The Owners - Strata Plan 99960 v SPS Building Contractors Pty Ltd

Factual Background

1. On 31 August 2016, Tweed Shire Council (the Council) issued a development consent for development application "DA16/0102" on the land at Lorikeet Drive, Tweed Heads South (the Property).
2. In November 2017, the owner of the Property, Fraser Cove Villas Pty Ltd (FCV), entered into a contract with SPS for the "construction of 45 residential lots and common property" (the Contract). The sole director of SPS was Mr Simon Stone, who was also a director of FCV. Mr Stone and his de facto partner jointly held a majority shareholding in FCV.
3. Work commenced on the Development following the issue of a construction certificate on 18 April 2018.
4. On 15 August 2019, Strata Plan No. 99960 (the Strata Plan) was registered under the Strata Schemes Development Act 2015 (NSW). By registration of the Strata Plan, the subdivision between the common property and the lot property of the Development was effected, and the Owners Corporation became owner of the common property.
5. A final occupation certificate was issued in relation to the works under the Contract on 23 August 2019.
6. From at least November 2019 onwards, the Owners Corporation received complaints from individual lot owners regarding issues related to water ingress.
7. The proceedings were commenced by the Owners Corporation on 20 August 2021.

Legal framework

1. The Contract was for the construction of dwellings, and therefore residential building work: Home Building Act, Sch 1, cll 2-3.
2. Section 18B of the Home Building Act relevantly provides as follows: 18B Warranties as to residential building work (1) The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work - (a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract, (b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new, (c) a warranty that the work will be done in accordance with, and will comply with, this or any other law, (d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time, (e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling, …
3. Each of those warranties by SPS was implied into the Contract.
4. Section 18D of the Home Building Act extends the benefit of those warranties, as follows: 18D Extension of statutory warranties (1) A person who is a successor in title to a person entitled to the benefit of a statutory warranty under this Act is entitled to the same rights as the person's predecessor in title in respect of the statutory warranty.
5. As successor in title to FCV in respect of the common property, the Owners Corporation is entitled to sue on the statutory warranties in section 18B.
6. Section 18E(1) of the Home Building Act provides that any claim for breach of a s 18B warranty must be commenced within the warranty period, which commences on the date the construction work was completed and which runs for six years in the case of a breach that results in a major defect in residential building work or two years in any other case. These proceedings were commenced by the Owners Corporation within two years of the issue of the final occupation certificate.
7. SPS accepted that, insofar as defects in the works under the Contract were established, there had been a breach of the statutory warranties and the Owners Corporation had a claim for the costs of rectification of such defects.
8. The issues which therefore fall to be determined are the extent of the defects and the scope of the required rectification work.

Systemic Defects SD1-SD9 (Items 1-9 in the Scott Schedule)

1. The systemic defects in the Development are addressed in the expert evidence of the building consultants who were called by the parties: namely, Mr George Poriters for the Plaintiffs and Mr George Zakos for the Defendants.
2. On 10 May 2024, Mr Poriters and Mr Zakos issued a joint report (Poriters/Zakos Joint Report) which, among other things, dealt with each of the Systemic Defects, numbered SD1-SD9.
3. Following the issue of the Poriters/Zakos Joint Report, there are only limited matters remaining in dispute between the parties, which are identified and addressed below.

Systemic Defect SD1 - Waterproofing of brick wall

1. This is an agreed defect in respect of all forty-five townhouses in the Development (Townhouses).
2. At the front entrance of each of the Townhouses is a brick "feature wall". These walls form part of the external fabric of each Townhouse. Nine of the Townhouses have one-storey brick walls and the remaining thirty-six have two-storey walls.
3. The brickwork walls have been constructed in a manner defined as a "solid wall" construction in AS3700-2011 Masonry Structures (AS3700), clause 1.5.2.36(e).
4. Clause 4.7.3 of AS3700 relevantly requires that a damp proof course or flashing "shall be incorporated into masonry construction where it is necessary (a) to provide a barrier to the upward or downward passage of moisture through masonry; [or] (b) to prevent moisture from entering into the interior of a building from the exterior." Clause 4.7.4 of AS3700 requires that where the prevention of moisture penetration is required, "solid walls shall be protected on the outside face by a suitable weather-resistant coating".
5. Mr Poriters and Mr Zakos agree that the brickwork walls were constructed as solid walls rather than cavity walls; that they were not face-sealed (that is, were not coated with a suitable weather-resistant coating); and that a damp-proof course was not installed at the base of the walls. They agree that this is a defect in respect of each of the forty-five Townhouses in the Development and that SPS is responsible for this defect.
6. This defect has resulted in water penetration occurring through the brickwork walls, affecting the internal face of the walls and the interiors of Townhouses.
7. SPS accepted that this defect amounted to a breach of the Building Code of Australia and, therefore, a breach of the statutory warranty in section 18B(1)(c) of the Home Building Act.
8. Mr Poriters and Mr Zakos agree that rectification work should be implemented in all forty-five Townhouses in the Development, and agree (other than in a single respect) on the scope of the required rectification work.
9. The disagreement between the experts concerns whether the existing windows in the brickwork walls should be re-used (as Mr Zakos proposed) or replaced (as Mr Poriters proposed).
10. In the course of cross-examination, it became apparent that the issue between the experts was essentially one of cost. The experts agreed that, in order to remove the windows without damaging them, it would be necessary to remove some of the masonry (though there was dispute about the extent of the brickwork that would need to be removed). Mr Poriters considered that the labour costs of the works required to remove the existing windows without damaging them would exceed the costs of purchasing new windows, while Mr Zakos considered that the opposite was the case. However, neither had performed calculations to support his view, and both agreed that the question of whether the windows should be reused or replaced could be the subject of a costs benefit analysis by the costs experts.
11. In those circumstances, I find that the scope of the rectification works for Systemic Defect SD1 should be as set out in the "Agreed Scope" column on pages 46-47 of the Poriters/Zakos Joint Report. Item 16 of this agreed scope is as follows: "Remove and reinstate the windows from the brickwork walls. Secure and weatherproof the window openings during the works."
12. As regards this item, the scope of works should provide for two options: either the removal and reuse of the existing windows; or alternatively, the removal and replacement of the existing windows with new windows. The costs experts should express an opinion about the costs of the rectification works of the agreed scope, incorporating those two alternatives for item 16, with the intent that quantification of the costs of rectifying Systemic Defect SD1 will be the less expensive of the two options.
13. In respect of Systemic Defect SD1, the only issue raised by SPS in closing submissions regarding the division between common property and lot property was that it could be "gleaned from the descriptions of damage by Mr Poriters" that some of the damage was to internal walls (which SPS described as "being the internal wall/skirting next to the stairs and the bulkhead above the stairs"). SPS also referred to lay evidence regarding the location of some paint damage to a wall in the spare upstairs bedroom of Townhouse 20; the location of mould in the kitchen of Townhouse 28; and damaged corner walls, damage to the pantry and damage near the stairs in Townhouse 34.
14. There is no need to resolve the issue whether this lay evidence, or the descriptions of damage in Mr Poriters' report, were sufficiently precise to identify the exact location of the damage, for the purpose of determining whether the damage was to common property or lot property. That is because the experts have agreed on a scope of works necessary to rectify Systemic Defect SD1 in respect of all Townhouses in the Development, and there are no repairs proposed to any individual Townhouse as a result of Systemic Defect SD1 additional to those which are required for all Townhouses. So, for example, there is no additional scope of work for repairing paintwork in the spare upstairs bedroom of Townhouse 20 or mould in the kitchen of Townhouse 28. Instead, the only internal repairs which are proposed to be undertaken in respect of Systemic Defect SD1 are "Internal consequential repairs" (see Poriters/Zakos Joint Report, page 47, items 31-41). These are internal repairs which are required as a result of the work being undertaken to rectify the defect in the feature brick walls (which are common property), rather than internal repairs to rectify damage to lot property as a result of water ingress due to Systemic Defect SD1.
15. SPS did not advance any submission to the effect that it was not liable for the costs of internal repairs (whether to lot property or common property) which were required as a result of works being undertaken to repair the common property. In that regard, section 122 of the Strata Schemes Management Act 2015 (NSW) provides that, although the Owners Corporation has a right to enter into a lot to carry out rectification works in respect of common property, the Owners Corporation "is liable for any damage to a lot or any of its contents caused by or arising out of the carrying out of any work" (see s 122(6)). This would include a liability to carry out any repairs to lot property, which are required as a result of the rectification works to the feature brick walls.

Systemic Defect SD2 - Waterproofing of front and rear first-floor balconies

1. Systemic Defect SD2 relates to all of those Townhouses in the Development which have balconies at the front and rear of the second storey (described in the plans and in submissions as "first-floor balconies").
2. There are four types of Townhouse in the Development, which were described on the plans as Types A to D.
3. Each of the twenty-six Townhouses which is either Type A or Type B has two first-floor balconies: one at the front of the Townhouse, and the other at the rear. The Type C and Type D Townhouses do not have any first-floor balconies.
4. The twenty-six Type A or B Townhouses which have first-floor balconies are Townhouses 1-3, 6-9, 13-19, 22-27, 29-33 and 45.
5. Systemic Defect SD2 can be seen as comprising three sub-categories of defects, namely: 1. defects in the waterproofing of each of the rear first-floor balconies; 2. defects in the waterproofing of each of the front first-floor balconies, at the inner edge beneath the balcony doors; and 3. defects in the waterproofing detail at the outer edge of the front first-floor balconies, which has caused damage to structural "LVL" beams.
6. The existence of the first and second sub-categories of defects is agreed by the experts in respect of all twenty-six Townhouses which have first-floor balconies.
7. The existence of the third sub-category of defect is agreed in respect of only two of those Townhouses, and is disputed by SPS in respect of the remaining twenty-four Townhouses.

Rear First-Floor Balconies

1. Mr Poriters and Mr Zakos agree that there are various defects in respect of the waterproofing of each of the rear first-floor balconies. However, those defects do not need to be considered further, because the experts agree that no rectification work needs to be undertaken in respect of the rear first-floor balconies. That is because there is no evidence of water penetration or damage as a result of any such defect. The Poriters/Zakos Joint Report records: "Accepted that there is a technical breach but no demonstrated associated consequence".

