Vattoly v Baytek Constructions Pty Ltd

NCAT Consumer and Commercial|2024-02-13

Outline

The applicants (the owners) alleged incomplete and defective work by the respondent (the builder). They also made a delay claim as well as a failure to provide documents required for the owners to obtain an occupation certificate.
The Tribunal determined that the contracts in question had been validly terminated and that the owners were entitled to be awarded damages for (1) delay, (2) failure to provide an occupation certificate, (3) incomplete work, and (4) defective work, but that the amount owning under the contract should be deducted. As a result, the owners were entitled to damages of $109,213.33.

Jurisdiction

These proceedings relate to residential building work, seek an amount within the limits of the Tribunal's jurisdiction and have been commenced within time. Accordingly, the Tribunal has jurisdiction under the Home Building Act 1989 (the HBA).

Hearing

The owners attended the hearing but there was no appearance by or for the builder.
In the Civil and Administrative Tribunal Rules 2014 (NSW), rule 35(2) applies to this Division of the Tribunal. It reads as follows: Where a hearing is held for proceedings to which this rule applies, the Tribunal may proceed to hear the proceedings in the absence of a party who has failed to attend the hearing if - (a) the Tribunal is satisfied that notice of the hearing was duly served on the party, or (b) the Tribunal, being satisfied that service of notice of the hearing on the party has been duly attempted or having given directions under rule 15 to bring it to the notice of the party, considers that justice requires that the matter be dealt with in the absence of the party.
The Tribunal's file contains a copy of a notice of hearing addressed to the builder's registered office and principal place of business, as shown on a recent ASIC search. That notice advised of the date, time, and location of the hearing.
The Registrar's standard practices in notifying parties of the date, time and place of hearing is set out in the statutory declaration of the Divisional Registrar of the Consumer and Commercial Division sworn the 29 July 2014. Having perused the Tribunal file, the Tribunal is satisfied that, in accordance with the Registrar's usual practices, notice of today's hearing was issued to the builder and has not been returned.
Accordingly, the Tribunal is satisfied that the notice of hearing has been duly served and that the Tribunal's discretion should be exercised in favour of proceeding with the hearing because (1) the builder did not attend the hearing, (2) the builder did not provide any explanation for that absence, and (3) the history of this application does not suggest the builder had any intention of participating in the proceedings.
However, proceeding in the absence of the builder does not remove the need for the owners, who bear the onus of proof, to establish both a legal and factual basis for their claims.
At the outset of the hearing, the Tribunal advised there were three stages of the hearing: (1) identification of documents to be admitted as evidence, (2) any questioning of the other party's witness(es), and (3) closing submissions as to what it was contended should be the outcome of the proceedings and why.
The documents lodged by the applicants were admitted as Exhibit A and the application has been admitted as Exhibit B. Since the absence of the builder meant there was no cross-examination, it only remained to provide an opportunity for the owners to make submissions and for the Tribunal to ask questions to ensure that the owners' case was correctly understood.

Relevant law

The statutory warranties for residential building work, set out in s 18B(1) of the HBA, are: (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 and 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 marking or alternations 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, (f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes know to the holder of the contractor licence or person required to hold a contractor's licence, or another person with express or apparent authority to enter into or vary any contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires that work to achieve, so as to show that the owner relies on the holder's or person's skill or judgment.
It is also necessary to note that s 48MA of the HBA provides: A court or tribunal determining a build claim involving an allegation of defective residential building work or specialist work by a party to the proceedings (the responsible party) is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome.
Galdona v Peacock [2017] NSWCATAP 64 (Galdona) is an Appeal Panel decision which noted that s 48MA provided for a preferred outcome, not a mandatory outcome. It is clear the Tribunal is required to weigh up the factors in each case and make an evidence-based decision: Brooks v Gannon Constructions Pty Limited [2017] NSWCATCD 12 (Brooks) at [64].
When a money order is made, the assessment of the amount payable must be determined by reference to the fundamental principle that the party affected by the breach should be put in the same position as if the breach had not occurred: Haines v Bendall [1991] HCA 15 (Haines).

