Civil and Administrative Tribunal New South Wales Medium Neutral Citation: NuStone v McInerney [2022] NSWCATCD 23 Hearing dates: 24 and 25 August 2021 Submissions close 25 November 2021 Date of orders: 19 January 2022 Decision date: 19 January 2022 Jurisdiction: Consumer and Commercial Division Before: S Thode, Senior Member Decision: 1. In HB 20/36393 Nu-Stone Building Pty Ltd is to pay $114,557.17 to Garry and Gladys McInerney immediately. 2. HB 20/15757 is otherwise dismissed. 3. I order the builder to pay the owners' costs of the applications on the ordinary basis as agreed or assessed. 4. In the event either party applies for different costs orders, the order for costs made in order (3) above ceases to have effect. 5. For any different application for costs, the following directions apply to that application: (a) The applicant for costs (costs applicant) is to file and serve any evidence and submissions on costs within 14 days of the date of publication of these orders; (b) The respondent to the costs application (costs respondent) is to file and serve any evidence and submissions in reply within 14 days of the date of publication of these orders. (c) The costs applicant is to file and serve any submissions in reply within 21 days from the date of publication of these orders; (d) The submissions of the parties are to include submissions about whether an order should be made dispensing with a hearing of the costs application pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2013. (e) In the event that both parties apply for a different costs order, an indexed and paginated bundle of all costs submissions is to be provided to the Tribunal at the end of the submission period. Catchwords: BUILDING AND CONSTRUCTION —Home Building – Defects claim – Repudiation – Termination – Damages for breach of contract – term of good faith implied into the contract Legislation Cited: Civil and Administrative Tribunal Act 2013 (NSW) Civil and Administrative Tribunal Rules 2014 (NSW) Home Building Act 1989 (NSW) Cases Cited: Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 282-3; 16 ALR 363 Burger King Corp v Hungry Jacks Pty Ltd [2001] NSWCA 187 Insight Oceania v Philips Electronics [2008] NSWSC 710 Nayack v Rockwell Constructions Pty Limited [2017] NSWCATAP 18 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Saxby Bridge Mortgages Pty Ltd v Saxby Bridge Pty Ltd [2000] NSWSC 187 Simmonds v Rust; Rust v Simmonds [2018] NSWCATCD 75 Tresedar Pty Ltd v Property Builders (Constructions) Pty Ltd (In Liquidation) [2014] NSWSC 382 United Group Rail Services Limited v Rail Corporation New South Wales [2009] NSWCA 177 Texts Cited: Nil Category: Principal judgment Parties: HB 20/15757: Nu-Stone Building Pty Ltd (Applicant) Garry and Gladys McInerney (Respondents) HB 20/36393: Garry and Gladys McInerney (Applicants) Nu-Stone Building Pty Ltd (Respondent) Representation: Counsel: M Klooster (Nu Stone Building Pty Ltd) M Galvin (Garry and Gladys McInerney) Solicitors: Sachs Gerace Lawyers (Nu Stone Building Pty Ltd) Walker Hedges Forrestville Solicitors (Garry and Gladys McInerney) File Number(s): HB 20/36393 and HB 20/15757 Publication restriction: Nil Reasons for decision Introduction 1. These reasons for decision are in relation to a dispute arising from a fixed price contract for residential building work between Mr and Mrs McInerney the owners) and Nu-Stone Building Pty Ltd (the builder). Mr Steven Younan (Mr Younan) is the director of the builder. Two contracts for the construction of a dwelling were entered into and by agreement between the parties, the second contract dated 24 December 2018 for a fixed sum of $905,320 plus GST is binding on the parties (the contract). 2. Both parties brought proceedings under the Home Building Act 1989 (the HB Act). 3. The Builder's application HB 20/15757 was lodged on 6 April 2021. The Builder claims entitlement to unpaid progress claim 5 and unpaid invoices. The Builder claims one variation on a contract basis and five variations on a quantum meruit basis. The variations are claimed as follows: 1. Earthworks and underpinning $49,417 2. OSD and Detention Tank Works $29,098 3. Costs additional to structural steel $2045 4. Skylights $2013 5. Windows and Doors $27,803 6. Additional carpentry and steel works $7368 7. Subtotal $117,744 8. GST $11,774 9. Total for variations $129,518 1. The builder brings a claim for the value of the works completed, plus a claim for the balance owing under the contract for $167,722, in addition to a claim in the sum of $76,063 for loss of profits (if a finding is made that the owners repudiated) on the balance of the contract works. The builder's claim is set out on page 4 of submissions. 2. For the reasons set out below I have found against the builder in respect of variations but make an award for outstanding payments. The owners' application 1. The owners' application is HB 20/36393, which was filed on 26 August 2020. The Owners seek damages from the Builder in respect of: 1. Defective and/or incomplete works (the Defects Claim); 2. Delay (the Delay Claim); 3. Breach of contract giving rise to excessive costs being charged (the Costs Claim); 1. The owners seek damages against the builder for loss of use of monies. The owners also seek costs. 2. For the reasons set out below I have found the owners have lawfully terminated the contract. I have found for the owners on the defects claim and on the claim for incomplete costs. I have found that a sum owing under the Contract to the builder is to be set off against the sum awarded to the Owners. The issues to be determined 1. The issues to be determined are: 1. Have the owners lawfully terminated the contract entitling them to the cost of completion? 2. What are the reasonable and necessary rectification costs? 3. If the owners have lawfully terminated the contract what are the reasonable and necessary completion costs? 4. In the builder's case, what is the fair and reasonable value of the contract works carried out? 5. What is the fair and reasonable value of the variations carried out? 6. What weight should be given to Mr Redfern's evidence in light of the fact that the owner's invoices are not tendered in the case. Evidence and submissions 1. In making a decision, I have considered the material in Volumes 1 to 4 of the Joint Bundle, the oral evidence of the parties and their witnesses and the written submissions of the parties, which are set out in the Submissions Bundle filed on 25 November 2021. Issues The Owners' application 1. The issues to be determined on the Owners' application are: 1. Have the owners lawfully terminated the contract entitling them to the cost of completion? 