TQM Design and Construct Pty Ltd v Department of Finance and Services

Court of Appeal (NSW)|2013-05-14

Introduction 1TQM Design and Construct Pty Ltd has applied to the Tribunal to review a disciplinary decision of the Department of Finance and Services ("the Agency") made on 22 December 2012. The Agency found that TQM was guilty of improper conduct with respect to residential building and construction works at 18-20 Park Street, Mona Vale ("the works"). That improper conduct consisted of breaches of the statutory warranties implied by s 18B(a) of the Home Building Act 1989 ("the HBA") with respect to 11 categories of defective work identified in a Building Inspection Report prepared by Mr Donald van Kiempema, a senior building inspector with the Home Building Service dated 19 September 2010 ("the inspection report"). The Agency determined that as a result of the finding of improper conduct TQM should pay a penalty of $15,000.00. 2TQM did not dispute that each of the defects identified in the inspection report exist. Rather TQM argued that either (a) it had not done and was not responsible for the work concerned, or (b) that subsequent work, done by a different builder, had rendered the original work it had done defective. TQM had raised this issue in response to an notice of show cause issued by the Agency, but the Agency in the decision under review determined that - Prima facie, TQM is responsible for the defective building work as it is the contractor licence holder which had contracted to carry out the building work at 18-20 Park Street, Mona Vale, New South Wales, unless there is evidence to the contrary. It is unclear as to how the building work could be suspended by TQM in 2010 notwithstanding that, as TQM purports, the developers had taken possession of the site in August 2007. I also note that TQM did not raise the issue that work was carried out by another party with the building inspector during the dispute resolution process. The only issue raised by TQM was that the developers owed it money. Therefore, as there is insufficient evidence to the contrary, I am satisfied that TQM had been responsible for the building work. On the basis of Mr van Keimpema's report, I am satisfied that TQM breached a statutory warranty under section 18B(a) ... 3TQM applied to the Tribunal to review that decision. Section 63 of the Administrative Decision Tribunal Act 1997 (the ADTA) says that in determining an application for review the Tribunal is to make the correct and preferable decision having regard to the material before it, and any applicable written or unwritten law. It is well established that in considering an application for review the Tribunal is not constrained to have regard only to the material that was before the Commissioner, but may have regard to any relevant material before it at the time of the review: Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409.

Material before the Tribunal 4In considering this application I have had regard to the following material -

The section 58 documents filed by the Agency.
The statement and submissions of Martin Taouk the sole director of TQM dated 10 May 2013, with attachments.
The statutory declaration of Anwar Yazbek, a project manager for TQM.
An interim occupation certificate with respect to the "Ground floor - retail shops A to D" at and works dated 2 February 2007.
An information circular PS-05-001 issued by the Department of Infrastructure, Planning and Natural Resources entitled Occupation certificates and conditions of development consent. 5During the hearing that took place on 14 May 2013 I also heard sworn evidence from -
Martin Tauok, sole director of and agent for TQM
Anwar Yazbek, who was TQM's project manager for the works.
Donald van Keimpema, senior home building inspector.

6Mr Taouk represented TQM at the hearing while the Agency was represented by Mr Jamie Coss.