Evidence

The owners' evidence included: (1) Points of Claim, (2) a chronology, (3) copies of the relevant contracts, (4) an expert's report, (5) details of payments made, (6) email communications and other documents.

Consideration

It is first necessary to make findings of fact, before considering whether the builder is liable to the owners (Liability) and, if so, to what is the remedy to which the owners are entitled (Remedy).

Findings of fact

Based on the evidence provided to the Tribunal, the following findings of fact are made: 1. On 11 February 2019 the owners entered into two contracts with the builder. 2. The first of those contracts was for the construction of a granny flat, fort which work the contract price was $116,000. 3. The second contract was for renovations to an existing house, for which work the contract price was 88,000. 4. The building work was not commenced until 6 March 2020. 5. On 12 March 2020 the builder proposed a variation for work around the sewer for an additional $2,500 but that variation was never accepted by the owners. 6. On 1 May 2020 there was an agreed variation of the first contract which increased the contract price by $1,000. 7. On 18 June 2021 there was an agreed variation for the extension of gas and water pipes and the installation of a stormwater line, which increased the amount payable by the owners by $4,000. 8. As a result, the total amount payable by the owners under both contracts was $209,000 (ie $116,000 plus $88,000 plus $1,000 plus $4,000). 9. As the total amount paid by the owners was $170,820, the balance payable under the contract was $38,180. 10. As at 3 March 2023, three days short of three years after the work commenced, the building work the subject of the contracts was not completed. 11. On 3 March 2023 the owners issued a breach notice for each contract to the builder, to which there was no response by the builder. 12. On 13 February 2024 the owners terminated both contracts by email.

Liability

In each contract, the time for completion was expressed to be 30 weeks. Even if the extremely long period between 11 February 2019, when the contracts were signed, and 6 March 2020, when the building work commenced, is overlooked: not completing after just under three years (ie 156 weeks) work that the contract required to be completed in 30 weeks involved a clear breach of s 18B(1)(d) of the HBA which entitled the owners to claim damages.
Further, clause 25 of each contract entitled the owners to terminate if the builder failed to proceed diligently with the work. As that was clearly the case in this instance, the owners were entitled to terminate both contracts and provided notices dated 3 March 2023, as required by the contract. The failure of the builder to address those breach notices over a period of more than 11 months entitled the owners to terminate both contracts.
As the owners validly terminated both contracts, they are entitled to recover damages. It should be noted that the basis for termination was what was set out in the breach notice as constituting breaches of the contract: The Builder is in breach of the Contract as it has: (a) failed to proceed diligently within the work within the time stipulated in the Contract. Clause 6 of the Contract required that the work be completed within 30 calendar weeks from the commencement date under clause 5 of 4 March 2019. The Builder has not made any extension of time claims(s), however, the works are not yet completed. (b) failed to provide the documentation and carry out the work requested by the private certifier Compass Building Certification Pty Ltd (the Certifier) thereby preventing the issue of an occupancy certificate. The required documentation and work is listed in the letter from the Certifier of 9 April 2022 (the Certifier's Letter), a copy of which is attached to this letter; and (c) failed to complete the contractual works. The outstanding works (the Remaining Works) are listed in: (i) Annexure A; and (ii) the Certifier's Letter.

Remedy

The owners' potential remedies may be summarised under four headings: (1) delay, (2) failure to provide an occupation certificate, (3) the cost of rectification for defective work, and (4) the cost of completion for incomplete work.