2. What are the reasonable and necessary rectification costs? 3. If the owners have lawfully terminated the contract what are the reasonable and necessary completion costs? 4. Should the Builder be ordered to pay the owners' costs? Builder's application 1. The issues to be determined in the Builder's application are: 1. What is the fair and reasonable value of the contract works carried out? 2. Is the builder entitled to payment of variations? 3. Is the builder entitled to payment for moneys owed under contract at the time of termination? 4. Is the builder entitled to payment for interest? Consideration Owners' application 1. It is no longer in contention that the second contract was binding on the parties, see builder's submissions dated 22 August 2021. The contract price is a fixed sum of $905,320. The parties agreed that the owners paid $563,889 pursuant to the contract. Did the owners lawfully terminate the contract? 1. It is not in contention between the parties that the builder issued falsified invoices. Invoices for ANDYZ Mini Ex Civil Pty Ltd numbers 930 and 931 for soil removal had been altered. The invoices that were provided to the owners had been increased by $100 for each load rate. This increased invoice 930 from $6600-$7480. It increased invoice number 931 from $8596 to $9366. Invoice number 1006 for work done had been altered and increased from $8252 to $9350 by a sum of approximately $1100. 2. During cross-examination it was admitted by the builder that these forgeries were perpetrated as a fraud against the owners and a section 128 certificate was issued to Mr Younan. 3. On 13 March 2020 the solicitors for the owners wrote to the builder seeking an explanation of the differences in the invoices and the invoice from Design Carpentry Solutions Group Pty Ltd number 106. No reply was received and no explanation was provided. 4. On 18 March 2020 the owners forwarded a notice of termination of contract bringing the second contract to an end. 5. On further examination of the invoices, and after the pleadings were closed, it was discovered by the owners that the invoices numbered 933 dated 23 April 2019 and invoice no 938 dated 16 May 2019 in the sum of $8426 and $7433 respectively, appear to also have been the subject of suspicious activity. The bank statements produced by Mr Younan indicated payment to the subcontractor of $750 per load, but the invoices issued to the owners charged $850 per load. Mr Younan stated he had no independent recollection of the April 2019 invoice (No 933). 6. Mr Younan was cross-examined on these further invoices. On balance I find the builder was not a persuasive witness. After admitting to the fraud on the first three invoices are I am persuaded that it is more likely than not on the balance of probabilities that the builder also falsified invoices no. 933 and 938. It is persuasive that the calculations in respect of invoice number 933 and 938 reflect the same overcharge of $100 per load as found in invoices 930 and 931. The builder did not formally admit the fraud in respect of these further two invoices but did concede that, although he cannot remember, it is possible that he falsified these invoices also. 7. During cross-examination of the builder further conceded that although he had first denied the fraudulent overcharging to refute the validity of the notice of termination served on him, he now admits that the reasons cited by the owners for the notice of termination, namely that he overcharged and falsified invoices, is made out. Although the builder has admitted his fraudulent conduct counsel for the builder states that this is separate and distinct from an admission as to repudiation. 8. In terms of pleadings, the owners allege that the builder's conduct is in breach of an implied term of good faith. 9. In amended points of claim filed on 23 April 2021 the owners make no mention of the breach of an implied term. 10. However, in points of defence filed on 15 September 2020, in response to the builder's points of claim, the owners state as follows: The owners say further in respect of the builder's application and the POC: (a) it was an implied term of the 24 December 2018 contract that the builder and the owners would act in good faith towards each other; (b) in breach of the implied term of good faith the builder issued invoices to the owners and made claims for payment of costs purportedly incurred by the builder by attaching invoices purportedly from third parties to the builder when the builder received an invoice from the third-party for the same work but for a lesser amount.…[the breach]. 1. The owners submit the breach was a fundamental breach of the 24 December 2018 contract and constituted a repudiation. The owners submit they were entitled to terminate the 24 December 2018 contract. 2. Whilst the builder's conduct is not the subject of challenge, the existence of the implied term and whether any breach of it is commensurate with repudiation is disputed. 3. It is the builder's submission that if the owners were not entitled to terminate at common law then their actions in doing so amounted to a repudiation which was subsequently accepted by the builder. After the termination of the builder by the owners, the validity of which is a live issue, the owners then continued to carry out further works. 4. Although not clearly pleaded and particularised I have proceeded on the basis that the owners' cause of action for breach of contract is the breach of the implied term. I have also taken into account the admissions by the builder that he did falsify invoices and subsequently, when caught, continued to deny the fraud, to avoid the termination. Good Faith Term 1. The owners claim that the builder breached the good faith term which they characterise as follows: (a) it was an implied term of the 24 December 2018 contract that the builder and the owners would act in good faith towards each other; (b) in breach of the implied term of good faith the builder issued invoices to the owners and made claims for payment of costs purportedly incurred by the builder by attaching invoices purportedly from third parties to the builder when the builder received an invoice from the third-party for the same work but for a lesser amount.…(the good faith term). 