Squadrito v Theodosi

[12]

Applicants' submissions

The applicants' written submissions (A69) noted the findings in the respondent's report and it was suggested they relied on that report by proceeding to purchase the subject property. Reference was made to the reports obtained from Ms Lehkre and Mr Saleh. After noting the minimum standards for property inspections and inspection reports set out in AS 4349, various breaches were alleged. Submissions were made in relation to the reports of Mr Brook and Mr Hosey. Causes of action in contract, negligence, and breaching s 60 of the ACL were said to have been established. A claim for damages was made under eight headings (considered below) and a claim for costs was also made.
Oral submissions made the following additional points: 1. The failure to refer to the laundry was a failure to comply with paragraph (b) cl 4.2.3 in AS 4349.1 (Exhibit 1). 2. There was a failure to comply with paragraph (d) of AS 4349.3, which required "An opinion regarding the susceptibility of the building to timber pests" since a suggested absence of termite activity was still an opinion. 3. The fact that invasive work revealed termite activity does not address the question of whether that activity could/should have been discovered without any invasive work. 4. In the respondent's report, there is no indication of the areas inspected: only of the areas where he found matters on which he reported. 5. It was contended that matters such as sagging floorboard or deformation could and should have been detected visually. 6. There was a failure to report on termite activity in the fence, tree, sleeper, and the laundry. 7. The termite activity in the laundry was said to be detectable by donging, ie tapping with either bare knuckles or a screwdriver and it was suggested that Mr Saleh's inspection of the laundry included areas not touched since the respondent's inspection. 8. Termite activity in the tree was seem visually by Mr Saleh and should have been seen by the respondent. The distance from the tree to the house was said to be three metres and from the fence to the house was said to be four metres. 9. Termite activity in the sleeper was discoverable visually and could have been confirmed by tapping that timber.

[16]

Assessment of witnesses

The first applicant provided a witness statement (A82) but was not cross-examined. As her evidence was not contested, and as there is no discernible reason to reject it, her evidence is accepted.
There was a suggestion that Mr Saleh did not correctly use his moisture meter but (1) his qualifications and experience weigh against that, (2) his oral evidence in response adequately addressed that allegation, and (3) his finding of high moisture readings was confirmed by the evidence of Ms Lehrke (A427 at [2.5]). Mr Saleh presented as a truthful witness and his evidence is accepted.
Ms Lehrke provided a "Visual Termite Inspection Report" (A426) which was not the subject of any challenge or adverse comment, and which is accepted as providing accurate evidence.
The respondent did not provide any witness statement, statutory declaration, or affidavit. He only gave oral evidence because the applicant's solicitor sought and obtained leave to ask him questions. Although accepting that timber damaged by termites would sound different if tapped, the respondent suggested he did tap on the laundry architrave/frame, but it did not sound different. That evidence differs from the evidence of Mr Saleh on that point. To the extent that there is a conflict between the evidence of the respondent and Mr Saleh, the evidence of the independent expert, Mr Saleh, is preferred.
The evidence of the respondent is not considered reliable, noting that his evidence was that he inspected a significant part of the sub-floor but did not recall finding anything significant enough to report.
Mr Hosey conceded that "There is evidence of termite damage to multiple areas in the fence, this should have been detected and reported on by the Respondent" (A329 at [7.2]). His report suggested that, while conducting his inspection, he did not detect any high moisture in the kitchen or in the wall between the master bedroom and the second bedroom (A330 at [7.5]). As his oral evidence included that he was not able to do moisture measurements, the Tribunal views his evidence with caution since his oral evidence removes any factual foundation for that opinion as to not detecting any high moisture in his report.
Mr Brook said, in his report, that "Pre-existing visible termite damage was located to the rear and LHS timber fencing and timber sleepers within the garden bed." (A355 at [5.10]). He also said that "foundation movement "cracking" has occurred due to the surface water drainage being inadequate" and he agreed with Mr Saleh that was a major defect (A357). Those were the sort of concessions that an independent expert should make.
The suggestion if this witness that the damage to the sleeper was due to wood decay or fungi does not help the respondent whose report said there was no evidence of either of those matters (A277).
There are two further matters which need to be noted. First, the probative value of the evidence of Mr Hosey and Mr Brook is restricted by the unavoidable fact that the premises were not in the same condition when they inspected, on 25 June 2023, compared to when the respondent inspected, on 20 March 2023.
Secondly, to the extent that Mr Hosey and Mr Brook expressed an opinion that the termite activity was not evident without invasive work, their opinions were based on what was revealed after invasive work was done. Such opinions lack probative force by reason of not being based on the factual foundation of how the premises appeared at the time of the inspection by the respondent. In other words, the question of whether the respondent could and should have observed termite activity must be determined by reference to what was visible to him at the time of his inspection and not with the benefit of hindsight, after invasive work was carried out.
However, the extent of the damage at the time when Mr Hosey and Mr Brook inspected the premises does stand in the way of any suggestion that the revealed termite activity was recent, such as to be not evident to the respondent on 20 March 2023 but evident less than two months later, to Ms Lehrke on 16 May 2023 and to Mr Saleh on 18 May 2023.
It is convenient to here note that a question asked in cross-examination is not evidence, unless the witness agrees with what was put in that question. Accordingly, the suggestion made in the last question in the cross-examination of Mr Saleh, which put a proposition to the effect that the termite activity he saw may have commenced after the inspection by the respondent, is no more than an unsubstantiated allegation. Indeed, such an allegation is contradicted by the nature and extent of the termite activity that was discovered by the applicants on 13 May 2023, one week short of two months after the respondent's inspection on 20 March 2023.