Circumstances surrounding the construction of the works 7In order to properly understand the issues in dispute in this case it is necessary to consider in some detail the circumstances relating to the contract for the construction of the works. This is outlined in Mr Tauok's statement and was not disputed by the Agency. 8The contract was made between TQM as builder and Giuseppe and Anna Maria Romeo ("the developers") and was dated 12 May 2005. It involved the erection of the works which were to consist of 18 residential apartments, 6 retail units and a basement car park for 46 vehicles. 9By early 2007 the works were well advanced, with the structure essentially complete. On 2 February 2007 the Principal Certifying Authority issued an interim occupation certificate under the Environmental Planning and Assessment Act 1979 with respect to retail shops A to D on the ground floor of the works. 10Two days earlier, on 31 January 2007, TQM served a claim on the developers for $786,959.23. Despite serving a payment schedule on 13 February 2007 indicating that they proposed to pay TQM $786,959.23, the developers failed to pay TQM $71,541.75. Later that month, on 28 February 2007, TQM claimed a further payment of $610.068.24. On 9 March 2007 the developers served a payment schedule indicating that it proposed to pay that full amount, but they failed to pay $155,460.75 of that amount. 11On 10 April 2007 TQM served on the developers (and the project financier) a notice of intention to suspend the works as a result of non-payment. At that time Mr Taouk said that works were nearing completion. On 14 April 2007 TQM wrote to the developers advising that - "... pursuant to Section 27(1) of the Building and Construction Security of Payments Act 1999 the SUSPENSION will be in force as of Monday 17 April 2007." The letter also advised that to lift the suspension immediate payment was required. No payment was forthcoming. 12The works remained suspended. Both Mr Taouk and Yazbek gave evidence that after the works were suspended the developers took possession of the site and proceeded to undertake works of their own, including structural modifications involving the removal of parts of the structural wells separating ground floor shops to create a large ground floor shop which has subsequently been used as a bank. They believed this work also involved cutting an air conditioning penetration in the roof slab. TQM did not design, arrange, undertake or approve this work. 13On 2 August 2007 the developers served a notice of intention to terminate the contract after 14 days on TQM. Clause 12.9.1 of the contract provided that the developers were entitled to give such a notice "at any time and for any reason within [their] sole discretion (without any obligation to act in good faith or reasonably)." TQM responded to this notice in a letter dated 14 August 2007. Among other things, that letter said - "We refer to your purported notice of intention to terminate pursuant to clause 12.9 dated 2 August 2007. We comment as follows: 1. Without in any way acknowledging or agreeing that you are entitled in the circumstances to rely upon such a notice, we intend to demobilise from the Site this Friday, 17 August 2007. 2. You have not explained in your letter why you have purported to rely upon clause 12.9 of the Agreement in circumstances where: a. the works are approximately close to completion; b. you have engaged others to undertake works in the retail level including structural modifications without our consent, therefore we take no responsibility for any structural defects that could arise as a result of these works. 3. You have also failed to pay us substantial moneys owing under the Agreement. ..." 14TQM then demobilised. On 2 September 2007 TQM wrote to the developers as follows - You have pursuant to your notice date 2nd August 2007 (copy enclosed) terminated the Contract 14 days from TQM receiving that notice. In accordance with your instruction we have demobilised from site and otherwise ceased our obligations under the agreement. The Contract is accordingly at an end. We note that you have already engaged other contractors to complete the works and undertake additional works to the retail floors including structural modifications and penetrations in the roof slab with no structural engineer's approval. Although you have terminated the contract, pursuant to the Security of Payment Act 1999 our suspension is still in place and in accordance with Clause 27 Sub-Section 3 we cannot be liable for any loss or damage you have suffered, or by any future occupants making a claim. 15The works were completed by the developers. TQM played no role in their completion from the date of suspension onwards. TQM said he believed the works were completed in late August 2007. A final occupation certificate for the whole of the works was issued on 23 August 2007. 