Stevenson v Ashton [2019] NSWSC 1689 | Case summary

Supreme Court of NSW|2019-11-06

tion: Counsel: M Pesman with RA Jedrzejczyk (Plaintiff) M McMahon (Defendant)

Solicitors: Chambers Russell Lawyers (Plaintiff) Michael Taylor Hughes & Taylor (Defendant) File Number(s): 2019/125907 Publication restriction: Nil

Legislation

These proceedings concern alleged breaches of statutory warranties under the Home Building Act 1987 (NSW). It is convenient that I first set out the relevant provisions of the Act.
Section 3B of the Home Building Act reads: "3B Date of completion of residential building work (1A) This section does not apply to residential building work to which section 3C applies. Note. Section 3C provides for the date of completion of new buildings in strata schemes. (1) The completion of residential building work occurs on the date that the work is complete within the meaning of the contract under which the work was done. (2) If the contract does not provide for when work is complete (or there is no contract), the completion of residential building work occurs on practical completion of the work, which is when the work is completed except for any omissions or defects that do not prevent the work from being reasonably capable of being used for its intended purpose. (3) It is to be presumed (unless an earlier date for practical completion can be established) that practical completion of residential building work occurred on the earliest of whichever of the following dates can be established for the work: (a) the date on which the contractor handed over possession of the work to the owner, (b) the date on which the contractor last attended the site to carry out work (other than work to remedy any defect that does not affect practical completion), (c) the date of issue of an occupation certificate under the Environmental Planning and Assessment Act 1979 that authorises commencement of the use or occupation of the work, (d) (in the case of owner-builder work) the date that is 18 months after the issue of the owner-builder permit for the work. (4) If residential building work comprises the construction of 2 or more buildings each of which is reasonably capable of being used and occupied separately, practical completion of the individual buildings can occur at different times (so that practical completion of any one building does not require practical completion of all the buildings). (5) This section applies for the purposes of determining when completion of residential building work occurs for the purposes of any provision of this Act, the regulations or a contract of insurance under Part 6. …"
Part 2C of the Home Building Act is headed "Statutory warranties". Section 18B sets out the statutory warranties which are implied in every contract to do residential building work, and which may not be excluded by the terms of any contract or agreement (s 18G). Section 18C provides that a person who is the immediate successor in title to an owner-builder, a holder of a contractor licence, a former holder or a developer who has done residential building work on land is entitled to the benefit of the statutory warranties in s 18B as if the owner-builder, holder, former holder or developer were required to hold a contractor licence and had done the work under a contract with that successor in title to do the work. Section 18D relevantly extends the statutory warranties to any person who is a successor in title to a person entitled to the benefit of a statutory warranty or any person who is a non-contracting owner in relation to a contract to do residential building work.
Section 18E of the Home Building Act concerns the manner in which proceedings for a breach of a statutory warranty must be commenced. It reads: "18E Proceedings for breach of warranty (1) Proceedings for a breach of a statutory warranty must be commenced in accordance with the following provisions: (a) proceedings must be commenced before the end of the warranty period for the breach, (b) the warranty period is 6 years for a breach that results in a major defect in residential building work or 2 years in any other case, (c) the warranty period starts on completion of the work to which it relates (but this does not prevent proceedings from being commenced before completion of the work), (d) if the work is not completed, the warranty period starts on: (i) the date the contract is terminated, or (ii) if the contract is not terminated - the date on which work under the contract ceased, or (iii) if the contract is not terminated and work under the contract was not commenced - the date of the contract, (e) if the breach of warranty becomes apparent within the last 6 months of the warranty period, proceedings may be commenced within a further 6 months after the end of the warranty period, (f) a breach of warranty becomes apparent when any person entitled to the benefit of the warranty first becomes aware (or ought reasonably to have become aware) of the breach. (1A) If a building bond has been lodged for building work under Part 11 of the Strata Schemes Management Act 2015, the period of 2 years specified for commencing proceedings for a breach of a statutory warranty for that work is extended until the end of 90 days after the end of the period within which a final inspection report on the building work under that Part is required. (1B) Subsection (1A) does not limit any other law that permits the period for commencement of proceedings to be extended. (2) The fact that a person entitled to the benefit of a statutory warranty specified in paragraph (a), (b), (c), (e) or (f) of section 18B has enforced the warranty in relation to a particular deficiency in the work does not prevent the person from enforcing the same warranty for a deficiency of a different kind in the work (the other deficiency) if: (a) the other deficiency was in existence when the work to which the warranty relates was completed, and (b) the person did not know, and could not reasonably be expected to have known, of the existence of the other deficiency when the warranty was previously enforced, and (c) the proceedings to enforce the warranty in relation to the other deficiency are brought within the period referred to in subsection (1). (3) The regulations may prescribe defects in a building that are not (despite any other provision of this section) a major defect. (4) In this section: major defect means: (a) a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause: (i) the inability to inhabit or use the building (or part of the building) for its intended purpose, or (ii) the destruction of the building or any part of the building, or (iii) a threat of collapse of the building or any part of the building, or (b) a defect of a kind that is prescribed by the regulations as a major defect, or (c) the use of a building product (within the meaning of the Building Products (Safety) Act 2017) in contravention of that Act. Note. The definition of major defect also applies for the purposes of section 103B (Period of cover). major element of a building means: (a) an internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams), or (b) a fire safety system, or (c) waterproofing, or (d) any other element that is prescribed by the regulations as a major element of a building."

Background

The plaintiff is the current registered proprietor of a terrace house in Darlinghurst previously owned by the defendant ("the property").
In early June 2013, when the defendant owned the property, she obtained owner-builder development consent to carry out additions and alterations. On 7 August 2013, a permit was issued. On 14 August 2013, a construction certificated was issued.
On 23 March 2016, the defendant and the plaintiff exchanged contracts for the purchase of the property. On 24 May 2016, the contract settled. In June 2016, while in occupation of the property, the plaintiff noticed a water leak during heavy rain and consulted with the defendant.
On 20 November 2016, the plaintiff commenced proceedings in NCAT for breaches of the statutory warranties set out in s 18B of the Home Building Act. It was heard over three days, on 2 and 3 November 2016 and 8 February 2018, by Senior Tribunal Member Robertson ("the Senior Member").
The plaintiff claimed that the building contained defects to the following areas: 1. the first floor balcony; 2. the roof and gutters; 3. the plumbing; 4. the cladding; and 5. the windows in the eastern wall.
The defendant denied that the building contained the alleged defects, with the exception of some which were conceded either at, or shortly prior to, the hearing. It was the defendant's contention that because "completion" of the works had occurred in May 2014 for the purposes of ss 3B and 18E of the Home Building Act, the Tribunal did not have jurisdiction to determine the plaintiff's claim for defects which were not "major defects" within the meaning of s 18E(4).

Decision of the Senior Member dated 28 June 2018

On 28 June 2018, the Senior Member handed down written reasons for his decision: Stevenson v Ashton [2018] NSWCAT. The Senior Member found that the residential building works undertaken to the property had reached practical completion in May 2014. The result of that finding was that the defendant had established an "earlier date for practical completion" for the purposes of s 3B of the Home Building Act, such that the presumption set out in s 3B(3) did not apply.
The Senior Member made the following determinations: 1. the first floor external balcony was a "major defect" within the meaning of s 18E(4); 2. all but one of the roofing and guttering items were defects, but were not "major defects"; 3. the plumbing-related defects, all of which had been conceded by the defendant, were not "major defects"; 4. the cladding items were a "major defect"; and 5. the windows in the eastern wall were not defects.
The Senior Member found that the reasonable cost of rectifying the defects established by the plaintiff was $42,317.11, and ordered the defendant to pay the plaintiff that sum immediately.

Appeal and cross appeal to the Appeal Panel

On 12 July 2018, the defendant filed an appeal against the Senior Member's decision on the grounds that there was no evidence to support the determination that the defects existing in the first floor balcony and the cladding were "major defects", such that that those findings constituted errors of law.
On 25 July 2018, the plaintiff filed a notice of appeal, which was in substance a cross appeal against the Senior Member's decision, on the following two grounds: firstly, that the Senior Member had erred in holding that the defendant had established an earlier date for practical completion for the purposes of s 3B of the Home Building Act; and secondly, that the Senior Member had applied the wrong legal test for determining whether a defect is a "major defect" within the meaning of s 18E of the Home Building Act, with the result that he erred in finding that the roof and plumbing defects were not major defects.