[17]

Findings of fact

The Tribunal makes the following findings of fact: 1. The applicants engaged the respondent to conduct a building, termite and timber pest inspection and provide them with a pre-purchase report in relation to a property at Seven Hills. That inspection and report were the subject of a pre-inspection agreement. 2. On 20 March 2023 the respondent inspected the premises and provided a report later that day. 3. After conducting his inspection, the respondent verbally advised the second applicant that no serious defects had been found. 4. That report recorded that there was no Termite Management Notice and that "it appeared as though no termite management system had been installed". 5. That report did not disclose any major defect, any live timber pest activity, or any timber pest damage and, in relation to each of those three matters, recorded "No evidence was found". 6. In relation to "Evidence of fungal decay activity and/or damage" and "Evidence of wood borer activity and/or damage", the report recorded "No evidence was found" in each case. 7. The report said that trees were "susceptible to hidden termite activity" and noted that "Any untreated timbers in direct contact with the ground are likely to be subject to premature rot and decay as are exposed to rain and damp conditions against the timbers, providing an opportunity for termite attack". 8. The report did recommend that "A termite treatment is required". 9. At the time of that inspection there was visible evidence of termite activity in a timber fence, located about four metres from the house. 10. At the time of that inspection there was visible evidence of termite activity in a tree, located about three metres from the house. 11. At the time of that inspection there was evidence of termite activity in the window frame in the laundry, which was ascertainable by knocking or tapping that window frame. 12. At the time of that inspection there was evidence of foundation subsidence due to inadequate site drainage, amounting to a major defect under AS 4349.1. 13. The respondent failed to detect or report any of those four matters (ie (9) - (12)). 14. Being unaware of that termite activity, on 23 March 2023 the applicants exchanged contracts with the vendor. 15. On 4 May 2023 the applicants' purchase of the property was settled. 16. On 13 May 2023, when the applicants commenced renovations of the laundry, they discovered significant evidence of termite activity. 17. That termite activity did not commence after 20 March 2023, when the respondent inspected the premises but had commenced well prior to that inspection. 18. On 16 May 2023 Ms Lehrke conducted a pest inspection and provided a report and on 18 May 2023 Mr Saleh inspected the premises and provided a report. 19. On 30 May 2023 the respondent re-inspected the property. 20. On 10 June 2023 demolition of the laundry structure commenced. 21. Prior to 25 June 2023 invasive work was carried out to determine the extent of the termite activity and damage. 22. On 25 June 2023 Mr Hosey and Mr Brook inspected the premises.

