Steven Mace v Christopher John McPherson t/as CMC Building Works

The Decision Under Appeal

1. In paragraphs 1 to 8 the Tribunal set out the procedural history of the matter.
2. At paragraph 9 of the decision, the Tribunal noted the Appellant's submission that the work involved in Item 2 formed part of the contract between the parties, because it formed part of the variation for external works completed in February 2009.
3. The Tribunal also noted, at paragraph 11, the submission by the Appellant: "11. The applicant contended that the respondent conceded that he verbally advised him that a colour bond fence should be placed on top of the existing wall. Therefore, the respondent was live to the risk of constructing a six foot brick wall on the existing wall and its footings."
4. The sequence of events involved in the Item 2 issue were considered in paragraphs 12 to 16. The Tribunal then summarised the Appellant's contentions as to the liability of the Respondent by reason of a failure to give notice, pursuant to Special Condition Clause 45, of physical conditions in the existing wall, of which the builder was aware. "18. The applicant argued that the respondent failed to provide written notice which would have set out matters listed in Special Conditions 45.2 such as the latent condition identified, the remedial or rectification work necessary and the builder's estimate of costs. Upon written acceptance by the applicant of the notice, the additional works would be deemed a variation under Special Conditions, Clause 45.3. 19. The applicant stated that the respondent is not entitled to the protection available to him under Clause 46.1 of the Special Conditions which relevantly provides that, 'where the builder carries out new building works in an existing area the builder shall not be liable for any defects in the existing structure unless the owner has previously notified the builder in writing of the existence of such defect.'"
5. The contention that the Respondent was aware of a latent condition in the existing wall was, we understand, based solely on the inference explained in the submission set out in paragraph 11 of the decision.
6. The Appellant's concluding Submissions were noted by the Tribunal in paragraph 22 as follows: "22. The applicant concludes that the respondent is liable for the cost of rectification of Item 2, the southern boundary wall, regardless whether the damage was caused by a latent defect because under Clause 45 he should have asked for the engineer's opinion prior to proceeding with building the six foot wall on top of the existing wall and footing. That is, the respondent was made aware of the risk of having a brick wall on the southern boundary, rather than colour bond fence, prior to proceeding with the construction."
7. Further the Tribunal noted the Appellant's alternative basis of liability based upon the unsuccessful rectification work undertaken by the Respondent.
8. At paragraphs 24 to 31 the Tribunal referred to the Respondent's submissions concerning whether the Item 2 works formed part of the landscaping variation works. It was said by the Respondent that the reference to brickwork in the variation quotation did not refer to the Item 2 works.
9. Paragraphs 32 and 33 of the decision include the relevant finding in relation to the Item 2 claim: 32 The Appeal Panel stated that it was clear from my decision (25 September 2014) that the wall referred to in Item 2 was constructed over the existing footing and three foot wall. The Appeal Panel said that among other things, it was not clear from my reasons why the respondent was responsible to modify the existing footing of demolish it or why the respondent should be responsible for the tree movement after the wall was built over its roots, as part of the works he was required to do. 33 Having considered what the Appeal Panel stated in its decision and the submissions from the parties I have now concluded that the respondent was not responsible for the cost of repair in Item 2.
10. The Tribunal then considered the various issues involved. The Respondent's contention that the works were executed as a favour, or gift, was noted along with the further contention that as such it was not subject to the warranty provisions of s18B of the Home Building Act 1989. The Respondent submitted that Item 2 was not "building goods and services" as defined in section 48A of the Home Building Act 1989 because the definition of the term in subsection (1)(a) referred to services "supplied by the person who contracts to do, or otherwise does, that work,". The Item 2 works not being performed pursuant to contract fell outside the definition. Whilst we do not accept this submission our finding that the Respondent was not liable under the terms of the contract subsumes this issue.
11. The Tribunal also referred to the Respondent's submissions as to the absence of the landscaping variation quotation from the evidence as follows: 43 The respondent submitted that quote which forms the basis for the variation referred to by the applicant in regards to the southern boundary wall has not been put in evidence. If a quote was there it would not be accepted by the respondent that it relates to Item 2. I agree with the respondent that without a quote being in evidence for the southern boundary wall the applicant's argument in respect of Item 2 has to fail.
12. The Tribunal found that the Respondent was not liable for the cost of Item 2 because the work involved was executed as a gift and was thus not part of the work under the contract.
