Vella v Mir

Submissions and evidence

1. In deciding the appeal, we have had regard to the documents contained in the agreed bundle filed on 17 April 2019, which includes the parties' written submissions, relevant lay and expert evidence, extracts from the Tribunal's Reasons for Decision at first instance and extracts from the transcript of the hearing at first instance.
2. We have also considered the January 2019 Reasons for Decision and relevant documents provided in the appeal bundle.

Issues

1. The issues to be determined are: 1. Which statutory warranty period applies to Item 6? 2. Is Item 6 a major defect? 3. If so, what is the correct method and cost of rectification of Item 6? 4. Which statutory warranty period applies to Item 7? 5. Was the claim in relation to Item 7 made within the statutory warranty period? 6. Has a statutory warranty in respect of Item 7 been breached and if so, was it breached by Cathayne or by Mrs Vella? 7. Does Cathayne require, and if so does it have, a defence under s 18F HB Act in respect of Item 7? 8. What order should be made in respect of Item 7?

Which statutory warranty period applies to Item 6?

1. Item 6 concerns tiling and waterproofing of first floor balconies. The Tribunal's decision at first instance that responsibility for the undertaking of this work lies with Mrs Vella (as owner builder) was not disturbed on appeal.
2. A seven year statutory warranty period covering all defective work applies in relation to contracts entered into and work undertaken prior to 1 February 2012: Gregorio v Cheadle [2018] NSWCATAP 118. The statutory warranty period in respect of work undertaken after that date is set out in s 18E(1)(b) HB Act: six years for major defects and two years in any other case. As Mrs Vella did not hold an owner builder's licence until 7 November 2012, the statutory warranty period set out in s 18E(1)(b) applies to Item 6.
3. Therefore, for the application in respect of Item 6 to be within time, it must be a major defect. This is because the Mirs' application was not lodged within two years of the commencement of the statutory warranty period.

Is Item 6 a major defect?

1. "Major defect" is defined in s 18E(4) HB Act as: (a) a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause: (i) the inability to inhabit or use the building (or part of the building) for its intended purpose, or (ii) the destruction of the building or any part of the building, or (iii) a threat of collapse of the building or any part of the building, or (b) a defect of a kind that is prescribed by the regulations as a major defect, or (c) the use of a building product (within the meaning of the Building Products (Safety) Act 2017) in contravention of that Act.
2. Section 18E(4) goes on to define "major element of a building" as: (a) an internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams), or (b) a fire safety system, or (c) waterproofing, or (d) any other element that is prescribed by the regulations as a major element of a building.
3. In summary, Mrs Vella submits that:

• The expert evidence does not identify the work said to be defective, or why it is defective or how the defect caused water ingress. It did not identify the causal elements of a defect relating to the lack of a step down, to the entry of water in the rooms below.
• While there is "evidence of a problem", the necessary evidence as to what part of the building is defective or why it is defective in a way that establishes on the balance of probabilities the causal relationship between whatever is defective and the loss, is absent.
• Any defect is not in a major element, as it cannot be characterised as a defect in waterproofing or a defect in a load bearing component of the building essential to its stability.
• Even if there is a defect in a major element of the building, there is no evidence that it is caused or is likely to cause the house or the balcony to be unable to be inhabited or used.