Decision of the Appeal Panel - 26 March 2019

On 5 December 2018, the appeals were heard by the Appeal Panel constituted by Senior Members I Bailey AM SC and L Wilson ("the Appeal Panel").
Section 80(2) of the Civil and Administrative Tribunal Act 2013 (NSW) ("CAT Act") states that internal appeals in NCAT may be made as of right on a question of law, and on any other grounds with leave of the Appeal Panel. At [21] of its decision, the Appeal Panel granted leave to the parties to appeal on both questions of fact and law.
At the hearing, the Appeal Panel further granted leave to the parties to file supplementary submissions regarding recent authority on the test for establishing "major defects" under s 18E of the Home Building Act.
On 26 March 2019, the Appeal Panel issued its decision and published its reasons: Ashton v Stevenson [2019] NSWCATAP 67.
In relation to the date of practical completion pursuant to s 3B of the Home Building Act, the Appeal Panel found at [40] that the evidentiary challenges faced by the plaintiff were substantial and, "in effect, the task was to prove that the residential building work remained incomplete after 20 November 2014."
The Appeal Panel noted that the Senior Member had referred to the role of the Council in dealing with the occupation certificate application lodged by the defendant in mid May 2014. As to the completion of the residential building work, the Appeal Panel considered at [42] that the evidence of the Council's understanding at the time the application was made for the occupation certificate was probative and independent.
The Appeal Panel stated at [46]-[48]: "[46] If the inconsistency between the work as completed and the approved plans had not been resolved by means of the Former Owner's application to the Council under section 96 of the Environmental Planning and Assessment Act 1979, there may have been a problem in proving 'completion'. Having reviewed the evidence about the prolonged resolution of this issue, the Appeal Panel concludes that the work as completed was approved by the Council. Thus there was no building work required after mid-May 2014 to ensure compliance. [47] The Appeal Panel considers that the recognition by the Council that such building works as had been built were complete, supports the Tribunal's conclusion, based on the evidence listed in paragraph 58 of the Decision, see [32]. The Appeal Panel also concludes that [the Senior Member's] analysis of the evidence on this issue was correct. [48] The Owner's appeal on the ground of an error of law in the finding at paragraph 62 and 63, see [32], will be dismissed."
In relation to the test for establishing a "major defect" within the meaning of s 18E(4) of the Home Building Act, the Appeal Panel stated at [68]-[78]: "[68] The redefinition of the category of an item of defective work for which the longer limitation period is to apply, from a 'structural defect' to a 'major defect' involves considerably more than the mere difference in the definition. [69] The first step in the analysis is that the defect must be part of a 'major element' of a building. The definition of 'major element' includes 'waterproofing'. This inclusion does not, however, mean that any, or all, defects involving an imperfection in the system of waterproofing of a building is a 'major defect'. [70] The extent to which a defect in the waterproofing system of a residence impacts on habitability or the integrity of the building needs to be proved by the proponent of a 'major defect'. This was addressed in Panchal v Jones t/as Oz Style Homes [2018] NSWCATD 238: 87. The defect does not need to be shown to make the habitation or use of the building (or part of it) impossible, but it must be such that the habitation or use of the building (or any part of it) cannot be for its intended purpose. 88. There are many instances in which water penetration into a building diminishes the amenity and use of the building. The impact of the defect and the extent of its interference with the intended use will vary. The definition suggests that the impact of a defect in the waterproofing upon the capacity to inhabit or use the building for its intended purpose must be shown to be significant. 89. In some respects the impact upon the capacity to inhabit or use the building will depend upon the magnitude of the problem. 90. The evidence before the Tribunal, including videos, disclosed the extent and widespread impact of the water penetration in the two residences. [71] The consequences of the defect must be shown to have, or to probably have, a proven consequence for the habitation, or use, of the building, or to the integrity of the building. This is a matter for evidence which must be adduced to prove all of the elements required to establish a 'major defect'. [72] Subsection 18E(4)(a)(i) requires that there be a proven, or probable, inability to inhabit, or to use the building. This requires proof of something more than inconvenience. To prove that a defect has caused either of the consequences there has to be evidence as to the actual impact. In the absence of such evidence the claim will fail. The Appeal Panel considers that the evidentiary onus cannot be satisfied by speculation or assumption. [73] The possible consequences of the defect, defined in subsections 18E(4)(a) (ii) and (iii) are at the high end of consequences, or impacts upon a building. The reference to "destruction of the building or any part of the building" does not connote a minor potential process of deterioration. The reasonably presumed legislative intention is that there must be evidence of a real possibility of destruction, not merely incidental damage or superficial deterioration. These elements also need to be established by probative evidence of what the impact has actually been, or what it probably will be. Evidence from the occupants or users of the building would be necessary to establish these elements of the claim. [74] To establish, or prove, the probability of the destruction of the building, or any part of a building, must involve more than a speculative, or pessimistic, assessment of possibilities. The proponent of a 'major defect' should be required to prove that the defect will have the prescribed consequence, or that it probably will have the prescribed consequence. [75] As noted in [Vella v Mir [2019] NSWCATAP 28 ('Vella')], at paragraph 49, there needs to be evidence that the consequences are imminent or probable, and that expert evidence may assist in that analysis, but is not conclusive. 49. Expert evidence is clearly relevant to whether a claimed defect is in a major element of a building and whether it meets the definition of a major defect in s 18E(4). However, it is not determinative of the issue. [76] The Appeal Panel notes that one of the defects identified by the principal expert for [the plaintiff] was that the drainage outlet in the balcony floor could not cope with a surge of rainwater and there was no provision of an overflow spitter pipe. This suggests that the defect which may have caused the rainwater entry, which stained the ceiling, was something less than a 'major defect'. [77] In Vella, the Appeal Panel had to consider whether the evidence of an expert witness had adequately addressed the causation required to establish a 'major defect'. This Appeal Panel accepts that expert evidence as to the required causation may be of assistance to a Tribunal, however concludes that such expert evidence has to rise above speculation and suggestions as to possibilities. [78] Evidence about the inability to inhabit or to use a building are exclusively matters requiring evidence of the facts which diminish the ability to inhabit or to use of the building. In these proceedings the evidence of the consequences of the water leak from the balcony does not extend beyond photographs of some marks on the ceiling below the balcony."
At [119]-[121], the Appeal Panel concluded: "[119] The Appeal Panel considers that it is important for those proponents of a finding that a particular defect, or category of defects, in residential building work is a 'major defect', to carefully adduce evidence to prove the separate elements identified in section 18E(4) of the [Home Building Act]. [120] Evidence of the impact upon the inhabitability or use of the building, referred to in subsection 18E(4)(a)(i), will rarely be a matter for expert evidence and more often will be matter of fact, not opinion. [121] The engagement of expert witnesses to opine on the existence, or otherwise, of the elements of a 'major defect' should be undertaken carefully, particularly when dealing with the proof of causation of the consequences referred to in subsections 18E(4)(a)(ii) and (iii) of the [Home Building Act]."
Relevantly to these proceedings, the Appeal Panel reversed the findings of the Senior Member that the first floor balcony and cladding were "major defects" under s 18E of the Home Building Act.

Decision of the Appeal Panel - 25 September 2019

On 25 September 2019, the Appeal Panel issued its decision as to costs in relation to the 26 March 2019 decision and published its reasons: Ashton v Stevenson; Stevenson v Ashton (No 2) [2019] NSWCATAP 238.
In its decision, the Appeal Panel ordered that in relation to both proceedings AP 18/31090 and AP 18/32837, the homeowner (the plaintiff in these proceedings) was to pay legal costs of the owner-builder (the defendant in these proceedings) on an ordinary basis as agreed or assessed.