Front First-Floor Balconies - Waterproofing at inner edge beneath balcony doors

1. Mr Poriters and Mr Zakos agree that there are defects in the waterproofing at the inner edge of each of the front first-floor balconies, beneath the balcony doors.
2. Access to the front first-floor balconies is via a sliding glass door from the main bedroom. The experts agree that: 1. there has been a failure to provide adequate "freeboard" or "step-down" between the internal and external finished floor levels and beneath the sliding balcony doors, and a failure to detail the waterproofing of the balcony as required by clause 2.8.3 of AS 4654.2-2012 (headed "Doors and windows onto external waterproofed areas"); and 2. there has been a failure to install a suitable sill flashing beneath the balcony door assembly, and therefore a failure to comply with section 7.2.2 of AS2047-2014 Windows and External Glazed Doors in Buildings.
3. SPS accepted in closing submissions that in these respects there had been a failure to comply with the Building Code of Australia and therefore a breach of section 18B(1)(c) of the Home Building Act.
4. The experts agree that SPS is responsible for these defects, and that these defects have caused water ingress into a number of the Townhouses.
5. Although there was a dispute in the Poriters/Zakos Joint Report regarding whether rectification works should be undertaken in respect of all twenty-six Townhouses, or only in respect of those Townhouses where there was evidence of water ingress or damage, SPS accepted in closing submissions that rectification work shall be undertaken on all Townhouses with front first-floor balconies.
6. The scope of the rectification works to the front first-floor balconies is agreed, subject only to three matters: first, whether to remove and replace the structural LVL beam at the outer edge of the balconies; secondly, whether to remove and reuse, or instead remove and replace, the existing balcony doors; and thirdly, whether to use a sheet membrane or to apply a liquid membrane to the compressed fibre-cement substrate of the balcony floors.
7. The resolution of the first issue depends on whether the alleged defect in respect of the waterproofing detail at the outer edge of the front first-floor balconies has been established in respect of each of the twenty-six Townhouses (as the Owners Corporation contended) or only in respect of two of those Townhouses (as SPS contended). As explained below, SPS accepted in closing submissions that, in respect of any Townhouse which was established to have the relevant defect, the Owners Corporation was entitled to the costs of the scope of the rectification work which had been agreed in respect of the two Townhouses that were accepted to have this defect.
8. As regards the second issue concerning the reuse or replacement of the existing doors, the disagreement between the experts was similar to their disagreement in respect of the corresponding issues in respect of Systemic Defect SD1. However, there were important differences, as outlined below.
9. Whereas neither of the experts had taken any steps to remove a window from the brick feature walls, Mr Poriters had removed one sliding door assembly (but from a ground floor location, not from a first-floor balcony). Mr Poriters was able to remove and reinstall this door assembly without damaging it, but said that this process took about three hours. On this basis, he formed the view that it would be difficult to remove the first-floor balcony doors without damaging them, and that the additional labour and time required to remove the doors carefully, without damaging them, would likely substantially increase costs. Further, he expressed the opinion that, when sill flashings were installed under the doors (which the experts agree should occur), the existing doors would no longer fit into the apertures. In addition, he said that he had not seen any certification for the doors and so was unsure whether they were suitable for the conditions of service.
10. In cross-examination, Mr Poriters was shown a copy of the certification of the windows and doors for the Development, and accepted that it satisfied him on this issue.
11. Mr Poriters also accepted that the rectification work will not change the apertures, except insofar as flashing will be installed, which will be potentially only 1mm thick (such that provided the is a clearance of only a few millimetres, it will be possible to reinstall the existing door assemblies). Further, he accepted that if new doors were purchased, the same issue would arise unless the new doors were custom-made to specific dimensions, which would be far more expensive than purchasing standard doors; and that, if there was a problem with the size of the aperture following the installation of the flashings, it would be possible to make the aperture bigger by getting a carpenter to modify the wall frame.
12. In addition, Mr Poriters agreed that the balcony door assemblies are currently undamaged; that it was not an uncommon practice to reuse doors; and that Mr Zakos' option of reusing the doors was a reasonable rectification scope so long as the doors were not unduly damaged during the initial removal process.
13. When cross-examined regarding his opinion concerning the difficulty of removing the doors without damaging them, Mr Poriters accepted that it was not possible to extrapolate from his experience in removing a single door (which was in any case not on a first-floor balcony) and to conclude that similar issues would be encountered in removing all other doors. Further, he agreed that it would normally take two men around an hour to remove a sliding door assembly, at a cost of around $72 per hour each, whereas the cost of a new sliding door assembly is in the region of $1,200 to $1,300. When, following this evidence, it was put to Mr Poriters that reusing the existing balcony doors would be more cost effective than replacing them with new doors, he replied as follows: "Honestly, based on the single door that was removed, and extrapolating from that, it would certainly be more expensive to replace them, but again, noting that this is only speculation on my part, there is a risk that doors will be damaged, and therefore would need to be replaced."
14. Mr Zakos explained that whereas, in relation to Systemic Defect SD1, he was of the view that the issue whether to reuse or replace the windows in the brick walls could be left to the costs experts, to be determined on a cost-benefit analysis, the position was different in relation to the first-floor balcony doors. That is because it was a much simpler process to remove balcony doors from a wooden frame than to remove windows which had been bricked into a wall: "the removal and reuse of an aluminium window or an aluminium sliding door in a timber frame structure is … it's just a no-brainer, you just do that every day of the week."
15. Mr Zakos rejected propositions that there was any doubt about whether it was more cost effective to reuse or replace the balcony doors, and that this issue should also be left to the costs experts.
16. The Owners Corporation argued that, as a matter of consistency, if the question of whether to reuse or replace the windows in the brick walls was left to the costs experts, then the same course should be adopted in respect of the issue whether to reuse or replace the first-floor balcony doors.
17. However, this submission assumes a consistency in the expert evidence on this issue. As I have outlined above, whereas the experts agreed that there was doubt about which was the more cost effective approach in respect of Systemic Defect SD1, Mr Zakos expressed a firm view that the answer was obvious in respect of Systemic Defect SD2 and explained the reasons for this view. Further, the evidence which Mr Poriters gave in cross-examination regarding the relative costs of each course of action, and his concession that it "would certainly be more expensive to replace" the first-floor balcony doors than to reuse them, was consistent with, and supports, the opinion expressed by Mr Zakos.
18. Finally, the Owners Corporation submitted that in accordance with the principle in Robinson v Harman (1884) 1 Exch 850 at 855, which was cited and approved in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [13], it was entitled to be placed in the same situation, with respect to damages, as if the Contract had been performed; that if the Contract had been performed, it would have had "a building with doors that had only been installed once since new"; and that it is therefore entitled to the cost of new doors as part of the works to rectify Systemic Defect SD2.
19. However, the Owners Corporation did in fact receive new doors at the time that the Development was built. To provide the Owners Corporation with new doors at a point in time almost five years after construction, when the provision of new doors is conceded by Mr Poriters to be unnecessary in order to address Systemic Defect SD2, would not be to put the Owners Corporation in the same situation as if the Contract had been performed, but in a better situation.
20. For those reasons, I am satisfied that the scope of the rectification works for the first-floor balconies should be as agreed by the experts, but using what is described in the Poriters/Zakos Joint Report as "Option 1" (that is, "carefully remove the sliding door assemblies and store for reinstatement, then clear/repair and reinstate"), rather than what is described as "Option 2" (that is, "discard existing sliding door assemblies and supply/install suitable new sliding doors"). When preparing their estimates of the costs of such rectification works, the costs experts should note the word "carefully" in Option 1. This option has been selected on the basis that the contractors engaged to do the work will take the time required to ensure that the doors are carefully removed, without damaging them. That should be factored into the costs assessment.
21. Finally, the issue of the choice of membrane may be dealt with briefly. Although he expressed a preference for a sheet membrane, Mr Poriters accepted in cross-examination that this option was more expensive than a liquid membrane system, and that the use of a liquid membrane system was "suitable" for the rectification works. Having regard to this evidence, I am satisfied that the liquid membrane achieves conformity and is a reasonable method of rectification, and that the use of a sheet membrane would be unreasonable because it is more expensive and the additional expense is not necessary in order to achieve conformity.