1. The builder questions whether the good faith term is implied into the contract. The builder's submits that the owners cannot establish the implied term of good faith because the five point test in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 is not satisfied. It is submitted that there is no necessity to imply the good faith term for the contract to work; secondly, whether an implied term of good faith exists remains unsettled in this jurisdiction. It is submitted by the builder that the Court of Appeal of Victoria has made it plain that there is no general obligation of good faith implied into commercial contracts as a matter of law; thirdly, if the parties wanted an implied obligation of good faith, it could have been sought or negotiated; fourthly, there are matters that indicate that it was unlikely that an implied term of good faith exists: 1. The contractual relationship was not a long term one; 2. There is nothing to suggest that the parties intended that their respective roles be performed with integrity and fidelity to their bargain; 3. There is nothing to suggest that the parties would be committed to collaborating with one another in the performance of the contract; 4. The spirit and objectives of their venture were capable of being expressed exhaustively in the written contract; 5. There is nothing to suggest that the parties would repose trust and confidence in one another, but of a different kind to that involved in fiduciary relationships; and 6. The contract does not involve a high degree of communication. 1. It is submitted by the builder that even if the implied term did arise, the conduct of the builder was not sufficient to amount to repudiation. With respect to repudiation it is submitted that a party will have repudiated the contract if that party renounces its liabilities under it and evinces an intention to no longer be bound by the contract or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in some other way (Shevill v Builders Licensing Board (1982) 149 CLR 620). Upon that intention being shown to exist, the other party is entitled to treat the contract at an end. 2. The relevant communications and actions of the parties are to be viewed objectively and without regard to any subjective intention which may have underlined the approach of either party. 3. Whilst the builder's conduct was not "attractive" (submissions page 23 #9.5) it does not amount to repudiation because the conduct of Mr Younan did not result in the builder receiving more money from the owners then it would otherwise be entitled to. 4. It is submitted by the builder that it is difficult to see how the conduct demonstrates an intention to no longer be bound by the contract, but that instead it demonstrates that works were being carried out. The owners already had sufficient contractual protection prior to making the final payment as all other payments are on account only. In summary, to the extent that there was any overcharging, both parties always retain the ability to value the works carried out. 5. When the owners purported to terminate, works were still continuing on site. 6. In summary, there is nothing to suggest that the builder abandoned the site or engaged in any other conduct that would suggest objectively that the builder did not want to continue with the contract and finish the project. It is submitted that the complaint raised regarding Mr Younan's conduct does not adversely affect or otherwise detract from the builder's actions up to that date to carry out and complete the project. 7. It is submitted that they were much easier and perhaps safer ways for the owners to terminate and the owners should be bound by the case conducted by their counsel which is that the builder's conduct in breaching an implied term of good faith amounted to a repudiation. 8. In light of all of these issues the Tribunal should find that the builder had not repudiated the contract by 18 March 2020 or at all. Consideration 1. The existence of an implied contractual duty of good faith is often sourced to the judgment of Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 (Renard). Priestley JA stated at 268: People generally, including judges and other lawyers, from all strands of the community, have grown used to the courts applying standards of fairness to the contract which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance. In my view this is in these days the expected standard, and anything less is contrary to prevailing community expectations. 1. In Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 the Court clarified that in New South Wales the good faith duty is implied into contracts as a matter of law. This position was endorsed in Burger King Corp v Hungry Jacks Pty Ltd [2001] NSWCA 187 in which it was further stated that New South Wales case law indicates that obligations of good faith and reasonableness will be more readily implied in standard form contracts, particularly if such contracts contain a general power of termination. 2. Later decisions in New South Wales have made somewhat unclear whether a term of good faith is said to be implied as matter of fact or law: Saxby Bridge Mortgages Pty Ltd v Saxby Bridge Pty Ltd [2000] NSWSC 187; Insight Oceania v Philips Electronics [2008] NSWSC 710. 3. The basis upon which a term of good faith is to be implied into commercial contracts is therefore not settled in New South Wales. As Ball J stated in Tresedar Pty Ltd v Property Builders (Constructions) Pty Ltd (In Liquidation) [2014] NSWSC 382 at [160] to [161]: 160. The circumstances in which a court will imply a term requiring each to act in good faith remains uncertain: see Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [144] per Bathurst CJ. For discussion see, K Lewison & D Hughes, The Interpretation of Contracts in Australia, (2012, Law Book Company) at [6.14]. There is authority that the terms should be implied in all commercial contracts: see, for example, Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 268 per Priestley JA. Other cases have suggested that the term should only be implied as a matter of fact in accordance with the principles stated in the BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266: see e.g. Androvitsaneas v Members First Broker Network Pty Ltd [2013] VSCA 212 at [108]; R & J Lyons Family Settlement Pty Ltd v 155 Macquarie Street Pty Ltd [2008] NSWSC 310; (2008) 13 BPR 25,161 at [68] per Bryson AJ; Tote Tasmania Pty Ltd v Garrott [2008] TASSC 86; (2008) 17 Tas R 320 at [16]; Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 at [25] per Buchanan JA; Australian Hotels Association (NSW) v TAB Limited [2006] NSWSC 293 at [78] per Bergin J. In that case, the implication of the term depends on the presumed intention of the parties. 161. One feature of the implied term is that it is expressed at such a level of generality and abstraction that it can be difficult to determine its content in any particular case. Consequently, to suggest, as some cases do, that the term should be implied as a matter of law in all commercial contracts has the effect of moving the enquiry from whether a particular term should be implied in the circumstances of the case to the question of the content of the general term in light of those circumstances. 