1. There is no dispute that Item 6 relates to water ingress into the building. We have first considered whether Item 6 concerns waterproofing, which is a major element for the purposes of s 18E.
2. Waterproofing is not defined in the HB Act. Mrs Vella's submission refers to the definition of waterproofing in Schedule 4 of the Home Building Regulation 2013. This definition of waterproofing concerns the works that may be performed by a person who holds a particular contractor's licence. It states: Work involved in an protective treatment of dwelling designed to prevent the penetration of water or moisture into the dwelling or in the protective treatment of wet areas in a dwelling designed to prevent the unwanted escape of water from those areas by using solid membranes or membranes applied by brush, roller or any other method.
3. In Stevenson v Ashton [2018] NSWCATCD 25 (Ashton), the Tribunal rejected an argument that the provision for stormwater overflow in external areas constituted part of the waterproofing of a building. In doing so the Tribunal stated that: 157 "Waterproof" is defined in the Shorter Oxford English Dictionary as: "impervious to water, completely resistant to the action of water; … make waterproof or impervious to water". 158 "Waterproofing" is defined as: "(a) the action of the verb; (b) the quality of being waterproof; (c) material with which to waterproof something" 159 The Macquarie Dictionary provides similar definitions. 160 In my view the term "waterproofing" when used in the definition of "major element" in s 18E(4) means the mechanisms by which water coming into contact, by whatever means, with a building or building element is excluded from the building or building element….
4. We are satisfied that this is the proper meaning of "waterproofing" for the purpose of s 18E. We reject the submission that the Schedule 4 definition of waterproofing should be applied. In relation to this, the purpose of the Schedule 4 definition is to limit the works that may be performed by a contractor in order to ensure that appropriately qualified and licenced contractors carry out residential building work. It should not be construed as limiting the elements that cause a building to be waterproof. To apply the Schedule 4 definition of waterproofing to s 18E could mean that water ingress into a building constructed, for example, without a required waterproofing membrane or with incorrectly installed roofing tiles could not be regarded a defect in a major element.
5. We note that the decision in Ashton also in part concerned water ingress from a balcony. The decision in Ashton was appealed, including in relation to whether water ingress from a balcony was a major defect: Ashton v Stevenson; Stevenson v Ashton [2019] NSWCATAP 67. The appeal was allowed in relation to that ground, but not in relation to the definition of waterproofing. Rather, an appeal ground was allowed which concerned whether there was sufficient evidence before the Tribunal about the effect of the water ingress for the Tribunal to find that it was a major defect.
6. The definition of waterproofing in Ashton is consistent with the Appeal Panel's decision in David Cameron Jones t/as Oz Style Homes v Panchal [2018] NSWCATAP 238 (Panchal), in which the Appeal Panel stated: 59 We do not consider that the Senior Member erred in concluding that the "whole of the walls, the membrane, the drainage and the backfilling" constituted part of the waterproofing of the building".
7. The Appeal Panel's decision in relation to this issue concerned the following findings made by the Tribunal at first instance: [84] The inclusion within the definition of a major element of "fire safety" and "waterproofing" indicates that the element concerned need not be merely a structural component. There are clearly circumstances where the fire safety or waterproofing elements within a building make a significant contribution to the amenity and safety of the building. The element involved in this matter is the complete building construction at the ground level of both separate dwellings … including the concealed, but seriously deficient, waterproofing and drainage alleged to have been installed behind the concrete block walls. [85] One problem associated with identifying a solution to the water penetration is that is not possible to identify precisely what was constructed behind the walls which allegedly were treated with a waterproofing membrane, a system of drainage installed and the void backfilled. Without carrying out extensive demolition and excavation it is not possible to determine what in fact was constructed. The Tribunal considers that is entirely correct to describe the whole of the walls, the membrane, the drainage and the backfilling as a major element of the building.
8. While in that case it was unclear whether the relevant walls had been treated with a waterproofing membrane, we do not consider that the Tribunal's decision or the Appeal Panel's decision would have been any different had it been known that no waterproofing membrane had been installed. We are satisfied that waterproofing in the context of s 18E is that which makes a building waterproof and not just the application of a product that enables an element of a building to be waterproof.