Front First-Floor Balconies - Waterproofing detail at outer edge of balconies

1. This defect relates not to the waterproofing of the front first-floor balconies at the inner edge beneath the balcony doors, but instead to the waterproofing at the outer edge of those balconies, above the garage doors. Spanning the outer edge of each of the front first-floor balconies is a structural timber "LVL" (Laminated Veneer Lumber) beam.
2. It is necessary first to outline what is agreed between Mr Poriters and Mr Zakos, in order to explain the scope of the dispute between them.
3. In respect of two Townhouses, numbered 25 and 27, the experts agree that the LVL beam which spans the outer edge of the front first-floor balcony is moisture-damaged. Mr Poriters acknowledged that this damage cannot be due to the issues which have been identified with respect to the waterproofing at the inner edge beneath balcony doors (that is, inadequate freeboard and detailing under those doors, and the lack of sill flashing onto those doors), because the LVL beams are not located under those balcony doors. Instead, Mr Poriters and Mr Zakos agreed that the cause of the damage to the LVL beams at the outer edge of the front first-floor balconies in Townhouses 25 and 27 is that the builder did not adequately detail or terminate the waterproofing at the outer edge of those balconies and that this resulted in water penetration to, and damage of, the LVL beams beneath those outer edges. SPS accepted in its closing submissions that this amounted to a breach of section 18B(1)(c) of the Home Building Act.
4. The reason that these matters are agreed in respect of Townhouses 25 and 27 is because, in respect of each of those Townhouses, Mr Poriters carried out an invasive inspection. This inspection involved removing the adjoining cladding at the outer corner of each balcony. Mr Poriters found, upon removing the cladding, that the LVL beam in each Townhouse was moisture-damaged.
5. Mr Poriters and Mr Zakos agreed, in their joint report, on a scope of works for the rectification of the front first-floor balconies of Townhouses 25 and 27. This scope of works included the following items: "13. Remove and replace the structural timber LVL beams below the outer edges of the balconies. Prop/ support the external walls during this process. 14. Remove the garage doors below the balconies to allow the propping. Reinstate the garage doors after work completed. 15. Engage a structural engineer to advise on the method of propping and the methodology and materials for replacement of the LVL beams."
6. Where the experts disagreed was on the issue whether the same defect was present in each of the other twenty-four Townhouses which had front first-floor balconies (noting that, in respect of those twenty-four Townhouses, no inspection had been undertaken in relation to the LVL beams beneath the outer edge of those balconies).
7. Mr Poriters expressed the opinion that the same defect was present in those other twenty-four Townhouses on the basis that "the construction of these balconies is assumed to be the same" and "their similar construction has the potential to cause the … structural LVL damage observed" in Townhouses 25 and 27. In contrast, Mr Zakos considered that this defect was established only in respect of the two Townhouses where an inspection of the LVL beams had been undertaken.
8. It is important to note that the key dispute between the parties is whether the existence of a defect in all twenty-six Type A and B Townhouses can be found on the basis of the agreed defect in two of those Townhouses. SPS accepts that, if the defect is found in all twenty-six Townhouses, then the agreed scope of rectification work for Townhouses 25 and 27 should be undertaken in relation to all of those Townhouses. That is because, even though there is no evidence of damage as a result of the defect in the other twenty-four Townhouses, the risk of damage is sufficiently significant to warrant the rectification work being performed. However, SPS disputes that, in the circumstances of this case, a defect can be inferred in all of those twenty-six Townhouses on the basis of its existence in two.
9. In this regard, SPS referred to the decision of Ward J in The Owners - Strata Plan No 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612. One of the defects at issue in that case was the absence of water-stops in bathrooms in a block of fourteen units. The only conclusive way to determine the presence or absence of water-stops in a particular location was to remove a number of floor tiles. This was done in the bathrooms of three units, and in each case, there were no visible water-stops in the area in which the tiles were removed. Ward J said (at [166]) that it could not be inferred, from the evidence establishing that there were no correctly positioned water-stops in three bathrooms, that "any waterproofing work was incorrectly performed in other units", adding: "The fact that the subcontractor defectively performed work in a small number of units does not warrant a conclusion that it did so everywhere else."
10. Her Honour observed (at [167]) that: "It seems to me that the strongest argument in favour of a finding that there were no waterstops at all installed in any of the units in the building is that it would surely be a remarkable coincidence if the three bathrooms so tested just so happened to be the only three in which no waterstop was installed. However, that inference is only possible in my view if it can be said that the reason that waterstops were not visible in those three units was because none was in fact ever installed (ie because the Builder had made a decision not to install any, say because the Builder had decided to adopt one of the alternative waterproofing measures which Mr Beard said were commonly used in high-end building construction, or because it did not consider the possibility of such installation) rather than because there had simply been poor workmanship in those three units and the waterstops had been incorrectly positioned. That is because, while there would logically seem to be no reason why a particular decision (as to installation of waterstops or not) would not have applied across all bathrooms, I am not persuaded that the fact of defective workmanship in the installation of waterstops in some bathrooms means that I could infer there was similar defective workmanship in all of them."
11. Her Honour noted (at [180]) that the burden of proof lay on the owners corporation and that it had chosen to carry out limited destructive testing in three bathrooms and that there was no apparent reason why it could not have done so in all of the units.
12. As Ball J observed in The Owners - Strata Plan No 66375 v Suncorp Metway Insurance Ltd (No 2) [2017] NSWSC 739 at [80]: "Ward J is not to be understood as stating a principle of law in Kell & Rigby. The point made by her Honour is simply that on the facts of that case, she was not satisfied that it could be inferred from the evidence that the identified defect was present in all bathrooms, including those that had not been examined."
13. It is therefore necessary to focus on the specific circumstances of this case, and the evidence available to support the inference that the Owners Corporation seeks to draw, namely, that the agreed defect in respect of two Townhouses provides a basis for finding a defect in all twenty-six Townhouses which have front first-floor balconies.
14. In cross-examination, Mr Poriters agreed that the LVL damage which had been observed in Townhouses 25 and 27 was not caused by the defects which had been agreed by the experts as being present in all of the front first-floor balconies (namely, inadequate freeboard and lack of flashing, causing water ingress under the balcony doors). He agreed that his first report, which he prepared following the inspection of Townhouses 25 and 27, did not identify any reason for the water damage to the LVL beams in those Townhouses.
15. In his first report, Mr Poriters had recommended that testing be undertaken on all of the Townhouses with front first-floor balconies: "Not all structural LVL beams in these locations throughout the townhouses were exposed and assessed during the inspections and investigations. It is reasonably assumed that other structural LVL beams in these locations (i.e. adjoining the second floor balconies) will be affected by moisture damage in other areas due to similar construction details being present. A further assessment of the condition of the structural LVL beams will be required on all townhouses throughout the complex in order to identify the locations and extent of moisture damage."
16. Mr Poriters gave the following evidence in relation to this recommendation: "DOCKER: Well, you said in your first report that you needed to undertake a further assessment because you couldn't extrapolate from the two that you had found. That's right, isn't it? WITNESS PORITERS: That's correct. I think also that comment was made because there was possibly a recognition that we could do more to substantiate it."
17. Mr Poriters accepted that the further investigative work which he recommended had not been undertaken: "DOCKER: Now, what you say there is a further assessment of the condition of the structural LVL beams will be required on all townhouses. WITNESS PORITERS: Yes. DOCKER: That never happened; did it? WITNESS PORITERS: That's correct. DOCKER: And so, you don't know which of the front balconies, apart from 25 and 27, have LVL damage? WITNESS PORITERS: On the basis that I have not removed the cladding and sarking to expose them; that's correct."
18. Ultimately, the opinion of Mr Poriters, as set out in the passage from his first report quoted above, was that the existence of a defect in all of the twenty-six Townhouses could be inferred "due to similar construction details being present".
19. This process of reasoning is critically dependent on "similar construction details being present". However, the cause of the inadequate waterproofing at the outer edge of the front first-floor balconies of Townhouses 25 and 27 has not been identified. It is not known whether this was caused by a problem with the design of the waterproofing, or a problem with the workmanship, or what was the nature or extent of any such problem. In the absence of evidence as to why the waterproofing at the outer edge of the front first-floor balconies was inadequate in these two Townhouses, there is not a sufficient basis to conclude, on the balance of probabilities, that the same inadequacy is likely present in the other twenty-four Townhouses which have not been the subject of any similar investigation. This conclusion reflects Mr Poriters' evidence, quoted above, that it was not possible to extrapolate from the two incidents of damage which he found and also that he did not whether there was damage in any of the other twenty-four Townhouses.
20. The Owners Corporation submitted that there was evidence that a front first-floor balcony in a third Townhouse was showing signs of moisture penetration to the LVL beam at its outer edge. It pointed to a number of (unlabelled) photographs which were annexed to Mr Zakos' report, which were said to show high moisture readings in respect of the LVL beam under the front first-floor balcony of Townhouse 22. However, it became apparent in the course of submissions that the photographs to which reference was made could not have been photographs of Townhouse 22 (since the configuration of the Townhouse shown in the photographs did not match the plans for Townhouse 22). In any case, Mr Zakos was not asked any questions about these photographs, and Mr Poriters did not comment on them. Each of Mr Zakos and Mr Poriters provided detailed reports in which they recorded their investigations and observations in respect of the Townhouses in the Development; each of them reviewed and commented upon the other's reports; and each of them participated in producing a lengthy joint report which went through the defects in each of the forty-five Townhouses in detail. In that material, neither of them identified any damage to the LVL beam at the outer edge of the front first-floor balcony of Townhouse 22 or, for that matter, any other Townhouse (except for Townhouses 25 and 27).
21. In circumstances where there is a significant amount of expert material in relation to Systemic Defect SD2, and where neither expert has expressed any opinion to the effect that the photographs in issue provided evidence of another instance of Systemic Defect SD2, I do not consider that there is any adequate basis, from several unlabelled photographs which appear to relate to the same unidentified unit, to determine that an additional instance of the Systemic Defect SD2 LVL defect exists which has not been the subject of any expert comment. In any case, since there has been no expert evidence regarding the conclusions which can be drawn from these photographs, there has been no opinion expressed regarding the cause of any water penetration or damage to the LVL in question (assuming this is established by the photographs), let alone whether this is the same as the cause of the water damage to the LVLs in Townhouses 25 and 27.
22. The Owners Corporation submitted that a Jones v Dunkel inference should be drawn from the failure of SPS to call the subcontractor who was responsible for the waterproofing of the balconies. The inference sought was as follows: "that there was … a repeated deliberate choice and work method which applied to the two LVLs [in Townhouses 25 and 27] that would have been replicated across all the LVLs."
23. Mr Stone identified in his affidavit that the work in question was undertaken by Grey Co Constructions Pty Ltd, and was supervised by Mr Joshua Grey, who is the director and owner of that company and a licensed builder and supervisor. Mr Grey was equally available to either party in these proceedings and therefore I do not consider any Jones v Dunkel inference arises from the failure of SPS to call him as a witness.
24. In any case, it is not clear why the absence of Mr Grey would provide a basis for inferring that a deficiency in the waterproofing at the outer edge of the front first-floor balconies of Townhouses 25 and 27 was due to "a repeated deliberate choice and work method which … would have been replicated across" all of the twenty-six Townhouses in question. A similar issue was considered in Kell & Rigby. The owners corporation had argued that a Jones v Dunkel inference arose from the failure of the builder to call evidence of what was in fact done in the construction of the bathrooms (at [153]). However, Ward J said (at [184]) as follows: "In summary, it seems to be conceded that there are two possible explanations for the lack of a visible waterstop in those particular bathrooms - either none was installed or one was installed but it was positioned incorrectly. In circumstances where there is nothing to point conclusively to which of the two explanations is the correct one, the application of a Jones v Dunkel inference would appear impermissibly to use that rule to choose between two conjectures."
25. The Owners Corporation submitted that it was not unreasonable to rectify all of the LVL beams at the outer edges of the front first-floor balconies, particularly since there is a risk, given that the beams are structural, that their failure could have catastrophic consequences.
26. If a defect is established, which gives rise to a real risk of catastrophic failure, the existence of such a risk is a significant consideration in determining the reasonableness of proposed rectification works: see, for example, Kirkby v Coote [2006] QCA 61 at [52] and [59] per Keane JA, quoted with approval by Gleeson JA in Owners SP 92450 v JKN Para 1 Pty Ltd [2023] NSWCA 114 at [75]-[76] (White and Brereton JJA agreeing).
27. In that regard, SPS accepts that if it is established, on the balance of probabilities, that there is a defect in respect of the LVL beams at the outer edge of all of the front first-floor balconies, it is reasonable to carry out on all balconies the scope of rectification works which has been agreed in respect of Townhouses 25 and 27. However, SPS contends that such a defect has not been established on the balance of probabilities in respect of twenty-four of the twenty-six Townhouses.
28. If no defect has been established, then no breach has been established. Before any question arises of the measure of damages, and whether the proposed scope of rectification work is reasonable, it is first necessary to establish a breach. Damages cannot be awarded on the basis of a "risk" of a breach which, if realised, would give rise to a risk of damage.
29. For the reasons set out above, a defect in respect of the waterproofing at the outer edge of the front first-floor balconies has been established in respect of Townhouses 25 and 27. However, such a defect has not been established in respect of any other Townhouse.
30. Finally, the Owners Corporation submitted that, in the event I was not satisfied that this defect was established in respect of all twenty-six Townhouses, I should direct the costs experts to make a provision for the possibility that defects with the LVL beams will be discovered in the course of the rectification works. The Owners Corporation submitted that this provisional sum should be "the cost of investigating and replacing 75% of the LVLs that are part of SD2".
31. There are two problems with this proposal. First and fundamentally, unless breach is established, there is no basis for awarding damages for rectification work (whether by way of a provisional sum or otherwise). Secondly, on the current state of the evidence, there is no evidentiary basis for determining the amount of the proposed provisional sum. Mr Poriters agreed in cross-examination that, if LVL beams were not in fact damaged, there was no need to replace them. He proposed, in his reply report, that some provision be made for the need to replace LVL beams in the event that they were found to be damaged. However, he did not identify the extent of the provision, or any basis for determining its extent. When the proposal was raised with Mr Zakos in cross-examination, he emphasised the lack of any rational basis to determine the extent of such a provision: "YOUNG: And what also should be allowed in that scope of rectification is a very substantial provisional sum for the rectification of LVLs that are identified, that may be identified following that investigation; do you agree with that? WITNESS ZAKOS: But, so, allow a provisional sum for LVL that we know don't know whether they're damaged or not, don't know to the extent to what they're damaged, don't even know if they're damaged. YOUNG: Yes. WITNESS ZAKOS: So, no provisional sum could be based on that because you don't know what the extent is."

Systemic Defect SD2 - Scope of rectification works

1. The scope of works for rectifying the front first-floor balconies of Townhouses 25 and 27 has been agreed between the experts. It is set out in the "Agreed Scope" column on pages 48-49 of the Poriters/Zakos Joint Report.
2. In relation to the remaining twenty-four Townhouses which have front first-floor balconies - being Townhouses 1-3, 6-9, 13-19, 22-24, 26, 29-33 and 45 - the scope of works for rectifying those balconies should be the scope of works in the column headed "GZ comment and rectification scope" on pages 48-49 of the Poriters/Zakos Joint Report.
3. In respect of all twenty-six Townhouses, the following amendments should be made to the scope of works. 1. First, so far as concerns the sliding balcony doors, the scope of works should be based on Option 1 (which involves the removal and reuse of the existing sliding doors), rather than Option 2 (which involves the existing doors being discarded and replaced): see items 11 and 21 in the scope of works for Townhouses 25 and 27; and items 11 and 18 in the scope of works for the other Townhouses. It should be noted by the costs experts that Option 1 is based on the contractors who are engaged for this task taking the time required to "carefully remove [the] sliding door assemblies". 2. Secondly, so far as concerns the installation of "a suitable new waterproof membrane system" (being item 19 in the scope of works for Townhouses 25 and 27, and item 16 in the scope of works for the other Townhouses), the scope of works should specify the installation of a liquid membrane system, rather than a sheet membrane.
4. In respect of all twenty-six of the Townhouses with front first-floor balconies, the scope of works should provide for the "internal consequential repairs" that are set out in respect of Townhouses 25 and 27 on pages 49-50 of the Poriters/Zakos Joint Report (items 33 to 40). It should be noted by the costs experts that, as stated in the Poriters/Zakos Joint Report, these repairs are "consequential" in the sense that these repairs are "only required to repair damage inflicted by [the] removal/reinstatement of sliding doors". That is, the assessment of costs for this item should make an allowance for the contingency of such items in the scope of work needing to be performed where damage is in fact occasioned as a result of the removal and reinstatement of the sliding doors in all Townhouses.
5. Finally, as already noted, Mr Poriters and Mr Zakos have agreed that no rectification works are required to any of the rear first-floor balconies.

Common property or lot property?