1. For present purposes, I accept that an obligation to act in good faith can be implied into the contract, as the weight of authority in New South Wales supports such a proposition, even if opinion is divided in relation to whether this is as a matter of fact or as a matter of law. 2. I am satisfied that the good faith term articulated by the owners can be implied into the contract. 3. First, in my view it is a matter of common sense and efficacy to imply into a contract a term that would assume one party cannot defraud another. I am satisfied that the contract requires the builder to act honestly when issuing invoices and not to deliberately falsify invoices. It follows that the builder was obliged to maintain a system and to account for the costs honestly and with transparency. I am also satisfied that there is considerable artifice in submitting that the actions of Mr Younan did not benefit the builder. As the sole director of the builder the director and the builder acted in unison and as one. 4. In my view, the implied term to act in good faith in the context of the contract would have prevented the builder from fraudulently falsifying invoices. I disagree with the builder's submission that no benefit was gained. The fraud by Mr Younan directly caused the builder to profit and to obtain a benefit that was extraneous to the contract. The benefit was payment for variations that were otherwise extraneous to the contract. While the obligation to act in good faith did not oblige the Builder to act in the interests of the owners it certainly obliged the builder to act honestly. As noted by Allsop P in United Group Rail Services Limited v Rail Corporation New South Wales [2009] NSWCA 177 at [70]: [Good faith] does not, by its terms, necessarily import, or presumptively introduce, notions of fiduciary obligation familiar in equity or the law of trusts. Nor does it necessarily import any notion or requirement to act in the interests of the other party to the contract. 1. I am satisfied that the good faith term is implied into the contract in circumstances where the owners are completely reliant upon the builder to tender legitimate bills and where there is otherwise no opportunity to check the validity of the invoices. What the builder's motivations were and what, if anything, Mr Younan thought he gained from this conduct, is an irrelevant consideration. Fraud 1. Even if I have erred and there is no implied term of good faith, I find that the builder has defrauded the owners. The owners have not pleaded fraud and as the Tribunal is not a tribunal of strict pleading, it was not strictly necessary to do so, particularly in light of the fact that the fraud, being the falsification of invoices, was admitted by the builder who was issued a s128 certificate at his request and by consent of the parties. Fraud is a sufficient reason to terminate a contract and I find the owners were entitled to terminate the contract and that the contract was so terminated. 2. For these reasons I am satisfied that the builder repudiated the contract and that the owners accepted the repudiation and elected to terminate the contract effective from 18 March 2020. Are the Owners entitled to damages for defective work and if so, in what sum? 1. The builder relies on Mr D Kennedy of Remedial Building & Waterproofing Consultants Pty Ltd as its expert in relation to building defects. 2. The owners rely on the reports of Mr Redfern of Tyrrells Property Inspections Pty Ltd. 3. The experts prepared a Joint Experts' Scott Schedule dated 27 July 2021 4. In conclusion on the issue of defective work, the owners have established the following items. Item 1 - entry porch concrete slab. 1. The owners claim $3251 for this defect. It is the opinion of Mr Redfern that the edge of the front porch concrete slab was not parallel with the front façade and was misaligned by approximately 35mm. Both experts agree that there was a technical breach/defect at the time when the builder left the site, however, the front porch has been tiled by the owners and they have lived there for a considerable amount of time. I have had regard to Mr Kennedy's opinion at page 3 of the joint conclave report: 'I have carefully reviewed the photos and have formed the opinion that the preferable solution would be to remove the misaligned 35mm of concrete." The issue in dispute appears to be whether or not the misalignment causes a water ponding issue and whether the inadequate fall causes water to pond against the building. I accept this to be an accurate assessment of the defect and find that the surfaces are not graded away from the building. I find that both aspects of the defect are established and that it is reasonable and necessary to cut the front porch to bring the front porch into conformity with the contract and to prevent water ponding. The parties agree that if both aspects of the defective work are found then an award of $3251 should be allowed for this item. Item 2 - defective timber wall framing. 1. The owners claimed damages in the sum of $8923 in respect of this defect. The timber framing is out of square by greater than 5mm and up to 10mm over 2 metres. Mr Redfern states that his observations are that the timber wall frames are defective as they deviate by more than 5 mm over a height of 1.8m. Mr Kennedy did not provide an opinion in respect of this defect. Mr Redfern was cross-examined on the basis that he did not destructively test the walls, or remove the walls to inspect the timber framework within. In my view the cross-examination did not impugn the expert's opinion. I am satisfied, on the balance of probabilities, that the plasterboard and tiles are out of plumb based on Mr Redfern's observations and as per the expert report. The proposition that the expert was unable to conclude whether the timber is defective or not could not been determined without destructive testing was rejected as he stated "I am very sure that it is the underlying frame that is the problem". Mr Redfern's expertise was not challenged and I find that his observations and conclusions as to the cause of the timber walls misalignment are persuasive under the circumstances. I find on the balance of probabilities that the defect is established. Both Mr and Mrs McInerney stated that if they are successful and an award is made in their favour, it is their intention to rectify this defect. The parties agree that in the event the defect is established, $1794 should be allowed for this item. Item 3 - Structural floor sheeting. 