the Applicants' witness, Mr Smith, to be available for cross-examination. It recommended that the Applicants obtain legal advice about the Application. The Tribunal ordered that the parties attend the hearing of the Application in person.
The Application was set down for hearing on 11 November 2015. On 6 November 2015 that listing of the Application for hearing was vacated, by consent, following an Application to the Tribunal by the Applicants for an adjournment. The background to the adjournment application was that the applicants had obtained legal advice and, based on that advice, sought to amend their claim and file additional evidence. In support of their application for an adjournment, the Applicants provided the Tribunal with draft consent orders dealing with the amendment of the claim and the defence and the filing of further evidence. The Tribunal dealt with the application on the papers adjourning the matter for hearing and issuing the consent orders submitted by the Applicants.
The parties complied with the Tribunal's orders for the amendment of the claim and the defence and the filing of additional evidence.
The Application was set down for hearing on 27 January 2016. On 25 January 2016, the Respondents' solicitors notified the Tribunal and the Applicants that they were no longer instructed by Respondents and that the Respondents would not be taking any further part in the proceedings, which could proceed on an uncontested basis.
In view of this development the Tribunal did not hear the matter on the 27 January 2016. Instead, it adjourned the matter and transferred it for hearing from the Newcastle to the Sydney Registry for the convenience of the Applicants' counsel who is located in Sydney.
The Application was later set down for hearing in the Sydney Registry on 3 March 2016 by Notice dated 16 February 2016. The Tribunal's file includes a copy of the Notice of Hearing issued to the Respondent in respect of this listing. The Notice was sent to the Respondent's Registered Address. The Tribunal is satisfied the Respondents had Notice of the hearing.
On 4 March 2016 the Second Respondent was placed under administration. Mr David Iannuzzi of Veritas Advisory Pty Ltd was appointed liquidator. Notification of the Appointment of a Liquidator was sent to creditors on 7 March 2016. Eight days earlier, the Second Respondent established a new company, Mason and Mason Investments Pty Ltd which trades from the same address as the First Respondent. The Second Respondent is the sole director of that new company.
By Notice dated 18 April 2016, the Tribunal notified the parties that it was prohibited from proceeding further with this Application as against the First Respondent by section 440D of the Corporations Law 2001, which provides that during the administration of a company a proceeding against that company (relevantly) can only be continued if the administrator consents to the proceeding being continued, or if the Supreme Court of New South Wales grants leave for the proceedings to continue.
The Application was listed before the Tribunal on 18 May 2016 to determine if the administrator consented to the proceedings continuing or if the Applicants had obtained leave of the Supreme Court of New South Wales for the proceedings to continue, or intended to apply to the Court for such leave.
Ms McMahon of counsel attended the hearing on 18 May 2016 on behalf of the Applicants. No representative of the First or Second Respondent attended the hearing. Ms McMahon told the Tribunal that she had been in contact with the First Respondent's Administrator and that the Administrator had not consented to the proceedings continuing against the First Respondent. Ms McMahon also told the Tribunal that the Applicants had not obtained a grant of leave from the Supreme Court of New South Wales for the proceedings to continue against the First Respondent, and did not intend to apply for such a grant of leave.
In these circumstances, the Tribunal determined that these proceedings as against the First Respondent must be stayed pursuant to section 440D of the Corporations Law 2001. This did not affect the proceedings as against the Second Respondent in his personal capacity.

Evidence and submissions

The Applicants submitted into evidence a statement made by Dianne McDonald dated 27 December 2015 which has 16 annexures marked DM1 to DM16, and another folder of documents tabbed 1 to 8, which were marked Exhibits A1 and A2 respectively. The Applicants also filed a written outline of submissions. The Applicants' evidence and submissions had been served on the First Respondent in accordance with the Tribunal's directions. The Second and Third Applicants, Dianne and Robert McDonald, attended the hearing in person, represented by Ms McMahon of counsel.
The First Respondent submitted into evidence a statement made by Zachary Mason (undated) which has three annexures. This statement was marked Exhibit R1. The Respondents also filed into evidence a 'defence' dated 7 December 2015 which responds to the Applicants' outline of submissions. There was no appearance by or for the Respondents at the hearing.