16On 9 November 2007 the Strata Plan for the works was registered and the Owners Corporation for SP79150 commenced. 17On 25 November 2010 TQM obtained a default judgment against the developers for $152, 219.27. Following the service of a bankruptcy notice on the developers with respect to the non-payment of that judgment the developers became bankrupt in December 2011. 18In the meantime on 5 May 2010 the Owners Corporation made a complaint to the Agency about defective works. Mr Van Kiempema first inspected the works on 22 June 2010 and three days later issued a rectification order addressed to TQM requiring it to remedy the defects specified in the order by 10 August 2010. When that order was not complied with Mr Van Kiempema prepared his report dated 10 September 2010. 19Mr Taouk said he first became aware of the defects claim in late June 2010, around the time the complaint was made to the Agency, and after the developers had disposed of their interest in the building. There is no evidence before me to the contrary. 20Mr Van Kiempema said that he spoke to Mr Taouk at this time and that Mr Taouk told him there was a problem with regard to payment by the developers and that the contract was suspended. As a result rectification works were suspended. Mr Van Kiempema was firm in his recollection that Mr Taouk did not say that the work had been done by others. 21A show cause notice calling on TQM to show why disciplinary action should be taken against it for improper conduct as a result of breaches of statutory warranties was issued on 25 June 2012. 22In the meantime in 2010 the Owners Corporation commenced proceeding against TQM in the CTTT. These were later dismissed by consent following a confidential settlement being reached between the parties. Mr Taouk asserted that the developers had never advised the purchasers of individual units, or the management of the body corporate, of their dispute with TQM or that TQM had suspended and not completed the works. 23In the course of the hearing TQM called evidence from Mr Anwar Yazbek its project manager for the works. He gave evidence that after the works were suspended he has seen that part of one of the internal structural walls separating the retail units had been removed (in part) to make an open space for a large banking chamber. He believed that this had happened with more than one wall, but had not himself seen more than one wall being removed. He said that the back took up four of the six residential units. He had been in the back but had not been able to view what had happened with the walls in private areas. On balance, I think his evidence point to at least two, if not three, if the structural dividing walls between retail units being removed, in part, to accommodate the back. This is consistent with pictures of the building taken after the bank entered occupation. 24Mr Yazbek also gave evidence with respect to later penetrations to the rood slab for the installation of air-conditioning to retail units. In cross-examination, however, he agreed that he could not positively say that this work was done; only that he had seen plans for it. 25Mr Cos who appeared for the Agency made a substantial attack on the credit of Mr Yazbek based on the content and form of his statutory declaration. He relied on the fact that it contained 9 separate paragraphs that has been cut and pasted from Mr Taouk's submissions. Those paragraphs were in a different font to the balance of the statutory declaration. Mr Yazbek readily agreed that he had cut and pasted the paragraphs, but insisted that he had done only after checking the truth of their contents against records held by him. He said that he had been in a hurry to prepare the statutory declaration which had been prepared and declared before a JP, who came to TQM's office, on the Friday night before the hearing. He had not met the JP before. 26The attack based on the form of the statutory declaration concerned the fact that the particulars of jurat did not include a statement by the JP as to how he had verified Mr Yazbek's identify. There can be no doubt that the statutory declaration was not executed as required by the Oaths Act 1900. Mr Yazbek, however, gave sworn evidence before me in which he affirmed the correctness of his statutory declaration, apart from the later part of paragraph 13 from which he resiled. 27With respect to the suggestion that the statutory declaration is not his own, I accept Mr Yazbek's evidence that he created the documents himself, and in doing so cut and pasted paragraphs from Mr Taouk' submissions, which he checked the correctness of.