Delay

In relation to delay, the owners have a potential claim for damages. However, there does not appear to be any clause in either contract which specifies any agreed amount to be paid in respect of damages for delay. As a result, the owners are left to base their claim on the common law, ie case law.
Damages have long been categorised as either direct loss or consequential loss. The English decision in Hadley v Baxendale (1854) 9 Exch 341 established two tests for the recovery of damages when there has been a breach of contract: damages which may fairly and reasonably considered to arise naturally (first limb) or damages which may reasonably be supposed to have been in the contemplation of both parties at the time when the contract was made (second limb).
While the owners failed to include any witness statement, statutory declaration, or affidavit in their evidence, they did set out evidence in relation to this claim in their application, the contents of which were verified to be accurate by Mr Vittoly. As those three pages were provided to the builder, there can be no prejudice to the builder by permitting the owner to rely on the contents of the application and Mr Vittoly could have been cross-examined as to what he said in those pages had there been an appearance for the builder at the hearing.
As Mr Vittoly's evidence included the following words: The builder was expressly aware that the house was an investment property that we were renovating to increase rental return, as we had informed him at the time of signing the contract … it follows that the builder was aware, at the time when the contracts were made, that the owners would suffer loss of rental income if the building work was delayed.
Even if there was no such evidence, it may fairly and reasonably be considered that the normal and natural result of delayed completion would be financial loss to the owners, by way of either rental cost if they had to live elsewhere during construction or rental loss in the case of an investment property.
The only page which provides support for the rental income of the house is a single page from a real estate agent which reveals that the house was rented for $700 per week prior to being vacated on 2 August 2018. It is noted there appears to be no claim and no evidence in relation to the granny flat.
In the breach notice dated 3 March 2023, it was suggested that clause 5 of the contract required commencement of the building work by 11 March 2019. In fact, clause 5 specifies three tests for the date of commencement and requires that commencement of the work within 14 days from "whichever is the latest".
As there is no evidence which would enable the Tribunal to determine the actual date of commencement required by clause 5, the Tribunal assumes, in favour of the builder, that it commenced work in compliance with clause 5, when it commenced work on 6 March 2020. Adding 30 weeks from that date, since there is no evidence of any application for an extension of time, gives a due date for completion of 2 October 2020. That is the date from which any award of damages should commence.
To what date should damages be awarded? The breach notice dated 3 March 2023 gave the builder 10 days (two weeks) to notify the owners of an intention to complete the work and 42 days (six weeks) to then do so. Adding eight weeks to 3 March 2023 gives 28 April 2023 as the date by which the builder should have completed the work. When that did not occur, the Tribunal considers the owners could have completed the work within the next eight weeks, being two weeks to find another builder and then six weeks to carry out the work, being the same period given to the builder to do that work. Adding eight weeks to 28 April 2023 gives 23 June 2023 as the date by which the building work on the house renovations could reasonably have been completed by the owners.
The period from 2 October 2020 to 23 June 2023 is 142 weeks. At $700 per week that gives a rental loss of $99,400.

Occupation certificate

In a three-page document dated 9 April 2022, the certifier set out what had to be done to enable an occupation certificate to be obtained. That document not only listed certificates that were required but also specified 12 items under a heading "Required work".
A letter from NSW Fair Trading dated 13 January 2023 suggested that, in relation to the owners' claim against the builder, "Mr Jabbour has declined to supply compliance certificates to the certifier until the outstanding payments have been made". That letter also suggests that, while Mr Jabbour claimed the builder was owed $50,000, he was willing to accept $10,000.
The expert's report upon which the owners relied suggested, in a Scott schedule, that an amount of $6,419 (plus allowances) be awarded for occupation certificate requirements.
While it would be simpler for the owner and cheaper for the builder for those documents to be provided by the builder, there is nothing to suggest that the builder would comply with any such order. Although the Tribunal did consider, particularly during the hearing, making an order for the provision of those certificates by the builder, on reflection such an order is only likely to result in the owners having to pursue a renewal application, based on non-compliance with such an order.
The best that can be done is to note that an amount of $6,419, when 10% is added for contingencies, 20% for builder's margin, 10% for GST and 1% for homeowners' warranty insurance, becomes $9,413.59. It would be open to the parties to agree that if the builder provides the documents listed in the certifier's document dated 9 April 2022, then the amount awarded to the builder be reduced by $9,413.59.