[18]

Liability

The Tribunal is satisfied that the respondent breached s 60 of the ACL by failing to exercise due care and skill both when inspecting the premises and when preparing his report for the following reasons.
First, matters such as the absence of a Termite Management Notice (A270), the apparent absence of any termite management plan (A270), and the high moisture readings referred to in his report (A254) both individually and collectively put the respondent on notice of the prospect of termite activity and termite damage.
Secondly, based on the evidence of Mr Saleh, Ms Lehrke and Mr Brook, the respondent failed to detect damage due to termite activity in the fence and sleeper adjoining the laundry. Further, the replacement of timber posts in the fence with metal posts should have attracted the respondent's attention since that observation would have raised the clear inference of timber damage.
Thirdly, based on the evidence of Mr Saleh and Ms Lehrke, the respondent failed to detect damage due to termite activity in the tree.
Fourthly, based on the evidence of Mr Saleh and Ms Lehrke, the respondent failed to detect damage due to termite activity in the interior of the premises, notably in the laundry, which damage would have been evident from tapping the laundry window frame. The respondent's failure to detect that aspect was due to him either (1) not inspecting the laundry, (2) not tapping the window frame, or (3) tapping it but misdiagnosing the sound. It is of no moment which of those three alternatives is correct since they each involve a failure to exercise due care and skill.
Fifthly, based on the evidence of Mr Saleh and Mr Brook, the respondent failed to detect, and record as a major defect, evidence of foundation subsidence due to inadequate site drainage.
To the extent that the respondent's report included recommendations and warnings, they do not override the matters listed above as they are matters relating to the prospect of termite activity which cannot excuse a failure to detect termite activity. Put another way, including in a report matters which address the chance of termite activity do not excuse a failure to detect and report actual termite activity.
It is accepted that compliance with the relevant Australian Standards did not require the respondent to conduct invasive testing. However, the matters referred to above did not require invasive tests. Further, as indicated earlier, it does not follow from the fact that significant termite activity was revealed by invasive tests that termite activity could not be revealed without such tests.

[19]

Damages

By reason of s 267(4) of the ACL, quoted below, the applicants are entitled to recover damages provided the amounts claimed are caused by the breach of s 60 and are reasonably foreseeable: The consumer may, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such a failure. (emphasis added)
The applicants are clearly entitled to the cost of rectification of defects that should have been identified by an inspector such as the respondent. However, it must be borne in mind that Bellgrove v Eldridge [1954] HCA 36 establishes that the rectification method must be both necessary and reasonable and the rectification cost must be reasonable.
The applicants listed seven claims in Exhibit A (A455). Eight claims were made in the applicants' written submissions (A78). However, the last of those claims was said to be no longer pressed during closing oral submissions. Each of the seven claims which are pressed by the applicants is considered below, noting that the respondent provided written submissions in respect of each claim (R6). Demolish and rebuild laundry: $30,536 claimed, $30,536 allowed
The amount claimed was based on a detailed quote that was provided (A418). That quote covered the cost of demolishing and rebuilding the laundry and the photos included in the applicants' evidence clearly suggest that work is both necessary and reasonable. Having regard to the work detailed in that quote, the amount claimed appears to be reasonable and the respondent did not challenge the reasonableness of the amount claimed: the only defence to this claim was that the termite activity within the laundry walls was neither visible nor evident at the time of the respondent's inspection. Since that defence has already been rejected, the Tribunal awards the amount claimed. Removal of gum tree: $2,500 claimed, $2,500 allowed
Again, there is a quotation for the amount claimed (A421) and the work covered by that quote is (1) removal of the tree with termites, (2) stump grinding, and (3) rubbish removal. A similar defence was mounted to this claim, namely that the damage was only identified by invasive testing: scraping back the bark and test drilling. However, as noted above, both Ms Lehrke and Mr Saleh observed termite activity without invasive testing. Again, it does not necessarily follow from the fact that invasive testing revealed termite activity that such activity could not be detected without invasive testing. Having accepted the evidence of Mr Saleh, and the unchallenged evidence of Ms Lehrke, the Tribunal awards the amount claimed as it appears reasonable and there has been no submission to the contrary. Termite elimination: $5,520 claimed, $5,520 allowed
A quote dated 20 June 2023 was provided in support of this claim (A434). The work covered by that quote was for the eradication of termites, said to have been carried out on 27 June 2023. That quote was not for the installation of a termite management system, as recommended by the respondent, being a system that is likely to be required in future, if only as a precaution. The cost of removing the termites which the respondent failed to detect is allowed. Mortgage repayments: $4,762.95 claimed, no amount allowed
The first applicant provided evidence that her family had intended to move into the premises at the beginning of June, but it was not considered safe to do so until the rectification work was undertaken (A83 at [11]). It was also said that the repayments for a two-month delay would amount to $9,525.90 (A83 at [12]). The amount claimed is for half that amount since it was suggested that the applicants were unable to occupy the property during the month of June.
The respondent contended that the applicants had not provided evidence that the property was uninhabitable, and that the property contained a fully functional bathroom.
It is reasonable to not occupy a property while significant termite eradication work is undertaken and a one month claim for June 2023 is considered reasonable. However, while a business record was provided in support of the claim for $4,762.95 (A443), there is no indication of the amount borrowed, the interest rate, or whether that amount covers only interest or interest and principal.
The Tribunal notes there was a claim for $3,600, said to arise from the need to rent a property for three months at a cost of $1,200 per month. However, no rental agreement was provided and that claimed was not pressed.
As the applicants bring this claim, they bear the onus of proof. They have not provided sufficient evidence of their loss. It follows that this claim must be rejected. Repair wall crack: $2,970 claimed, no amount allowed
This claim was for the cost of repairing a wall crack, indicated by a quote (A444). However, as was noted in the respondent's submissions, the respondent reported on cracking and this cost does not appear to have been caused by a breach of s 60 of the ACL by the respondent. Hence, this claim is rejected. Repair subsidence: $6,985 claimed, $6,985 allowed
This claim relates to the repair of foundation subsidence due to inadequate site drainage, an issue that was not identified by the respondent as a major defect and has been found to involve a breach of s 60 of the ACL. The respondent's submission in relation to this claim was that soil conditions were excluded from the scope of the inspection.
As the amount sought is based on foundation subsidence, which should have been recorded as a major defect, the applicants are entitled to be awarded the amount claimed, which appears to be reasonable for the work involved. Concrete cancer repair: $2,000 - $3,000 claimed, no amount allowed
The applicants' submissions conceded that they did not have a quote for this work. Even if this claim could be linked to a breach of s 60 of the ACL, to provide a basis for the respondent being liable, there is no suitable evidence in support of the amount claimed. Accordingly, this claim is rejected. Summary
Adding the amounts which the Tribunal considers the applicants are entitled to be awarded as damages, namely $30,536, $2,500, $5,250, and $6,985, gives a total of $45,271.