Issues 28Against that background it is necessary to consider a number of issues. These are:

Whether as a matter of law TQM was relieved of the obligation to comply with the statutory warranties under s 18B(a) and (c) of the HBA due to its suspension of the works by operation of s 28(3) of the Building and Construction Industry Security of Payment Act 1999?
If not, with respect to each of the categories of defect relied on by the Agency, whether TQM has breached the statutory warranties implied by s 18B(a) and (c) of the HBA?
If so, whether TQM is guilty of improper conduct as a result?
If there has been improper conduct, what, if any, penalty should be imposed on RQM?

The effect of suspension of the works on statutory warranties 29Section 18B of the HBA implies warranties into all contracts for residential building works. It relevantly provides - 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 performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract, (b) ... (c) a warranty that the work will be done in accordance with, and will comply with, this or any other law, 30Those warranties may not be excluded, Section 18G provides - A provision of an agreement or other instrument that purports to restrict or remove the rights of a person in respect of any statutory warranty is void. In the case of the works performed by TQM for the developers the statutory warranties were implied with respect to those parts of the works that are residential building work. 31Section 18C provides that the immediate successors in title to developers are entitled to the benefit of the statutory warranties applicable to the work done on their behalf. As a consequence, the Owners Corporation and the purchasers of the individual residential apartments forming part of the works were entitled to the benefit of those warranties. 32The warranties are generally enforceable for 2 years, but run for 6 years where the defects are structural. Section 18E provides - (1) Proceedings for a breach of a statutory warranty must be commenced in accordance with the following provisions: (a) proceedings must be commenced before the end of the warranty period for the breach, (b) the warranty period is 6 years for a breach that results in a structural defect (as defined in the regulations) or 2 years in any other case, (c) the warranty period starts on completion of the work to which it relates (but this does not prevent proceedings from being commenced before completion of the work), (d) if the work is not completed, the warranty period starts on: (i) the date the contract is terminated, or (ii) if the contract is not terminated-the date on which work under the contract ceased, or (iii) if the contract is not terminated and work under the contract was not commenced-the date of the contract, (e) if the breach of warranty becomes apparent within the last 6 months of the warranty period, proceedings may be commenced within a further 6 months after the end of the warranty period, (f) a breach of warranty becomes apparent when any person entitled to the benefit of the warranty first becomes aware (or ought reasonably to have become aware) of the breach. (2) The fact that a person entitled to the benefit of a statutory warranty specified in paragraph (a), (b), (c), (e) or (f) of section 18B has enforced the warranty in relation to a particular deficiency in the work does not prevent the person from enforcing the same warranty for a deficiency of a different kind in the work (the other deficiency) if: (a) the other deficiency was in existence when the work to which the warranty relates was completed, and (b) the person did not know, and could not reasonably be expected to have known, of the existence of the other deficiency when the warranty was previously enforced, and (c) the proceedings to enforce the warranty in relation to the other deficiency are brought within the period referred to in subsection (1). 33Structural defect is defined in clause 71 of the Home Building Regulation 2004. It provides - (1) For the purposes of sections 18E (1) (b) and 103B (2) of the Act, structural defect means any defect in a structural element of a building that is attributable to defective design, defective or faulty workmanship or defective materials (or any combination of these) and that: (a) results in, or is likely to result in, the building or any part of the building being required by or under any law to be closed or prohibited from being used, or (b) prevents, or is likely to prevent, the continued practical use of the building or any part of the building, or (c) results in, or is likely to result in: (i) the destruction of the building or any part of the building, or (ii) physical damage to the building or any part of the building, or (d) results in, or is likely to result in, a threat of imminent collapse that may reasonably be considered to cause destruction of the building or physical damage to the building or any part of the building. (2) In subclause (1): structural element of a building means: (a) any internal or external load-bearing component of the building that is essential to the stability of the building or any part of it, including things such as foundations, floors, walls, roofs, columns and beams, and (b) any component (including weatherproofing) that forms part of the external walls or roof of the building. 34From the time TQM first became aware of the complaints about the defects TQM has taken the position that, because the works were and remain suspended, its obligations under the statutory warranties were similarly suspended. TQM relies on the provision the Building and Construction Industry Security of Payment Act 1999 ("the BCISOP Act") to support this contention. Specifically, it relies on s 27 of that Act which provides for the suspension of works. It says - (1) A claimant may suspend the carrying out of construction work (or the supply of related goods and services) under a construction contract if at least 2 business days have passed since the claimant has caused notice of intention to do so to be given to the respondent under section 15, 16 or 24. (2) The right conferred by subsection (1) exists until the end of the period of 3 business days immediately following the date on which the claimant receives payment for the amount that is payable by the respondent under section 15 (1), 16 (1) or 23 (2). (2A) If the claimant, in exercising the right to suspend the carrying out of construction work or the supply of related goods and services, incurs any loss or expenses as a result of the removal by the respondent from the contract of any part of the work or supply, the respondent is liable to pay the claimant the amount of any such loss or expenses. (3) A claimant who suspends construction work (or the supply of related goods and services) in accordance with the right conferred by subsection (1) is not liable for any loss or damage suffered by the respondent, or by any person claiming through the respondent, as a consequence of the claimant not carrying out that work (or not supplying those goods and services) during the period of suspension. 35Claimant "means a person by whom a payment claim is served under section 13": s 4. Section 13 is concerned with payment claims, while section 14 requires persons on whom a payment claim is made to provide the claimant with a payment schedule specifying when the payment is to be made, and if the payment is less than that claimed, the reasons for withholding payment. Section 16 then provides that if payment is not made in accordance with the payment schedule that the claimant may take action to recover the unpaid moneys and may serve notice of intention to suspend (s 16(2)(b)). 36It is important to note that s 7(2)(b) provides that the Act does not apply to- (b) a construction contract for the carrying out of residential building work (within the meaning of the Home Building Act 1989) on such part of any premises as the party for whom the work is carried out resides in or proposes to reside in, ... That provision did not operate to exclude from the operation of the Act the contract between TQM and the developers. This is so because it was for the construction of both commercial and residential premises, and that residential work consisted of 18 separate apartments: see Shorten v David Hurst Constructions Pty Ltd [2008] NSWCA 134. 37TQM relied on the decision in Turner Corporation Limited (Receiver and Manager Appointed) v Austotel Pty Ltd [1994] 13 BCL 378 to argue, as I understand it, that the only means by which it could be required to remedy any defective works was by the service on it by the developer of the necessary notices required under the contract. As the contract was and remained suspended this could not have happened. In Turner Corporation Cole J found that a proprietor working under a JCCA contract could not rely on its common law right to have incomplete works and defects completed by persons, other than the builder, at the builder's costs: but was bound to follow the procedure set out in the contract. 38In my opinion this submission, insofar as it seeks to make an analogy between a proprietor's common law rights and the statutory warranties implied by s 18B of the HBA, must fail. This is so as the warranties are implied by the HBA and cannot be excluded by contract. 39The warranties applied to all the work done by TQM. In my opinion there is nothing in the wording of s 27 of the BCISOP Act which suspended TQM's obligations with respect to the statutory warranties. While TQM is undoubtedly correct that, due to the suspension it was under no obligation to compete the contract works, that suspension did not operate to relieve it of the obligations imposed by the statutory warranties.