Incomplete work and defective work

A report dated 18 October 2023 was obtained by the owners from Mr Garcia. In that report, he set out details of the incomplete and defective work in relation to both the renovation work and the granny flat construction and provided supporting photos. His cost estimates were supported by a spreadsheet in which he set out detailed calculations which provide support for the total amounts be included in a Scott schedule.
The components of the total amount suggested by Mr Garcia were (1) $3,944 for defective internal work in respect of the granny flat, (2) $3,210 for defective external work in respect of the granny flat, (3) $9,278 for incomplete work in respect of the granny flat, (4) $6,419 for occupation certificate requirements, and (5) $9,875 for defective and incomplete work in respect of the house renovations. The sum of those five amounts is $32,726.
To that sub-total Mr Garcia added 10% for contingencies, 20% for builder's margin and 10% for GST, each of which the Tribunal considers reasonable. However, he also added 8.3% for "IUHBCF" but did not provide any explanation to indicate to what that allowance related.
Noting that the member conducting the directions hearing on 13 November 2023 required Mr Garcia to be available by telephone if the Tribunal needed him during the hearing, the Tribunal rang Mr Garcia with aim of ascertaining the basis for that 8.3% addition. However, before the Tribunal could obtain that explanation, Mr Garcia hung up the phone, thereby depriving his client, the owners, with the benefit of such an explanation.
It would appear Mr Garcia was intending to add an allowance for homeowners' warranty insurance. However, the certificates provided in Exhibit A suggested the premiums were about 1.5% for one contract and 0.5% for the other.
Gallagher v Masters Installation Pty Ltd [2017] NSWCATAP 117 (Gallagher) is often cited in support of the proposition that, in circumstances where precision is not possible, the Tribunal must do the best it can on the basis of the evidence that is available. By reference to what was said in that case at [49-51], the distinction is between the principle that difficulty of assessment is not a barrier, as indicated in Commonweatlh v Amann Aviation Pty Ltd [1991] HCA 54, and the situation in Gerrard v Slamar [2004] WASC 253 where there was a lack of evidence and an estimate or guess should not be made to make good that omission.
Pacorp Holdings Pty Ltd v Waller [2017] NSWCATAP 167 at [58] is but one example of the application of what was said in Gallagher and the position was succinctly stated in that case as being that "provided that some evidence of loss or damage has been produced, difficulty of assessment is not a bar to the assessment of damages, and where precise evidence is not available, the court or tribunal must do the best it can."
Doing the best it can on the available evidence, the Tribunal allows an additional amount of 1% for homeowners' warranty insurance. Increasing $32,726 by the allowance for contingencies, builder's margin, and GST, gives $47,518.15, as set out on the last page of Mr Garcia's Scott schedule. Adding 1% of that amount for homeowners' warranty insurance, increases that amount by $475.18, to $47,993.33.
However, to award the owners damages without taking into account the unpaid amount due under the contract would be to overcompensate them. There are two reasons for that.
First, the contract only entitles the owners to either recover the additional cost of completion. Secondly, what was said in Haines to be a fundamental principle, namely putting the owners in the same position as if the work had been completed without any defects, would not be achieved unless than balance payable under the contract was deducted, otherwise the owners would get work for which the builder was entitled to be paid $209,000 despite having only paid $170,820.
It is not necessary for the builder to lodge a cross-application, or for the builder to apply to have the unpaid balance payable under the contract set off against the amount payable by the builder to the owner, as that deduction is required by the principles established in cases such as Haines.
Adding the damages for delay of $99,400 and the amount determined to be payable in relation to occupation certificate requirements, incomplete work, and defective work of $47,993.33 gives $147,393.33.
Deducting the remaining amount payable under the contract of $38,180 gives an amount payable by the builder to the owners of $109,213.33.
For the sake of completeness, the Tribunal notes that s 48MA of the HBA imposes a statutory preference for the person who carried out the work to be given an opportunity to rectify the work. However, in this instance (1) there is nothing to suggest the builder is ready, willing and able to carry out such work, (2) the required work involves not only defective work to which s 48MA applies but also incomplete work, (3) the time taken by the builder does not provide the Tribunal with any confidence that there would be compliance with a work order within a reasonable time, (4) from the evidence before the Tribunal, it appears the relationship between the owners and the builder has broken down, and (5) there is an amount in the vicinity of $100,000 payable in respect of rental loss which will not assist that relationship. In such circumstances, the Tribunal is satisfied that the statutory presumption has been displaced.