The application

This application arises from a contract for the construction of a secondary dwelling to accommodate the First Applicant on land at the rear of the residence of the Second and Third Applicants at Tuggerah. The First Applicant is the elderly mother of the Second Applicant.
The Second Applicant contends that the Applicants formed a definite intention to construct the granny flat in approximately August 2014. She says that the Applicants undertook a Google search on the internet and as a result of that search found the website of the First Respondent. She says that the website advertised the First Respondent as a company that specialised in the construction of granny flats.
In this respect, the Applicants have submitted into evidence a copy of a detailed brochure which the Second Applicant says she downloaded from the First Respondent's website, which she says that she and the other Applicants read and relied upon at that time. That brochure is branded House Logic Solutions and it describes the First Respondent, in detailed terms, as being involved in the design, approval and construction of granny flats.
In their defence, the Respondents deny that the website and brochure described the First Respondent as "specialising" in the construction of granny flats. The word "specialise" is not used in the brochure per se. However, any fair reading of that brochure would lead to the conclusion that the First Respondent professed particular expertise and experience in the design, approval and construction of granny flats.
The First Applicant entered into an agreement with First Respondent on 19 August 2014 entitled a "Scope of Works Agreement" (Scope of Works Agreement). The Scope of Works Agreement sets out the specifications of the works that would be performed to plan and obtain the necessary consents for the construction of the granny flat. The Scope of Works Agreement sets out the steps in which this work would be done.
"Step 1" of the Scope of Works is referred to as the "Approval Stage (Design and Approval)". It required the client to sign a "Client's Authorisation and Direction" and to pay an approval fee of $8,950.00. There is no dispute between the parties that the Second and Third Applicants paid this approval fee to the First Respondent on or about 20 August 2015.
There is no dispute between the parties in relation to Step 1 of the Scope of Works; that is to say, the Applicants do not dispute that this work was performed, and they make no claim for any monies paid in respect of this work.
However, it is necessary to carefully consider the terms of the Scope of Works Agreement because of its implications for the dispute about the later works.
As noted, the contracting parties for the Scope of Works are the First Applicant and the First Respondent. The First Respondent is identified on the Scope of Works and Acceptance by its trading name "House Logic Solutions." The address given is the Registered Office and Principal Place of Business of the First Respondent. The ABN quoted is that of the First Respondent. The Licence Number quoted is that of the First Respondent.
The terms of the Scope of Works included the following statements: … This is not a contract or agreement under the Home Building Act 1989 (NSW) nor is it an offer to enter into one, however a Residential Building Contract under that Home Building Act may be offered to you after Development Approval and/or Consent has been obtained … Step 2 … Once the above investigations, plan design, approval and final pricing stage is complete, all charges and costs will be quantified and agreed by both sides. We will then be in a position to offer you to enter into a Residential Building Contract under the Home Building Act 1989 (NSW) which we anticipate to be the exact or similar to the value of genuinely pre-estimated quote in the preceding pages. We will require a 5% deposit of the Residential Building Contract price to enter into this Residential Building Contract with you. At that time, a Certificate of Home Warranty Insurance will be issued for your specific project, along with the (OFT) Office of Fair Trading Consumer Guide.
Step 3 of the Scope of Works is entitled "Progress payments (as set out in the contract)". It states as follows: In anticipation of the Residential Building Contract, we'd like to illustrate to you how our progress payments are structured: 30% - within ten (10) days of signing the contract (less 5% deposit already paid, so only 25% will be payable). 25% - upon Completion of framework 25% - upon Lock Up stage (external linings, rood, external door, eave lining and windows) 15% - upon Rough ins and Linings (Electrical and plumbing rough ins, insulation, plasterboard and villaboard) 5% - upon completion (painting, splash-backs, hot water service, all service connections, commissioning of plumbing and electrical, handover to customer with defects (if any) identified and resolved, Occupation Certificate issued by Certifier.