[20]

Costs

In the Civil and Administrative Tribunal Act 2013, the effect of s 60 is that each party is to bear their own costs unless there are special circumstances which warrant an order for costs.
However, s 35 of that Act operates to make s 60 subject to Rule 38 of the Civil and Administrative Tribunal Rules 2014 which provides as follows: 1. This rule applies to proceedings for the exercise of functions of the Tribunal that are allocated to the Consumer and Commercial Division of the Tribunal. 2. Despite section 60 of the Act, the Tribunal may award costs in proceedings to which this rule applies even in the absence of special circumstances warranting such an award if: 1. the amount claimed or in dispute in the proceedings is more than $10,000 but not more than $30,000 and the Tribunal has made an order under clause 10(2) of Schedule 4 to the Act in relation to the proceedings, or 2. the amount claimed or in dispute in the proceedings is more than $30,000.
When rule 38 applies there is a general discretion to award costs and it is well established, by decisions such as News v Cotes [2019] NSWCATAP 186, Bonita v Shen [2016] NSWCATAP 159 and Thompson v Chapman [2016] NSWCATAP 6, that: (1) the starting point is that the usual order for costs should be in favour of the successful party, (2) the award is not to punish the unsuccessful party but to compensate the successful party for the costs incurred in the proceedings, and (3) departure from the usual order is permissible if the circumstances favour that course of action.
Simply stated, when rule 38 applies it is not necessary to establish special circumstances and the usual order is that costs follow the event (ie follow the outcome of the case) unless there is disentitling behaviour by the successful party: Latoudis v Casey [1990] HCA 59, Oshlak v Richmond River Council [1998] HCA 11.
As the applicants claimed more than $30,000, it would appear they are entitled to an order that the respondent pay their costs. However, since the question of costs was not the subject of submissions during the hearing, the practical course is to make an order for costs that will apply unless there is an application for a different order and to make directions that will apply if there is such an application.

Squadrito v Theodosi - [2023] NSWCATCD 173 - NSWCATCD 2023 case summary — Zoe

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Judgment (22 paragraphs)

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Legislation Cited (4)

Cases Cited (9)