Williams v Star Structures P/L (Home Building) [2006] NSWCTTT 347 (28 June 2006)

CONSUMER, TRADER AND TENANCY TRIBUNAL

Home Building Division

ORDER

The Tribunal directs that:

1. The parties are to provide to the Tribunal on or before 31 July 2006 an agreed order to give effect to these reasons;

2. The parties have leave to make submissions as to costs on or before 31 July 2006; and

3. The parties have leave to make application under the provisions of the Consumer, Trader and Tenancy Tribunal Act 2001 s.50 in respect of any mathematical calculations up to and including 31 July 2006.

REASONS FOR DECISION

APPLICATION

1. These applications came on for hearing before me at Penrith in August last year. They had previously been case managed by one of my colleagues. The first day was spent in some formal matters and then in a conciliation/mediation session, with the assistance of a Tribunal conciliator. Unfortunately, that did not result in any resolution. The matter proceeded for 2 days’ hearing in August and then a further 2 days in November. A timetable was fixed for filing of written submissions and writing time had now been allocated.

2. There were 2 applications before the Tribunal. In the first, Star Structures Pty Limited claimed debt recovery against S Williams. Ms Williams then filed her application in which she sought damages. During the course of these reasons, I shall for convenience often refer to the director of Star Structures, Mr R Neumann, as the builder.

APPEARANCES

3. Mr Laughton SC with Mr Wilson appeared for Ms Williams; Mr Dwyer appeared for the Builder. As more than $25,000.00 was involved in the dispute, the parties were entitled to legal representation.

JURISDICTION

4. Both applications arose from a dispute between the parties concerning the construction of a house at “…”, Winmalee. The dispute was therefore a home building dispute within the meaning of the Home Building Act 1989 s.48A and one in respect of which this Tribunal has jurisdiction pursuant to the provisions of s.48K, the amounts claimed being below $500,000.00. Neither party raised jurisdiction as being an issue at the hearing.

ISSUES

1. Background

5. There are some basic, undisputed matters. The Blue Mountains City Council gave development consent on 27 August 2003, attaching various terms. I shall return to some of these terms as they become relevant to individual issues. The Builder provided a quotation on 23 September 2003, and the parties entered into a contract on 25 October 2003. It was in standard HIA Edition 3 form. There were certain excluded items and some special conditions.

6. Works proceeded, but the parties experienced some difficulties along the way. The 3^rd progress claim was submitted on 21 July 2004, and 2 days later, the Owner disputed some costs of variations included in the claim. The Builder had required payment in 5 days, but payment was not made until 29 July. Payment was some $5,433.00 short of the claim. The following day a letter purporting to be a notice of breach was served, in which rectification of the breach within 10 working days was demanded. On 3 August the Owner again disputed the outstanding amount. The Builder served a purported notice terminating the contract on 14 August 2004, by placing it under the door of the house where the Owner was then living.

7. The questions for me to decide may be summarised thus: was there a valid termination by the Builder; was there unfinished work for which the Builder should bear any increase in the cost of completion; was there defective work by the Builder (including work not carried out in accordance with the plans and specifications) requiring rectification and at the cost of the Builder; is the Owner entitled to liquidated damages for delay; and is the Builder entitled to its claim for the balance of the progress claim.

8. The house was to be built on a ridge in the Blue Mountains. The general area is one of bushfire risk. The Owner had particular wishes for the house and had had the plans prepared in accordance with those wishes and her budget. Completion in accordance with those plans was important to her.

9. The first matter to consider is the termination of the contract. The contract provides for termination as follows:

10. The Owner submits that the onus of proving termination rests on the Builder, and I accept that submission. There is no submission to the contrary. I note that Clause 17.6 of the contract provides that the price of a variation is due and payable at the next progress payment after it is carried out unless a different time is agreed. The Clause sets out provisions for variations to be entered into beforehand, and a default procedure in 17.5 for calculation of the price of a variation should the sum not have been agreed beforehand.