Leave to appeal

The plaintiff seeks leave to appeal pursuant to s 83(1) of the CAT Act. Section 83 reads: "83 Appeals against appealable decisions (1) A party to an external or internal appeal may, with the leave of the Supreme Court, appeal on a question of law to the Court against any decision made by the Tribunal in the proceedings. (2) A person on whom a civil penalty has been imposed by the Tribunal in proceedings in exercise of its enforcement or general jurisdiction may appeal to the appropriate appeal court for the appeal on a question of law against any decision made by the Tribunal in the proceedings. (3) The court hearing the appeal may make such orders as it considers appropriate in light of its decision on the appeal, including (but not limited to) the following: (a) an order affirming, varying or setting aside the decision of the Tribunal, (b) an order remitting the case to be heard and decided again by the Tribunal (either with or without the hearing of further evidence) in accordance with the directions of the court. …"
Two cases which deal with the principles governing leave to appeal are Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 ("Das") and Lee v New South Wales Crime Commission (2012) 224 A Crim R 94; [2012] NSWCA 262 ("Lee").
In Das, the Court of Appeal set out the principles to be considered in deciding whether leave to appeal should be granted. At [32]-[33], [35], Basten JA stated: "[32] The principles governing cases such as these have recently been restated in Zelden v Sewell; Henamast Pty Ltd v Sewell [2011] NSWCA 56. As Campbell JA noted (with the agreement of Young JA) at [22]: 'It is of some importance to reiterate the principles that were stated in Carolan v AMF Bowling Pty Limited [1995] NSWCA 69, where Sheller JA said that an applicant for leave must demonstrate something more than that the trial judge was arguably wrong in the conclusion arrived at. Cole JA relied on a principle that where small claims are involved, it is important that there be early finality in determination of litigation, otherwise the costs that will be involved are likely to swamp the money sum involved in the dispute.' [33] In Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 Campbell JA, with the agreement of Young and Meagher JJA, expanded on his summary of Carolan, noting that Kirby P had recognised 'that ordinarily it was appropriate to grant leave to appeal only concerning matters that involve issues of principle, questions of general public importance or an injustice which is reasonably clear, in the sense of going beyond [what is] merely arguable': at [46]. … [35] In Coulter v The Queen [1988] HCA 3; 164 CLR 350, dealing with a challenge to a refusal of the South Australian Full Court to grant leave to appeal in a criminal matter, the majority noted that a leave requirement was a preliminary procedure 'recognised by the legislature as a means of enabling the court to control in some measure the volume of appellate work requiring its attention': at 356 (Mason CJ, Wilson and Brennan JJ). That statement is clearly applicable to civil, as well as criminal, appellate jurisdiction."
Similarly, in Lee, Bathurst CJ at [12] outlined the principles relevant to the granting of leave as follows: "[12] The principles upon which leave to appeal is granted are well established. Ordinarily it is only appropriate to grant leave concerning matters that involve issues of principle, questions of general public importance or where it is reasonably clear there has been an injustice in the sense of going beyond it being reasonably arguable that the primary judge was in error: Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69; Zelden v Sewell [2011] NSWCA 56 at [22]; Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]; GKD v Director of Department of Family & Community Service [2012] NSWCA 219 at [10]; Be Financial Pty Ltd v Das [2012] NSWCA 164 at [32]-[34]." See also Steak Plains Olive Farm Pty Ltd v Australian Executor Trustees Limited [2015] NSWSC 289 at [19]-[21].
The nature of the proposed appeal is of relevance in an application for leave to appeal. Where, as here, an appeal can only be on a question of law, then the absence of identifiable questions of law will obviously be fatal to a leave application. There should be some specification of the questions of law which are the subject of the proposed appeal.
The plaintiff submitted that leave to appeal should be granted pursuant to s 83 of the CAT Act on the basis that the Appeal Panel's reasons for its decision reveal clear errors of law. Senior counsel for the plaintiff further submitted that this case traverses an important point of law which has not previously been considered, and therefore concerns a matter of public importance (T 4.5).
Counsel for the defendant conceded that the meaning and application of "major defect" within the legislation may well concern matters of public importance. However, the defendant submitted that the case itself does not flesh out these matters such as to merit the granting of leave (T 2.10).
In deciding whether leave to appeal should be granted, I am to consider whether the grounds of appeal demonstrate that it is reasonably clear there has been an injustice, in the sense of going beyond what is reasonably arguable that the Appeal Panel was in error.
For the reasons which follow, I have arrived at the view that the plaintiff has demonstrated a case that is more than reasonably arguable. Additionally, the meaning of "major defect" has not been previously considered in this Court and is a matter of public importance. As such, in the exercise of my discretion, I grant leave to appeal.

Grounds of appeal

The plaintiff appeals from the whole of the decision of the Appeal Panel dated 26 March 2019 on four grounds. They are that the Appeal Panel erred in holding the following: 1. that establishing a "major defect" within the meaning of s 18E(4) of the Home Building Act requires (a) a proven consequence for the habitation or use of a building, or to the integrity of the building; (b) a proven or probable inability to inhabit or to use the building; (c) probative evidence of the actual impact of a defect upon a building, or what it probably will be; and/or (d) evidence of a real possibility of destruction; 2. that for the purposes of s 3B(3) of the Home Building Act, the plaintiff bore the onus of proving that the residential building work on the subject property was not completed before 20 November 2014; 3. that evidence of the impact upon the inhabitability or use of a building, referred to in s 18E(4)(a)(i) of the Home Building Act, will rarely be a matter for expert evidence and more often will be a matter of fact, not opinion; and 4. that the plaintiff bore the onus of proving that each defect was a "major defect" within the meaning of s 18E(4) of the Home Building Act.
The advantage of addressing the grounds in order is that the Home Building Act sets out two limitation periods: two years for some defects, and six years for "major defects". These proceedings were commenced, subject to the Senior Member's decision as to the date of practical completion, more than two years after the relevant completion date. The effect of that decision is that the plaintiff will only have brought his action in time if the defects are major defects (the first ground of appeal). If the defects are not major defects, the question of practical completion becomes material (the second ground of appeal). At the hearing of these proceedings, senior counsel for the plaintiff submitted that these first two grounds represent the two primary errors vitiating the Appeal Panel's decision, and that the third and fourth ground "live or die" with them (T 4.41).
As such, I will now turn to consider the plaintiff's grounds of appeal in order.

Ground 1 - the test for establishing a "major defect"