9. It was not in dispute in this case that there is water ingress into the dwelling from the balcony. It is clear that this water ingress should not occur. We find that the water ingress is properly characterised as a defect in the waterproofing, which is a major element for the purposes of s 18E. By the time of the hearing (after destructive testing had occurred and a supplementary joint report had been prepared) the parties' experts were agreed that Item 6 constituted a defect. In these circumstances, we find that Item 6 is a defect in a major element caused by defective or faulty workmanship.
10. Mrs Vella submitted that even if Item 6 is a defect in a major element, it is not a major defect because it has not caused the house or the balcony unable to be inhabited or used.
11. In relation to this submission, for a defect in a major element to be a major defect there is no requirement for a building or part of a building not to be able to be inhabited or used at all. Rather, the requirement is that the defect causes, or is likely to cause the inability to inhabit or use the building or part of the building "for its intended purpose". The intended purpose of the relevant part of the building therefore must be considered. For example, the intended use of a balcony includes entertaining and the intended use of a living room includes both entertaining, relaxing and watching television.
12. In Ashton v Stevenson; Stevenson v Ashton [2019] NSWCATAP 67, the Appeal Panel stated: 72 Subsection 18E(4)(a)(i) requires that there be a proven, or probable, inability to inhabit, or to use the building. This requires proof of something more than inconvenience. To prove that a defect has caused either of the consequences there has to be evidence as to the actual impact. In the absence of such evidence the claim will fail. The Appeal Panel considers that the evidentiary onus cannot be satisfied by speculation or assumption. 73 The possible consequences of the defect, defined in subsections 18E(4)(a) (ii) and (iii) are at the high end of consequences, or impacts upon a building. The reference to "destruction of the building or any part of the building" does not connote a minor potential process of deterioration. The reasonably presumed legislative intention is that there must be evidence of a real possibility of destruction, not merely incidental damage or superficial deterioration. These elements also need to be established by probative evidence of what the impact has actually been, or what it probably will be. Evidence from the occupants or users of the building would be necessary to establish these elements of the claim. 74 To establish, or prove, the probability of the destruction of the building, or any part of a building, must involve more than a speculative, or pessimistic, assessment of possibilities. The proponent of a "major defect" should be required to prove that the defect will have the prescribed consequence, or that it probably will have the prescribed consequence.
13. In this case, Mr Mir's evidence concerning the water ingress into the house as set out at [11] and [12] of his statement was not challenged. Further, during cross-examination (at Transcript Day 1 page 163), Mr Mir gave the following evidence in response to being asked whether he was "doing it tough": We've got exposed ceilings, pulled-up ceilings. We're living in hell at the moment. Yes we are.
14. Mr Mir also gave evidence concerning water dripping on one of his children during a family movie night (Transcript Day 1 page 163). He further gave evidence that water was coming in through a down light in the room below the balcony (Transcript Day 1 pp 169-170).
15. At Transcript Day 1 page 167, when shown photographs (Exhibit A-2), Mr Mir stated: These photos are indicative of what we have to go through in regards to - whenever it rains, we've specifically brought buckets, towels and the like to basically capture water right through the house.
16. We conclude that Mr Mir's evidence describes more than mere inconvenience. It is sufficient to support a conclusion that that Item 6 is likely to cause the inability to use part of the dwelling, that is, the room below the balcony, for its intended use of relaxing and watching television. Furthermore, it is not in dispute that the water ingress has damaged the internal ceilings. We conclude that there is sufficient evidence in this case to conclude that continued water penetration on to an internal ceiling is likely to lead to the risk of the ceiling collapsing.
17. We find that Item 6 is a major defect for which Mrs Vella is liable. The application was lodged within the six-year statutory warranty period that applies to major defects.
18. By the time of the hearing, the parties' experts were agreed that the reasonable cost of rectification of Item 6 was $34,829 with preliminaries of 10% and builder's margin of 25% plus GST, bringing the total to $52,678.86: Experts supplementary report, signed on the first day of hearing.
19. We award the sum of $52,678.86 in relation to Item 6, to be paid by Mrs Vella.