11. Clause 15 of the contract deals with progress payments. It provides:

12. This raises the question of the effect of a claim. Neither Counsel has fully argued the point, although Mr Dwyer does refer to it in para 7.1 of his submissions. The point arose before the Supreme Court in Sabemo v De Groot (1992) 8 BCL 132. The Court there held that the effect of the contract before it was to create a debt; the claim for damages was not a defence to an action on the debt, nor a cross-claim; it was at best a set-off. Similar conclusions were expressed in L U Simon Builders Pty Limited v H D Fowles [1992] 2 VR 188; Heaven Building Contractors Pty Limited v Jokarta Pty Limited and Anor (unreported Qld Building Tribunal 21 May 1997); and John Holland Constructions Pty Limited v Majorca Projects Pty Limited (unreported Hansen J Supreme Court of Victoria 27 July 1995). I respectfully agree with those decisions. Sabemo is binding upon me in any event.

13. What is the effect of this authority interpreting this contract? Clause 15.5 does not simply provide for payment within 5 working days; it says that the Owner must pay. Clause 15.6 says that there is no right of set-off except for a final claim. In addition, Clause 17.6 makes claims for variations due and payable at the next progress payment. Applying the principles in Sabemo and the other cases, I am satisfied that as a matter of interpretation, the same result follows here. When the claim was made, the sum was due in full within 5 working days. I find therefore that the withholding of the sum amounted to a breach of the contract by the Owner.

14. In para 7.1 of his submissions, Mr Dwyer sets out a philosophy that there should be a cash flow to enable a builder to proceed. There is nothing put in general against those submissions in the reply. The submission is as to the sums involved; it is said that the amount withheld was minimal in terms of the contract sum, amounting to about 2.5% of that sum.

15. The philosophy enunciated by Mr Dwyer is consistent with unreported authority in the Supreme Court of Victoria. It is also consistent with the legislative policy set out in the Building and Construction Industry Security of Payment Act 1999 in relation to non-residential building work. I consider that I should accept the policy and apply it to the facts of this case.

16. The Owner says that the amount withheld was 2.5% of the contract price, and that is correct. On that basis, it is argued that withholding the sum did not amount to a substantial breach. It may also be viewed as being about 13% of the progress claim itself, and thus a substantial breach. What is the better way to look at it?

17. The conclusion I have reached is that the proportion to be considered is that which the sum withheld bears to the progress claim. A progress claim is made according to an agreed schedule. The schedule is prepared on the basis of the work carried out to a particular stage of construction, but not necessarily the cost of carrying out the work to that stage. There may well be an element in the claim for work to be carried out in the next stage, for which the builder will need to make some advance payments. A builder may wish to minimise its credit costs and cast the burden onto the owner. By agreeing to the schedule, the owner accepts those costs. Withholding 13% of a progress claim is, in my opinion, a substantial breach of contract by the Owner.

18. That is not an end to this part of the case. The Owner submits that the Builder ought to have taken advantage of the dispute resolution procedures in Clause 39 of the contract before termination. The regime in that section is that a notice of dispute is to be given, setting out the dispute; the parties are then to meet within 10 working days to attempt to resolve the dispute and attempt to reach a settlement. The submission on behalf of the Owner is that the Builder failed to give such a notice. He did so fail, but it may be said that nor did the Owner. I do not consider that any failure by the Builder to take advantage of this procedure precluded his giving the notices to remedy and then the notice to terminate.

19. The next matter to consider is whether the notice of termination was properly served. The evidence is that it was left under the front door of the house in which Ms Williams was then living. The submission is that the contract provided that notices were to be served personally or by certified post.

20. That is not quite what the contract says. Service of notices is dealt with in Clause 40, which provides that service is deemed to have been given if delivered by hand to the other party, posted by ordinary pre-paid post, or sent by fax.

21. The purpose of service is to ensure that notice comes to the attention of another party. I refer to the cases gathered in the 5^th edition of Walker. The evidence from Ms Williams makes it clear that she did receive the notice that day, and thus knew of the matters asserted by the Builder. The contract provides methods from which service may be deemed, but the list does not on its face purport to exclude any other method of giving the notice to another party. I conclude that service was effected by leaving the notice under the door.