The plaintiff's submissions

The plaintiff submitted that in construing s 18E(4) of the Home Building Act, the starting point is the ordinary and grammatical meaning of the words in the provision, having regard to their context and legislative purpose: see SZTAL v Minister for Immigration and Border Protection [2017] HCA 34 at [14] per Kiefel CJ, Nettle and Gordon JJ; HRC Hotel Services Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 820 at [108] per Ward CJ in Eq.
The plaintiff further submitted that the meaning of s 18E is informed by the legislative purpose of the provision. The form of s 18E which is at issue in these proceedings was introduced by the Home Building Amendment Bill 2014 (NSW) ("Amendment Bill"). The explanatory note to the Amendment Bill stated that one of the objects of the Bill was "to amend the [Home Building Act] to deal with" several matters, which relevantly included: "...statutory warranties implied into contracts - including by requiring work to be done with due care and skill (rather than in a proper and workmanlike manner, as at present), clarifying the responsibilities of subcontractors for breaches of the warranties, imposing duties on consumers to mitigate loss and notify defects, clarifying the test of which home building defects require a greater warranty period and providing a defence for builders who rely on the instructions of a professional acting for the consumer."
In the second reading speech of the Amendment Bill in the Legislative Assembly on 6 May 2014, the Hon Stuart Ayres, Minister for Fair Trading, Minister for Sport and Recreation and Minister Assisting the Premier on Western Sydney, stated: "The introduction of the bill is the culmination of a comprehensive consultation process. This reform process was undertaken to ensure home building laws reflect current practice and reduce any unnecessary red tape for industry while providing consumers with appropriate protection. It is essential that consumers are adequately protected from risks associated with such a big investment as building a home or undertaking major renovations... … The statutory warranties scheme is a core element of the consumer protection framework of the Act. It creates legally enforceable standards for the quality and performance of building work. Currently, the statutory warranties cover work for six years from completion for structural defects, and two years for other breaches of the warranties. Consequently, for claims brought after the two-year period the question of whether a defect is a structural defect is critical. Stakeholders on all sides have expressed concerns over the definition of "structural defect". In fact, 90 per cent of stakeholders who responded to the 2012 issues paper wanted the term better defined. The main issue was that a significant defect may not be a structural defect but could still be a major defect worthy of the six-year warranty period. Of particular concern was whether water penetration and fire safety non-compliance fell within the two- or six-year warranty period, as there has been considerable variation in rulings on these matters depending on the severity of the defect. Reform of the definition of structural defect is long overdue. It is necessary to reduce the significant time and money spent by parties on disputes and to ensure more consistent court and tribunal decisions. This will deliver cost savings for home owners, builders and the Home Warranty Insurance Fund. The bill replaces "structural defect" with a new concept of a "major defect" for the six-year statutory warranty period. To provide further certainty the definition will be moved from the regulation to the Act. A two-step test will be introduced to determine whether a problem is a major defect. The first step is whether the defect is a major element of the building. Major elements will include structural load bearing elements, but for the first time fire safety systems and waterproofing are also expressly included. The second step considers how severe the consequences of the defect are to the building, such as where it causes or is likely to cause a building to be uninhabitable or unusable, the destruction of the building, or the threat of collapse of the building...This clearer and more robust definition will help reduce the number of disputes and their length and complexity. This should help reduce the significant legal costs associated with these types of disputes."
The plaintiff submitted that the second reading speech may be used to construe s 18E of the Home Building Act: see s 34 of the Interpretation Act 1987 (NSW). The plaintiff argued that the second reading speech indicates that Parliament introduced the definition of "major defect" to expand, not restrict, the range of defects deemed to be "worthy of the six-year warranty period", which under the Amendment Bill expressly included waterproofing. The plaintiff further argued that the reading speech makes clear that the concept of a major defect forms part of the statutory warranties scheme, which is "a core element of the consumer protection framework" of the Home Building Act. The plaintiff submitted that beneficial legislation designed to protect consumers should not be given a narrow construction. Rather, a "broad and general" approach should be taken to ensure that the construction given to the relevant provision advances the "protective purposes as the Parliament may be imputed to have intended": see Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 623 per McHugh J; Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32 at 44 per Mason CJ, referred to with approval in Qantas Airways Ltd v Aravco Ltd (1996) 185 CLR 43 at 60 per Kirby J (dissenting).
As such, the plaintiff submitted that s 18E(4) of the Home Building Act is a remedial provision. The provision should accordingly be construed so as to give the fullest relief which the fair meaning of its language will allow: see Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622 at 638 per Mason CJ, Brennan, Deane and Dawson JJ, quoted with approval in Antico v Fielding Australia Pty Ltd (1997) 188 CLR 652 at 659-660 per Brennan CJ. It should also be construed in the context of the mischief which Part 2C of the Home Building Act was intended to remedy: see CIC Insurance v Bankstown Football Club (1997) 187 CLR 384 at 408.
Having set out the context and legislative purpose of the provision, the plaintiff submitted that the Appeal Panel erred in its construction of s 18E of the Home Building Act for the following reasons.
Firstly, the Appeal Panel's narrow construction of s 18E(4) is inconsistent with its legislative context and purpose.
Secondly, the Appeal Panel did not refer to any authority decided by a superior court of record in support of its construction of subsection 18E(4). The plaintiff was not aware of any authority to support the Appeal Panel's reasoning.
Thirdly, the Appeal Panel's construction finds no support in the text of s 18E(4). The plaintiff argued that the second element of the causative test set out in s 18E(4)(a), that the defect is "likely" to cause any of the consequences in s 18E(4)(a)(i)-(iii), is undemanding. The word "likely", in its ordinary and natural meaning, means "probably", "imports more than a possibility but less than a moral certainty" and a "reasonable prospect" and, in a statutory context, provides for a "not very demanding test": see State Bank of South Australia v Hellaby (1992) 59 SASR 304 at 312. Nothing in the language of s 18E(4) of the Home Building Act suggests that a defect cannot be a major defect unless the claimant is able to establish by admissible evidence that the defect has already caused one or more of the matters set out in s 18E(4)(a)(i) to (iii).
Fourthly, the error underlying the Appeal Panel's construction of s 18E(4) of the Home Building Act can be better understood by applying the Appeal Panel's reasoning to a category of defects other than defects involving water penetration. For example, the definition of "major defect" in s 18E(4) expressly includes "a fire safety system". A defect within, say, the fire sprinkler system within a block of units which rendered the sprinklers inoperative in the event of a fire would plainly be "likely" to cause the destruction of the building or any part of the building, or the inability to inhabit or use the building or part of the building, within the meaning of s 18E(4)(a)(i) or (ii). However, the plaintiff submitted that if applying the Appeal Panel's reasoning, the owner of the building would not succeed in establishing that the sprinkler defect is a "major defect" unless the owner led evidence to establish that actual fire damage or destruction to the building or an inability to inhabit the building had already occurred. Similarly, the owner of a building containing defective foundations or footings (referred to in subparagraph (a) of the definition of "major defect" in s 18E(4)) would need to excavate the foundations and demonstrate something more than "incidental damage or superficial deterioration" in order to establish that the defect is a major defect, even if that owner adduced expert evidence to the effect that the likely or inevitable consequence of the defects, if not rectified, would be the partial or complete collapse of the structure. Those outcomes are plainly inconsistent with the text, context and purpose of s 18E(4).
At the hearing of these proceedings, counsel for the plaintiff further argued that the fire safety example illustrates the irrelevance of the size of the defect. A tiny hole is a gas main, which is capable of easy repair, will still be a major defect for obvious reasons (T 13.5-6). This analogy illustrates that the Appeal Panel focused too greatly on the manifestation of the defect rather than the statutory test (T 13.6-7).
The plaintiff submitted that for these reasons, the Appeal Panel's conclusions regarding the meaning and operation of s 18E(4) reveal clear errors of law.
The plaintiff submitted that it follows that the Appeal Panel's observations regarding the role of expert evidence in establishing a "major defect" within the meaning of s 18E(4) were also made in error. The question of whether established defects are "likely to cause" any of the outcomes set out in s 18E(4)(a)(i) to (iii) necessarily requires an extrapolation or forecast of future events based on information that is currently known or available, including in relation to the likely performance or deterioration of particular building elements or materials. In most cases, those matters require the application of specialised knowledge based on training, study or experience and are thereby properly the subject of expert opinion.

The defendant's submissions

The defendant submitted firstly that failure to refer to any superior Court decision is not itself an error of law. Further, were there a decision from a higher Court which contradicts the decision of the Appeal Panel, the homeowner should cite it.
In response to the plaintiff's submissions as to the construction of s 18E(4) as setting out a "not very demanding test", the defendant referred to the Appeal Panel's decision at [71] to [75]. The defendant submitted that the Appeal Panel made no error.
As to the plaintiff's submission that the Appeal Panel's narrow construction of s 18E(4) was inconsistent with the its legislative context and purpose, the defendant pointed to the Appeal Panel's reasons at [66] to [78] of its decision.
The defendant argued that the plaintiff's analogy to fire safety systems is unhelpful, as by law they are required to be serviced and checked at regular intervals. The defects in this matter are rather in respect of the balcony, cladding and roofing. The defendant submitted that the analogy might be applicable if no rain had fallen on the property for four years. However, the waterproofing system has been subject to the elements, including rain, numerous times in that period. As such, the defendant submitted that the Senior Member was able to determine whether the defects claimed were "major defects" as defined. The defendant submitted that the Appeal Panel was correct in its assessment of the balcony and cladding defaults.
Finally, the defendant submitted that she agreed with the plaintiff that expert evidence would assist the Tribunal in reaching a conclusion as to whether the consequences set out in s 18E(4)(a) of the Home Building Act were likely to occur. However, she submitted that the plaintiff's expert evidence was so weak that the Appeal Panel's observations on the subject were simply remarks made in obiter, and have no bearing on the outcome of the matter.