Did TQM breach the statutory warranties? 40This requires a consideration of each of the categories of admitted defects to consider whether, in the circumstances, they provide evidence of a breach of statutory warranty by TQM. In doing it is convenient to deal with them in the order they appear in Mr Van Kiempema's report. 41In attributing these defects to TQM it is clear that Mr Van Kiempema was under the impression that TQM had completed the residential apartments before the work were suspended. When giving his evidence he told me that it was his understanding that an interim occupation certificate has been issued with respect to the residential apartments on 20 February 2007. 42At my request a copy of the interim occupation certificate was obtained. It related to the ground floor commercial shops, not the residential apartments. Mr Van Kiempema was mistaken in thinking that the apartments had been certified as fit for occupation on 20 February 2007.

Cracked Render 43Mr Van Kiempema found relatively widespread cracking of the cement rendered walls in many of the residential units and on the common property, including some of the internal walls. This he said has occurred because of the failure to put adequate expansion joints in the render and was a systemic problem. The majority was category 2 cracking, being less than 5mm and greater than 1mm. Mr Van Kiempema considered this represented a failure to ensure adequate joints when installing the cement render, when the render is still soft. 44Mr Taouk said that there were structural modifications carried out by the proprietors after the works were suspended which could be responsible for the cracking. Mr Taouk's evidence was that at the time the works were suspended TQM had not completed the works. 45Mr Van Kiempema agreed that if structural walls dividing the retails shops had been removed (as was suggested with respect to the Commonwealth Bank) then one could expect significant cracking to ensue, not just to the render. 46In the light of the evidence I am not satisfied that the cause of all the cracking is necessarily defective work performed by TQM. 47I do accept Mr Van Kiempema's evidence that the failure to install control joints in the render at the time of its application constitutes a failure to do install the cement render in a proper and workmanlike manner. That is a defect which TQM was responsible for, but which it did not get an opportunity to remedy before the rectification order.