1. SPS submitted that any damage to carpet which has been caused by water ingress as a result of Systemic Defect SD2 is not damage to common property, but to lot property. In particular, in closing submissions, SPS identified that the Poriters/Zakos Joint Report, when dealing with Systemic Defect SD2, referred to damage to carpet in the main bedroom of each of Townhouses 9, 22-24, 27 and 30-32.
2. The Development was divided into lots and common property by the registration of the Strata Plan on 15 August 2019: Strata Schemes Development Act, section 9. The Strata Plan contains a floor plan which is divided into ground and first floor plans. The boundaries of the lots are determined by section 6 of the Strata Schemes Development Act, which provides as follows: 6 Boundaries of lot (1) For the purposes of this Act, the boundaries of a lot shown on a floor plan are - (a) except as provided by paragraph (b) - (i) for a vertical boundary in which the base of a wall corresponds substantially with a base line - the inner surface of the wall, and (ii) for a horizontal boundary in which a floor or ceiling joins a vertical boundary of the lot - the upper surface of the floor and the under surface of the ceiling, or (b) the boundaries described on the floor plan relating to the lot, in the way prescribed by the regulations, by reference to a wall, floor or ceiling in a building to which the plan relates or to common infrastructure within the building. (2) In this section - base line - see paragraph (a) of the definition of floor plan in section 4(1).
3. In The Owners SP 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272 at [38]-[39], Tobias JA (with whom Giles and Basten JJA agreed) said that the "upper surface of the floor" fixes the lower "horizontal boundary" of the lot "as at the date of the registration of the strata plan"; and, therefore, "if at the date of registration a tile or timber floor has been laid over and affixed to the concrete slab, then the boundary will be the upper surface of the tiles or timber flooring".
4. SPS submitted that the carpet was lot property on the basis that it was installed after the Strata Plan was registered on 15 August 2019. SPS relied on evidence given in cross-examination by the owner of Townhouse 34, Ms Yvonne Stephen, that she inspected her Townhouse on the date that the Strata Plan was registered, and that the carpet had not been laid by that time. However, this evidence by one lot owner does not take matters very far. Mr Stone of SPS gave evidence that the contractor responsible for installing the carpet (BDW) undertook its scope of works between November 2018 and September 2019. There was a "Job Activity" report showing in excess of 200 progress payments being made by SPS to BDW in respect of its work on the Development during this period. Only two of the relevant invoices are recorded as being dated after 15 August 2019, when the Strata Plan was registered. Further, Ms Stephen was not the owner of any of the Townhouses which are said to have had damage to the carpet of the main bedroom as a result of Systemic Defect SD2. Having regard to the evidence of the payments made to BDW prior to 15 August 2019, I consider that there is a sufficient basis to infer that the carpet in those affected Townhouses was likely installed prior to the date of registration of the Strata Plan and was therefore common property.
5. In any case, so far as Systemic Defect SD2 is concerned, nothing turns on whether the carpet in the affected Townhouses is common property or lot property. The Poriters/Zakos Joint Report does not identify any additional internal works which are required in relation to the main bedrooms of Townhouses 9, 22-24, 27 and 30-32 (including the carpet). That is, the only works required in relation to the main bedroom of each of these Townhouses are those which are "Included in Item SD.2". The scope of rectification works for Systemic Defect SD2 does not include any replacement of carpet in the main bedrooms of any of the twenty-six Townhouses which have front first-floor balconies. Instead, the only internal works which have been agreed in respect of Systemic Defect SD2 are internal works which are consequential on the works being done to the common property in order to rectify Systemic Defect SD2. These internal consequential repairs are described as "repairs only required to repair damage inflicted by removal/reinstatement of sliding doors". The Owners Corporation is responsible for the costs of such works, having regard to the terms of s 122(6) of the Strata Schemes Management Act.

Systemic Defects SD3 - Ground-Floor Doors; and SD8 - Damp Proof Course

1. Each of Systemic Defects SD3 and SD8 is an agreed defect in respect of all forty-five Townhouses in the Development.
2. Systemic Defect SD3 relates to the ground-floor doors in the Development, which comprise casement doors and sliding doors. Mr Poriters and Mr Zakos agree that there are no sill flashings beneath the casement doors (that is, the front doors of each of the forty-five Townhouses) or beneath the ninety-nine ground-floor sliding doors. As a result, there has been water penetration into the interior of Townhouses. The experts agree that SPS is responsible for this defect.
3. Systemic Defect SD8 relates to the failure to install a damp proof course between the external timber frame base/bottom plates and the concrete slab. This has allowed water penetration through the base of the walls and water damage to the timber base/bottom plates. Mr Poriters and Mr Zakos agree that this is defect and that SPS is responsible for this defect.
4. In respect of each of these defects, SPS accepted that there has been a breach of the Building Code of Australia, and therefore a breach of the statutory warranty in section 18B(1)(c) of the Home Building Act.
5. These defects have been addressed together because Mr Poriters and Mr Zakos agree that the scope of the rectification works for Systemic Defect SD3 is subsumed within the scope of rectification works for Systemic Defect SD8. The scope of those rectification works is agreed for all Townhouses in the Development (see "Agreed Scope" column at pages 51-53 and 63-68 of the Poriters/Zakos Joint Report).
6. The agreed scope of rectification works provides for two Options, the first involving the careful removal of door and window assemblies and their subsequent reinstatement (Option 1) and the second involving the existing door and window assemblies being discarded and replaced (Option 2).
7. Each of Mr Poriters and Mr Zakos said that his position in respect of these two options for the rectification of Systemic Defects SD3 andSD8 was the same as his position in respect of the corresponding two options for the rectification of Systemic Defect SD2. For reasons given above in relation to Systemic Defect SD2, the scope of works for Systemic Defects SD3 and SD8 should be as agreed between the experts, but adopting Option 1 rather than Option 2 (and noting that Option 1 involves time being taken for the "careful" removal of the doors and windows).
8. In respect of Systemic Defects SD3 and SD8, SPS did not, in closing submissions, raise any issue about the division between common property and lot property. That is, there was no submission by SPS in respect of these defects that any of the damage said to have been suffered as a result of these defects was damage to lot property rather than common property, or that any of the proposed rectification works were works in respect of lot property rather than common property.

System Defect SD4 - Windows

1. This is an agreed defect in respect of all Townhouses in the Development.
2. Systemic Defect SD4 relates to those glazed units which do not extend to the level of the internal floor. Mr Poriters and Mr Zakos agreed that cl 3.5.3.6 of the Building Code of Australia requires that all openings for doors and windows in external wall cladding which are exposed to the weather must be adequately flashed using materials that comply with AS/NZS 2904; and that there had been a failure to install head flashings above these windows. This has resulted in water penetration to the interiors of a number of Townhouses. The experts agreed that SPS is responsible for this defect.
3. SPS accepted that this defect amounts to a breach of the Building Code of Australia, and therefore a breach of s 18B(1)(c) of the Home Building Act.
4. In the Poriters/Zakos Joint Report, the experts agreed on a scope of rectification works in relation to this defect, but disagreed on whether it was necessary to undertake those works in respect of all Townhouses in the Development (as Mr Poriters proposed) or only in respect of those Townhouses where there had been demonstrated to be water ingress as a result of this defect (as Mr Zakos proposed).
5. However, in closing submissions, SPS accepted that the agreed scope of works for Systemic Defect SD4 (which is set out in the "Agreed Scope" column at pages 53-54 of the Poriters/Zakos Joint Report) should be undertaken in respect of all Townhouses in the Development.
6. The only issue in dispute is the extent of repairs required to the interiors of Townhouses as a result of water ingress due to this defect. Mr Zakos accepted, in the Poriters/Zakos Joint Report, that, as a result of Systemic Defect SD4, there should be internal repairs to Townhouses 16, 21, 22, 28, 29, 32, 26 and 39. The scope of rectification works is as set out in the column headed "GZ Comments & Rectification Scopes" at page 53 of the Poriters/Zakos Joint Report. Those rectification works should be included in the scope of rectification works for Systemic Defect SD4.
7. As regards Townhouse 1, Mr Zakos expressed the opinion in his report that the internal damage was consistent with the windows being left open. However, in the Poriters/Zakos Joint Report, Mr Zakos accepted that, for units showing minor damage consistent with the windows having been left open (namely, units 1, 2 and 35), the scope of rectification works should include the work set out by him at pages 53-54 of the Poriters/Zakos Joint Report.
8. There is only one other Townhouse in respect of which Mr Poriters proposed individual repairs as a result of Systemic Defect SD4, namely, Townhouse 12 (as set out in the column headed "GP Comments & Rectification Scopes" at page 55 of the Poriters/Zakos Joint Report). As regards Townhouse 12, Mr Zakos reported that he did not observed any evidence of water ingress. Mr Poriters likewise did not report having observed any such evidence, but instead included in his report hearsay statements of water ingress in respect of this Townhouse (which were the subject to a ruling that such statements were evidence only of the fact of the communication and not their truth). Given those matters, I do not consider there is a sufficient basis to include in the scope of rectification works for Systemic Defect SD4 the proposed additional internal repairs for Townhouse 12.
9. In respect of Systemic Defect SD4, the only issue raised by SPS in closing submissions regarding the division between common property and lot property was that it could be "gleaned from the descriptions of damage by Mr Poriters" that some of the damage was to internal walls (which SPS described as "being the internal wall/skirting next to the stairs and the bulkhead above the stairs"). However, there is no need to resolve the issue whether the descriptions of damage in Mr Poriters' report were sufficiently precise to identify the exact location of the damage, for the purpose of determining whether the damage was to common property or lot property. That is because the only internal repairs to be performed as a result of water ingress due to Systemic Defect SD4 involve matters such as patching and painting the window sill or reveal. The agreed scope of rectification works for Systemic Defect SD4 does not include any work in respect of what SPS describes as the "the internal wall/skirting next to the stairs and the bulkhead above the stairs".

Systemic Defect SD5 - First-Floor Full Height Windows and Sliding Door Units

1. This is an agreed defect in respect of all Townhouses in the Development.
2. Systemic Defect SD5 relates to those windows on the first floor which extend to the level of the internal floor (described as "full height" windows) and the sliding door units on the first floor of the nineteen Type C and Type D townhouses which do not open to a balcony, but instead open to a fence or gate (which does not open).
3. These windows and sliding door units do not have head or sill flashings. This was agreed to be a defect, for which SPS was responsible. SPS accepted that this amounted to a breach of the Building Code of Australia and therefore a breach of the statutory warranty in s 18B(1)(c) of the Home Building Act.
4. The defect has resulted in water leaking into the interiors of Townhouses and in a number of cases has damaged the structural LVL beams which are beneath the windows or sliding door units.
5. There was a dispute in the Poriters/Zakos Joint Report regarding whether the agreed scope of the rectification works, which involved the replacement of the windows and sliding-door units, and the replacement of the LVL beams beneath them, should be performed in respect of all Townhouses (as Mr Poriters proposed) or only in respect of those Townhouses where damage had been established (as Mr Zakos proposed). However, SPS accepted in closing submissions that the agreed scope of rectification works should be undertaken throughout the Development, whether or not damage had been established.
6. I do not consider that there is any inconsistency between the position which SPS adopted in respect of the replacement of the LVL beams for Systemic Defect SD5 and the position which SPS adopted in respect of the corresponding issue for Systemic Defect SD2. Whereas the LVL beams which were considered in Systemic Defect SD2 are located at the outer edge of the front first-floor balconies (that is, away from the balcony sliding doors, which were at the inner edge), the LVL beams considered in Systemic Defect SD5 are located directly below the windows or sliding door units in question. SPS accepted that, as far as Systemic Defect SD5 was concerned, a defect had been established in respect of all Townhouses in the Development, which had caused, or risked causing, damage to the adjacent LVL beams, and that therefore the rectification works should be undertaken throughout the Development. However, as explained above, SPS disputed that, as far as the Systemic Defect SD2 was concerned (and, in particular, as far as the issue about waterproofing at the outer edge of the front first-floor balconies was concerned), a defect had been established in any more than two balconies which had caused, or risk causing, damage to LVL beams located at the outer edge of the balconies.

Sliding Door Units - Rectification Works

1. The scope of rectification works set out for the sliding door units in the "Agreed Scope" column of the Poriters/Zakos Joint Report at pages 55-57 should therefore be undertaken for all nineteen Type C and D Townhouses which have such units on the first-floor (being Townhouses 4-5, 10-12, 20-21, 28 and 34-44).
2. As set out in the Poriters/Zakos Joint Report, that scope of works includes two alternative options, one providing for the careful removal and subsequent reuse of the existing sliding door units, and the other providing for the existing units to be removed and replaced (see items 9 and 15 of the agreed scope of works).
3. Each of Mr Poriters and Mr Zakos said that his position in respect of these two options for the Systemic Defect SD5 rectification scope of works was the same as his opinion in respect of the two corresponding options for Systemic SD2 and Systemic Defects SD3/SD8. For reasons given above in relation to Systemic Defect SD2, the scope of works for Systemic Defect SD5 should be as agreed between the experts, but adopting Option 1 rather than Option 2 (and noting that Option 1 involves time being taken for the "careful" removal of the sliding door units).
4. For each of the nineteen Townhouses which have sliding door units, the scope of external works to rectify the defect is the same, as set out in items 1-26 of the "Agreed Scope" column at pages 55-56 of the Poriters/Zakos Joint Report.
5. However, the scope of the internal works differs between the nineteen Type C or D Townhouses.
6. For those eleven Townhouses where there is evidence of water ingress and damage, the scope of the internal works is as set out in items 27-40 of the "Agreed Scope Column" at page 57 of the Poriters/Zakos Joint Report. This applies to Townhouses 10-12, 28, 34, 37-39 and 41-43.
7. The agreed rectification works for those eleven Townhouses includes removing all carpet and underlay and supplying and installing new carpet to match existing carpet as closely as possible. SPS submitted in closing submissions that any damage to carpet which has been caused by water ingress as a result of Systemic Defect SD5 is not damage to common property, but to lot property. However, for reasons given in paragraphs 109-112 above, I am satisfied that the carpet in these eleven Townhouses is part of the common property. (I note that the eleven Townhouses in question do not include Townhouse 34, which was the subject of the evidence from Ms Stephen to which I have referred in paragraph 112.) Accordingly, I am satisfied that replacement of the carpet in these eleven Townhouses, as has been agreed by the experts, is rectification work to the common property consequent upon damage caused as a result of Systemic Defect SD5.
8. For the remaining eight Type C and Type D Townhouses (being Townhouses 4-5, 20-21, 35-36, 40 and 44), the only internal works included in the agreed scope of rectification works are those which are consequential upon the sliding door assemblies being removed and replaced. The scope of these consequential repair works is as set out in the column headed "GP Comments & Rectification Scopes" at pages 59-60 of the Poriters/Zakos Joint Report (being items 41-51 which are specified as relating to these eight Townhouses).