Consideration

Section 18E of the Home Building Act, reproduced earlier in this judgment, sets out time limits for breaches of statutory warranties. Section 18E(1)(b) states that the warranty period for a breach that results in a "major defect" in residential building work is six years, and for "any other case" is two years.
On 20 November 2016, the plaintiff commenced proceedings. As foreshadowed earlier, this date of commencement falls roughly eight months outside of the two year warranty period for breaches which do not result in "major defects" under Home Building Act. As such, whether the defects which are subject of these proceedings are "major defects" is of critical importance.
"Major defect" is defined under s 18E(4) of the Home Building Act. Relevantly to these proceedings, s 18E(4)(a) defines major defect to mean a defect in a major element of a building that causes, or is likely to cause, either (i) the inability to inhabit or use the building (or part of it) for its intended purpose; (ii) the destruction of the building (or part of it); or (iii) a threat of collapse of the building (or part of it). "Major element" is relevantly defined under s 18E(4) to mean (a) an internal or external load-bearing component of a building that is essential to its stability; (b) a fire safety system; or (c) waterproofing. At the hearing of these proceedings, counsel for both the plaintiff and defendant agreed that there is no dispute that the defects subject of these proceedings are in a "major element" of a building as defined under the Home Building Act (T 8.34-39).
Counsel for the plaintiff stated that the focus of the appeal to this Court will be on two defects: those to the balcony and the cladding. At the hearing of these proceedings at first instance, the Senior Member held that both the balcony and cladding defects were major defects. The Appeal Panel overturned these findings. Senior counsel for the plaintiff acknowledged that there were many other defects alleged, but that if the plaintiff cannot succeed on his appeal in relation to these two, there is "no point" addressing the Court on the others (T 9.33-35). This is because the Appeal Panel stated that its reasoning in relation to the balcony and cladding applied equally to the other defects alleged.
At [49] to [57] of its decision, the Appeal Panel outlined the history of legislative amendments to s 18E of the Home Building Act, and the provision's present application. In relation to the test for establishing a "major defect" within the meaning of s 18E(4) of the Home Building Act, the Appeal Panel stated at [68] to [70]: "[68] The redefinition of the category of an item of defective work for which the longer limitation period is to apply, from a 'structural defect' to a 'major defect' involves considerably more than the mere difference in the definition. [69] The first step in the analysis is that the defect must be part of a 'major element' of a building. The definition of 'major element' includes 'waterproofing'. This inclusion does not, however, mean that any, or all, defects involving an imperfection in the system of waterproofing of a building is a 'major defect'. [70] The extent to which a defect in the waterproofing system of a residence impacts on habitability or the integrity of the building needs to be proved by the proponent of a 'major defect'. This was addressed in Panchal v Jones t/as Oz Style Homes [2018] NSWCATD 238: 87. The defect does not need to be shown to make the habitation or use of the building (or part of it) impossible, but it must be such that the habitation or use of the building (or any part of it) cannot be for its intended purpose. 88. There are many instances in which water penetration into a building diminishes the amenity and use of the building. The impact of the defect and the extent of its interference with the intended use will vary. The definition suggests that the impact of a defect in the waterproofing upon the capacity to inhabit or use the building for its intended purpose must be shown to be significant. 89. In some respects the impact upon the capacity to inhabit or use the building will depend upon the magnitude of the problem. 90. The evidence before the Tribunal, including videos, disclosed the extent and widespread impact of the water penetration in the two residences."
At the hearing of these proceedings, much was made of the legislative intention behind the amendments made to s 18E in 2014. Senior counsel for the plaintiff submitted that s 18E is intended to serve as remedial legislation expanding the scope for intervention (T 12.9-10). He argued that the Appeal Panel's reticent use of inverted commas around the words "reforms" in its decision suggested it were not as impressed with the changes to the legislation "as one might expect" (T 13.26-28). However, counsel for the plaintiff argued that because a major defect is more onerous to prove than a "structural defect" as previously required, the reforms have had the practical effect of narrowing homeowners' recourse to proceedings under the Home Building Act for breaches of warranty.
In my view, little turns on the the Appeal Panel's attitude towards the 2014 reforms. The plain language of s 18E defines major defect to mean a defect in a major element "that causes, or is likely to cause" the consequences in s 18E(4)(a)(i) to (iii). It is the Appeal Panel's application of that phrase which gives rise to this ground of appeal.
At [71], the Appeal Panel continued its consideration of the test required for establishing a major defect and stated as follows: "[71] The consequences of the defect must be shown to have, or to probably have, a proven consequence for the habitation, or use, of the building, or to the integrity of the building. This is a matter for evidence which must be adduced to prove all of the elements required to establish a 'major defect'."
I note that the Appeal Panel's use of the phrase "must be shown to have, or to probably have, a proven consequence" does not adopt the language of "causes, or is likely to cause" from s 18E(4)(a) of the Home Building Act.
In IAG Limited t/as NRMA Insurance v Chahoud [2019] NSWSC 767, Basten JA considered the sufficiency of reasons which deviate from statutory language at [12] as follows: "The abandonment of the statutory language in favour of a paraphrase is to be deprecated. It did not lead to error in the present case, but it could well do so in other circumstances. The statutory language is not obscure, nor difficult to apply. Conclusions expressed in accordance with the language of the statute are less likely to invite applications for judicial review."
In these proceedings, it is my view that although it would be preferable for the Appeal Panel to have used the language of s 18E(4)(a), the meaning of its phrasing in this instance is not materially different.
At [72], the Appeal Panel continued: "[72] Subsection 18E(4)(a)(i) requires that there be a proven, or probable, inability to inhabit, or to use the building. This requires proof of something more than inconvenience. To prove that a defect has caused either of the consequences there has to be evidence as to the actual impact. In the absence of such evidence the claim will fail. The Appeal Panel considers that the evidentiary onus cannot be satisfied by speculation or assumption.
Again, the Appeal Panel's use of the phrase "proven, or probable" arguably mirrors "causes, or is likely to cause." However, the Appeal Panel's following statement that "to prove that a defect has caused either of the consequences there has to be evidence as to the actual impact" suggests that the Appeal Panel was only concerned with defects which had already caused the consequences in s 18E(4)(a)(i) to (iii). Its omission of "likely" consequences was compounded in the following paragraph at [73], when the Appeal Panel stated: "[73] The possible consequences of the defect, defined in subsections 18E(4)(a) (ii) and (iii) are at the high end of consequences, or impacts upon a building. The reference to 'destruction of the building or any part of the building' does not connote a minor potential process of deterioration. The reasonably presumed legislative intention is that there must be evidence of a real possibility of destruction, not merely incidental damage or superficial deterioration. These elements also need to be established by probative evidence of what the impact has actually been, or what it probably will be. Evidence from the occupants or users of the building would be necessary to establish these elements of the claim."
Again, the Appeal Panel imported the language of the statute in its inclusion of the phrases "possible consequences" and "real possibility of destruction". However, its conclusion that evidence from the homeowners will be necessary to establish that a major defect exists cannot be correct. The legislation does not require such evidence, nor is the likelihood of a major defect causing the consequences in s 18E(4)(a)(i) to (iii) a matter about which a homeowner may be capable of giving evidence. It may well be that the evidence is better, or even exclusively, the subject of expert opinion. I will return to this issue shortly.
The Appeal Panel continued at [74] to state, uncontroversially, that a major defect "will have" or "probably will have" certain consequences. However, at [75] to [76], the Appeal Panel stated: "[75] As noted in [Vella v Mir [2019] NSWCATAP 28 ('Vella')], at paragraph 49, there needs to be evidence that the consequences are imminent or probable, and that expert evidence may assist in that analysis, but is not conclusive. 49. Expert evidence is clearly relevant to whether a claimed defect is in a major element of a building and whether it meets the definition of a major defect in s 18E(4). However, it is not determinative of the issue. [76] The Appeal Panel notes that one of the defects identified by the principal expert for [the plaintiff] was that the drainage outlet in the balcony floor could not cope with a surge of rainwater and there was no provision of an overflow spitter pipe. This suggests that the defect which may have caused the rainwater entry, which stained the ceiling, was something less than a 'major defect'."
Nowhere in Vella, the case to which the Appeal Panel refers at [75] of its decision, is it stated that a major defect must be "imminent or probable". Nor does s 18E(4) require any degree of imminence to the damage. Again, the Appeal Panel's statements seem to attach a sense of immediacy to major defects which is not otherwise required. Reading its reasons as a whole and fairly, it is my view that although at times the Appeal Panel does state the test in s 18E(4)(a) in its complete terms, the overall effect of its reasons is to seem to require that a major defect is one which is presently manifested and dire.
At the hearing of these proceedings, counsel for the defendant conceded that the Appeal Panel may have "strayed a little bit from the standard" in its opening remarks (T 32.45). However, she submitted that in applying the statutory test in s 18E to the defects in issue, the Appeal Panel considered the relevant elements as required.
However, the plaintiff submitted that the Appeal Panel's observations regarding the role of expert evidence in establishing a major defect within the meaning of s 18E(4) further reveal its error in reasoning. At [77]-[78], the Appeal Panel stated: "[77] In Vella, the Appeal Panel had to consider whether the evidence of an expert witness had adequately addressed the causation required to establish a 'major defect'. This Appeal Panel accepts that expert evidence as to the required causation may be of assistance to a Tribunal, however concludes that such expert evidence has to rise above speculation and suggestions as to possibilities. [78] Evidence about the inability to inhabit or to use a building are exclusively matters requiring evidence of the facts which diminish the ability to inhabit or to use of the building. In these proceedings the evidence of the consequences of the water leak from the balcony does not extend beyond photographs of some marks on the ceiling below the balcony."
The plaintiff submitted that the Appeal Panel's statement that the expert evidence amounted to "speculation", and consisted merely of "some marks on the ceiling below the balcony", were inaccurate.
To address these submissions, it is necessary to set out the expert evidence as characterised by the Senior Member and the Appeal Panel in some detail, beginning with the evidence concerning the defects to the balcony and then to the cladding.

The defects to the balcony - the Senior Member

In his decision at first instance, the Senior Member addressed the defects to the balcony at [67] to [93]. It is not necessary for me to reproduce these paragraphs in full here.
Relevantly, at [67] of his decision, the Senior Member set out the lay evidence of Mr Nisbett, who had concluded that the construction of the balcony did not comply with relevant standards. Mr Dietrich, expert for the respondent, substantially agreed ([69]). At [73], the Senior Member noted that at the hearing of the proceedings, both experts have given combined evidence that without significant further investigation, it was not possible to conclude that the visible stains to the ceiling were the result of the faulty balcony drainage. At [75] of his decision, the Senior Member concluded that he was not persuaded the stains were necessarily a consequence of the defect. Nevertheless, he was satisfied on the basis of the experts' evidence that the defect existed.
At [80] to [81] of his decision, the Senior Member concluded: "[80] Mr Nisbett also gave evidence that: 'As a result of this water penetration and the underlying defects, the non-correct rectification of the balcony work overtime will result in the inability to use areas of the dwelling, the destruction and/or collapse of the following elements of the building [including the timber floor joists supporting the first floor bedroom and balcony floor]'. [81] In the course of his oral evidence Mr Dietrich agreed that: 'If the water penetration is allowed to continue without rectification of the balcony it will eventually be destructive of the plasterboard sheets in the ceiling below and it will eventually cause the joists and timber, structural joists and ceilings in the ceiling below to get wet which will set up conditions for rot and fungal decay.' and that 'It would be fair to say that if rot and fungal decay in timbers will eventually if left unchecked be destructive of those timbers.'"
In effect, Mr Nisbett provided the opinion that the water penetration would result in certain consequences over time, with which Mr Dietrich agreed.