Costs

In the Civil and Administrative Tribunal Act 2013 (NSW) (the CATA), the effect of s 60 is that each party is to bear their own costs unless there are special circumstances which warrant an order for costs. However, s 35 of the CATA operates to make s 60 subject to r 38(2) of the Civil and Administrative Tribunal Rules 2014 (NSW) which provides as follows: Despite section 60 of the Act, the Tribunal may award costs in proceedings to which this rule applies even in the absence of special circumstances warranting such an award if: (a) … (b) the amount claimed or in dispute in the proceedings is more than $30,000.
Since the amount claimed in the application exceeded $30,000, r 38(2) applies. In such cases, there is a general discretion to award costs and it is well established, by decisions such as News v Cotes [2019] NSWCATAP 186, Bonita v Shen [2016] NSWCATAP 159 and Thompson v Chapman [2016] NSWCATAP 6, that: 1. the starting point is that the usual order for costs should be in favour of the successful party, 2. the award is not to punish the unsuccessful party but to compensate the successful party for the costs incurred in the proceedings, and 3. departure from the usual order is permissible if the circumstances favour that course of action.
When r 38 applies it is not necessary to establish special circumstances and the usual order is that costs follow the event (ie follow the outcome of the case) unless there is disentitling behaviour by the successful party: Latoudis v Casey [1990] HCA 59, Oshlak v Richmond River Council [1998] HCA 11.
As the owners have been successful in these proceedings, and as there is nothing to suggest disentitling conduct on their part, they are entitled to an order that the builder pay their costs.
In the CATA, s 60(4) permits the Tribunal to decide whether to determine the amount of costs rather than make an order for costs to be assessed. The Appeal Panel decision in 203 Castlereagh Street Pty Limited v Skybloo Holdings Pty Limited [2017] NSWCATAP 29 (Skybloo) at [40] set out the circumstances in which it would be appropriate for the Tribunal to 'by-pass' the assessment process and determine the amount to be paid for costs.
It appears that only costs incurred by the owners, who were self-represented, were the filing fee and the cost of Mr Garcia's report. The practical course is to make the usual form of costs order but provide for written submissions to be lodged if the owners wish to contend that the Tribunal should determine the amount payable in respect of costs rather than subjecting the parties to the process whereby costs are assessed. Any such submissions should indicate whether it is accepted that costs should be determined on the papers, ie without the need for a further hearing.

Orders

For the reasons set out above, the following orders are made: 1. The Respondent is to pay the Applicants $109,213.33 immediately. 2. The Respondent is to pay the costs of the Applicants, on the ordinary basis, as agreed or assessed. 3. If either party wishes to contend that a different costs order should be made, order (2) ceases to have effect and the following orders apply: 1. Any application for a different costs order is to be filed and served, supported by submissions (not exceeding five pages in length) and evidence within 14 days of the date of these orders. 2. Any submissions (not exceeding five pages in length) and evidence in response are to be file and served with the following 14 days. 3. Any submissions in reply (not exceeding two pages in length) and evidence in reply are to be filed and served within the following 7 days. 4. Any such submissions are to include an indication of whether it is accepted that the Tribunal make an order, under s 52 of the Civil and Administrative Tribunal Act 2013 (NSW), dispensing with a hearing as to costs.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 October 2024

At a glance

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Decision date

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Judgment (16 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (13)