First-Floor Full-Height Windows - rectification works

1. The scope of rectification works for the first-floor full-height windows which is set out in the "GP Comments & Rectification Scopes" at pages 60-62 of the Poriters/Zakos Joint Report should be undertaken for all Townhouses in the Development, subject to one amendment. Whereas this scope of work has struck through Option 1 (the careful removal and reuse of the existing windows), and has instead adopted Option 2 (the discarding and replacement of the existing windows), the position should be reversed, and Option 1 rather than Option 2 should be adopted.
2. The scope of the rectification works for the first-floor full-height windows includes internal works which are consequential upon the rectification works, as set out in items 75-83 of the scope of works in the column headed "GP Comments & Rectification Scopes" at pages 61-62 of the Poriters/Zakos Joint Report (being items 75-83 under the heading "Internal works").

Systemic Defect SD6 - Laundries

1. This is an agreed defect in respect of all Townhouses in the Development.
2. This defect relates to the laundry in each Townhouse. AS3740-2010 "Waterproofing of domestic wet areas" requires the provision of a waterproofing water-stop angle along the threshold of a wet area. Mr Poriters and Mr Zakos agree that there has been a failure to install a water-stop angle at the laundry door threshold, at the junction between the tiled floor and the floating wooden floor. The experts agree that SPS is responsible for this defect.
3. SPS accepted that this amounts to a breach of the Building Code of Australia and therefore a breach of the statutory warranty in s 18B(1)(c) of the Home Building Act.
4. The scope of rectification works is agreed between the experts. It is set out in the "Agreed Scope" column at pages 62-63 of the Poriters/Zakos Joint Report. This scope of work is to be implemented in all forty-five Townhouses.
5. The experts do not identify any consequential damage as a result of this defect, other than to Townhouse 22 (and, as set out at page 115 of the Poriters/Zakos Joint Report, item 22.3, no rectification works are proposed for the laundry area of Townhouse 22 which are additional to the rectification works that are to be undertaken to all other Townhouses in respect of SD6).
6. An issue had been raised in SPS's Statement of Issues at the commencement of the hearing as to whether this defect is located on the common property. However, no such issue in respect of SD6 was pursued by SPS in closing written submissions or was identified in the amended "Summary of Real Issues in Dispute" that was handed up by SPS at the start of closing oral address.

Systemic Defect SD7 - Rainwater tanks

1. This is an agreed defect in respect of all Townhouses in the Development.
2. The BASIX certificate which was attached to the development approval required an individual rainwater tank of at least 1200 litres to be installed to each Townhouse and to be connected to the landscaping water, toilets and laundry.
3. The "Individual Unit Inclusions" specified in the Contract include "1200 LTR Water Tank, Pump & Base".
4. SPS accepted that no base has been installed under any of the rainwater tanks and that this is a defect. This amounts to a breach of the statutory warranty in s 18B(1)(a) of the Home Building Act.
5. There is an agreed scope of rectification works in relation to this defect, which is specified to apply in respect of forty-two of the forty-five Townhouses (as set out in "Agreed Scope" column at page 63 of the Poriters/Zakos Joint Report). The three excluded properties are Townhouses 29 and 32 (because, in each case, a base has been constructed by the owner) and Townhouse 38 (because the tank has been removed by the owner).
6. However, despite there being an agreed defect and agreed scope of rectification work, it does not automatically follow that SPS is liable for this work. That is because SPS contends that this is a defect which affects lot property, not common property, and the proposed rectification works likewise relate to lot property, not common property.
7. The floor plan which formed part of the Strata Plan that was registered on 15 August 2019 shows the lots as being divided into various parts which include, relevantly, the rear courtyards of each lot. There is a notation on the floor plan that "courtyards where not covered are limited in depth to 10 below and 15 above the upper surface of their respective ground floor unit".
8. The rear courtyards in the Development are not covered. The rainwater tanks are located in the rear courtyards of the Townhouses. Therefore, the rainwater tanks sit on lot property.
9. SPS submitted that, because the rainwater tanks sit on lot property, and service only the particular lot, the failure to install a base under those tanks is a defect in respect of lot property and the proposed rectification works are works on lot property. On this basis, SPS submitted that the Owners Corporation could not bring a claim for damages for Systemic Defect SD7. In this regard, SPS relied on the decision of Henry J in The Owners - Strata Plan No 87265 v Saaib; The Owners - Strata Plan No 87265 v Alexandrova [2021] NSWSC 150 at [391]-[415]. In that case, her Honour found that rainwater distribution systems were lot property rather than common property and therefore found that the owners corporation could not bring a claim for damages for defects in respect of the rainwater distribution systems (at [396]).
10. The Owners Corporation submitted that it was critical to Henry J's reasoning in Saaib that there was no evidence that the rainwater pipes of different lots were connected. Her Honour said (at [395]) that: "Mr Ingegneri's report indicates that the pipework and outlet of each rainwater distribution system are supplied from a 'rainwater tank' and that each unit is serviced by its own rainwater tank. I would infer from this that the pipes that comprise the rainwater distribution system for a particular unit are connected to the rainwater tank that services that unit, rather than being connected with the system of each unit. On that basis, I would also infer that the pipes relating to a rainwater distribution system for a lot are used for the exclusive enjoyment of that lot and do not form part of the structural cubic space excluded from the lot."
11. The Owners Corporation noted that, in the present case, the evidence from the hydraulics experts is that rainwater enters the tanks via downpipes from the roof and exits the tanks via an overflow pipe to the stormwater drainage system. On this basis, the Owners Corporation submitted that "the rainwater tank is part of the system that connects the common property roof to the common property drainage".
12. The Owners Corporation referred to a notation on the floor plans which form part of the Strata Plan, which is in the following terms: "all services where not wholly contained within the lot they serve form part of common property". In addition, the Owners Corporation referred to section 4 of the Strata Schemes Development Act which defines: 1. "common property" as meaning "any part of a parcel that is not comprised in a lot (including any common infrastructure that is not part of a lot)"; and 2. "common infrastructure" as meaning: "(a) the cubic space occupied by a vertical structural member of a building, other than a wall, or (b) the pipes, wires, cables or ducts that are not for the exclusive benefit of one lot and are - (i) in a building in relation to which a plan for registration as a strata plan was lodged with the Registrar-General before 1 March 1986, or (ii) otherwise - in a building or in a part of a parcel that is not a building, or (c) the cubic space enclosed by a structure enclosing pipes, wires, cables or ducts referred to in paragraph (b)."
13. The Owners Corporation submitted that since the rainwater tanks formed a part of the stormwater drainage system of the Development, they could not be said to be, like the infrastructure at issue in Saaib, as being for the exclusive benefit of the lots on which they are located. In response, SPS said that in the present case the issue is not about the pipes to and from the tank, but about the tank itself, submitting that: "those rainwater tanks are there to service only the lot on which they're there for, and [the] fact that they have an overflow doesn't change that".
14. I do not need to determine whether the rainwater tanks form part of the lot property or common property. That is because, in either case, I am satisfied that the agreed scope of rectification works in relation to the rainwater tanks should be undertaken as part of the works required in order to rectify defects in the common property.
15. Mr Poriters and Mr Zakos agree that it will be necessary, as part of the scope of rectification works for Systemic Defect SD8, to disconnect the rainwater tanks and subsequently reinstate them, including "reconnection of pumps and associated pipework".
16. It is common ground that it is a defect for the rainwater tanks to be installed without a base. SPS has accepted that, in failing to install a base for the tanks, it breached s 18B(1)(a) of the Home Building Act. The Owners Corporation submitted, and I accept, that in reinstalling the rainwater tanks (which is necessary as part of the agreed SD8 rectification works), the contractor performing those works should comply with the manufacturer's instructions and good building practice, and that this would include, as the experts agree, installing an appropriate compacted sand base for the tanks, in order to adequately support the base and prevent subsidence.
17. For those reasons, I am satisfied that the repairs to the rainwater tanks are required as incidental to, or part of, the works necessary to rectify the defects in respect of common property (and, in particular, Systemic Defect SD8) and therefore the Owners Corporation is entitled to claim for the costs of performing the rectification works specified in respect of Systemic Defect SD7, which are to be carried out in the course of performing the Systemic Defect SD8 works.

Systemic Defect SD9 - Vapour Barriers

1. This is an agreed defect in respect of all Townhouses in the Development.
2. Section NSW 3.2.2.6 "Damp-proofing membrane" in the Building Code of Australia, which applies in New South Wales, requires that "a damp-proofing membrane must be installed under slab-on-ground construction for all Class 1 buildings" and that this membrane must be "placed beneath the slab so that the bottom surface of the slab is entirely underlaid and extends under edge beams to finish at ground level in accordance with Figure 3.2.2.3". Mr Poriters and Mr Zakos agree that there has been a failure to comply with this requirement, as the vapour barriers beneath ground floor concrete slabs have not been vertically upturned on the outer edges of the concrete slabs. The experts agree that SPS is responsible for this defect. SPS accepted that this amounts to a breach of the Building Code of Australia and therefore a breach of the statutory warranty in s 18B(1)(c) of the Home Building Act.
3. However, the experts agree that it is not necessary to undertake any rectification work in relation to Systemic Defect SD9. That is because: "it is not possible to attribute the ground level water ingress/dampness specifically to the vapour barrier detailing and it is considered that the installation of the damp-proof-course under Item SD.8 as well as other defect rectification works at ground level will address the majority of the water ingress/dampness."
4. This item therefore does not need to be considered by the costs experts.