Sloping floor 48Mr Van Kiempema found a considerable fall in the floor of the second bedroom to Unit 8. This was beyond accepted standards as specified in AS 3600. The floor was not level. It should have been level at the time of installation of the slab. Mr Van Kiempema said that this can subsequently corrected by application of a self levelling compound. 49Mr Taouk accepted this was the case but submitted that this work was incomplete at the time the works were suspended. He said that defects such as this would have been detected as part of TQM's standard, quality assurance checks at the end of construction. It would have been remedied with use the use a levelling compound. Because the works were suspended before that point was reached and as the developers completed the works, the obligation to detect and remedy the sloping floor was their responsibility. 50On the evidence I am satisfied that the slope was present when the floor was laid and constitutes a defect. At the same time I accept that it is a defect that would have been remedied had TQM completed the works.

Angle bead corroding 51On the eastern and western side of the building the angle bead coating was rusting, indicating that moisture was causing the angle to corrode and staining the render. Mr Van Kiempema said that the remedy is to replace the angle. 52I accept this is a defect that TQM was responsible for, but which it did not get an opportunity to remedy before the rectification order.

Roof leaks in units 12 and 16 53Mr Van Kiempema found that the stained plasterboard in bedrooms of these units was moisture damage sustained as a "defective water proofing membrane to the roof area". 54Mr Taouk's evidence was that when the works were suspended TQM had commenced, but not completed, installing the waterproofing membrane to the roof. If it has been allowed to compete that work it would be responsible for the leak. In the circumstances he argued the defect was not TQM's responsibility, but that of the developers who took on the task of competing the works. 55Mr Van Kiempema gave evidence that he understood some repair works had been done to the water-proofing. This had not been done by TQM. 56On the evidence before me I accept that this work was not complete when TQM suspended the works. It was work the developers finished and are responsible for.

Defective flashing to skylight in 3 units 57Mr Van Kiempema found that the flashing to the skylights were defective in three units. 58Mr Taouk said that, as with the roof leaks, this was not the responsibility of TQM because it had not completed the waterproofing membrane. 59I am not satisfied that TQM breached the statutory warranties in this regard.

Moisture escaping shower recess 60This is occurring in the en suite to one of the units and Mr Van Kiempema attributed it to either the non-installation or incorrect installation of a water stop. 61Mr Taouk did not dispute that TQM had done this work, but argued that the manufacturer's warranty for the shower recess is 12 months only. 62The statutory warranty for defects of this nature, which is not a structural defect, runs for two years from the date of termination of TQM's contract with the developers. The evidence demonstrates that the contract was terminated on 17 August 2007. 63As a consequence, at the time Mr Van Kiempema inspected the defect and issued a rectification order in June 2010, which the evidence demonstrates is also when TQM was first notified of the defects, this work was out of warranty and TQM was not under an obligation to remedy it. 64This, however, does not mean that there was no breach of the statutory warranty with respect to defective work, just that TQM was never given the opportunity to detect the defect before handover, or asked to remedy it.

Defective flashing to external wall 65Mr Van Kiempema found this in the lobby of the building, where he found a small section of painted cement wall bubbling due to the accumulation of moisture. 66Mr Taouk agreed that TQM had installed the external wall flashings and saw it as an isolated error. He acknowledged it was attributable to TQM. 67It is a defect that TQM was obliged to remedy.

Failure to seal door in unit 5 68Mr Van Kiempema found that the top and bottom ends of a door in bedroom 1 were not sealed. This had led to the door swelling and jamming. 69Mr Taouk argued that this was out of warranty when TQM was notified of the defect. 70I consider that it constitutes a breach of the statutory warranty with respect to defective work. I agree that TQM did not have the opportunity to detect the defect before handover and was not asked to remedy it while the warranty was enforceable.