13. Significantly, the Tribunal, having rejected the Appellant's claim on the basis that the work was not part of the work under the contract, specifically rejected the Appellant's claims in relation to Item 2 on an entirely different basis: "45. If I were wrong in the conclusion that the wall on the southern boundary was constructed as a gift by the respondent to the applicant, I am unpersuaded that the applicant has made out a case against the respondent under Clause 45 and 46 of the Special Conditions of the Contract. 46. The applicant argued that the respondent became aware of the latent condition affecting the site. That is, the footing could not bear the weight of a six foot brick wall which was to be constructed on top of it. Hence, the respondent ought to have given written notice to the applicant as to the latent condition having become aware of it in the discussion when the parties spoke about a colour bond or brick wall being built on the southern boundary. The notice should include in it the method of rectification work and the estimate of costs. 47. Under Clause 46.1 of the Special Conditions the applicant is required to notify the respondent in writing of any defects in the existing structures. There is no evidence before me as to the written notice from the applicant to the respondent about any defect in the footing on the southern boundary. Hence, this argument by the applicant has to fail. The parties may have discussed whether a colour bond or brick wall should be constructed on the southern boundary wall. This is insufficient to meet the requirement of Clause 46.1 of the need by the applicant to give written notice of the existence of a defect in the southern boundary wall."
14. Although not expressed to be dependent upon a finding that the Respondent was not in breach of Special Condition Clause 45, it seems to us that this was the Tribunal's intention. The Tribunal was clearly conscious of the Appellant's, submissions referred to above. Certainly this conclusion was open to the Tribunal on the basis of the evidence before the Tribunal and the correct legal application of Special Condition Clause 46. For the reasons below we consider that the Tribunal was correct in finding that the Respondent was not liable for Item 2.
15. Grounds of Appeal
16. The Grounds of Appeal were first, a claimed failure to afford the Appellant procedural fairness in several respects. These being that the Tribunal failed to allow the Appellant to be heard in relation to: 1. The Respondent's submission that the Item 2 works were not part of the work under the contract; 2. The Respondent's submission that it had not admitted that the Item 2 works were part of a variation to the contract between them; and 3. The decision of the Tribunal, at paragraphs 33 and 34, to determine the Item 2 claim on a point that had not been in issue at first instance.
17. The separate elements of the first Ground of Appeal all relate to the issue of whether the Item 2 Works were executed under the Contract between the parties or whether, as the Tribunal found, they were executed as a favour or as a gift.
18. The second Ground also raised procedural fairness in so far as the Tribunal determined the issue on the papers and had regard to late submissions by the Respondent, contrary to express directions that late submissions would not be relied upon.
19. This Ground depends upon the Appellant establishing that there was some lost opportunity to respond to something which the Tribunal relied upon within the late submissions. This has to be considered in the light of other grounds.
20. The third Ground of Appeal raised a further procedural fairness challenge based upon a failure to permit the Appellant the opportunity to lead evidence as to whether the work was performed under the building contract.
21. This appears to be a recast version of Ground 1 and also involves the issue of whether the quotation for a variation included the Item 2 Works.
22. The fourth Ground was that the Tribunal applied the wrong legal principle to the facts as found in that the Tribunal, rather than proceeding on the basis that because the Item 2 works were not part of the work under the contract the Appellant's claim was bound to fail, should have made an order regarding the claim under section 48O of the Home Building Act on the basis that it was a "building claim" within the meaning of s 48A of the Home Building Act.
23. The fifth and sixth Grounds of Appeal were not pursued by the Appellant.
24. Ground 7, and apparently also Ground 4, relate to an alleged agreement between the Appellant and the Respondent which constituted an accord and satisfaction. That is the Respondent agreed to liability in exchange for the discontinuance by the Appellant of a claim against the Respondent.
25. The Respondent contended that there was no legal error as claimed by the Appellant in relation to Grounds 1 to 3, or alternatively even if the Appellant had been provided with the alleged lost opportunity it would have not altered the outcome.
26. The Respondent contended, as to Ground 4, that as a consequence of the finding that the work in constructing the Item 2 wall was performed other than under a contract, the work involved in Item 2 was not building goods and services as defined in section 48A of the Home Building Act 1989 Act.
27. The eighth Ground of Appeal involves a contention that the Tribunal applied an incorrect interpretation of the Special Conditions in Clauses 45 and 46 to the evidence before it.