At the end of the Scope of Work there is a section entitled "Client's Authorisation and Direction" which appears just before the signature page. It states (in part) as follows: I/We, the undersigned owner/owners of the above site (the "Client"), hereby and merely Authorise and Direct Mason & Mason Investments Pty Ltd t/as House Logic Solutions to commence Step 1 (the "Approval Stage") as described in the preceding pages including the preparation of Floor Plans, Electrical Plan, Site Plans, Elevations, Sections (if required), Door and Window plans, Electrical plan and our Schedule of required Finishes (the "Final Design") in accordance with the following Terms and Conditions: 1. The Parties agree that this is not a contract or agreement ("Residential Building Contract") under the Home Building Act 1989 (NSW) (the "Act") and that a Residential Building Contract may or may not be offered by the Builder to the Client in the future. 2. In the event that a Residential Building Contract is offered by the Builder to the Client, the Client must enter into the Residential Building Contract and pay a 5% deposit. …
The First Respondent completed the Step 1 Approval Stage to the satisfaction of the Applicants, and otherwise without apparent incident. As a result of the successful completion of this stage of work, the First Respondent was able to obtain a Complying Development Certificate for the proposed construction of the granny flat which is dated 20 November 2014.
On or about 20 January 2015 the First Respondent provided the Applicants with a 'Home building contract for work over $5000.00' for their review (Home Building Contract). It was a NSW Fair Trading standard form home building contract for work over $5,000.00. The contract price was specified as $129,624.50. The Applicants' contend, and it does not appear to be disputed by the Respondents, that the signature page was blank in this version of the contract; that is, it did not set out the details of the contracting parties.
On 30 January 2015, the Second and Third Applicants attended the First Respondent's Registered Office and principal place of business to sign the Home Building Contract. They met with the Second Respondent. The Home Building Contract the Second Respondent offered them for signature set out the Applicants' details but included as the contractor "Rhys John Smith" (Mr Smith).
The Applicants contend that the Second Respondent led them to believe that Mr Smith was an officer of the First Respondent who was unable to attend the meeting. They say that the Second Respondent told them that Mr Smith would sign the contract as soon as possible and a copy would be forwarded to them. They say that the Second Respondent did not, in any way whatsoever, communicate to them that Mr Smith was an alternative contractor or sub-contractor of the First Respondent. The contract does not refer to Mr Smith by his trading name Good as Gold Carpentry Services.
At this meeting the First Respondent also asked the Second and Third Applicants to make their colour selections for the granny flat. They completed a three page document which was signed by the Second Applicant and the Second Respondent which is dated 29 January 2015. That document has a footer which sets out the First Respondent's Registered Address, its telephone number, ABN and website address.
The Applicants say that they received a copy of the Home Building Contract executed by them and Mr Smith on or about 2 February 2015. The contract is dated 2 February 2015. They say they also received a copy of the Home Warranty Insurance in respect of the work at that time. They now note that the licence number quoted in the Home Building Contract was Mr Smith's license and not that of the First Respondent. They also now note that the Certificate of Insurance specifies Mr Smith's licence number. However, they contend that at the time they received these documents they did not notice these details and assumed that the contract and the Home Warranty Insurance specified the First Respondent as the builder.
In fact, neither the First Respondent nor Mr Smith were licenced to undertake the works. The First Respondent holds a license entitling it to do work in the following categories: Plumber and Roof Plumber, Drainer, Gasfitter, LP Gasfitter and Builder which are each subject to the condition that the First Respondent only undertake contracts that do not require insurance under the Home Building Compensation Fund. Mr Smith holds a licence to undertake work as a Carpenter and Joiner. He is not licensed to undertake home building work.
The First Respondent contends that it was Mr Smith that was the building contractor for the project and that as a consequence it has not contravened its licence conditions. In this respect, the First Respondent relies upon a "Project Management & Agreement Contract" between it and Mr Smith trading as Good as Gold Carpentry Services which is dated 2 February 2015. Pursuant to that Project Management Agreement Mr Smith is designated the "builder" for the project and the First Respondent is responsible for client liaison and communication, the supply of materials, sub-contracting of trades-work required and suppliers, and arranging for necessary consents and approvals. For the performance of his work, Mr Smith was to be paid a total contract price of $10, 540.00.
On or about 4 February 2016 the Second and Third Applicant's received two invoices from the First and/or Second Respondent under the letterhead of Good as Gold Carpentry Services. The invoices both set out the ABN, licence number and postal address of Mr Smith trading as Good as Gold Carpentry Services. The first of these invoices was in the amount of $6,481.22 and it was specified as the "Five percent (5% for signing the contract). The second invoice was in the amount of $32,406.13 and it was specified as "Twenty-five percent (25%) upon commencement of works." Both invoices purport to carry the signature of Rhys Smith. The bank account details given on the invoices were those of the First Respondent. Both invoices also included a request that the First Respondent be notified of payment of the invoices by email to the Second Respondent at his House Logic Solutions email address or by telephone to his House Logic Solutions telephone number.