Items 10-23 in the Scott Schedule

1. As explained above, each of Items 1-9 in the Scott Schedule is labelled a "systemic" defect because the same defect occurs in a number of (or all of) the Townhouses in the Development. In contrast, each of Items 10 to 23 is a defect in respect of an individual Townhouse, which requires rectification work that is additional to the work required in order to address the Systemic Defects.
2. There is an agreed position in respect of each of these items in the Poriters/Zakos Joint Report, as summarised briefly below.
3. Item 10 - This item relates to the ensuite bathroom in Townhouse 1. In the Poriters/Zakos Joint Report, it is agreed that the screed and tiles on the floor have been constructed with a fall away from the floor waste, resulting in water ponding on the floor rather than draining away. It is agreed that this is an installation issue for which SPS is responsible. The scope of the rectification works is agreed and is set out at pages 71-72 of the Poriters/Zakos Joint Report, under the heading "Agreed Scope" (see 1.7).
4. Item 11 - This item relates to the bathroom in Townhouse 1. In the Poriters/Zakos Joint Report, it is agreed that there has been a defect in the tiling of the wall, resulting in cracking of a number of tiles. It is agreed that this is an installation issue for which SPS is responsible. The scope of the rectification works is agreed, and is set out at page 72 of the Poriters/Zakos Joint Report, under the heading "Agreed Scope" (see 1.9).
5. Item 12 - This item relates to the ensuite bathroom in Townhouse 4. In the Poriters/Zakos Joint Report, it is agreed that there has been inadequate waterproofing of this wet area and/or the doorway threshold, resulting in water penetration from the ensuite and consequential damage. It is agreed that this is an installation issue for which SPS is responsible. The scope of the rectification works is agreed, and is set out at pages 78-79 of the Poriters/Zakos Joint Report, in the "Agreed Scope" column (see 4.3).
6. In respect of this item, SPS pointed out that the Poriters/Zakos Joint Report refers to the carpet outside the ensuite bathroom of Townhouse 4 being affected by moisture, and submitted that any damage to the carpet was damage to lot property. For reasons already given, I am satisfied that the carpet is likely common property. In any case, the proposed scope of rectification works for Townhouse 4 does not include the removal and replacement of carpet, but only the steam cleaning of the carpet following the repair works (which, it can be inferred, will be required as a result of the performance of the rectification works).
7. Item 13 - This item relates to a bedroom (described as Bedroom 3) in Townhouse 11. In the Poriters/Zakos Joint Report, it is agreed that there is a defect in the construction of the roof and the walls, resulting in water penetration at the head of the western wall, emanating from the cornice at the junction of the wall and ceiling. It is agreed that this is an installation issue for which SPS is responsible. The scope of the rectification works is agreed, and is set out at pages 92-93 of the Poriters/Zakos Joint Report, in the "Agreed Scope" column (see 11.2).
8. Item 14 - This item relates to the ensuite bathroom in Townhouse 18. In the Poriters/Zakos Joint Report, it is agreed that there is a defect in the tiling and waterproofing of the ensuite bathroom, resulting in water penetration from the ensuite doorway and consequential damage. It is agreed that this is an installation issue for which SPS is responsible. The scope of the rectification works is agreed, and is set out at pages 104-105 of the Poriters/Zakos Joint Report, in the "Agreed Scope" column (see 18.2).
9. Again, in respect of this item, SPS pointed out that the Poriters/Zakos Joint Report refers to the carpet outside the ensuite bathroom of Townhouse 18 being affected by moisture and submitted that any damage to the carpet was damage to lot property. The comments made in relation to the corresponding item for Townhouse 4 (see paragraph 179 above) are equally applicable here. In particular, the proposed scope of rectification works for Townhouse 18 does not include the removal and replacement of carpet, but only the steam cleaning of the carpet following the repair works (which, it can be inferred, will be required as a result of the performance of the rectification works).
10. Item 15 - This item relates to the garage of Townhouse 20. In the Poriters/Zakos Joint Report, it is agreed that there is a defect in the plumbing, with a leaking pipe resulting in staining to the plasterboard wall lining above the hallway entry doorway at the junction of the cornice and wall. It is agreed that this is a plumbing installation issue for which SPS is responsible. The scope of the rectification works is agreed, and is set out at page 110 of the Poriters/Zakos Joint Report, in the "Agreed Scope" column (see 20.5).
11. Item 16 - This item relates to the ensuite bathroom of Townhouse 21. In the Poriters/Zakos Joint Report, it is agreed that the screed and tiles on the floor have been constructed with a fall away from the floor waste, resulting in water accumulating on the shower recess floor tiles rather than draining away. It is agreed that this is an installation issue for which SPS is responsible. The scope of the rectification works is agreed, and is set out at pages 111-112 of the Poriters/Zakos Joint Report, under the heading "Agreed Scope" (see 21.2).
12. Item 17 - This item relates to the laundry and hallway of Townhouse 22. As already noted at paragraph 151 above, the experts agree in the Poriters/Zakos Joint Report that no additional rectification works are required for this item beyond the agreed scope of works for Systemic Defects SD6 and SD8. It therefore does not require any individual consideration.
13. Item 18 - This item relates to the ensuite bathroom of Townhouse 22. An issue had been raised regarding the drainage in this bathroom. However, following testing, the experts agreed that water drained satisfactorily to the floor waste. It is therefore agreed in the Poriters/Zakos Joint Report that this item is not a defect and that there is no need for any rectification works.
14. Item 19 - This item relates to the entryway ceiling of Townhouse 24. In the Poriters/Zakos Joint Report, it is agreed that there is a defect in the roof detail and components and, in particular, poorly sealed joints in the box gutter sump, resulting in water penetration damage to the plasterboard bulkhead adjacent to the head of the second-floor window in the brickwork feature wall. It is agreed that this is an installation issue for which SPS is responsible. The scope of the rectification works is agreed, and is set out at page 122 of the Poriters/Zakos Joint Report, under the heading "Agreed Scope" (see 24.2).
15. Item 20 - This item relates to the entryway ceiling of Townhouse 25. It is similar to the previous item. In the Poriters/Zakos Joint Report, it is agreed that there is a defect in the roof detail and components and, in particular, an evident leak in the box gutter sump, resulting in water penetration damage to the plasterboard bulkhead adjacent to the head of the second-floor window in the brickwork feature wall. It is agreed that this is an installation issue for which SPS is responsible. The scope of the rectification works is agreed, and is set out at page 126 of the Poriters/Zakos Joint Report, under the heading "Agreed Scope" (see 25.3).
16. Item 21 - This item relates to the ensuite bathroom of Townhouse 30. In the Poriters/Zakos Joint Report, it is agreed that there is inadequate fall in the floor tiles, resulting in water ponding rather than draining away. There is also deficient waterproofing. It is agreed that this is an installation issue for which SPS is responsible. The scope of the rectification works is agreed, and is set out at pages 135-136 of the Poriters/Zakos Joint Report, under the heading "Agreed Scope" (see 30.2).
17. Item 22 - This item relates to the entryway ceiling of Townhouse 32. It is similar to items 19 and 20 above. In the Poriters/Zakos Joint Report, it is agreed that there is a defect in the roof detail and components, in the area of the box gutter sump, resulting water penetration damage to the plasterboard bulkhead adjacent to the head of the second-floor window in the brickwork feature wall. The scope of the rectification works is agreed, and is set out at pages 141-142 of the Poriters/Zakos Joint Report, under the heading "Agreed Scope" (see 32.5).
18. Item 23 - This item relates to the ensuite bathroom of Townhouse 40. In the Poriters/Zakos Joint Report, it is agreed that there is inadequate fall in the floor tiles, resulting in water ponding in the shower recess. It is agreed that this is an installation issue for which SPS is responsible. The scope of the rectification works is agreed, and is set out at pages 158-159 of the Poriters/Zakos Joint Report, under the heading "Agreed Scope" (see 40.2).

Other Agreed Items - Townhouses 34, 36, 37, 41 and 43

1. In the Poriters/Zakos Joint Report, the experts have agreed that there is a defect, which is similar in nature, in respect of each of Townhouses 34, 36, 37, 41 and 43.
2. In each of these five Townhouses, there is evidence of water penetration damage in the area of the entry and dining room. Each Townhouse has a flat metal deck roof located at first-floor level which is adjacent to the affected area. In the Poriters/Zakos Joint Report, the experts agree, in each case, that the water penetration is due to faulty weatherproofing detailing of the external adjoining walls and roof, and that this is a defect for which SPS is responsible.
3. In each case, the scope of the rectification works is agreed, as follows: 1. Townhouse 34 - the agreed scope of works is set out in "Agreed Scope" at pages 144-145 of the Poriters/Zakos Joint Report; 2. Townhouse 36 - the agreed scope of works is set out in "Agreed Scope" at pages 148-149 of the Poriters/Zakos Joint Report; 3. Townhouse 37 - the agreed scope of works is set out in "Agreed Scope" at page 153 of the Poriters/Zakos Joint Report; 4. Townhouse 41 - the agreed scope of works is set out in "Agreed Scope" at page 161 of the Poriters/Zakos Joint Report; and 5. Townhouse 43 - the agreed scope of works is set out in "Agreed Scope" at pages 165-166 of the Poriters/Zakos Joint Report.
4. In respect of Townhouse 34, SPS submitted that there was lay evidence which established that the damage said to result from this defect included damage to lot property: namely, damage to corner walls, damage to the pantry and damage near the stairs. In that regard, the Poriters/Zakos Joint Report refers to "Moisture staining evident to the plasterboard wall lining within the adjoining staircase void (south-western corner) and adjacent to the pantry".
5. However, the agreed scope of rectification works in respect of this defect for Townhouse 34 does not include any internal repairs to the plasterboard wall lining. Instead, the internal repairs proposed in respect of this defect are as follows: "12. Remove and replace damaged plasterboard ceiling lining (approximately 2 square metres). Fix, tape, set and sand plasterboard in accordance with manufacturer instructions. 13. Replace any water damaged insulation in ceiling. 14. Repaint affected areas of ground floor ceilings to nearest architectural break lines (likely entire area of ground floor ceiling) to match existing using a paint (including undercoat for new plasterboard). 15. Clean up and make good internal and external work areas."
6. It follows that it is not necessary to determine whether the lay evidence and the descriptions in the Poriters/Zakos Joint Report were sufficiently precise to determine whether any damage to the plasterboard walls in Townhouse 34 was damage to common property or lot property, since no works are proposed to be undertaken to repair any such damage.

Disputed Items - Townhouses 9 and 38

1. In addition to the above items, each of which had been identified in the Scott Schedule and each of which was the subject of an agreed position between the experts, Mr Poriters identified in the Poriters/Zakos Joint Report additional defects which were specific to individual Townhouses (namely, Townhouses 9 and 38) and which required further rectification work. Mr Zakos did not agree with these additional defects. Each is considered below.

Townhouse 9

1. In respect of Townhouse 9, Mr Poriters and Mr Zakos observed, on their inspection, that there was water penetration damage to the high level plasterboard ceiling above the front entry, in approximately the same location as the damage that had been seen in Townhouses 24, 25 and 32 (see paragraphs 187-188 and 190 above).
2. Mr Poriters "assumed that the issue [in respect of Townhouse 9] is identical to the Townhouses [24, 25 and 32] where it has been investigated and diagnosed as inadequate gutters". He explained that each of the Townhouses in question had a similar configuration and layout. He accordingly identified this as a defect and proposed the same scope of rectification works for Townhouse 9 as for the corresponding defect in those three other Townhouses.
3. Mr Zakos disagreed that a defect had been established in respect of Townhouse 9, because the source and cause of the water entry could not be determined until an inspection of the roof had been conducted (which has not occurred). In cross-examination, Mr Zakos said it was possible that the cause of water penetration was that a roof sheet had been dislodged by a storm, or that there was a blockage in the drainage, neither of which was a defect for which SPS was responsible.
4. However, Mr Zakos acknowledged that, in respect of the three corresponding items relating to Townhouses 24, 25 and 32, he had agreed that there was a defect, on the basis of similar evidence, without considering that there was any need for a roof inspection in order to form this view. He did not offer any explanation as to why, in respect of Townhouse 9, he had reached a different view based on similar evidence.
5. In those circumstances, I am satisfied that this additional defect in respect of Townhouse 9 has been established. The scope of rectification works for this defect is as set out at page 88 of the Poriters/Zakos Joint Report in the column "GP Scope" (see 9.4). As already noted, this is similar to the (agreed) scope of works in respect of Townhouses 24, 25 and 32.

Townhouse 38

1. In respect of Townhouse 38, Mr Poriters and Mr Zakos observed, on their inspection, that there was water penetration through the plasterboard ceiling above the base of the stairs.
2. Mr Poriters concluded that "the water penetration is due to faulty weatherproofing detailing of the external adjoining walls and roof", and assumed this to be the same as the corresponding issue which had been identified - and agreed by the experts - in respect of Townhouses 34, 36, 37, 41 and 43 (see paragraphs 192-194 above). Mr Poriters accordingly identified this as a defect and proposed a similar scope of rectification works for Townhouse 38 as had been agreed for the corresponding defect in those other five Townhouses.
3. Mr Zakos disagreed that a defect had been established, because "the source and cause of the water entry is unknown". As with the new item in respect of Townhouse 9, Mr Zakos said it was possible that the cause of water penetration in Townhouse 38 was that a roof sheet had been dislodged by a storm, or that there was a blockage in the drainage, neither of which was a defect for which SPS was responsible. However, he acknowledged that the damage to Townhouse 38 was "consistent with" the damage which he had agreed was a result of defects in respect of Townhouses 34, 36, 37, 41 and 43.
4. Townhouse 38 is a Type C Townhouse. Each of the other five Townhouses which has been agreed to have a corresponding defect - namely, Townhouses 34, 36, 37, 41 and 43 - is also a Type C Townhouse and is located in the same block as Townhouse 38. Mr Poriters gave evidence that all six of those Townhouses have a "nearly identical" configuration and, in particular, "have a lower-level flat roof above the front entries"; and that in all six Townhouses, there was "similar internal water penetration damage to plasterboard ceilings below that lower-level roof". Mr Poriters said that his conclusion that the damage to Townhouse 38, in the same location as the damage to other Type C Townhouses in the same block, was caused by the same (agreed) defect was "a judgment call", which was "based on the similarity of these issues with other issues that we've mutually agreed on … - they're of a similar nature".
5. Having regard to those matters, I am satisfied that this additional defect in respect of Townhouse 38 has been established. The scope of rectification works for this defect is as set out at pages 154-155 of the Poriters/Zakos Joint Report in the column "GP Scope" (see 38.3). As already noted, this is similar to the (agreed) scope of works in respect of Townhouses 34, 36, 37, 41 and 43.