Consideration

1. Having been addressed by the parties as to the issues involved in the Appeal, the Appeal Panel proceeded on the basis that the Appellant would firstly be given the opportunity to make out his case that the Tribunal made an error of law which permitted an appeal as of right pursuant to section 80(2) of the Act. The Respondent would then be given the opportunity to respond.
2. The Appeal Panel finds that, consistent with what was stated in John Prendergast & Vanessa Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 at [16] and [17] as regards the application of wrong principles of law and natural justice, the Grounds of Appeal to which we have referred constituted questions of law for which leave was not required under section 80(2)(b) of the Civil and Administrative Tribunal Act 2013. It was on that basis that we proceeded, pursuant to section 80(3) of the Act, to a rehearing of the issue involved in paragraph 12(a) above. We took the view that this was the preferable approach in order to give effect to the guiding principle contained in section 36(1) of the Act and to bring finality to the dispute between the parties.
3. Directions were made by the Tribunal on 21 September 2016 which contemplated that this course might be adopted.
4. The Appeal papers included the following: (a) Appellant's Outline of Submissions dated 21 October 2016 A (b) Affidavit of John James Howard sworn 21 October 2016 B (c) Affidavit of Steven Mace sworn 22 October 2016 C
5. The parties also relied on additional evidence and submissions as follows: (d) Affidavit of Christopher McPherson sworn 14 November 2016 D (e) Respondent's Outline of Submissions served 15 November 2016 E (f) Affidavit of Steven Mace sworn 15 November 2016. F (g) Appellant's Outline Submissions in Reply dated 16 November 2016 G

Grounds 1, and 3.

1. Having regard to the finding by the Tribunal referred to in paragraphs 26 and 27 above as to the application of Special Condition Clauses 45 and 46 and our decision in relation to that issue, these procedural fairness based grounds of appeal are somewhat irrelevant to the outcome in this Appeal. We address them nevertheless, particularly bearing in mind the costs of these proceedings.
2. The issue as to whether the work under Item 2 was provided as a 'gift' by the Respondent, or whether it formed part of the work under the contract between the parties, in particular whether it was included in the Landscaping Variation involved considerable attention in this Appeal. This aspect was addressed is a number of the recent affidavits, in particular Documents C, D and F listed in paras 43 and 44 above.
3. The Affidavit of Steve Mace, (Document C), addressed the negotiation of a variation for hard and soft landscaping at the front and rear gardens of the property, which he contends included the Item 2 wall works.
4. There are two drawings as part of Annexure A to this Affidavit which had been attached to the Respondent's quotation for the landscaping variation. The first drawing includes a plan of the area in which the Item 2 work was carried out. In the relevant location there is a note 'Masonry rendered and painted retaining wall'. The evidence is that the Item 2 wall was built on top of the retaining wall.
5. There is however no mention in the plan of any new masonry wall in the location in which the Item 2 work was carried out, or on the boundary.
6. The second drawing includes the 'Front Waterwall Section', on the right of which the existing retaining wall is clearly depicted. There is nothing however which identifies that a new wall was to be built on top of the retaining wall in the location of the Item 2 work.
7. This evidence suggests that the references to 'masonry' in the various documents identified by Mr Mace in the Affidavit do not include the Item 2 wall work.
8. The Respondent had provided evidence that the idea of building a wall on the top of the existing retaining wall only arose some time after the landscaping variation was agreed. To the very limited degree that this aspect has any relevance, we conclude that the Item 2 wall work was not part of the contract between the parties and was executed without any payment for it.
9. The Appeal on Grounds 1 and 3 accordingly is unsuccessful.