The Applicants paid both invoices in full on or about 5 February 2015 by electronic funds transfer to the bank account specified on the invoices.
On or about 11 February 2015 Mr Smith attended the Second and Third Applicants' home to introduce himself. In the course of that meeting, Mr Smith requested payment from the Second and Third Applicants. The Second and Third Applicants told Mr Smith that they had already paid two invoices. Mr Smith denied receiving any payment from the Applicants. He also denied having rendered any invoices on the Applicants.
On 11 February 2015 the Third Applicant emailed the First Respondent to seek confirmation that the funds paid had been received. No immediate response to this email was received. On 12 February 2015, the Third Applicant then sent a follow-up email requesting confirmation of the payment. On 13 February 2015, the Second Respondent replied to these emails confirming that the funds had been received and attaching a receipt for the payments. That receipt is dated 17 January 2015 (sic) and 13 February 2015 and it is set out on the letterhead of Good as Gold Carpentry Services. It includes Mr Smith's ABN, license number and postal address. It purports to be signed by Mr Smith.
Clause 4 of the Building Contract stipulated that work would commence, relevantly, within 15 days from the date of the contract: that is by 17 February 2015. Clause 5 of the Building Contract stipulated that the works would be completed within 12 calendar weeks (sic) of the date of commencement, which on the evidence before me I am satisfied the parties regarded to be 18 May 2015.
The Second Respondent's email of 13 February also states the following: … Vlad our site maintenance person will be coming to your site today to place our site set up material such as fencing and bins etc. Rhys (builder) is set to start the demolition works next Thursday 19th. Following this, the survey peg out will be done for Rhys to mark out the excavation for the excavator to prepare for the slab and piers. The concrete will then be poured for the slab and piers, with the framework to follow. …
The works did not commence or continue as promised by the First Respondent. The Applicants contend that they were repeatedly notified by the First Respondent that tradespersons were booked to attend the building site, but these tradespersons failed to attend. The Applicants contend that they made repeated telephone calls to the Second Respondent in an effort to ascertain when the works would commence. They say these inquiries went unanswered.
On 20 March 2015 an excavator did attend the site to excavate the building site so that the slab could be laid. The excavator caused damage to the Second and Third Applicants' car port roof. The excavator later caused damage to a fence. The Third Applicant notified the Second Respondent of this damage by email, attaching photographs, on 26 March 2015. Up to the date of the hearing, the Respondents have taken no action to rectify this damage.
After these excavations were completed, the Applicants contend that there were further extensive delays in the work progressing. Clause 7 of the Building Contract provided for the parties to agree on an extension of time for the completion of the contract. No extension of time was agreed pursuant to that clause. It is not contended by either party that the delay arose due to adverse weather or other supervening factors beyond the First Respondent's control.
It is not entirely clear in the evidence what the cause of the delays were. In general there appears to have been a failure of the First Respondent to organise cub-contract work to be performed that had to be completed prior to Mr Smith commencing work. This appears to have resulted from disputes between the First Respondent and its sub-contractors, arising from the First Respondent's unilateral changes to sub-contracts and the First Respondent's inability to pay for sub-contract work due to cash flow problems. It also appears that the First Respondent failed supply the Mr Smith with the necessary materials to carry out the work.
In this respect, the Applicants have submitted into evidence a statement by Mr Smith dated 27 June/1 July 2015, which states in part: … It also became apparent that H/L [House Logic] was experiencing serious cash flow problems when the excavator walked off the hob being owed $60,000.00. From that point on H/L failed to provide me with materials in a timely fashion, always with excuses as to why things needed to be delayed. The piers and garage slab was finally poured on the 02/04. After being informed that the frames and trusses would be provided by Bunning on 29/04/15, I was asked to provide a cutting list (which I was to be paid for) for the frames and the roof. I did this promptly and still have not been paid for these quantities. I was then given all number of excuses as why the floor, framing and roofing materials were delayed. I was then finally provided with a work order for this additional works, and it was not in line with my original terms and conditions, so I rejected that work order and promptly informed them of my decision. The flooring timbers were finally delivered on 15/05. And delivered incorrectly, being the wrong sectional sizes and short in quantity.