22. The Owner’s submissions devote considerable time to some other issues concerning the termination. It is submitted that the Builder was limited to the grounds set out in the notices to remedy and terminate. That may well be so, but it is not necessary for me to consider this aspect further. I have found that the ground set out amounted to a substantial breach. There is a range of other matters, but again it is not necessary to discuss them. The submissions have all been read and will remain on file.

23. The conclusion I reach from the above is that the Builder did give a valid notice to remedy a substantial breach, and then a valid notice to terminate. It flows from that that the Owner is not entitled to the claim she makes for completion.

Defective work

24. I now turn to consider Ms Williams’ claims for defects. The Home Building Act 1989 s.18B implies into every contract for home building work warranties that the work will be carried out in a proper and workmanlike manner, using materials reasonably fit for the purpose, compliant with law, and in accordance with the plans and specifications. Ms Williams makes claims for breaches of these implied warranties, and I am satisfied that she has made good her claims in some, but not all, respects.

25. As noted above, the property is built in a bushfire prone area. The Council approval required compliance with AS 39659 – 1999, but this appears to be a typographical error. The correct standard is AS 3959 – 1999. That has certain provisions for windows, doors, water, gas and waste pipes and the like. The house was to be built to comply with the requirements for category 2.

26. Before I cover the defects claims in detail, it is perhaps advisable that I deal with the attack made on the credibility of S Iskowicz, the Builder’s expert. This has 2 bases – that Mr Iskowicz was more of an advocate for his client than an impartial witness and that he was so frequently retained by builders that his evidence lacked impartiality; and that his experience did not qualify him as an expert in many of the matters. I have been referred to the relevant passage in Makita v Sprowles (2001) 52 NSWLR705 at 743-4.

27. As to the first of these, Mr Iskowicz’s evidence was that he was a member of the HIA and that one of the purposes of the HIA was to represent the interests of members and to provide them with assistance. He had been nominated by the HIA to some committees, and he also was appointed to some internal committees. From this it is submitted that he was “strongly aligned” with the HIA and that he lacked credibility. I do not accept that argument, and in fact the evidence leads me to the opposite conclusion. Mr Iskowicz was nominated to committees; that suggests strongly to me that his fellow members thought highly of his expertise and his ability to contribute to matters involving the building industry generally. There was no evidence at all that the HIA existed solely to represent builders, and the evidence of Mr Iskowicz showed the breadth of membership.

28. Perhaps Mr Iskowicz lacked recent experience in the actual construction of houses. However, his cv shows that he has not been idle since 1991. In addition, he has considerable formal qualification. His work over the 14 years since then has been in the home building area, and I accept him as a person well qualified to give opinion evidence on home building matters. I also find Mr Hall to be well qualified to give such evidence.

PVC Pipes

29. I turn to the claims in relation to the water and waste pipes. The AS requires that service pipes are to be either non-combustible, or to be buried at least 300 mm. Various pipes to the house are PVC; as the house is built on a substantial slope, the underfloor area is some height above ground, and thus the pipes are exposed. The Owner says that service pipes include the water and waste pipes, and that these should not have been PVC as they are exposed. She says that as the pipes as installed pass through concrete slabs, rectification will be expensive.

30. Her expert, D Hall, covers the matter in pp. 4 to 6 of his supplementary report of 1 November 2004. Mr Iskowicz, the Builder’s expert, expresses a contrary opinion in his report of 6 June 2005. I intend no disrespect to them by saying that neither considers the matter in any detail. Mr Dwyer submits that service pipes include only water supply, and not sewer or stormwater. The argument which he put to Mr Hall at the hearing was that the purpose of the AS was to ensure a supply of water, rather than to prevent a means of fire entry to the house. Mr Laughton in his reply submits that a service pipe includes sewer and stormwater pipes. His argument is that the purpose is to reduce the risks of fire entry by requiring the use of non-combustible materials. He put the same argument in cross-examination of Mr Iskowicz at the hearing.