Which statutory warranty period applies to Item 7 and was the claim in relation to Item 7 made within the statutory warranty period?

1. Item 7 concerns bi-fold sliding glazed window door units, which we will refer to as doors for ease of reference. It is not in dispute that water ingresses through the top of the doors.
2. It is not in dispute that Cathayne installed the doors during the period of their first contract with the Vellas, a costs plus building contract dated 1 August 2011 (the 2011 contract), which was for building works to be undertaken to lock up stage. It is also not in dispute that the Vellas supplied the doors.
3. As noted above, a seven-year statutory warranty period covering all defective work applies in relation to contracts entered into and work undertaken prior to 1 February 2012. This means that a seven-year statutory warranty period applies to the doors. There is no requirement for the problem with the doors to constitute a major defect. The Mirs commenced proceedings in June 2016, which is within the seven-year statutory warranty period. The application concerning the doors is therefore within time.

Has a statutory warranty in respect of Item 7 been breached and if so, was it breached by Cathayne or by Mrs Vella?

Does Cathayne require and if so does it have a defence under s 18F in respect of Item 7?

1. These two issues can usefully be considered together.
2. Section 18F HB Act relevantly provides: 18F Defences (1) In proceedings for a breach of a statutory warranty, it is a defence for the defendant to prove that the deficiencies of which the plaintiff complains arise from: (a) instructions given by the person for whom the work was contracted to be done contrary to the advice of the defendant or person who did the work, being advice given in writing before the work was done. …….
3. In summary, Cathayne submits that: 1. As Mrs Vella did not challenge order 2 made by the Tribunal on 13 March 2018 - that is, the quantum of Cathayne's liability to the Mirs -the Appeal Panel should not revisit the quantum awarded against Cathayne. 2. A s 18F defence is only available and/or required in circumstances where the Tribunal has found a breach of statutory warranty. 3. The Tribunal at first instance did not find that Cathayne had breached any statutory warranty in respect of the doors. 4. The Tribunal at first instance found that the Vellas and not Cathayne had only installed the doors that the Vellas had selected, ordered and supplied. The Tribunal found that there was "no clear evidence of inadequate assembly or installation by the builder or anyone else". 5. In the absence of probative evidence that the doors were defectively installed it follows that no breach of any statutory warranty by Cathayne was made out and/or is available on the evidence. 6. Section 18F is not the only defence available to a claimed breach of statutory warranty. 7. According to the compliance certificate, the doors were apparently delivered to the site on behalf of the Vellas on 15 November 2012, which is one week after Mrs Vella was granted an owner builder's permit by virtue of which she became the builder responsible for completion of the dwelling. If any statutory warranty attached to the delivery of the doors, this could only attach to the responsible builder, which was not Cathayne. 8. Cathayne does not require a s 18F defence because it gave no statutory warranty in respect of the design, manufacture or supply of the doors. 9. Even if Cathayne needed a s 18F defence, the contractual limitation on liability set out in clauses 17.1, 39.1 and 39.2 of the contract between Cathayne and the Vellas apply because the design and specification of the doors was prepared by the manufacturer (Stegbar) on behalf of the Vellas and was not prepared or commissioned by Cathayne. 10. The expert evidence as a whole supports a finding that water penetration was the result of the design of the doors and the effectiveness of the seals supplied as part of the doors, rather than on the way the doors were installed. Cathayne cannot be liable for this as any defect in the doors or in their design was a matter between Stegbar and the Vellas. 11. The Vellas were responsible for failing to arrange for Stegbar to carry out a final inspection and adjustment. Had they done so, subsequent issues with the performance of the seals may not have arisen. 12. Instead of acting on Stegbar's seven-year warranty, the Vellas unsuccessfully attempted to modify the doors themselves. In doing so they materially altered the doors Cathayne installed. Mr Vellas gave evidence that he modified the doors by pouring quick dry cement and bondcrete down the doorframe to block any further rainwater entering through the striker hold to prevent it leaking into the ceiling below. There is no evidence to suggest that this modification did not adversely affect the performance of the doors. The Appeal Panel should find that the doors the experts examined were not in the same condition as when they were installed. Any concerns with the performance of the doors can be attributed to Mrs Vella.