It appears that Mr Smith had sub-contracted three projects from the First Respondent at this time each of which was in difficulty. The Applicants have submitted into evidence a copy of an email exchange between the General Manager of the First Respondent and Mr Smith dated 7 to 11 May 2015, which they say was given to them by Mr Smith. In that email exchange the First Respondent's General Manager asks Mr Smith to cancel all three contracts. With respect to the Applicants' Building Contract Mr Smith resists this request stating that he will complete the work. He demands that the First Respondent deliver the necessary timber to him to commence work by 12 May 2015. In response the First Respondent's General Manager offers to pay Mr Smith $4,565.00 inclusive of GST if he agrees not to do any further work. That email goes on to state "we are offering you the opportunity to "take the money and run." Mr Smith did not accept this offer.
On 7 May 2015, the Second Respondent wrote to the Second and Third Applicants on behalf of the First Respondent to apologise for the delay in the works. That letter offers the Applicants $250.00 a week in compensation for this delay which was offered to commence from 11 May 2015 and continue until construction of the granny flat reached practical completion. The Applicants say that they accepted this offer, but never received any funds. In its defence to the Applicants' claim the Respondents plead that this was because the Applicants failed to provide the First Respondents with their bank account details. This is denied by the Applicants and is otherwise quite implausible.
Work did not progress from 7 May 2015. On 14 May 2015 the First Respondent's General Manager delivered timber to the Applicants' address. On 16 May 2015, Mr Smith attended the Applicant's premises to check the timber delivery. Mr Smith told the Applicants that the timber delivered was not to the correct specification. On 18 May 2015, Mr Smith advised the Applicants that he had cancelled his contract with the First Respondent.
Following Mr Smith's attendance at their address on 14 May 2015, the Applicants immediately contacted the First Respondent's General Manager who denied that the timber was not to the correct specification.
After Mr Smith advised them that he had cancelled his contract with the First Respondent on 18 May 2015, the Applicants say that they repeatedly attempted to contact the First Respondent to try to find out what was to happen. They say that on or about 21 May 2015, the First Respondent's General Manager contacted them and stated that he was "happy to get rid of Rhys" and would "get my own guys to finish it off." They say that the General Manager suggested they ought to terminate their contract with Mr Smith. An arrangement was then made for the General Manager and Second Respondent to meet with the Applicants at their address on 26 May 2015. However, the General Manager and Second Respondent failed to attend that meeting.
When the Respondents failed to appear for the scheduled meeting, the Applicants say they contacted the First Respondent's General Manager later that day and advised him that they wanted to terminate the contract and obtain a full refund of the funds they had paid in respect of the Building Contract.
By email dated 29 May 2015, the Applicants received from the First Respondent's General Manager a purported reconciliation for the works completed and materials provided in respect of the contract. In summary, the First Respondent claimed to have expended all funds paid to date on partial completion of the building work and materials supplied excepting $2,312.46, which it offered to refund to the Applicants. The email stipulated that in order to obtain this refund the Applicants would have to "properly terminate" their building contract with Mr Smith and provide documentary evidence to the First Respondent to this effect.
That email also included the following statement: We find the current circumstances truly regrettable, especially given that the concerted efforts of a cabal of central coast locals of dubious character and morals have resulted in the breakdown of what would have been a fantastic experience for you, being the construction of your secondary dwelling by House Logic. We are somewhat distraught that it has come to this as we consider you a valued client.
The Applicants refused to accept the refund offered by the First Respondent. They continued to press for a full refund of the funds they paid. The Applicants retained Mr Smith to complete the works. The works were completed in December 2015. However, the necessary inspections were not completed and certification of the works obtained until February 2016. In this respect, the Applicants have submitted into evidence an email from the certifier to Mr Smith which states that certification was delayed because three mandatory inspections had not been booked and carried out. The certifier appears to attribute the responsibility for this to the First Respondent stating "we do not speak with House Logic after they threaten my family. Which is unacceptable."