1. Mr Redfern concluded the structural floor sheeting was defective as it had been exposed to the elements and showed discolouration "most likely caused by water ingress". It is the owners' submission that the floor sheeting was exposed for several weeks or months but I have been unable to identify the evidence supportive of this allegation. The submissions do not identify where in the evidence the owners state that the plasterboard was exposed to the elements. Having regard to photo 16 of the 40 photographs provided to Mr Redfern by the owners, I am not satisfied it shows defective particle board or that the photograph is sufficient to establish a breach of the statutory warranties under s18B of the Home Building Act 1989 (the Act). At best it looks as though something has been spilled on the board, rather than exposure to the elements. I do not find that the defect is established. The 40 photographs provided by the owners to their expert do not establish this breach and I find that the Redfern opinion is no more than conjecture concerning this defect. I have not made an award for this head of damage. Item 4 – Defective installation of wall cladding. 1. This defect relates to the defective wall wrap which involves large areas of torn, bunched or loose and poorly fitted wrap. The owners rely on the supplementary report of Mr Redfern. The experts' opinion is based on the assumption being made good that the brickwork was built over the creased, fallen wrap depicted in photograph 2 of the supplementary report of Mr Redfern issued on 1 September 2020 based on the 40 or so photographs provided by the owners. 2. The expert conducted a conclave during day one of the hearing. As a result of the conclave the parties tendered "exhibit B" an agreed costing on an "if found basis" specifically addressing defect 4 (the wall wrapping), defect 5 the (defective brickwork). 3. I accept that the wall cladding was defective based on photographs taken by the homeowners on 20 March 2020 and attached to the Redfern report. I find the evidence of Mr McInerney persuasive that the walls had to be enclosed to complete the building and that the owners were under financial distress after the builder left to complete the building with a second and subsequent foreman. The owners gave evidence that they did not have the financial means to remove the defective wall insulation, so it was enclosed. The owners' new site foreman was unsure, but stated that he would have tried to stretch and straighten the wrap 'as best he could'. The site foreman stated that he had "two to three men for three to four days" on the job but had no particular recollection. 4. It was submitted that the owners failed to mitigate their losses when they opted to enclose the walls, rather than remove the wall wrap and start again. On balance I am not persuaded that the builder has established a failure by the owners to mitigate damages. I accept the owners' evidence that the builder's repudiation left them "high and dry" and that they needed to get the job finished to occupy the premises. I further accept the owners' evidence that if they are awarded in award of damage it is their intention to remove the wall cladding and to rectify the wall wrap and the external cladding. That will necessarily involve the rectification of defective brickwork and cavity flashing and a rectification of the termite barrier. 5. I accept the experts' evidence and make an award of $34,185 exclusive of GST and preliminaries. This award is for item defect 4 only. Defective brick work and cavity flashing will be dealt with separately as reflected in the separate calculations of the experts and as set out in exhibit B . Item 5 - defective brickwork cavity flashings and termite barrier installations 1. Both experts agree that the defect item 5 is defective and prepared a joint scope (exhibit B) to rectify item 5 alone of $36,533 including preliminaries and GST. 2. Mr Redfern states that the defects in the brickwork and termite barrier include missing and incomplete articulation joints; missing door and poorly detailed window cavity flashing; tilted bricks oversized and undersized perp joints; out of plumb or undulated brickwork. The owners sought $22,561 for this head of damage. The experts agreed that the defects as identified to the north elevation will be rectified in the majority through the rectification of defect item 4, the wall wrap. Mr Redfern agreed, based on the agreement concerning defect item 4, not to press the remaining inconsistent mortar joints and low level finish to the brick work on the north elevation ground floor. Mr Kennedy was instructed to undertake a desktop review only and was unable to comment on the level of finish to the garage brickwork or the completeness. 3. It is the builder's submission that $8690 and $452 should be deducted from any award for this head of damage (if found) because the quote, while it delineates between face bricks and common bricks, did not specify where the bricks are to be installed. The owners adduced no expert evidence as to where common bricks as opposed to face bricks ought to be used as a matter of common building practice and the owners have failed to discharge their onus of proof that face bricks are required. I am satisfied that the owners have not demonstrated that face bricks are a requirement of the contract and I allow $25,471 for this head of damage. (Calculated as follows in accordance with exhibit B agreed by the experts): Total for defect 5: $30,193 Less item 5.07 :$8690 Less item 5.08: $452 Subtotal $21,051 Preliminaries agreed at 10%: $2105 Subtotal: $23,156.10 GST: $2315.61 Total $25,471.71 Item 6 – Defective window installation 1. The owners press a claim for damages for defective installation of windows in the sum of $14,059 inclusive of margin and GST. Mr Redfern states that the first floor window was too wide and the bathroom window was not installed. The builder concedes that the work on the first floor window was defective but submits that "there should be little controversy that the window that is not installed in the bathroom is incomplete works. Mr Redfern costs both windows combined at $14,059. This figure should be halved to ascertain the cost to rectify the single defective window on the first floor." In the absence of any comment from the expert for the builder that this is incomplete rather than defective work, and in light of the fact that the submission that the costs "should simply be halved" is not supported by evidence, I accept the uncontested evidence of Mr Redfern and make the award for the two defective windows accordingly, $14,059. Item 7 - defective plumbing rough in. 1. This item relates to plumbing work for a new stack line. The owners tendered an invoice that states "due to ceiling height not being accounted for". On balance I am satisfied that this is sufficient to establish and support Mr Redfern's opinion that the plumbing rough in was defective and needed to be re-done. Mr Redfern's opinion is based on the tax invoice which in my view I sufficient as it clearly supports an inference that the stack line was defectively installed because the builder failed to account for the ceiling height. There was no opposing opinion expressed by Mr Kennedy, and I accept the evidence of Mr Redfern. I make an award for $2070 for this head of damage. 