4. We do not accept Cathayne's submissions.
5. First, our decision allowing the appeal in respect of the doors opened up the issues of both liability and quantum in respect of this item. Reliance can no longer be placed on the Tribunal's findings at first instance concerning the doors.
6. Second, Cathayne's submission that s 18F is not the only defence to a claimed breach of statutory warranty is inconsistent with the comments of Howie J in The Craftsmen Restoration & Renovations v Thomas Boland [2009] NSWSC 600 at [95] to [97]. While those comments are obiter dicta, they are nevertheless persuasive. The comments are supported by the District Court's findings in Pastrovic & Co v Farrington [2011] NSWDC 94, in which the Court stated: I agree with the submission that, as a party to the contract, the Builder only has the defence in section 18F. This provides that, in proceedings for breach of a statutory warranty, there is defence if the Builder proves that the deficiencies about which the owner complains arise from instructions given by the person for whom the work was done and contrary to the advice in writing of the Builder who did the work.
7. We conclude that if a breach of statutory warranty is established, Cathayne requires a s 18F defence.
8. Third, we do not accept that Cathayne can rely on contractual provisions to qualify the terms of the statutory warranties. To do would be tantamount to an attempt to contract out of statutory warranties, which is prohibited by s 18G HB Act.
9. Fourth, Cathayne installed the doors pursuant to its 2011 contract with the Vellas: see [81] of the January 2019 Reasons for Decision. In these circumstances, regardless of who supplied the doors, Cathayne gave statutory warranties with respect to the doors, including a warranty that "the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling".
10. Fifth, we note that the Tribunal found that the doors were unsuitable and that "heavier, commercial doors should have been installed in that location": see [83] of our January 2019 Reasons for Decision. In our view, Cathayne's submissions concerning relevant contractual provisions, the Vellas having provided unsuitable doors and/or Mr Vella having interfered with the doors following installation may have founded a claim by Cathayne against the Vellas. However, they are no answer to the Mirs' claim for breach of statutory warranty.
11. Cathayne took possession of and installed the doors. In such circumstances, we are satisfied that Cathayne's installation of doors that allow water ingress is work that resulted in a dwelling that is not reasonably fit for occupation as a dwelling. We find that Cathayne breached a statutory warranty that it owed to the Mirs as successors in title.
12. We find that Cathayne required a s 18F defence in order to avoid the consequences of its breach. It does not have such a defence, as the work was not done "on instructions given by the person for whom the work was contracted to be done contrary to the advice of the defendant or person who did the work, being advice given in writing before the work was done". We note that Cathayne was aware that the doors "were of a lower quality and were different" to those Cathayne had proposed and expected would be supplied: [82] of the January 2019 Reasons for Decision.
13. Cathayne made no claim against the Vellas in respect of their supply of the doors or otherwise. Whether any application to the Tribunal in the nature of a cross-claim against the Vellas would have been in time given the date of the contract between the parties is not a matter we need to determine. In any event, no claim was made in the Tribunal. Nor (as far as we are aware) was a claim made in another jurisdiction.
14. We conclude that the Mirs have established a claim against Cathayne for breach of statutory warranty in respect of Item 7.