Jurisdiction

The Applicants contend that the Tribunal has jurisdiction to entertain this Application under section 48KI of the HB Act. To establish jurisdiction on this basis, the Tribunal must be satisfied that this is a "building claim" within the meaning given that term in section 48A of the HB Act. Section 48A(1) of the HB Act defines a "building claim" to mean: "building claim" means a claim for: (a) the payment of a specified sum of money, or (b) the supply of specified services, or (c) relief from payment of a specified sum of money, or (d) the delivery, return or replacement of specified goods or goods of a specified description, or (e) a combination of two or more of the remedies referred to in paragraphs (a)-(d), that arises from a supply of building goods or services whether under a contract or not, or that arises under a contract that is collateral to a contract for the supply of building goods or services, but does not include a claim that the regulations declare not to be a building claim.
"Building goods or services" are defined in section 48A(1) to mean: "building goods or services" means goods or services supplied for or in connection with the carrying out of residential building work or specialist work, being goods or services: (a) supplied by the person who contracts to do, or otherwise does, that work, or (b) supplied in any circumstances prescribed by the regulations to the person who contracts to do that work.
The term "residential building work" is defined in Schedule 1, clause 2 of the HB Act. Relevantly, in sub-clause 2(1)(a) it is defined to "mean any work involved in, or involved in co-ordinating or supervising any work involved in: (a) the construction of a dwelling." However, certain activities are excluded from the definition of residential building work. Relevantly to the Respondents' response to this Application, pursuant to Schedule 1 Clause (3)(i)(iii) of the HB Act it excludes "the supervision only of residential building work … by any other person, if all the residential building work is being done or supervised by the holder of a contractor license authorising its holder to contract to do that work."
A building claim must be within the jurisdictional monetary limits imposed by section 48K(1) and Schedule 1 clause 2(3)(a) of the HB Act and Regulation 12 of the Home Building Regulation 2014. It must be made within the time period specified in section 48K(3) of the HB Act. There is no issue that this Application complies with those requirements.
I am comfortably satisfied that I have jurisdiction to deal with this Application under section 48KI of the HB Act. It is a claim for a specified sum of money that "arises from" a supply of building goods or services. The First Respondent denies the existence of a building contract between it and the Applicants. It contends that the contract is between the Applicants and Mr Smith. Even if I were to accept that contention, which I do not, it would not be fatal to the Applicants' claim. For the reasons given by the plurality of the Court of Appeal in Grygiel v Baine & Ors [2005] NSW CA 218 [at par 62 per Basten J with whom Mason J agreed] the Applicants' claim against the First Respondent is a building claim because the conduct of both Respondents gives rise to a substantial dispute about the nature of the supply or the terms on which the building services were supplied.
The Applicants' claim does not fail against the First Respondent on the basis that its activities are excluded from the definition of "residential building work" pursuant to Schedule 1 clause 3(i)(iii) of the HB Act. The work performed pursuant to the contract signed by the Applicants and Mr Smith does not come within the terms of that clause.
There was not in existence at any material time a contract, written or oral, between the Applicants and the First Respondent that designated the role of the First Respondent as that of "supervision only" of residential building work.
Properly construed, the building contract was a contract between the Applicants and the First Respondent, notwithstanding that Mr Smith signed the contract. With the exception of Mr Smith's name and license number all of the other identity information contained in the contract are those of the First Respondent. The Second Respondent did not at any point disclose to the Applicants that the building contract offered to them had the intention or effect that they would be contracting with Mr Smith trading as Good as Gold Carpentry Services. The Second Respondent's conduct was at all material times such as to amount to a representation to the Applicants that Mr Smith had ostensible authority to enter into the building contract with them on behalf of the First Respondent. The Respondents are now estopped from claiming that Mr Smith lacked such authority: Devren Pty Ltd v Old Coach Developments Pty Ltd and Ors [2015] QSC 53.
In any event, for the work to be excluded as residential building work under Schedule 1 clause 3(i)(iii) of the HB Act all the residential building work must be done or supervised by the holder of a contractor license authorising its holder to contract to do that work. Mr Smith is not such a person. His licence does not permit him to undertake residential building work.
Sub-section 74(3) of the Fair Trading Act 1987 confers jurisdiction on the Tribunal to consider if a person has suffered loss or damage because of the conduct of another person due to a contravention relevantly connected with New South Wales of that person of Chapter 2 or 3 of the Australian Consumer Law (ACL), provided this issue arises in the context of another claim which is properly before the Tribunal. Sub-section 74(3) is engaged in this case, because the Application before the Tribunal is a building claim brought under section 48KI of the HB Act.
The ACL is a national law that, relevantly, provides a number of 'protections' for consumers in consumer transactions. This includes, relevantly to this case, in section 18 of the ACL, a general protection against misleading and deceptive conduct by a person in trade or commerce. Pursuant to section 28 of the FT Act the ACL also forms part of the law of NSW.
Sub-section 70(2) of the FT Act provides that certain remedies available under the ACL apply to a contravention of the ACL in NSW in the same way that they do under the national law. These include, relevantly to this case, the remedy of compensation for damage provided in section 236 of the ACL (which is in Part 5.2 Division 3 of the ACL (see subsection 70(2)(b) of the FT Act)). In other words, briefly stated and relevantly to this case, if a person engages in misleading and deceptive conduct in trade or commerce in contravention of section 18 of the ACL, and a consumer of those goods or services suffers damage or loss as a result of that conduct, the consumer may be entitled to be compensated by that person for that damage and loss.

Joinder of Mr Mason in his personal capacity

The Applicants seek joinder of Mr Zachary Mason, sole director of the First Respondent, as a Respondent to their Application in his personal capacity. The Applicants made this application early in the proceedings. Both Mr Mason and the First Respondent were on notice as to this application well in advance of the hearing of the substantive application and had the opportunity to make submissions in relation to it. This application was before the Tribunal at the hearing of the Application and was the subject of both written and oral submissions.
It is a long established general principle of law that a director of a company has limited liability for the conduct of a company, which is different juristic entity: Salamon v A Salamon & Co [1897] AC 22. However, this general principle is subject to exceptions.
Section 18 of the ACL provides that a "person must not, in trade and commerce, engage in conduct that is misleading or deceptive or is likely to mislead and deceive." On ordinary principles, "person" includes both a natural person as well as a juristic person, such as a corporation. Section 236 of the ACL provides that in an action for damage based on an alleged contravention of a provision of Chapter 2 or 3 of the ACL a claimant may recover the amount of the loss or damage against the person who caused that loss or damage or 'against any person involved in the contravention.'
The meaning of the word "involved" in the context of section 236 is provided in section 2 of the ACL: "involved" : a person is involved, in a contravention of a provision of this Schedule or in conduct that constitutes such a contravention, if the person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention.
Mr Mason was at all material times the sole director of the First Respondent. He was directly and personally involved in the conduct that gives rise to the Applicants' claim.
In Houghton v Arms [2006] HCA 59, the High Court held in the context of a consumer claim that an officer of a company (in that case, two employees) were individually liable for misleading and deceptive conduct, notwithstanding that they were acting in their capacities as officers of the company at time. In CH Real Estate Pty Ltd v Jainran Pty Ltd; Boyana Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37 the NSW Court of Appeal arrived at the same conclusion, finding that a director of a company was liable for misleading and deceptive conduct he engaged in the context of the sale of a property by his company to a purchaser.
Having regard to the factual background to this Application, and the legal principles that apply, I am satisfied that the Applicants are entitled to an order joining Mr Mason as a Respondent to their Application in his personal capacity.