Relocation Costs (Item 24 in Scott Schedule)

1. Before turning to the hydraulics issues, it is convenient to deal with Relocation Costs. That is partly because those costs are included in the Scott Schedule at Item 24 prior to the hydraulics defects at Items 25-50, and partly because Mr Poriters and Mr Zakos have both expressed the view that, as a result of the scope of rectification works necessary to address Systemic Defects SD1-SD8, it will be necessary for occupants to move out of each Townhouse in the Development. They agree that the period for which it will be necessary for occupants to move out is a matter which should be determined by the costs experts.
2. Accordingly, the costs experts should, when considering the programming of the rectification works, determine both the period for which the occupants will need to be relocated as well as the costs of relocation.
3. Mr Poriters and Mr Zakos also agreed that the occupants could store their belongings in the Townhouses while the rectification work was being performed. However, because the occupants will not reside in the Townhouses during the rectification works, Mr Poriters expressed the view, and Mr Zakos agreed, it was legitimate for "at least some possessions" to be removed from the Townhouses, due to the "risk of theft whilst the townhouses are unoccupied". Mr Poriters added: "It would not be unreasonable to expect that some residents may remove smaller/portable possessions and valuables from the site, but this would typically be arranged by the individual residents".
4. The costs experts should therefore determine the costs of moving the occupants' belongings within each Townhouse in order for the rectification works to be performed, and of replacing them afterwards, but should not include any amount in respect of the offsite removal and storage of possessions while the works are being performed.

Hydraulics Defects (Items 25-50 in the Scott Schedule)

1. Items 25-50 in the Scott Schedule are hydraulics defects and are numbered H1-H26.
2. The hydraulics defects were the subject of expert evidence by Mr Ian Laurie, who was called by the Owners Corporation, and Mr David Wood, who was called by SPS.
3. Mr Laurie and Mr Wood met in conclave and produced a joint report (the Laurie/Wood Joint Report) which considerably narrowed the issues between them.
4. The hydraulics defects can be considered in three main groups: 1. defects relating to the stormwater lines, which are agreed in part (Scott Schedule, Items 25 to 41; Hydraulics issues, H1 to H17); 2. agreed defects relating to the roofing (Scott Schedule, Items 42 to 47 and 49; Hydraulics issues, H18-H23 and H25); and 3. disputed defects relating to the roofing (Scott Schedule Items 48 and 50; Hydraulics issues, H24 and H26).

Defects relating to Stormwater Lines (Items 25-41; H1-H17)

1. As part of the Development, in-ground stormwater drainage was installed which either connected directly to a bioretention basin in the open space adjacent to Townhouses 9 and 21, or connected to stormwater drainage outlets which themselves connected to the bioretention basin.
2. Mr Laurie examined the stormwater lines in various sections (corresponding to items numbered H1 to H17) by inserting a CCTV camera into each of those lines. The video footage and photographs taken in the course of this examination of the stormwater lines showed extensive damage to the PVC pipes.
3. It is common ground, in respect of each of the stormwater lines which was examined by Mr Laurie, that there are defects in the building works and that has been a breach of the statutory warranty in section 18B(1)(c) of the Home Building Act. It is also common ground that each of the lines which was examined by Mr Laurie needs to be replaced. Mr Laurie and Mr Wood have agreed on the scope of the rectification works for the replacement of those lines.
4. The remaining issue is whether the replacement of the stormwater system should extend to the whole of the system (that is, including lines which were not examined) or should be limited to those lines which were examined.
5. Mr Laurie was of the view that the examinations which he conducted established that there were defects in the building works. He expressed the opinion that, given the extensive damage to, and the need to replace, every one of the lines which he examined, the whole of the stormwater system should be replaced.
6. In contrast, Mr Wood did not consider that, in respect of any pipe which had not been individually examined, there was a basis to conclude that such pipe needed to be replaced.
7. Mr Wood, in explaining the views he had reached, distinguished between the "main lines" which Mr Laurie had examined, and the "branch lines" which connect each individual Townhouse in the Development to the main lines.
8. There are, in general terms, three means by which stormwater from individual Townhouses enters the stormwater system. First, there are downpipes from the roof which go directly into the ground. Secondly, there are overflow pipes from rainwater tanks which go into the ground. Thirdly, there are drainage holes in the rear courtyards, covered by what were described as "shower grates".
9. There is some imprecision in the term "branch lines" because there is no plan of the stormwater drainage system. Absent individual inspection of each line, it is not known whether there is a single branch line for each Townhouse (to which each of the downpipe, overflow and shower grate are connected) or multiple lines, or in what direction they run. For example, it is not known whether the "branch line" at the end of a particular row of Townhouses is, in effect, the start of a "main line", into which "branch lines" from other Townhouses then are connected.
10. Mr Wood appeared to proceed on the basis that every line which had been examined was a "main line" and that no "branch lines" had been examined. He accepted that it had been shown that every main line was damaged and needed to be replaced, but considered that it had not been shown that there was a defect in, or damage to, any branch line.
11. However, Mr Laurie identified twelve separate instances in which he commenced his examination of a "main line" by entering the CCTV camera through a "branch line" (such as entering via a shower grate in the courtyard of a Townhouse or entering via a downpipe from a Townhouse). In numerous instances, he encountered damage to the pipework shortly after commencing the examination. By way of illustration: 1. the examination of the "main line" section H1 commenced with Mr Laurie inserting a camera into the "shower grate" inlet in the rear yard of Townhouse 16, and damage was first observed approximately 1.42 metres downstream of this point of entry; 2. the examination of the "main line" section H2 commenced with Mr Laurie inserting a camera into the "shower grate" inlet in the rear yard of Townhouse 24, and a "deformation" was first observed approximately 0.1 metres upstream of this inlet. Examination of this "main line" was also undertaken commencing from a downpipe from Townhouse 24, and issues were identified immediately upon entry (at 0.0 metres) and at approximately 1.4 metres upstream; 3. the examination of the "main line" section H3 commenced with Mr Laurie inserting a camera into the "shower grate" inlet in the rear yard of Townhouse 31, and damage was first observed at approximately 1.56 metres downstream of this point of entry; and 4. the examination of the "main line" section H4 commenced with Mr Laurie inserting a camera into the "shower grate" inlet in the rear yard of Townhouse 33, and damage was first observed immediately upon entry (at 0.0 metres).
12. Those matters support a conclusion that, contrary to a key element of Mr Wood's reasoning, Mr Laurie did in fact examine branch lines as well as main lines. Further, Mr Wood agrees that every line which was examined by Mr Laurie (which would include these branch lines) needs to be replaced.
13. Mr Laurie expressed an opinion, based on the pipes which he did examine, that there had been defects in the installation of the stormwater system. In the Laurie/Wood Joint Report, the defects are described as follows: "Inground stormwater drainage was identified with material failure, distortion, deformation, damage, ovality, collapse, the retention (ponding) of stormwater due to 'bellies' in the pipe work and absence of stormwater inlet pits to collection and ingress of stormwater flows to the site stormwater drains which fails to comply with the requirements of the NCC 2016 Volume Three Plumbing Code of Australia Clauses DP2.1, DP2.3, AS/NZS 3500.3:2015 Clauses 6.3.1.1, 6.3.1.2, 5.3.1.3, 6.3.5.2, 7.5.1.2, AS/NZS 2032:2006 Clauses 5.3.8 and 5.3.12."
14. The Laurie/Wood Joint Report records that Mr Wood agreed with this defect.
15. Nonetheless, as set out in that report, Mr Laurie and Mr Wood disagreed on what this meant as regards the other lines which had not been examined: "The experts are not in agreement in relation to the replacement of the individual branch lines into each individual Townhouse. Mr Laurie maintains his position that as the branch lines would have been installed at the same time as the main lines (known as externals) and based on the extensive CCTV (closed circuit televisual) survey of the total inground stormwater drainage system at the Property which identified consistent installation deficiencies that the branch lines will also contain defects that will affect the ability of the stormwater drainage piping system to each individual Townhouse to dispose of stormwater flows. Mr Wood maintains his position as no CCTV survey of all individual branch lines was conducted indicating that the stormwater drainage branch lines have been compromised or damaged."
16. Mr Wood's position was therefore that if a pipe has not been examined, no conclusion could be drawn in relation to it. However, at the same time he agreed, as recorded in the Laurie/Wood Joint Report, that "a defect in the inground stormwater drainage system is present as detailed within [Mr Laurie's] report".
17. Mr Laurie's report explained the nature of the defect in the stormwater drainage system as follows (at paragraphs 54-55 of his first report): "The observed damage to the inground UPVC stormwater drainage pipe work indicates that the inground stormwater drainage system has not been protected during installation and as such is defective works. The stormwater pipe material distortion is considered in my opinion, based on my experience in the installation, testing, maintenance and inspection of inground stormwater drainage systems, to be also a result of inadequate or unsuitable bedding or support material for the stormwater drainage pipelines. If the bedding material had been compacted, laid with a positive gradient and was formed from granular material it is reasonable in my opinion to assume that the stormwater pipe would not have distorted as the embedment material would still afford the pipeline support and thus prevent its displacement which would maintain the pipe materials integrity and prevent the permanent ponding of water in the stormwater drainage system and as such is defective works."
18. In closing submissions, SPS submitted that Mr Laurie accepted (contrary to the evidence set out above) that the relevant Standard did not require bedding material to be compacted, and instead required the opposite. However, in the passage of cross-examination in question, Mr Laurie was asked about clause 5.3.8 of AS/NZS 2032:2006, headed "Placement of bedding" which requires that when bedding is placed, it "shall not be compacted". This is followed by clause 5.3.12, headed "Pipe embedment", which stipulates that, following placement of the pipe, "the embedment material shall be compacted in layers to uniformly support the pipe". That is, the Standard indicates that compacting of the embedment material should occur after, rather than before, the placement of the pipe.
19. SPS also relied on Mr Laurie's acknowledgement that he did not actually inspect the embedding the material under the main lines. However, in the passage quoted above, Mr Laurie explained that his opinion regarding the defect in the installation of the stormwater lines was based on his observation (through extensive CCTV footage) of the extent and nature of distortion in the stormwater pipes and on his experience in the installation, testing, maintenance and inspection of inground stormwater drainage systems.
20. Mr Wood did not engage with Mr Laurie's reasoning as to why the defects which had been observed provided a basis for concluding that there were defects in the stormwater system as a whole. In cross-examination, Mr Wood was taken to the passage from Mr Laurie's report which is quoted above, and gave the following evidence: "YOUNG: You've not expressed any opinion in your report in response to what Mr Laurie says in paragraph 55, have you? WITNESS WOOD: Of what caused the issue? YOUNG: Yes. WITNESS WOOD: No. YOUNG: Or whether Mr Laurie was correct or not with respect to what he says in paragraph 55, have you? WITNESS WOOD: I - I agreed that it's distorted. YOUNG: No, I'm sorry. Mr Wood, Mr Laurie, as you indicated, as you agreed, expressed an opinion as to the cause. You see that? WITNESS WOOD: Yes. YOUNG: You have not expressed an opinion in your report as to whether you disagree with Mr Laurie in his reasoning set out in paragraph 55, have you? WITNESS WOOD: No, but because - because I wasn't on site during construction. Not to say that it happened in construction. … YOUNG: So Mr Wood, do I take it from that answer that there can never be a circumstance where you can form an opinion about whether PVC pipework underground is required to be replaced if you have not been to the site? Is that your evidence? WITNESS WOOD: If I've not been to the site or if I - if I-- YOUNG: Sorry, if you were not there when the pipe work was installed? WITNESS WOOD: I can't comment on the damage, how the damage was caused, no. … YOUNG: You must have formed a view in your mind as to what was the cause of the need to have the main lines replaced, even though you were not there at the time, correct? WITNESS WOOD: I have."
21. The position therefore is that one expert has expressed an opinion as to the cause of an agreed defect based on his personal observations of the defect and his extensive experience in installing and inspecting drainage systems; and the other has not engaged with that opinion and has, despite forming his own view of the cause of the defect, declined to provide any comment on this issue on the basis that he was not on site at the time of installation of the drainage system. In those circumstances, I accept Mr Laurie's evidence that the damage which has been observed in all lines of the stormwater system was caused by the deficiency in the installation of that system which he has identified.
22. In the Laurie/Wood Joint Report, Mr Wood recorded his position to be as follows: "Just because the main lines are damaged it does not follow that the branch lines are damaged".
23. However, Mr Laurie's reasoning does not depend simply on the fact that "the main lines are damaged". In circumstances where all pipes were installed by a single contractor, where Mr Laurie has identified deficiencies in the manner in which those pipes were installed, where examinations have been conducted both of main lines and (as explained above) of a number of branch lines, and where every single line which has been examined exhibits extensive damage as a result of the deficiencies in its installation, I am satisfied that it is likely that the same defect exists in relation to all lines in the stormwater system and therefore that all lines should be replaced.
24. The scope of rectification works which has been agreed between the experts should therefore be extended to the whole of the stormwater system (that is, to include the replacement of both main lines and branch lines).