The Appeal Panel

In its decision, the Appeal Panel addressed the defects to the balcony at [79] to [88] as follows: "[79] The [Senior Member] commented at [66] that 'the evidence of the water penetration is limited', and noted that the only evidence from which it could be assumed that water had penetrated was two stains on the ceiling below the balcony. The [Senior Member] noted at [75]: Although it is impossible to determine whether the water stains visible in the living room were caused by water penetration from the balcony, I am satisfied that the balcony was not constructed in accordance with the relevant standards. [80] Further at [82] the [Senior Member] although recognising the inadequacy of the evidence concluded: As noted above, although the evidence of water penetration was scant, I am satisfied that there has been significant water penetration into the building as a result of the defective balcony and that if the defects are not rectified that water penetration is likely to recur … [81] The difficulty which the [Senior Member] faced was the absence of probative evidence that the water penetration, evident by stains on the ceiling, was caused by some identified defect and further that the water penetration actually created any of the consequences in s 18E (4) of the [Home Building Act]. The Appeal Panel understands that there was no evidence of heightened moisture content readings within the stained areas of the ceiling. Such evidence is frequently relied upon in proving water penetration. [82] The Appeal Panel is concerned that there was no evidence from the Owner as to the actual extent of water penetration which occurred, or as to the frequency of the occurrences, if there was more than one. The nature and frequency of the occurrence of water penetration and the probability of further events are considerations which the [Senior Member] was unable to address. [83] Further there was no evidence as to the impact which the possibly occasional incapacity of the balcony drainage to deal with the accumulation of rainwater in particular unidentified weather events. The only evidence of water penetration and the prescribed consequences was the stains on a ceiling below the balcony. [84] The expert evidence appears not to have been based on actual evidence of what occurred and was substantially prepared on the basis of assumptions as to the nature and extent of the defects and the possible consequences. [85] Before the presumption by expert witnesses of future consequences when considering whether there is a major defect, there needs to evidence on which assumptions can properly be drawn. [86] Speculation as to the unknown extent of the problem is not a proper basis for a conclusion that a defect amounts to a major defect. [87] The conclusion by the [Senior Member] at paragraph 82, see [80], that there was 'significant' water penetration was unsupported by any evidence as to what in fact occurred. [88] The Appeal Panel concludes that the finding in [82] was not open to the [Senior Member] on the limited evidence before it as to the extent and frequency of the water penetration, and as to the actual impact which such water penetration as did occur, had in fact caused."
At [79], the Appeal Panel referred to the Senior Member's decision at [75], but without the surrounding context. In apparent disagreement with the Senior Member, the Appeal Panel concluded that the visible stains didn't constitute evidence of the defect. At [83], the Appeal Panel then concluded: "The only evidence of water penetration and the prescribed consequences was the stains on a ceiling below the balcony."
It is my view that in its reasons, the Appeal Panel did not accurately characterise the Senior Member's decision or the expert evidence on which it was founded. The Senior Member carefully set out the evidence of Mr Nisbett and Mr Dietrich, as well as the consequences under s 18E(4)(a)(i) to (iii) caused or likely to be caused by a defect for it to constitute a major defect under the Home Building Act ([77]). The Senior Member concluded that although he was not persuaded that the stains were the result of the defect, he was nevertheless persuaded by expert evidence that the defect existed. The Appeal Panel's statement that the stains on the ceiling were the "only evidence" of the prescribed consequences of water penetration was inaccurate. In considering the role of the expert evidence in establishing a major defect under the Home Building Act, the Appeal Panel again seemed to require that the relevant consequences are presently manifested, which omits the inclusion in s 18E(4)(a) of consequences which the defect is also "likely to cause".

The defects to the cladding - the Senior Member

The Senior Member's consideration of the cladding appears at [164] to [184] of his decision. Again, it is not necessary to reproduce it in its entirety here. Relevantly, at [164] to [168], the Senior Member set out the evidence of the plaintiff's expert, Mr Karsai. Mr Karsai concluded at [167] that the omissions and changes he observed to the cladding "will result in weatherproof failure of all the installed sheeting, with inevitable moisture ingress through the sheeting joints and the missing (or incorrectly installed) flashings. It will also lead to condensation behind the Weatherwrap foil". It was Mr Karsai's opinion that the cladding was the result of poor and defected building practices, and was not in compliance with regulations ([168]).
At [169] of his decision, the Senior Member addressed the defendant's submissions that Mr Karsai's report is "nothing more than mere speculation", as he had done nothing more than comment on photographs. However, at [170] to [171], the Senior Member concluded: "[170] I do not accept the submission that Mr Karsai's report is mere speculation. Nor do I accept that Mr Karsai's report fails to meet the requirements of admissible expert evidence. Mr Karsai confronted difficulties int hat he was not himself personally able to inspect the cladding but he is a specialist in cladding and façade construction and arranged to have photographs of the method of construction provided to him. The material upon which Mr Karsai based his opinions is clearly identified in his reports and his reasoning processes are clearly stated. In particular, Mr Karsai referred to photographs which clearly revealed, through brand labeling, the nature of the cladding and the backing membrane. Mr Karsai was satisfied that he had adequate material to form a conclusion and I am persuaded that his conclusions are accurate. [171] Mr Dietrich's evidence does not address the particular defects identified by Mr Karsai, merely commenting: 'I am of the opinion that the alleged defective cladding has been performing as intended and there is no manifestation of a failure of the current system and that it is not defective and it is fit for purpose.' Mr Dietrich also stated that 'any defects of the cladding and/or the sealants are a maintenance issue'. I do not accept that evidence."
The Senior Member did not find Mr Dietrich's evidence persuasive, as he had not addressed the particular defects with which Mr Karsai was concerned. At [172] to [174] of his decision, the Senior Member discussed the photographs which Mr Karsai had used to form his opinion. At [172], the Senior Member accepted Mr Karsai's evidence that the defects would inevitably in time lead to moisture penetration in the building.