Did Mr Mason engage in misleading and deceptive conduct?

In ACCC v Dukermaster Pty Limited (2009) FCA 682 Gordon J set out the principles to be applied in determining if conduct constitutes misleading and deceptive conduct:

the "conduct" in the circumstances, must lead, or be capable of leading a person into error;
the error or misconception must be caused by the conduct of the person, not other circumstances for which the person is not responsible;
to mislead and deceive, there must be a real and not remote chance that the conduct will mislead;
the conduct must be considered in context and not in isolation; and
the test is an objective one which a Court (or Tribunal) must determine for itself.

Applying these principles to the facts in this case I am comfortably satisfied that Mr Mason engaged in misleading and deceptive conduct to induce the Applicants to enter into and continue with a home building contract. That misleading and deceptive conduct included the following:

publishing a website advertising the First Respondent as a company that had expertise and experience in the design, approval and construction of secondary dwellings (granny flats). In fact, no officer of the First Respondent held a license entitling the First Respondent to construct secondary dwellings;
providing the Applicants' with a Scope of Works Agreement that included several affirmative representations to the effect that at the completion of Design and Approval stage of the works, the First Respondent would offer the Applicants a Residential Building Contract under the HB Act. A necessary implication of these representations was that the First Respondent was qualified to enter into a Residential Building Contract with the Applicants. That was never the case. No officer of the First Respondent was licensed to undertake home building work.
inducing the Applicants to sign a Home Building Contract with Mr Smith in a manner that concealed from the Applicants at the material time that Mr Smith was a sub-contractor and not a Principal or officer of the First Respondent. At no time prior to the Applicants signing the building contract did the Second Respondent reveal to them that it was the intention or effect of the Home Building Contract that the builder of the secondary dwelling would be Mr Smith trading as Good as Gold Carpentry Services and not the First Respondent.
representing to the Applicants that Mr Smith was qualified to undertake home building work. He was not qualified to do so. His licence authorises him to perform the work of a carpenter, not undertake home building work.
inducing the Applicants to make two payments to the First Respondent for the commencement of the works in the amount of $38,887.35 by issuing them with invoices under the letterhead of Good as Gold Carpentry Services ostensibly signed by Mr Smith but which required the transfer of the funds into the bank account of the First Respondent. Mr Smith had no knowledge of those invoices and he did not sign them. The letterhead and signature used by the Second Respondent in issuing those invoices to the Applicants were both false.
repeated representations to the Applicants that the delay in the works was the result of factors external to the First and Second Respondent's control, when in fact it was wholly or principally the result of the failure of the First Respondent to properly organise and pay for necessary preparatory works, and to order and deliver materials to the necessary specifications.
repeated representations to the Applicants in May 2015 to the effect that the First Respondent was capable of completing the works if they would terminate their contract with Mr Smith. The position of the First and Second Respondent had not changed since the commencement of the contract. Neither the Second Respondent nor any other officer of the First Respondent held a home building license entitling the First Respondent to undertake residential building work.
representing to the Applicants on 7 May 2015, in an effort to avoid them terminating the home building contract, that they would be paid $250.00 a week in compensation for the delay in the works from that point until completion. In fact, no such payment was ever made.
representing to the Applicants at the point of termination of the contract that the monies that they had paid had been, with the exception of $2,312.46, fully expended on the works. In their defence to this claim a different position has been taken. It is now said that $26,777.17 of the Applicants' commencement payments were paid to non-parties up to the point of termination of the contract. For reasons set out following, there are substantial reasons to doubt this evidence.

I am comfortably satisfied that if the Applicants had known the true position, that is:

that the First Respondent was not qualified to undertake home building work;
that it intended to sub-contract the work to another contractor who also was not qualified to undertake home building work;
that the First Respondent was not reliable or competent in the management of home building works; and
that the affairs of the First Respondent were such that it was unable to make necessary payments to contractors, they would never have entered into the home building contract.