31. The AS covers the issue in 3.14, referring to “Service Pipes”. It provides no definition of such pipes. It contains provision for gutters and downpipes in 3.12, requiring that any materials used to stop leaf collection have a flammability index of not less than 5; it does not refer to the pipes or gutters themselves. That is of no assistance in resolving the question. The phrase “Service Pipes” appears as a heading. The text in 3.14.1 refers to “All exposed piping, for gas and water supplies…….” It is only in 3.14.2 and .3 that the phrase “The requirements for service pipes” appears, but in each case the end clause of the sentence is “shall be as for Level 1 construction”. The Council’s Inspection Report (Ex5) of 16 September 2004 required replacement of “all piping etc (external)”, but the authority for the requirement is not at all clear. The BCA-96 table 3.7.4.1 deals only with supplies.

32. Where there is ambiguity, I consider that I am able to look at the heading of a clause in an AS, and to take evidence from experts as to their understanding of what is meant. Here, the evidence of the experts differs, but the heading includes the parenthetical phrase (Water and Gas). Obviously, gas is ever only supplied and not removed. Water is supplied, but what is removed is not water. The structure of sub-Clauses .2 and .3 (ignoring the typographical errors) suggests that the drafter intended that “service pipes” was to be understood as a reference to the supply pipes in .1. The interpretation of the AS (and incidentally also the BCA) I have reached is that “supply pipes” are to be considered as including only supply pipes and not pipes removing waste or stormwater.

33. The evidence before me covers only the cost of replacing both supply and disposal. It will be necessary for the parties to come to an agreed figure for the supply only.

Sewer connection

34. Ms William’s case is that she wanted the rock bank left undisturbed. In the result, the bank has been excavated so as to allow passage of the sewer pipe to the main. She says that in so doing, the plumber sub-contracted by the Builder did not follow her instructions to lay the pipes along the fence line. In answer to this the Builder says that there is no evidence of the instructions, and that in any event the rock bank extends across the entire width of the property and thus that some excavation would have been necessary in any event. The reply is that the instructions were sent to the Builder, reference being made to e-mails, and that there is a method of laying the pipes which would cover Ms Williams’ wishes. Further, there is the evidence from Mr Burton that Ms Williams said that she did not want plants along the fence line disturbed. That, to my mind, corroborates the giving of instructions, although the detail of those instructions may differ.

35. The e-mails satisfy me that Ms Williams made her wishes known to Mr Neumann. That does not mean that he was bound to follow them. The precise line for the pipes was not shown on the plans and specifications. The Builder was to build in accordance with those documents. Where there is no specification, he should take account of the wishes of the Owner in reaching his decision as to the method to be adopted, but is not required to follow the wishes. Just as counsel is not simply a mouthpiece for the client, a builder is required to exercise an independent judgment as to the appropriate course. The photographs and oral evidence satisfy me that the rock bank does extend virtually the full width of the block.

36. In this case, the method proposed by the Owner was not a realistic solution. It involved a substantial deviation from a straight line, and the work involved would have been much greater than the solution adopted by the Builder. There would have been an obvious pipe, and vegetation would have been disturbed. I conclude that Ms Williams has not made good this aspect of her case.

Gas rough-in

37. Ms Williams asserts that the gas rough-in was incomplete. This is a matter covered by my finding that the contract was validly terminated, and she cannot maintain this claim.

Carport slab

38. The Builder was required to build a carport slab under the contract. He was not required to lay the driveway from the street to that slab. He originally constructed it some 600 mm above ground, but lowered that. Ms Williams now contends that it remains too far above the ground, and that works are required to enable a car to drive in. The evidence from Mr Neumann is that the slab is now about 200 to 250 mm above ground level.

39. Mr Hall says that the height of the slab means that a ramp of some sort will be needed to gain access from any driveway. Mr Iskowicz takes the preliminary point that the works proposed are beyond the contract as the driveway was always Ms Williams’ responsibility.

40. The starting point must be that the Builder was required to build in accordance with the plans. There is no suggestion that he did not do so; rather, it is put that the plans have produced an unworkable result and the Builder should have pointed this out to the Owner. The evidence given by Mr Iskowicz was given as a matter of general principle, and not directed to the particular context.