The Appeal Panel

In its consideration of the evidence concerning the cladding defects, the Appeal Panel stated at [90] to [100]: "[90] The Former Owner appeals from the findings of the [Senior Member] at paragraph 177 and 179 concerning the cladding defects: 177. Mr Karsai asserted that the defects relating to the cladding were major defects. The respondent submitted it was not a major defect. The defects are clearly a defect in waterproofing and, in my view. whether or not they have had to date any significant impact in terms of water penetration, it is likely that they will in due course, both by reason of the encouragement of condensation on the inside of the sarking and by reason of water penetration through joints in the sarking and where the sarking has been installed behind the apron flashing, lead to deterioration and the structural failure of the internal timber wall framing. […] 179. Accordingly I conclude that the defects in the cladding are major defects and the Tribunal has jurisdiction to hear and determine the applicant's claims in respect of the cladding. [91] The Former Owner's appeal on grounds 3 and 4 challenges the finding that the defects in the cladding installation was a defect in the waterproofing and was also a 'major defect'. The primary grounds are that the findings are unsupported by evidence and as such involve an error of law. [92] The Former Owner also seeks leave to appeal on the basis that the [Senior Member's] findings were not 'fair and equitable' and involved giving undue weight to the evidence of Mr Karsai. [93] The Former Owner's submissions repeat the extensive challenges raised before the Tribunal as to the reasons why the evidence of Mr Kasai should not be accepted and repeated the objections to the tender by the Owner of a new report by Mr McGill on the last day of the hearing, said to be for the purpose of 'shoring up' Mr Karsai's evidence. [94] The background uncontroversial facts, which the Appeal Panel considers have some relevance to this aspect of the Former Owner's appeal are: (1) The cladding installation was completed in February - March 2014. (2) The hearing took place in early November 2017 and 8 February 2017. (3) An invasive inspection was conducted just prior to the hearing on 8 February 2018. (4) There was no evidence adduced at the hearing of water penetration through the cladding since the completion of the works in 2014. (5) There appears to be no evidence of moisture build up behind the cladding when the hearing was conducted, or in the report of Mr McGill dated 2 February 2018. [95] The evidence which the [Senior Member] relied upon was that of Mr Karsai in particular his evidence that the identified cladding installation defects 'will inevitably, in time, lead to moisture penetration into the building'. [96] The Appeal Panel is concerned that the [Senior Member] has reached this conclusion as to what might occur in the future, notwithstanding the absence of evidence that at any time in the four years since the completion of the building works in 2014, water penetration had in fact occurred, and no evidence of moisture build up during the invasive inspection on 30 January 2018. [97] If the thesis that 'in the future' moisture might build up within the cladding installation, which might cause a problem, is to be made out, then the proponent of the thesis ought to have supported the thesis by some evidence that moisture had accumulated when the opportunity was presented in January 2018. Further the proponent would need to have a cogent and reasoned explanation of the process that would explain the causation. The mere assertion of causation without reasoned explanation is insufficient. [98] Whilst buildings are not immune from change or progressive deterioration, the means by which an installation which had survived, apparently impervious to water for four years, was asserted to have the potential to deteriorate to the point of destruction would need cogent and reasoned evidence to explain the process. [99] As with the problems which the [Senior Member] had to deal with when considering the inadequacy in the evidence about water penetration onto a ceiling from the balcony, see [81], the [Senior Member] was not assisted with evidence of how the consequences of the cladding defects would, or were likely to, lead to water penetration in the future, [100] This evidentiary vacuum necessitated the acceptance by the [Senior member] of an unexplained possibility for a causation of the type listed in s 18E (4) of the [Home Building Act]."
The Appeal Panel's application of Mr Karsai's evidence is, with respect, incorrect. At [96], the Appeal Panel again placed too great an emphasis on the present manifestation of the consequences under s 18E(4)(a)(i) to (iii), despite the legislation also permitting defects which are "likely to cause" those consequences to be major defects. Mr Karsai's extensive evidence was that those consequences were "inevitable", and it was open to the Senior Member to accept that evidence, and to prefer it to that of Mr Dietrich. As such, the Appeal Panel's consideration of the cladding defects, and its conclusion at [100] that the Senior Member had reached his conclusion in an "evidentiary vacuum", was in error.
For these reasons, it is my view that the Appeal Panel's conclusions regarding the operation of s 18E(4) reveal clear errors of law.

Ground 2 - completion under s 3B of the Home Building Act

The plaintiff's submissions

The plaintiff submitted that because the defendant raised a challenge to the Tribunal's jurisdiction to determine the plaintiff's claims, the defendant bore the onus of proving the factual matters necessary to establish lack of jurisdiction.
The plaintiff referred to Bailey v Owners Corporation of Strata Plan 62666 [2011] NSWCA 293 ("Bailey"). In Bailey, a developer was sued by an owners corporation in the former Consumer, Trader and Tenancy Tribunal in relation to defective building work. The developer argued that the Tribunal lacked jurisdiction because the owners corporation's claim had been lodged more than seven years after the date on which the work was completed for the purposes of s 48K(7)(a) of the Home Building Act. In order to succeed on that basis, the developer needed to establish two facts: firstly, the date on which the claim had been lodged, and secondly, the date on which the relevant building works were completed. In Bailey at [5], Basten JA stated that the developer "bore the onus of proving the facts required to establish a lack of jurisdiction".
The plaintiff submitted that the time at which work was completed within the meaning of s 18E of the Home Building Act is a question of fact: see Vero Insurance Ltd v Kassem [2011] NSWCA 381 at [65] per Campbell JA (Young and Meagher JJA agreeing). The defendant accordingly bore the onus of establishing, as a matter of fact, that all of the work the subject of approval in the owner builder permit had reached practical completion more than two years prior to the date on which the plaintiff commenced proceedings. In that context, in order to defeat the application of the presumption in s 3B(3) of the Home Building Act, the burden of proof fell upon the defendant to establish an "earlier date for practical completion", being a date earlier than any of the dates set out in s 3B(3)(a) to (d).
In holding that it was the plaintiff's "task...to prove that the residential building work remained incomplete after 20 November 2014", the Appeal Panel incorrectly reversed the onus of proof. The plaintiff submitted that the Appeal Panel's finding that the Senior Member had decided the issue correctly was accordingly based upon a clear error of law, and for that reason must be set aside.

The defendant' submissions

The defendant agreed that she bore the onus of displacing the presumption as to the date of practical completion. However, at [58] of the Senior Member's decision at first instance, he found that the presumption had indeed been displaced. The Senior Member determined this fact on the unchallenged evidence of the defendant's daughter that she and her parents had moved into the property on 14 May 2014, at which time all work was completed save for the herringbone floor and the carpeting to the attic. Of further relevance to the Senior Member's determination were tax invoices for roofing materials showing that the roofing works were carried out in March or April 2014; the evidence of a contractor, Mr Edwards, that all works were completed in May 2014 save for the kitchen bench top; and the defendant's application for an occupation certificate in May 2014 and the Council's response in July 2014, which noted the discrepancies between the works "as completed" and the approved plans.
At first instance, the Senior Member found at [61] of his decision that the defendant "had established an earlier date for practical completion for the purposes of s 3B and that therefore the presumption arising pursuant to s 3B(3) does not apply in this case."
The defendant submitted that the plaintiff has misconstrued the Appeal Panel comments concerning the onus of proof. The Appeal Panel was not saying that the plaintiff bore the onus, prima facie, of displacing the presumption. Rather, the defendant argued that the Appeal Panel was observing that in order to overcome the findings at first instance, the plaintiff would need to adduce evidence to rebut that finding of fact. The plaintiff did not do so. The defendant argued that the Appeal Panel's meaning is clear in the context of the surrounding paragraphs and the decision as a whole. As such, this ground of appeal is misconceived and should be dismissed.