Defective sliding door 71Mr Van Kiempema identified a defective sliding door which was binding on the sill. This he said was a result of the doors rubbing when sliding. It was put to him that the detail which was rubbing against the door could be removed and may have been removed for cleaning in the years between completion and his inspection. He agreed this was the case. 72Mr Taouk argued that this was out of warranty when TQM was notified of the defect. 73On the evidence before me I am not satisfied that the warranty has been breached. The problem could be the result of defective work or of a failure to properly replace the detail which is rubbing against the door.

Corroding screws to shower screen frames in two units 74Mr Van Kiempema said that the defect here was the failure to use rust proof screws. 75Mr Taouk could not say who installed the screws but doubted that it was attributable to TQM. This was so because if the error were attributable to TQM he would expect it to be systemic, and found throughout the building. 76On balance, I am satisfied that this is a minor breach of warranty that can be attributed to TQM. I accept that TQM did not have the opportunity to detect the defect before handover and was not asked to remedy it while the warranty was enforceable.

Failing to clear builders waste 77Mr Van Kiempema found builders debris in floor waste on the balcony of unit 8, causing it not to work properly. 78Mr Taouk said cleaning of this nature is undertaken prior to handover. Because the works were terminated well before handover, clean up was not the responsibly of TQM. I accept this is the case. I am also satisfied that at the time the problem was first brought to the attention in June 2010 no warranty applied.

Is TQM guilty of improper conduct? 79Section 51 of the HBA relevantly provides - (1) A holder of a contractor licence who is authorised by the contractor licence to contract to do residential building work or specialist work, or a holder of a supervisor or tradesperson certificate, is guilty of improper conduct if the holder: (a) ... (c) breaches a statutory warranty, or (d) ... 80As I have found TQM breached the statutory warranty in seven respects, it is therefore guilty of improper conduct with respect to those breaches. This is a ground for taking disciplinary action against TQM under s 56(c).