41. The plans were produced by the Owner. Under the contract, she warrants those plans. The result may well be far from clear, but I do not accept the argument that the necessary conclusion from Mr Iskowicz’s evidence is that the Builder should have pointed out problems to the Owner. He was not to lay the driveway, and there is no evidence that Ms Williams gave him any indication of the particular driveway she was going to have laid. There is no evidence that the Builder was made aware of any particular requirement the Council may impose at the time the driveway is ultimately laid. In those circumstances, I do not consider that the Builder has been in breach of his contractual obligations in constructing according to plan, nor in any failure to advise. I do not allow the claim.

Site fencing

42. The site fence is a matter of contention. The requirement in the contract to comply with relevant laws meant that the Builder was bound to comply with any Workcover requirement. There was an inspection and he was required to install a fence. The cost formed part of the progress claim which was not paid in full.

43. What was the Builder’s obligation? His obligation was to comply with Workcover requirements. His own assessment provided the basis for compliance initially, but after the inspection, he was bound to provide any additional fencing. As the amount is disputed, I can award the appropriate sum despite the finding above that in the first instance Ms Williams was bound to pay the progress claim in full.

Concrete slab

44. I now turn to the concrete slab. Ms Williams’ claim is that the Builder was required to deliver a smooth trowelled finish, such a finish being necessary to allow for polishing. In her case, she relied upon the evidence of Mr Hall and of a D Mexon.

45. The status of Mr Mexon’s evidence is not at all clear. His qualification as an expert was limited to his experience, and there was no compliance with the Chairperson’s Code of Conduct for experts. I do not accept him as such (see the Makita passage cited above). It is submitted that I should still consider him as a very experienced lay witness, but I do not understand what is meant by that. Either he is an expert or he is not. In any event, I did not find him a particularly credible witness, and he was far from impressive in the witness box. Many of his answers in cross examination were non-responsive, and he left the impression that he was an advocate for himself and Ms Williams. I do not place much weight on his evidence.

46. On the day that the slabs were poured, the Builder attended the site for a relatively short period in the morning. There was a storm in the early to mid afternoon. There was no cover for the slab, which consequently has pockmarks. The claim is that there needs to be considerable work to get the slab to a condition where it can be polished, and that the Builder is responsible for the costs of that work.

47. As before, the starting point is what did the contract require? The evidence before me suggests that the slab in its present condition is to a proper and workmanlike finish for ordinary purposes. That is the thrust of the remarks of Mr Hall at 6.2.22 of his report. Did the parties bargain for the superior finish?

49. Mr Laughton submits that the proper evidence is of advice from Ms Williams to Mr Neumann that she wanted to be able to polish the floor, and that she needed a smooth trowelled finish to be able to do this; he accepted this, but that the result achieved was neither smooth nor trowelled. Mr Dwyer submits that this was simply a desire on Ms Williams’ part.

1. 1. When I look at the informal transcript for 24 August 2005, the evidence from Mr Neumann at p.23 supports the submission by Mr Laughton that the Builder accepted that the finish was to be smooth trowelled. Accordingly, I find that there was an informal variation by the parties to the specification, such that a smooth trowelled finish was to be achieved for the relevant floor.

51. What flows from this? The slab was poured on 2 February 2004, and heavy rain during the pour resulted in pock-marking of the slab. The result is not a smooth trowelled finish. The evidence from Mr Neumann in relation to use of plastic sheeting or covering with plywood appears to relate to protection of the slab after the pour, not during the heavy rain at the time of the pour. He says that the protection he suggested was rejected by Ms Williams, and I find that that was so. Thus, whilst I find that there has been a breach of the contract in relation to the pock-marking caused by the rain, other damage to the slab has resulted from the level of protection thereafter.

52. On this basis, I am not satisfied that the damages sought are appropriate. The evidence does not say that the floor as poured cannot be polished to give a smooth finish. Mr Hall’s report suggests to me that the finish should not be considered as a defect to the extent of the work proposed by Mr Mexon, but rather that it requires a general cleaning. The parties should agree upon a suitable sum to compensate Ms Williams for the need to attend to the pock-marking along the lines of Mr Hall’s report, but no more.