2. I note that a 10% builder's margin was agreed and was factored into the amounts by the experts. Item 1 Porch $3251 Item 2 Timber $1794 Item 3 Sheets Nil Item 4 Wrap $37,389 Item 5 Brick $25,471 Item 6 incomplete Item 7 Windows $14,059 Item 8 Stack $2070 Total $84,034 1. I make an award for damages for defective work in favour of the owners in the sum of $84,034. If the owners have lawfully terminated the contract what are the reasonable and necessary completion costs? 1. For the reasons set out above I have concluded that the owners have lawfully terminated the contract. The owners are entitled to claim their reasonable and necessary completion costs to bring the owners into the position they would have been in but for the builder's repudiatory conduct. 2. In relation to the cost to complete the works, the owners rely upon the report of Mr Redfern dated 31 March 2021 (No 129412) read together with his report of 2 October 2020. Mr Redfern based estimate of the works to complete on the original QS report commissioned by the builder which included an assessment of each trade item against the level of finished work at the time the builder left the site. His assessment of the completed works pursuant to his report was that the completed works to progress claim three was the sum of $316,529.52 which was a difference to that paid ($347,895.89) in the sum of $31,366.37 (excluding GST) which is the incomplete work for stages 1 to 3. The incomplete works in progress claim for was in the sum of $117,537.33. Mr Redfern then estimated the net incomplete works for the remaining progress stages to be the sum of $306,727. The running balance exclusive of costs of rectification of defects is determined to be $402,730 exclusive of overheads, profit and GST with no allowance for risk. 3. The total paid by the owners for contract works is $497,926 to termination (exclusive of paid variations in the sum of $65,963.84 as agreed between counsel on day two). The total incurred by the owners including the amount paid to the builder and their cost to complete the works is $1,094,563.03 exclusive of rectification costs and exclusive of any contingency for risk. The contract sum to carry out all the works is $1,021,489.90. Therefore the extra amount paid to complete the works over and above the contract sum, exclusive of defect rectification costs, is $73,073.13. The owners' case is encapsulated in paragraph 69 of submissions in chief. It is submitted that the total damage suffered by the owners is the cost of defective work in the sum of $89,649.10 plus the sum of $78,381.17 for costs to complete the works over and above the contract sum. It is submitted that the owners are entitled to a finding in their favour by way of a money order some of $168,030.27 less set off for variation 10 in the sum of $28,608.06 (which is conceded) which reduces the damages to $139,422.21 4. The claim in respect of the owners' case for the quantum of the cost to complete is essentially a contest between the experts. The owners rely on the report of Mr Redfern a building consultant, who took into account a letter from a quantity surveyor (QS), Mr Luscombe, in formulating his opinion. 5. The builder relies on the report of Mr Nguyen a quantity surveyor. 6. The builder submits that the Nguyen report should be preferred because Mr Nguyen has independently costed all the works using the plans, his own measurements and published industry rates (Rawlinson). He also assumed that the contract works had reached "lock up stage". Mr Redfern's report 1. The Builder claims that no weight should be placed on Mr Redfern's report (expert report dated 26 October 2020 Report No 126273), claiming that it has flaws including that: 1. Mr Redfern is not providing his own independent opinion with respect to the value of the works and is relying on an QS report and not his own independent relations provided by the builder to the owners on 3 December 2018 (the 2018 report). Mr Redfern conceded in cross examination that he could have worked the figures out himself but elected not to do so. 2. There is nothing to suggest that Mr Redfern conducted any measurements of any kind or carried out his own independent assessment of the value of the works completed 3. The 2018 QS report is not a contract document, it is not based on surrounding circumstances known to both parties as it was not provided to the owners until May 2021. The author is not been called to give evidence, the material and information it was based on is not known, the content and scope of the quotes referred to in the 2018 QS report which totalled $224,268 are unknown, the total costs outlined in that report exceed either contract price and there is no steel schedule attached. It is inherently unreliable or irrelevant. 4. No calculations or reasoning is provided as to how Mr Redfern arrives at the figures for incomplete works of $24,909 for progress payment PP3 and $71,094 for progress payment PP4. 5. It is apparent that on Mr Redfern's own methodology the builder has been underpaid by $22,000 6. Mr Redfern has allowed a margin of 13.43% without explanation appearing inconsistent. 7. Mr Redfern has not separately valued the variations there is no explanation whatsoever how an overpayment figure of $4731.60 has been derived nor are any calculations provided. The evidence of Mr Nguyen is effectively unchallenged. 8. The opinion advanced by Mr Redfern has changed significantly without proper explanation the total value of the owners' claim as at 2 October 2020 was $330,000 and then halved by the time his fourth report was published in April 2021 - $158,185. 9. The approach adopted by Mr Redfern is not recognised by any standard and is either not a valid way of assessing the value of works complete or otherwise unreliable. 10. Mr Redfern is not a quantity surveyor and has no particular expertise other than as a builder of some two years' standing. 