Ground 2

1. The Appellant contends that there was a breach of procedural fairness constituting an legal error contemplated by section 80(2) of the Act is that, notwithstanding that the Tribunal had given directions that the matter proceed without an oral hearing upon limited evidence and submissions, the Tribunal had regard to late submissions by the Respondent.
2. The Tribunal made orders on 30 March 2016 including amendments to a timetable made on 15 March 2016, and in order 4 directed that: 4. The time for compliance with direction 2 for the respondent to file and serve submissions in reply regarding the redetermination of Item 2 as ordered by the Appeal Panel is extended to 13 April 2016. The applicant shall provide to the respondent and the Tribunal, either in person or by post, written submissions in response, if any required, on which the applicant intends to rely at the hearing on 27 April 2016. In the event that the respondent does not comply with the direction made today, the applicant has indicated an application will be made to the Tribunal to determine the matter on the papers filed and served by him on 22 February 2016.
3. Further correspondence ensued between the Appellant's solicitor and the Tribunal and on 9 May 2016 the Tribunal noted that the Respondent had not complied with the above direction and issued a further direction: Unless the Tribunal hears from the Respondent on or before 20 May 2016 as to any reason for the delay in complying with the directions made on 30 March 2016, the tribunal will proceed to determine the matter on the papers on the basis of written submissions filed and served by the Applicant on 22 February 2016.
4. On 23 May 2016 the Respondent's solicitors wrote to the Appellant's solicitors explaining that 'counsel is endeavouring to finalise the Respondent's Submissions'. On 25 May 2016 the Appellant's solicitors wrote to the Respondent's solicitors and asserted that the orders were self-executing.
5. On 26 May 2016 the Respondent's solicitors served Written Submissions and disputed the effect of the orders of the Tribunal.
6. Accordingly the Appellant was aware, as and from 26 May 2016, of the basis upon which the Respondent claimed that it was not liable. Rather than address the few issues raised by the Respondent in its submissions, the Appellant wrote to the Tribunal on 31 May 2016, 17 June 2016 and 7 July 2016. It seems to us that the Appellant was aware of the Respondent's position and there was a clear opportunity to provide some reply which might have made a difference.
7. It is correct, as submitted by the Appellant, that the Tribunal did refer to the Respondent's Submissions contrary to the directions it had made. Accordingly there is a basis for a contention that the Appellant was deprived of procedural fairness. We do not, however, consider that it was appropriate for the Appellant to simply note whatever had been said by the Respondent in the Submissions of 26 May 2016, and merely write letters to the Tribunal in the expectation that the Tribunal would ignore the Submissions. The Tribunal operates under substantial pressure to comply with its obligation to give effect to the guiding principle contained in section 36(1) of the Act and in no small measure relies upon the legal profession in the conduct of proceedings in which they appear to ensure that matters are fully addressed.
8. There is nevertheless an arguable case that the Tribunal did fall into procedural error and that the Appellant had a right to appeal. For the reasons that follow we conclude that if the Tribunal had been assisted with submissions focussed upon the legal issues, which it arguably ought to have been, the result would nevertheless have been the same.
9. Accordingly the appeal on Ground 2 also fails.

Ground 4

1. The underlying assumption of this ground is that the Respondent was liable to the Appellant for the Item 2 claim. Having regard to the Tribunal's finding referred to in paragraphs 26 and 27 and our decision in relation to that issue, that under the terms of the contract the Respondent is not liable, any "building claim" pursuant to s48O of the Home Building Act would also fail. This conclusion recognises that the statutory obligations of the Respondent under the Home Building Act have to be construed as being subject to the terms of the contract. In these proceedings the relevant terms being the Special Conditions.
2. Accordingly the appeal based on Ground 4 is also dismissed.

Ground 7

1. Although not directly involved in the consideration of whether there was an agreement, or an accord and satisfaction, which included an assumption of liability by the Respondent for the Item 2 claim this contention by the Appellant is predicated upon an assumption that the Respondent was actually liable under that contract.
2. We conclude that even if the Tribunal had considered the evidence of the alleged agreement the Tribunal would have correctly rejected the claim.
3. Accordingly the Appeal on this ground is also dismissed.