What order should be made in respect of Item 7?

1. Cathayne has not argued that an order should be made that it perform work if we found that it was liable for the doors. We will therefore make a money order in respect of Item 7. Unlike Item 6, where the experts were agreed on the method of rectification, the proper method of rectification of the doors remained in dispute at the hearing.
2. As noted above, the problem with the doors is that they allow water ingress through the top of the doors.
3. The Mirs' expert, Mr Zakos, contended that the doors should be replaced with heavier commercial doors. The experts agreed that the reasonable cost of replacing the doors was $16,000 if the Tribunal found replacement to be the correct method of rectification. To that amount should be added 10% for preliminaries, 25% builder's margin and 10% GST, resulting in a total sum of $23,716.00.
4. Cathayne's and the Vellas' experts (Mr Matley and Mr Capaldi respectively) were of the view that the problem with water ingress through the top of the doors could be rectified by replacement of the seals with new rubber and brush weather seals at a cost of $3,180. To that sum preliminaries, margin and GST would also be added, resulting in a total sum of $4,372.50.
5. In their submissions in these proceedings, the Mirs argue that the Vellas and Cathayne failed to put evidence before the Tribunal that their experts' proposed solution would not adversely affect the manufacturer's warranty. The Tribunal at first instance agreed with that proposition.
6. Mrs Vella submits that in Mr Zakos' conclusion that the doors should be replaced, no account was taken for the betterment that the Mirs would receive by having a higher grade of door to the one on the home that they bought.
7. Cathayne submits that if damages are awarded in respect of this item, the award should be $3,180 on the basis of the opinion of two of the three experts. Cathayne also agrees with Mrs Vella's submission that ordering the replacement of the doors would constitute a betterment to the Mirs.
8. We agree with Mrs Vella's submission that the "notional contract" in s 18C that gives the Mirs the benefit of the statutory warranties as successors in title specified the provision of the doors that were supplied, not the supply of some other door.
9. Having considered Mr Capaldi's and Mr Matley's reports and their oral evidence in relation to Item 7 as set out in the Transcript, we are not satisfied that the replacement of the doors by heavier commercial doors is the only viable method of preventing water penetration through the top of the doors, or that it is the most appropriate method of rectification.
10. We are satisfied that the installation of new seals is an acceptable method of rectification. We note the Mirs objection to this on the basis that there is no evidence that replacement of the seals would not void the manufacturer's warranty on the doors. However, the Mirs did not lead evidence from which we conclude that the installation of new seals would void the warranty.
11. Moreover, we agree that replacement of the doors with doors of a different kind - that is, heavier, commercial doors rather than the semi-commercial doors currently in place - would give a betterment to the Mirs going beyond the principle of compensation that underlies the statutory warranty regime.
12. We award the Mirs $4,372.50 in respect of Item 7 to be paid by Cathayne. This sum is in addition to the sum Cathayne has already paid the Mirs in respect of Item 4.

Conclusion

1. The Mirs elected not to pursue Items 1, 2, 3 and 5. Cathayne conceded Item 4 and has paid the sum awarded in respect of Item 4 by the Tribunal below.
2. We have found that Item 6 is a major defect for which Mrs Vella is liable to compensate the Mirs in the sum agreed by the experts; that is, $52,678.86.
3. We have found that Item 7 is a defect for which Cathayne is liable to compensate the Mirs in the sum of $4,372.50.

Costs

1. Costs of both the proceedings below and the appeal proceedings remain to be considered.
2. Our preliminary view is that the Mirs remain the successful party in the Tribunal proceedings, albeit to a lesser extent than originally. This resulted from the Mirs quite properly conceding those items that were not major defects and not being successful in respect of the method of rectification of Item 7. If the Mirs can be regarded as the successful party, a costs order in respect of the Tribunal proceedings may be made in the Mirs' favour.
3. In respect of costs of the appeal, our preliminary view is that Mrs Vella was overall the successful party on the appeal, although she was not 100% successful. As a result of the appeal, her liability to the Mirs was reduced, but she remains liable for Item 6, which can be described as a "big ticket" item.
4. It is likely that between them the parties have expended more on costs than the proceedings are worth. We urge them to settle the issue of costs so as to avoid incurring even more costs. We have made procedural directions in the event that the issue of costs is not settled.

Orders 1. Joyce Vella is to pay Sidney and Marie Mir the sum of $52,678.86 within 14 days of the date of these orders. 2. Brownlow Hill Building Services Pty Ltd t/as Cathayne Constructions is to pay Sidney and Marie Mir the sum of $4,372.50 within 14 days of the date of these orders. 3. Any application for costs of the Tribunal and Appeal proceedings is to be filed and served within 21 days of publication of these orders, with any response to the costs application to be filed and served within 21 days thereafter. 4. If more than one party makes an application for costs, the parties are to file three copies of the costs submissions in indexed, tabbed and paginated bundles at the end of the submission period.

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: 25 September 2019