1. Overall, in view of the deficiencies in Mr Redfern's report, I am not satisfied that the owners have discharged the onus of establishing that Mr Redfern's figures should be accepted over and above those of Mr Nguyen. In particular I am persuaded by Mr Redfern's concession under cross examination that he did not carry out his own independent quantity assessment but instead relied entirely on the 2018 QS report that the Redfern opinion is unreliable. I find that the report of Mr Redfern does not provide an expert opinion but merely accepts and adopts the opinions of a QS who was not called to give evidence. The underlying assumptions that form the basis of Mr Redfern's opinion in relation to the value of the works have therefore not been made out and the opinion should be afforded little weight. 2. However, although the report of Mr Nguyen is to be preferred, for the reasons expressed, Mr Redfern's reply report, of 2 October 2020, provides significant and relevant critiques of the Nguyen report that require adjustments to be made to Mr Nguyen's figures. 3. Mr Nguyen seemingly applied selective margins to each of the assessments he was asked to undertake. He added 10% builder's margin to the completed works, 15% builder's margin to the builder's variations stating "as agreed" when no such agreement had been reached; and added 0% builder's margin to the remaining works. By adding varying margins Mr Nguyen seems to have inflated the builder's case and diminished the owners' case, without any reasonable explanation. I have adjusted the margin figures, to reflect the accurate assessment of the overall contract costs. 4. Adding the additional builder's margin to the Nguyen estimated costs, I have allowed and find the following figures (based on the Nguyen opinion and as stated on pages 8 and 9 of his report), but adjusted in accordance with Mr Redfern's second report, appropriately adjusting the margins (see report no 129412 dated 31 March 2021 at page 10). 5. As I can ascertain no reason for the ad hoc application of the differing margins I adopt and accept the Redfern margins on page 10 of his report. 6. Adding the unified builder's margins to the Nguyen estimated costs brings the new and overall assessment of contract works to: Completed works $547,358 Additional 5% builders margin $24,879.90. Remaining works $345,752. Additional 15% builders margin $51,861.30. Subtotal exclusive GST $969,841.20. GST 10% $96,984. Total contract of works cost $1,066,825.20. 1. The contract price is $995,852. I am satisfied that the total contract cost, as estimated by Mr Nguyen (but adjusted with consistent margins), adds $70,973.20 to the cost to complete over and above the adjusted contract price. 2. In conclusion I find that the owners are entitled to damages for defective work in the sum of $84,034. 3. Adding both figures together, I find that the builder is liable to the owner in the sum of $155,007.20 for defective and incomplete work. 4. The owners concede that from this sum there must be deducted $28,606.06 to account for PC cost adjustments for windows. 5. Accordingly I make a finding and order that the builder pay to the owners the sum of $126,401.14. The Builder's Case Variations 1. The builder claims he is entitled to payment for variations on a quantum meruit basis in the sum of $107,188.28. 2. I have taken into account the report of Mr Nguyen and the submissions of counsel in the joint agreed submissions folder. Variation 1 - Earthworks and underpinning. 1. The builder concedes that the amount he can claim for this variation is capped at the invoiced amount of $38,862.30. The builder further accepts that the invoice was paid in full. I make no award for this variation. Variation 2 - The OSD & Detention Tank 1. The OSD and Detention Tank works invoice in the sum of $29,097.50 was disputed by the owners. The original invoice INV NU0323 was reduced by the builder to $16,703 and then further reduced taking into account an agreed credit resulting in a balance of $14,937.99. The owners submit this was paid and confirmed by Mr Younan in his statement "I agreed to give a credit for $1446.50 from the underpinning". The builder further concedes that this variation was paid. Mr Younan states: "On 21 June 2019 the owners paid $14,973.99". As the variation was agreed and paid, the builder is not entitled to claim restitution in the sum of $29,097.50 2. I find on the evidence of Mr Younan that this variation was agreed. Mr Younan deposes that he reduced the invoice to $16,703.49 and gave a credit of $1446.50. This variation was agreed between the parties and paid in full and I make no award. Variation 3 - Additional Steel Works 1. The owners approved this variation in the sum of $2044.90, it is signed by both parties (2.1.1 p 268). The builder cannot recast this variation on a quantum meruit basis. The builder gave a credit of $1800 for a quantity surveyor's report after request from the owners. Paragraph 77 of Mr Younan's statement of 18 February 2021 confirms that the variation was agreed, and that Mr Younan, after crediting the $1800 for the QS report, decided "not to worry about the $244.90" see volume 2A, page 66. This variation was agreed by the parties with the remaining amount not pressed by Mr Younan. Variation 4 - Skylights 1. The cost of the skylights was paid to the supplier by the owners directly. Mr Younan in his statement of 18 February 2021 states at paragraph 137 "Accordingly on 18 March 2020 I issued a Notice of Variation No 8 for the difference between the allowance for the skylights. At page 360 at tab 17 is a copy of the variation issued in the sum of $2012.50 GST inclusive". On 15 May 2020 I receive an email from Mr Emery stating the homeowners paid $1750 directly to St George Skylights." 1. Mr Nguyen for the builder details the work supposedly done by the builder in annexure 11 to his report. It does quantify this variation as "the difference in cost to supply and install from Manual Velux skylights to electric powered Velux VSE S01s." However, the builder is not entitled to the cost of this variation if he did not perform the work. As best as I can ascertain from Mr Younan's evidence, he does not claim that he performed the work. The applicant builder bears the onus of proof, I am not satisfied, on balance, that the builder performed the work or is entitled to restitution for this variation. Variation 5 – Windows and Doors 1. The owners agree that a slightly larger sum of $27,803.08 is owed for this item. Mr Nguyen describes this in his report as "extra over cost from Prime Cost items for the supply and install windows and doors". Although the sum is slightly different, I make an order and finding in favour of the builder (as it is the amount conceded by the owners) in the sum of $28,606.06. 