Agreed Defects in relation to Roofing (Items 42-47 and 49; H18-H23, H25)

1. In respect of Items 42-47 and 49 in the Scott Schedule (corresponding to hydraulics issues H18-H23 and H25 in the Laurie/Wood Joint Report), the parties agree that each item is a defect, agree that SPS is liable for each of these items, and agree on the scope of rectification works. These defects are briefly summarised below.
2. Item 42 (H18) - This item relates to Townhouses 3-8, 10, 25, 27, 29-31, 40, 42 and 45. Mr Laurie and Mr Wood agree that overlaid lap joints installed in roof flashings were not provided with a sandwich sealant seal, and that this was a defect. The experts also agree on the scope of the rectification works for H18, as set out at page 108 of the Laurie/Wood Joint Report.
3. Item 43 (H19) - This item relates to Townhouses 12-15, 27-31 and 40-45. Mr Laurie and Mr Wood agree that there are instances of roof sheeting being laid towards and not away from the prevailing weather conditions, and that this amounted to a failure to comply with the Building Code of Australia. However, the experts agree that no rectification works are required for H19, "due to the amount of time the section of roof sheeting laid in the manner identified has been exposed to the local weather conditions with no reported or identified leakage that could be attributable to a failure of the roof sheeting installation".
4. Item 44 (H20) - This item relates to Townhouses 1-6 and 8-45. Mr Laurie and Mr Wood agree that nylon anchors without UV, corrosion and weather resistance have been used in an external application to secure and restrain roof sheet flashings, cappings and box gutter rain heads, and that there has therefore been a failure to comply with clause 2.2.1 of Australian Standard AS 1562.1-1992. The experts also agree on the scope of the rectification works for H20, as set out at page 115 of the Laurie/Wood Joint Report.
5. Item 45 (H21) - This item relates to Townhouses 1-30 and 32-45. Mr Laurie and Mr Wood agree that the overlay in vertical unsealed metal flashings without an anti-capillary fold amounts to a breach of the Building Code of Australia. The experts also agree on the scope of rectification works for H21, being as set out in Mr Laurie's report of 23 March 2022 at pages 134-135 (in the column headed "Concept Repair Methodology").
6. Item 46 (H22) - This item relates to Townhouses 1-29 and 32-45. Mr Laurie and Mr Wood agree that the installed transverse or apron flashings have not been effectively secured, since intervals between fastener points exceed 500mm, and that this is a breach of the Building Code of Australia. The experts also agree on the scope of rectification works for H22, being as set out in Mr Laurie's report of 23 March 2022 at page 137 (in the column headed "Concept Repair Methodology").
7. Item 47 (H23) - This item relates to all Townhouses in the Development. Mr Laurie and Mr Wood agree that there are defects in respect of the fixing and sealing of metal joints between the box gutter sumps, nozzle outlets and the overflow outlets. The experts also agree on the scope of the rectification works for H23, as set out at pages 125-126 of the Laurie/Wood Joint Report.
8. Item 49 (H25) - This item relates to Townhouses 34-38 and 41-44. Mr Laurie and Mr Wood agree that there are defects in relation to the installation and positioning of the air conditioning units on the roof sheeting, and the sealing around the supply services. The experts also agree on the scope of the rectification works for H25, as set out at page 133 of the Laurie/Wood Joint Report.

Disputed Defects in relation to Roofing (Items 48 and 50; H24 and H26)

1. There are only two disputed hydraulics defects relating to the roofing.

Item 48 (H24)

1. This item relates to Townhouses 1-12, 14-17, 19-26, 33, 39 and 45.
2. The transverse apron flashings at the roof ridge overlay the crest fixed low pitch roof sheets by 70mm to 130mm.
3. Mr Laurie expressed the opinion that this amounted to a failure to comply with clause 4.1 of Australian Standard AS 1562.1-1992, which requires that: "The cladding system shall be installed in accordance with the design specifications or the manufacturer's installation specification, as appropriate."
4. In particular, Mr Laurie was of the view that there had been a failure to comply with an "installation specification" of the manufacturer of the roofing materials (Lysaght), namely, the Lysaght Roofing and Walling Manual. The relevant edition of this Manual contained a section 11.3 headed "Transverse Flashings". This section did not specify any minimum overlay for such flashings. However, there is a statement at the beginning of section 11.0 headed "Flashings", as follows: "For a comprehensive account of flashing guidelines, refer to HB39-1997 and acceptable trade practices". Mr Laurie pointed out in his report that clause 8.1.4 of HB 39-2015 indicates that the minimum cover of a transverse flashing over pierce-fastened roof sheet is 150mm.
5. On this basis, Mr Laurie concluded that there was a failure to comply with the requirements of HB39, and therefore a failure to comply with the Lysaght Manual (which directed attention to those requirements), and therefore a failure to comply with "the manufacturer's installation specification" within the meaning of clause 4.1 of AS1562.1-1992.
6. Mr Wood did not dispute that the "minimum requirement" shown in HB39 was not met. However, he pointed out that HB39 is a handbook that was written by the Victorian Building Authority and Australian Steel Institute Ltd, that it is not a referenced Standard, and that compliance with it is not required under any NSW Act or code. Similarly, the Lysaght Manual states as follows: "This manual is a guide to the design and installation of steel roofing and walling manufactured by Lysaght". It refers to its contents as "recommendations" for its products. On this basis, he was of the view that there had not been any failure to comply with an "installation specification".
7. This issue comes down to whether there is a failure to comply with a "manufacturer's installation specification" within the meaning of clause 4.1 of AS1562.1-1992 in circumstances where the relevant manufacturer has issued a "guide" with "recommendations", which in turn contains a general reference to "guidelines" in another document, and there has been a failure to comply with a statement in the latter document about the "minimum" overlay for transverse flashings.
8. In cross-examination, Mr Wood explained his reasoning as to why it was important to distinguish between a specification and a guide: "YOUNG: The manufacturer, in promoting and selling its product, has a specification for the installer as to how to install it, correct? WITNESS WOOD: It's not a specification, it's a guideline. YOUNG: Well, let it be said, it is called a guideline. You'd need a reason not to follow the guideline, wouldn't you? WITNESS WOOD: Well, if it's in a BCA, that would override it. YOUNG: If it's a guideline and a roofing installer is being given roofing to instal, he, or she, or they, would need a reason not to follow the guideline? WITNESS WOOD: Well, different manufacturers have different guidelines. So if you're going to put a roof in, and you get - you could have two different materials on jobs. If the guidelines say different things, you might have cap - ridge cappings that are 2 metres wide, you might have it that's half a metre wide, so that's why you've got to go off, you know, a building - a BCA, or a proper Australian standard."
9. In addition, Mr Laurie, in cross-examination, acknowledged that the Lysaght Manual was not a specification: "DOCKER: It says in the first sentence there, that "This manual is a guide to the design and installation of steel roofing and walling manufactured by Lysaght"? WITNESS LAURIE: Yes, that - that manual is only a guide, that's correct. Yes. DOCKER: When you say "only a guide", that means, doesn't it, that it does not meet the description in clause 4.1 of AS 1562.1, of being a manufacturer's installation specification? WITNESS LAURIE: I would - I would disagree, in the sense that the information contained in that manual as a whole is a - what I consider a relatively detailed amount of information in relation to the installation of the Lysaght product. DOCKER: It may be detailed, but it's a guide. It's not a specification. WITNESS LAURIE: I - I agree it's a guide - it's a - yes, I - I agree. It's a guide. They say it is a guide, yes, definitely. DOCKER: It's a guide, but it means that it's not a specification. WITNESS LAURIE: No, it's not a specification. No."
10. Having regard to this evidence, I am not satisfied that the alleged defect constitutes a breach of "the manufacturer's installation specification" within the meaning of clause 4.1 of AS1562.1-1992.
11. Leaving aside this clause, it was not submitted that there was any requirement of the Building Code of Australia, or any applicable Standard, which specified any required minimum overlay for transverse flashing. Further, Mr Laurie accepted that the flashings had been securely fixed in place, and he did not refer to any water ingress or other damage resulting from the alleged defect.
12. For those reasons, I find that this alleged defect is not established.

Item 50 (H26)

1. This item relates to all Townhouses in the Development.
2. Mr Laurie expressed the opinion that the sanitary vent pipe penetration flashings do not allow for the complete draining of all corrugations, resulting in water ponding on the roof sheeting.
3. Mr Wood identified, in a supplementary report, that clause 3.5.1.3(h) of the Building Code of Australia relevantly provides as follows: "(h) Flashing of penetrations must comply with the following: (i) Collar flashings must permit the total drainage of the area above the penetration. … (v) Acceptable flashings for penetrations are shown in Figure 3.5.1.8."
4. Mr Wood pointed out that the flashing of sanitary vent pipe penetrations matched Diagram a. in Figure 3.5.1.8.
5. On this basis, Mr Wood was of the view that there had been compliance with the relevant requirements of the Building Code of Australia.
6. The Owners Corporation submitted, and I accept, that the requirements of clause 3.5.1.3(h) are cumulative: that is, even if a collar flashing is an "acceptable flashing" within cl 3.5.1.3(h)(v), it "must permit the total drainage of the area above the penetration" as required by cl 3.5.1.3(h)(i).
7. Mr Wood was taken, in cross-examination, to a photograph showing sediment at the collar flashing, which (he agreed) was a function of the installation of that flashing. However, he did not agree that this photographic evidence indicated that good building practice had not been followed. He explained that this was because he had visited the Development and inspected the roof on a day after there had been significant rainfall at the site (with rainfall of 20.2mm having been recorded at Coolangatta airport on the afternoon and evening prior to his inspection). He gave unchallenged evidence that he did not observe any ponding at the site of the flashing; that is, there was complete drainage of the area of roofing above the penetration.
8. Mr Laurie said that the presence of sediment indicated that the collar was "restricting the flow of the drainage" (rather than blocking drainage). In addition, he accepted that he could not say that his proposed alternative solution would not lead to water being caught at the flashing, but only that it would not be caught in the same amount. Clause 3.5.1.3(h)(i) does not require optimal drainage, but rather complete drainage. If a collar flashing permits the complete drainage of the area above the penetration, albeit at a rate which is slower than an alternative solution (which would also catch some water though not to the same degree), it nonetheless complies with that clause. Further, in light of Mr Wood's unchallenged evidence of what he observed following significant rainfall at the site, I am satisfied that the existing flashing does allow complete drainage to the area above the penetration.
9. Having regard to those matters, I find that this alleged defect is not established.

Conclusion and orders

1. The next step will be for the costs experts to confer and prepare a joint report providing their estimates of the costs of the rectification works identified in these reasons.
2. The parties should confer regarding the time required for this to occur, and the steps which should then be taken.
3. All questions of the costs of the proceedings should await the conclusion of the proceedings.
4. At this stage, the only order I will make is to fix a directions hearing, so that programming orders can be made in relation to the outstanding issue of quantification.
5. Accordingly, I order that: 1. The proceedings be listed for directions at 9.30am on Tuesday, 18 June 2024, or on such other date as may be arranged with my 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: 07 June 2024