Consideration

It is common ground that the residential building work to the property was not undertaken pursuant to any written contract. Accordingly, s 3B(2) of the Home Building Act applies so that the completion of the work occurred on the date of its "practical completion".
Section 3B of the Home Building Act is extracted earlier in this judgment. Section 3B(3)(d) states that in the case of owner-builder work, the presumed date of practical completion (unless an earlier date for practical completion can be established) is the date 18 months after the issue of the relevant owner-builder permit. The owner-builder permit for the works in these proceedings was issued on 7 August 2013. As such, the date of presumed practical completion under s 3B of the Home Building Act is 6 January 2015. However, at the hearing of these proceedings at first instance, the Senior Member was satisfied that practical completion had in fact occurred at an earlier date of March 2014.
The Senior Member's consideration of the issue of the completion date appears at [58] of his decision as follows: "[58] However I am persuaded on the evidence before me that the work was completed within the meaning of s 3B(2), that is 'completed except for omissions and defects that do not prevent the work being reasonably capable of being used for its intended purpose' in May 2014. I reach this conclusion, notwithstanding Mr Ashton's emails, by reason of: 1. The unchallenged evidence of Henrietta Ashton that she had moved into the property on 14 May 2014 and that the work was completed at that date or shortly thereafter; 2. The tax invoices for roofing materials which were included in the respondent's evidence which suggest the roofing work was being carried out in March or April 2014; 2. The evidence of Mr Edwards, which, although he was only able to speak as to the completion of the internal carpentry work, does indicate that that work was completed by May 2014; and 4. The fact that the respondent applied for an Occupation Certificate in May 2014 and that the Council officer wrote to the respondent in July 2014 pointing out discrepancies between the work as completed and the approved plans."
The Senior Member then considered the plaintiff's contrary evidence and submissions, and stated that he did not accept them. He then concluded at [62] to [63]: "[62] Accordingly I find that the respondent has established an earlier date for practical completion for the purposes of section 3B and that therefore the presumption arising pursuant to s 3B (3) does not arise in this case. I note that the applicant does not seek to rely upon section 18E(1)(e) and (f) [63] Accordingly the applicant did not commence proceedings before the end of the limitation period in respect of any defect which is not a 'major defect' as that term is defined in s 18E."
The question of whether the presumed date of practical completion had been displaced on the available evidence was in issue before the Appeal Panel. The Appeal Panel's consideration of the issue appears at [33], [35] to [36] of its decision as follows: "[33] The issue to be determined is whether the [Senior Member] made an appealable error. The Owner has focussed upon the suggested unreliability of the Former Owner's evidence. … [35] The parties contended that a number of different dates to be that which was, in fact, the date for completion for the purposes of determining when the limitation periods commenced, see paragraphs 34 to 36 of the Decision. 34. The applicants relied upon the presumptions set out in subparagraphs (c) and (d) of subsection 3B(3). The occupation certificate was issued on 22 September 2015. The owner-builder permit was issued to the respondent on 7 August 2013. The date which was 18 months after that date was 7 February 2015. As that date is earlier than the issue of the occupation certificate, the presumption arising from s 3B(3) is that the work is presumed to have been completed on 7 February 2015. 35. If the respondent is unable to establish that the work was completed at an earlier date, the warranty period in respect of those defects which are not major defects would not have expired until 7 February 2017, by which the time the applicant had commenced proceedings. 36. As noted above, the respondent asserted that the work was completed by May 2014. If that is correct, the work was completed more than two years before the applicant commenced the proceedings, and the proceedings would have been commenced after the end of the warranty period in respect of any defects that are not 'major defects' as defined in s 18E. [36] The relevant factual background to consideration of this issue is: (1) The Owners exchanged contracts for the sale of the Property on 23 March 2016. (2) The Contract for Sale did not include a Building Report or a Pest Report. (3) The Contract was settled on 24 May 2016. (4) In June 2016 the Owner noticed a water leak in the interior of the property and communicated with the Former Owner. (5) The Owner commenced HB 16/50587 on 20 November 2016."
Having considered the available evidence on which the Senior Member made his determination, the Appeal Panel then stated at [37] to [40]: "[37] It follows that for the Owner to have commenced the proceedings within the limitation period for a claim concerning defects other than a 'major defect', he would have to prove that the residential building work was not completed before 20 November 2014. The alternative to the presumptions in subsection 3B (3) of the [Home Building Act] is stated as: unless an earlier date for practical completion can be established. [38] The Owner in his appeal has sought to challenge the finding by the Tribunal by identifying uncertainty associated with the Former Owner's evidence, including the absence of evidence from her husband. [39] The first date relied upon by the Owner was that under subsection 3B (3)(d), namely 18 months after the owner-builder permit was issued, see the reference in paragraph 34 of the Decision. One aspect of the Former Owner's evidence which was unchallenged was the evidence of her daughter that she moved in to the Property on 16 May 2014 and observed that the renovation of the Property was complete except for a parquetry floor and carpet in the attic. [40] The evidence as to when the last items of work were completed was given by a carpenter and a plumber. In the case of the carpenter his evidence was that the floor was completed during May 2014. The evidentiary challenge faced by the Owner was substantial and, in effect, the task was to prove that the residential building work remained incomplete after 20 November 2014."
The Appeal Panel then outlined the plaintiff's evidence, which included the date of issue of the owner-builder permit of 7 February 2015, and the date of issue of the occupation certificate on 22 September 2015. At [47] of its decision, the Appeal Panel concluded that the recognition by the council that the works were complete in 2014 supported the Senior Member's conclusion that the date of practical completion occurred in March of that year.
The plaintiff submitted that in considering the significance of the available evidence, the Appeal Panel reversed the onus of proof. At [37], the Appeal Panel stated that for the plaintiff to have commenced proceedings within the limitation period, "he would have to prove" that the residential building work was not completed before 20 November 2014. At [40], the Appeal Panel repeated the assertion that "the evidentiary challenge faced by [the plaintiff] was substantial and, in effect, the task was to prove that the residential building work remained incomplete after 20 November 2014".
In Bailey, the Court of Appeal stated that where a party seeks to rely on a limitation period which it must prove by establishing an earlier date, the onus or proof rests with the person making the assertion. In these proceedings, the relevant party is the defendant.
I note that when considering the Appeal Panel's reasons, I am not to read "with an eye finely tuned for error": McGinn v Ashfield Council [2012] NSWCA 238 per McColl JA at [17] (Sackville AJA and Gzell J agreeing); Walsh v Parramatta City Council [2007] NSWLEC 255; (2007) 161 LGERA 118 at [67] per Preston CJ citing Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259 at 291.
I also bear in mind that what constitutes sufficient reasons for an Appeal Panel differs from that of a court. In Wingfoot Australia Partners Pty Ltd v Kocak (2013) 252 CLR 480; (2013) 303 ALR 64 ("Wingfoot"), the High Court stated at [54] to [55]: "[54] The objective, within the scheme of the Act, of requiring the medical panel to give a written statement of reasons for that opinion can therefore be seen to be that persons affected by the opinion automatically be provided with a written statement of reasons adequate to enable a court to see whether the opinion does or does not involve any error of law. There is an obvious benefit in requiring a written statement of reasons for an opinion always to meet that standard. The benefit is that it enables a person whose legal rights are affected by the opinion to obtain from the Supreme Court an order in the nature of certiorari removing the legal effect of the opinion if the medical panel in fact made an error of law in forming the opinion: an error of law in forming the opinion, if made, will appear on the face of the written statement. To require less would be to allow an error of law affecting legal rights to remain unchecked. To require more would be to place a practical burden of cost and time on decision-making by an expert body for no additional legal benefit and no identified systemic gain. [55] The standard required of a written statement of reasons given by a medical panel under s 68(2) of the Act can therefore be stated as follows. The statement of reasons must explain the actual path of reasoning by which the medical panel in fact arrived at the opinion the medical panel in fact formed on the medical question referred to it. The statement of reasons must explain that actual path of reasoning in sufficient detail to enable a court to see whether the opinion does or does not involve any error of law. If a statement of reasons meeting that standard discloses an error of law in the way the medical panel formed its opinion, the legal effect of the opinion can be removed by an order in the nature of certiorari for that error of law on the face of the record of the opinion. If a statement of reasons fails to meet that standard, that failure is itself an error of law on the face of the record of the opinion, on the basis of which an order in the nature of certiorari can be made removing the legal effect of the opinion."
While Wingfoot refers to a medical panel under the Accident Compensation Act 1985 (Vic), the standard for written reasons set out at [54]-[55] above apply equally to the Appeal Panel in this case.
At the hearing of these proceedings, counsel for the defendant agreed that, read plainly, the Appeal Panel's statements concerning the onus of proof were wrong (T 25.4). However, she submitted that the context of the statements is important. The Appeal Panel was considering the issue on appeal from the Senior Member's decision that the defendant had displaced the presumed date of practical completion in s 3B of the Home Building Act. Read as a whole and fairly, the defendant submitted that the Appeal Panel's comments simply convey that if the plaintiff seeks to overturn the Senior Member's finding in his favour, he must provide evidence that the presumption is not displaced.
I am conscious that I must read the Appeal Panel's reasons as a whole and in context. Nevertheless, the inescapable effect of the Appeal Panel's plain words is to reverse the onus of proof from the defendant to the plaintiff. This is an error of law.
Counsel for the defendant submitted that even if the Appeal Panel erred, its error would make no material difference to the outcome because the Appeal Panel nevertheless found that the defendant had established the earlier completion date on the evidence outlined in [40] to [48] of its decision (T 25.32).
However, in order to exercise my discretion not to set aside the decision of the Appeal Panel, I would need to be satisfied that if the matter were remitted, a different result could not be produced: see Stead v State Government Insurance Commission [1986] HCA 54; (1986) 161 CLR 141. I am not satisfied that a different result could not be produced in this case. The Appeal Panel reversed the onus of proof. More importantly, the defendant and plaintiff presented contradictory evidence on which a different conclusion might be reached if considered afresh.
As stated earlier, at the hearing of these proceedings, counsel for the plaintiff stated that these first two grounds represent the two primary errors vitiating the Appeal Panel's decision, and that the third and fourth grounds rise or fall with them, as they concern substantially the same alleged errors (T 4.41). As I am remitting the matter in relation to the first two grounds of appeal, it is not necessary for me to consider grounds three and four.
For these reasons, I exercise my discretion to set aside the decision of the Appeal Panel dated 26 March 2019. The matter is remitted to NCAT for determination in accordance with law.

Costs

Costs follow the event. The defendant is to pay the plaintiff's costs of the amended summons filed 6 November 2019 on an ordinary basis.
As to the costs in relation to the proceedings before the Appeal Panel, the appropriate order for costs is that they are reserved, to allow the parties to make submissions.

The Court orders that: (1) Leave to appeal is granted. (2) The decisions of the Appeal Panel dated 26 March 2019 and 25 September 2019 are set aside. (3) The matter is remitted to NCAT for determination according to law. (4) The defendant is to pay the plaintiff's costs of the amended summons filed 6 November 2019 on an ordinary basis. (5) Costs in relation to the proceedings before the Appeal Panel are reserved. I certify that this and the 43 preceding pages are a true copy of the reasons for judgment herein of the Honourable Associate Justice Harrison. Dated: Friday, 6 December 2019 Associate

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 December 2019

Home Building Act 1987(NSW)

(2007) 161 LGERA 118

Stevenson v Ashton

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