2. That amount has already been accounted for in the owners' case above because it was admitted. Variation 6 – Additional Carpentry and Steel work 1. The builder claims he is entitled payment on a quantum meruit basis in the sum of $7368 for additional carpentry and steel work. Variation 11 dated 18 March 2020 (on the day the contract was terminated), was not in writing and not agreed in accordance with the provisions of Clause 18 of the contract. In respect to the entitlement to a claim for a variation the builder must establish: the work involved must be outside the work required under the contract; the owners must have knowledge of the variation as it was executed; the owners knew that it was outside the contract; the owners knew that the builder expected to be paid; and the builder has evidence that the amount claimed was fair value. (Nayack v Rockwell Constructions Pty Limited [2017] NSWCATAP 18 at [30]). I am satisfied on the uncontested evidence of the owners that there was no requirement for additional steel and there was no engineering opinion or requirement that supported this variation. The owners had no knowledge of these additional works and did not agree to pay for it. The builder bears the onus of proof and other than to refer to the variation amount as claimed, I have not been taken to any evidence by the builder that supports an entitlement by the builder to this claim. I dismiss this head of damage. Is the builder entitled to $119,032 for "underpayment". 1. At paragraph 18 of the builder's submissions (section 7.2) the builder claims he has been "underpaid" and that a balance is payable to the Builder in the sum of $119,032.25. The submission is states as follows The owners contend that a total of $134,723.16 has been paid for variations. However they rely on a table prepared by Mr Redfern. Plainly a table is not evidence establishing actual repayment. As the onus of establishing that payments were made rests with the owners in general terms unless there is objective evidence to establish the payments over and above for $65,783.84 conceded by the builder, the tribunal should find that the owners have only paid $65,783.83 for variations. For the reasons set out above the Tribunal should find that the builder has been underpaid by $119,032.25. Value of contract works $575,733.81 Value of variations $107,188.28. Less agreed total amount paid on account only being $497,926 for contract works and $65,783.84 variations $563,889.84. Balance payable to builder $119,032.25. 1. This submission is repeated on page 12 of the builder's final submissions dated 24 November 2021 as the builder's "overpayment" claim. 2. For the reasons set out above, the builder was unsuccessful on his variations claim. The builder is not entitled to any further payment for variations, either on a contract basis, or on a restitution or quantum merit basis. The contract reconciliation thus is the value of the contract works (as per the builder's evidence) $575,733.81 less an amount paid to the builder $563,889.84 (as agreed between the parties), the difference being $11,843.97. 3. I award $11,843.97 to the builder for this head of damage, being an amount owed under the contract. Interest 1. Paragraph 8 of the builder's submissions poses the following question: Were the works forming part of PC 4 substantially complete? This is a question of fact. The only life issue the turn on this finding is whether the builder is entitled to interest on and from 27 March 2020 (five business days after the invoice issued) until final orders are made. 1. It is submitted that by the builder that if work is 90% completed then that would constitute a "substantial completion" (Simmonds v Rust; Rust v Simmonds [2018] NSWCATCD 75). It is the builder's submission that more than 90% of the Corden metal cladding was complete; more than 90% of the timber stud work was completed; the internal plumbing works must have been more than 90% complete with only $750 being paid by the owners to complete this task; at least 70% of the electrical roughin was complete on the owner's own evidence; more than 90% of the concreting work overall was complete; all doors and windows had been delivered to site. 2. The builder concludes that the "factual findings" referred to support the conclusion that the works for PP4 had reached substantial completion. And the builder should be awarded an additional amount of at least $14,802.67 for interest in this regard. 3. I have not been taken to any evidence that suggests the works were 90% complete. The issue was hotly contested and during cross-examination the builder conceded that among other incomplete work, there was no roof on the garage at the time he issued PP4. Mr Redfern in his report of 31 March 2021 129412) states that lock up was substantially incomplete (10.2.3). The builder bears the onus of proof and other than the submissions set out above I was not referred to the evidence bundle to support these contentions. In the absence of being referred to any specific evidence I am not satisfied, on balance, that the work was "substantially complete" and decline to make an award. 4. In the builder's case I make an award in the sum of $11,843.97, this has been deducted from the amount awarded to the owners. 5. Deducting the award made in favour of the builder ($11,843.97) from the award made in favour of the owners ($126,401.14) I order the builder to pay $114,557,17 to the owners immediately Costs 1. The owners were successful in both applications and costs ordinarily follow the event. 2. I order the builder to pay the owners' costs of the applications on the ordinary basis as agreed or assessed. 3. In the event either party applies for different costs orders, the order for costs made in order paragraph (3) above ceases to have effect. 4. For any different application for costs, the following directions apply to that application: 1. The applicant for costs (costs applicant) is to file and serve any evidence and submissions on costs within 14 days of the date of publication of these orders; 2. The respondent to the costs application (costs respondent) is to file and serve any evidence and submissions in reply within 14 days of the date of publication of these orders. 3. The costs applicant is to file and serve any submissions in reply within 21 days from the date of publication of these orders; 4. The submissions of the parties are to include submissions about whether an order should be made dispensing with a hearing of the costs application pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2013. 5. In the event that both parties apply for a different costs order, an indexed and paginated bundle of all costs submissions is to be provided to the Tribunal 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: 21 March 2022