Did the Applicants suffer damage and loss as a result of the Second Respondent's misleading and deceptive conduct?

I am comfortably satisfied on the evidence before me that the Applicants suffered substantial damage and loss as a direct consequence of the Second Respondent's misleading and deceptive conduct.
That loss is principally the loss of the $38,887.35 in commencement payments they made, ostensibly to Mr Smith, but which were diverted to the bank account of the First Respondent.
The Applicants contracted with the First Respondent to construct a secondary dwelling. This work had a completion date of 18 May 2015. As at that completion date, very little work had been done towards the construction of the secondary dwelling. At most, it appears that the site of the dwelling had been excavated and a concrete slab poured. The machinery used by the excavator caused substantial damage to the car port roof and gate of the main dwelling on the site which was not repaired or compensated by the First Respondent.
As noted above, the Respondents now claim that $26,777.17 of the monies the Applicant's paid to the First Respondent were dispersed to non-parties prior to the termination of the contract. The Respondents have submitted a number of invoices and a limited number of receipts or payment transfer records in an effort to prove these payments. Leaving aside the excavation and the pouring of the concrete slab, I am not able, on the evidence before me, to ascertain any benefit to the Applicants from these payments to third parties, if indeed such payments were made.
There are substantial reasons to doubt that the First Respondent made the payments claimed. The delay in the works appears on the evidence before me to substantially result from the First Respondent's failure to make payments due to its sub-contractors. Mr Smith is listed as one of the payees and he denies receiving monies due to him from the First Respondent. Another of the claimed payments is for certification of the works, which the evidence establishes were never completed as required due to a dispute between the certifier and the First Respondent.
A number of the documents relied upon by the Respondents are invoices for which there are no receipts or records of payment transfers. Even if I were to entertain allowing the First Respondent the costs it claims for the excavation and concrete work (items 15 and 16 at paragraph 44 of the Respondents' defence) there is no evidence before me to prove that the invoices for these works were paid.
A number of the payments itemised appear to relate to the Approval Stage of Works which are not in dispute and which were supported by a separate payment of $8,950.00.

Compensation

The central principle governing the award of damages at common law is that they are compensatory: Johnson v Perez (1988) 166 CLR 351 at 355. In Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 116 Deane J stated: The general principle governing the assessment of compensatory damages in both contract and tort is that the plaintiff should receive the monetary sum which, so far as money can, represents fair and adequate compensation for the loss or injury sustained by reason of the defendant's wrongful conduct.
It follows from the analysis outlined above that I am comfortably satisfied that the quantum of damage and loss suffered by the Applicants as a result of the Second Respondent's misleading and deceptive conduct is the $38,887.35 they paid to the First Respondent to construct the secondary dwelling.
The First Respondent failed to construct the secondary dwelling according to the terms of its contract with the Applicants. The Applicants were obliged to terminate the contract for want of its performance by the First Respondent after the agreed completion date and incurred a further delay of 9 months before the work was completed by another builder. The Applicants obtained very limited, if any, benefit from any work performed by the First Respondent under the contract.
Even after the contract was terminated, the Applicants were beset with problems in having the works certified due to the First Respondent's failure to obtain necessary certifications in the early stages of the work.
The Applicants' main dwelling incurred substantial damage as a result of the works that were conducted by the First Respondent's excavator and concreter. To the extent that the Applicants benefited from this excavation and concrete work, that benefit is substantially offset by the damage incurred by the Applicants as a result of these works.
Additionally, I am comfortably satisfied that the Applicants are entitled to an award of $500.00 in liquidated damages. In this respect, the Second Respondent offered to amend the home building contract on 7 May 2015 to provide that the Applicants would be entitled to claim liquidated damages of $250.00 per week from 11 May 2015 in relation to the delay in the completion of the works. The Second Respondent made that offer in order to avert the Applicants' termination of the contract. The Applicants accepted that offer. No payment was made to the Applicants in respect of this agreement up to the date they terminated the contract on 26 May 2015 following further failures of the First Respondent to fulfil promises to progress the works.

Costs

At the end of the hearing the Applicants sought to reserve the right to make an application for costs following publication of the Tribunal's decision in this Application. Any such application is to be made within 14 days of the date of these orders. If the Second Respondent wishes to reply to any such application, he is to do so within 28 days of the date of these orders. If any such application is made, the matter will be determined on the papers. P French General Member Civil and Administrative Tribunal of New South Wales 3 June 2016 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: 06 October 2016

Smyth & McDonald v Mason & Mason Investments Pty Ltd t/as House Logic Solutions

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