What disciplinary action is appropriate? 81Section 62 specifies what disciplinary action may be taken by the Agency. It provides - If, after compliance with this Division, the Director-General is satisfied that any ground on which disciplinary action may be taken against the holder of an authority has been established in relation to the holder, the Director-General may do any one or more of the following: (a) determine to take no further action against the holder, (b) caution or reprimand the holder, (c) make a determination requiring the holder to pay to the Director-General, as a penalty, an amount not exceeding $11,000 (in the case of an individual) or $50,000 (in the case of a corporation) within a specified time, (d) vary the authority held by the holder, by imposing a condition on the authority, including a condition requiring the holder to undertake a course of training relating to a particular type of work or business practice within a specified time, (e) suspend the authority for a period not exceeding its unexpired term, (f) cancel the authority, (g) disqualify the holder, either temporarily or permanently, from being any one or more of the following: (i) the holder of any authority, or any specified kind of authority, (ii) a member of a partnership, or an officer of a corporation that is a member of a partnership, that is the holder of an authority, (iii) an officer of a corporation that is the holder of an authority. 82In Ng v Commissioner of Fair Trading [2007[ NSWADT 259 I wrote - 71 In Director-General, Department of Fair Trading v. Cohen [2000] NSWFTT 3 (cited in Younan [2007] NSWADT 170 at [26]; and Harb [2007] NSWADT 175 at [60]) the Fair Trading Tribunal outlined a series of factors which might be relevant to the assessment of an appropriate penalty. They were: - the nature, width and extent of the contraventions - the loss or damage and prejudice in consequence of the contraventions - the circumstances in which the contraventions took place - whether the licensee has been found to have engaged in any similar conduct - the presence of fraudulent or dishonest intent and deliberation on the part of the licensee - the extent of carelessness or wilfulness of the conduct - the efforts made to correct the situation and what measures have been taken by the licensee - what consciousness the licensee (a) had (b) displayed, of its obligations under the relevant statute and to the owners - the effect upon the licensee - antecedents - attitude, building history and future compliance - the penalty range. 72 To that list I would add two factors which were outlined in a list of relevant factors, which a court might take into account in determining the amount of a civil penalty, that were proposed by the Australian Law Reform Commission in Principled Regulation: Federal Civil and Administrative Penalties in Australia (2002) ALRC 95 in recommendation 29-1: see Calcaro v Chief Commissioner of State Revenue [2004] NSWADT 158. These are: - any gain made as a result of the contraventions - the degree of cooperation with the authorities. 73 ... 77 The purpose of disciplinary action is not to punish but to protect the public: Clyne v NSW Bar Association [1960] HCA 40; (1960) 104 CLR 186 at 201. . 83That analysis has been subsequently applied by the Tribunal in a number of cases including Giann v Department of Finance and Services (Commissioner for Fair Trading) [2013] NSWADT 129, Saboune v Department of Finance and Services [2013] NSWADT 71 and Pastrovic & Co Pty Limited v Department of Services Technology and Administration [2012] NSWADT 17. 84In the Pilipczyk & anor v Commissioner for Fair Trading, NSW Office of Fair Trading [2007] NSWADT 85, Acting Deputy President Handley observed: "The Tribunal must therefore consider the second issue, whether disciplinary action should be taken and, if so, what from that should take. In doing so, it should be noted that the object of sanctions under the legislation is to protect the consumers of home building services and not to punish. However, as the Commercial Tribunal acknowledged in McIlveen, at p 29 "[t]he concept of public protection is wide; it embraces fitness, the maintenance of public standards, public confidence and deterrence both of the particular builder and others in the same occupation". 85In determining to require TQM to pay a penalty of $15,000 the Agency did not accept that TQM suspended the works in April 2007 and took no further part in the construction. On the evidence before me I have reached a contrary conclusion. I am satisfied on the evidence that TQM suspended work under the contract on 17 April 2013 in accordance with s 27 of the BCISOP Ac and undertook no further work on the site. 86I also accept that three of the seven defects I have found TQM responsible for were not notified to it within two years of the works being completed in August 2007. As a result the warranties were not enforceable when they were first brought to TQM's attention. This is not the case with the remaining four defect types, the most serious of which concerns the cracked render. I do accept, however, that Mr Taouk genuinely, albeit incorrectly, held the belief that TQM has a lawful basis for not complying with the rectification order based on the BCISOP Act. In that sense there is an explanation for TQM's failure to comply with the rectification order, albeit misconceived and wrong. On the other hand, the Agency's legitimate perspective is that TQM effectively relied on the BCISOP Act to wipe its hands of, and ignore, defective work it had performed in the construction of the works, to the prejudice of the residential owners. 87TQM has been previously found guilty of improper conduct and issued with a caution with respect to not attending to defective work in very different circumstances: see TQM Design and Construct Pty Ltd v Department of Services Technology & Administration [2011] NSWADT 144. 88The breaches committed by TQM in this case vary in their degree of seriousness and in the impact that have had on the building residents. The concrete cracking is the most concerning and, I suspect, expensive to rectify. In that regard it is important to note that TQM has now reached an arrangement concerning rectification with the body corporate. 89Having considered all these factors I agree with the Agency that the protection of the public interest, in the circumstances of his case, requires that a disciplinary penalty be imposed on TQM. 90In the particular circumstances of this case I consider that the $15,000 penalty imposed by the Agency is excessive, and is based on a much dimmer view of TQM's conduct than I have taken. 91In my view a more appropriate penalty in the light of the conduct I have found is to require TQM to pay a penalty of $5,000.

Conclusion 92In the light of the above I affirm the decision that TQM is guilty of improper conduct but I set aside the decision requiring it to pay a penalty of $15,000 and in lieu thereof require it to pay a penalty of $5,000.

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: 05 November 2013

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Judgment (21 paragraphs)

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