Ground 8

1. This involves what seems to us to be the main issue in these proceedings, being whether the Respondent is liable to the Appellant for Item 2 on the application of the terms of the Contract, in particular Special Conditions clauses 44, 45 and 46, to the relevant evidence before the Tribunal.
2. Clause 44 provides a clear acknowledgement by the Appellant that the works were to be constructed upon an uncertain foundation and that remedial work may be required. This provision is a clear statement of the allocation of risk under the contract concerning any defects, or inadequacy in the existing building work.
3. Clause 45 relevantly provides: 45.1 Notwithstanding anything else contained in this contract 'latent conditions' are: (a) the physical conditions on the site or affecting the site, including any physical conditions of the existing building arising out of any design defect or as a result of its construction by other contractors engaged by the owner prior to this contract, which differ materially from those which could reasonably have been anticipated by the builder at the time the builder prepared its tender; (b) any other condition which the contract specifies to be latent conditions. 45.2 If during the execution of the new building works under the contract, the builder becomes aware of a latent condition, the builder shall given (sic) written notice to the owner specifying: (a)……………….(d)
4. Clause 45 adds to the standard form provisions concerning latent conditions which deal only with latent ground conditions. Subclause 45.1 refers to there being a discovery of a latent condition in the pre-existing building works and 45.2 provides for a notice as to the problem identified. This involves a right for the builder to make a claim for additional costs arising from the latent defect. We consider that the Appellant's contentions that there is an obligation to notify misconstrue the Special Conditions.
5. For there to be a latent condition there must be some physical condition which is able to be observed and which is able to be identified as being caused by a design defect or the manner of construction.
6. For the builder to be able to make a claim for additional costs arising from a latent condition under Special Condition 45 there must be something in the appearance of the existing work which can be seen and is materially different from what was reasonably anticipated. In the absence of proof of some notifiable physical condition there can be basis for such a claim.
7. In the present matter the evidence of Mr Mace in his Statement of Evidence dated 21 February 2016 discloses that after the Item 2 wall had been completed the cracking appeared in the retaining wall. There was no evidence that there was anything about the condition of the existing retaining wall which the Respondent ought to have identified as existing at the time the Appellant instructed that the new brick wall be built on top of the existing retaining wall.
8. Clause 46 relevantly provides: 46.1 Subject to clause 45 where the builder carries out new building works in an existing area the builder shall not be liable for any defects in the existing structure unless the owner has previously notified the builder in writing of the existence of such defects.
9. If there is no evidence of a notifiable physical condition then the builder is absolved from liability for any defects in the existing construction work, except for existing defects about which the owner has notified. This presumably applies to defects advised prior to tender and for which the builder can be regarded as assuming the risk.
10. When the Special Conditions are interpreted in their entirety, with recognition given to the risk allocation involved, we do not consider that there is any basis for a claim against the Respondent for failing to notify and claim the additional costs arising from a defect in the existing building work. The liability which is excluded must accordingly include any damage or additional costs caused by the defect in the existing structure.
11. The Tribunal noted the contention by the Appellant that the Respondent was aware of some notifiable condition. The Appellant however cannot, and did not, point to any evidence of what that notifiable condition actually comprised. The best that the Appellant could assert was that there was some basis for inferring a suspicion which was unsupported by any evidence.
12. Further the Tribunal noted that there was no evidence of any notification by the Appellant of a defect in the existing construction work as referred to in Clause 46. According the Appellant must be held to have taken the risk associated with the condition of the original footing and brick wall.
13. For these reasons Ground of Appeal 8 is also dismissed.

Costs

1. At some stage in the sorry history of this matter a quite unsupportable inference was advanced, presumably by the Appellant, as a basis for liability on the Respondent's part for Item 2. The submission being that because the Respondent suggested that the boundary fence be built in Colorbond this was evidence of some knowledge on the part of the Respondent as to the deficiency in the retaining wall. For the reasons above this contention misconstrues the provisions of Clause 45 and depends entirely upon the unsupportable inference referred.
2. It seems to us that considerable time and cost has been expended in the pursuit by the Appellant of the rectification costs for Item 2.
3. At paragraphs 51 to 53 the Tribunal referred to the issue of costs in proceedings HB 13/02916, and subsequent proceedings.
4. We understand further that following the hearing of this Appeal the Tribunal on 21 November 2016 delivered a decision on the costs of the remitter proceedings from which this Appeal arises. The Respondent wishes to file an Appeal from the costs decision which is to be referred to this Appeal Panel.
5. We are uncertain as to whether costs orders have been made in all of the proceedings in the Tribunal concerning the issues between the parties.
6. Having regard to the considerable costs which have clearly been expended in relation to the Item 2 claim, we consider that the parties should have the opportunity to make submissions as to orders which ought be made as to costs.
7. In these circumstances it is appropriate that we have regard to the foreshadowed Appeal and accordingly the costs of these proceedings are reserved. 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: 12 January 2017