Electrical work

53. Ms Williams makes claim that in progress claim 3, she paid for electrical work. She says that that work was not completed to the extent to which she paid, and that she is therefore entitled to the costs of bringing the work up to that value. She seeks $2,000.00 (in the schedule at p.51 of her submissions). It is submitted that the evidence of Ms Williams should be preferred over that of Mr N Carter, the electrician. The basis for this submission is that Ms Williams made notes at the time and used these to refresh her memory to prepare her affidavit evidence. In contrast, Mr Carter was first preparing an affidavit some 13 months after the event, and it is submitted that his memory was defective – reference is made to the difficulty he had in identifying rooms from a series of photographs.

54. I accept that Mr Carter did have that difficulty in the witness box, and that he retired from the box to complete his identification. It must be said that the photographs are of the unlined house, and that it would not be easy to identify from them exactly what room is depicted without also examining a plan and the electrical layout. What the photographs do show is that there was a substantial amount of work carried out. What they do not show is whether that substantial work completed the rough in or not.

55. That question is, however, not relevant. There was no claim by the Builder that the rough in was complete. Rather, his progress claim 3 (on which Ms Williams ultimately relies) is not itemised. That does not support her submissions that she has paid $5,000.00 for electrical rough in to completion, and that she has not received that value. Her claim is not made out.

Plumbing costs

56. Paragraph 95 of the Owner’s submissions deals with the basis for calculation of the plumbing works. It is submitted that as the breakdown by Mr Hall is based upon Rawlinson, it is reliable. In answer, it is submitted that the Rawlinson figures are for original work, not rectification, and that they are therefore not a reliable guide. That submission is correct as far as it goes, but in the absence of any other basis, I would accept the Rawlinson figures as a sound guide to assessment of the damages.

Minor items

57. That leaves a series of comparatively minor items referred to in the schedule commencing on p.49 of the Owner’s original submissions. Neither Counsel has made submissions concerning these items, although many appeared in the Summary of Issues handed up as an aide memoire. In the absence of submissions, I do not propose to cover them; should the assumption inherent in this approach be incorrect, the parties have leave to make further submissions.

Liquidated damages

58. Ms Williams claims liquidated damages. Because of the finding in para.w above, I do not consider that she is able to do so beyond the date of termination. She is only entitled to rights accrued as at that date. In making the necessary calculations, I consider that both parties are bound by the contract.

59. The contract provided that works were to be completed in 20 weeks from commencement of works. It provided a mechanism for extensions of time, some of which had to be claimed by the Builder. It provided for liquidated damages of $180.00 pw. On Ms Williams’ behalf, it is submitted that the 20 week period ran out on 14 April 2004, but that practical completion was not achieved for over 45 weeks beyond then. On the Builder’s part, it is submitted that “continual time wasting” by Ms Williams disentitles her to damages.

60. There would be much to say for the Builder’s argument had it claimed extensions as it was entitled to do under the contract. The evidence makes clear instances of delay by Ms Williams which would have extended the time for completion. I consider that the Builder is only entitled to the extensions of time claimed under the contract.

61. Ms Williams concedes 9 weeks claimed extensions as applicable, and says that the claim for the carport slab should not be counted. There was no evidence of her disputing that claim as provided for in the contract, and thus I allow that also. On my calculations that takes the time for completion to 12 July 2004. That gives damages for 5 weeks ($900.00) to Ms Williams.

62. The Builder seeks the outstanding sum under the progress claim of $5,433.00. As I understand it, there was no dispute that should I reach the finding in para.w, that sum should be allowed.

Conclusion and Costs

63. For these reasons, there will be an overall award to the Owner, and the parties are to agree upon the exact figure, based upon the reasons. To the amounts discussed will need to be added the agreed sums.

64. That leaves costs. The Builder has had success on the termination issue and also in relation to some of the defects. The Owner has equally had success on other defects issues. Although there will be an overall sum to be paid to Ms Williams, that should not be the decisive consideration as to costs. Neither party has made any real costs submission. My present inclination is to order that each party pay its own costs, as being a reasonable indication of the relative successes and the time taken on the issues. There may be some factor of which I am not aware which would impact upon a costs order. The parties have leave to make further submissions as to costs.

G J Durie

Senior Member

Consumer, Trader and Tenancy Tribunal

28 June 2006