Fair Trading Tribunal New South Wales CITATION: Rich v Fair Trading Administration Corporation [2000] NSWFTT 10 DIVISION: Home Building Division PARTIES: APPLICANT: Mr Rich RESPONDENT: Fair Trading Administration Corporation FILE NUMBER: BU 1999/1414 HEARING DATES: 14/8/2000; 15/8/2000 & 5/10/2000 SUBMISSIONS CLOSED: DATE OF DECISION: 23/11/2000 BEFORE: PH Molony Senior Member Fair Trading Tribunal Act 1998 Home Building Act 1989 - ss39(2) 88 LEGISLATION CITED : 91 Building Services Corporation Act 1989 Building Services Corporation Regulation 1990 - cl 3(1)(a) & (b) 4 & 31 - Penn v Fair Trading Administration Corporation (2000) NSWFTT 5 CASES CITED: - PQ v Australian Red Cross Society (1992) 1 VR 19 - Ramsay v Watson (1961) 108 CLR 642 CATCHWORDS: Appeal against the decline of an insurance claim by the Fair Trading Administration Corporation - Building Services Corporation Comprehensive Insurance Scheme cl 5(1) - jurisdiction of the Tribunal - type of defects - major structural or general defects - single skin wall - Expert evidence - weight MATTER FOR DECISION: The primary application REPRESENTATION: APPLICANT: Mr A Searle of Counsel instructed by Carmody Crampton, Solicitors, Young RESPONDENT: Ms E Kennedy of Counsel instructed by the Solicitor for the Department of Fair Trading 1) I find that: a) the cracking to the external walls is a major structural defect under sub-clause (b) of the definition of major structural defect in Clause 31of the Building Services Corporation Regulation 1990. Those defects are both inherent from the manner in which the walls and the house were constructed and damage induced as a result of that faulty construction. b) the cracking in the external walls is a major structural defect under sub-clause (a) of the definition of major structural defect in Clause 31 of the Building Services Corporation Regulation 1990 ORDERS: resulting from the walls being inadequately stressed. Those defects are both inherent from the manner in which the walls and the house were constructed and damage induced as a result of that faulty construction. c) the numerous defects in stressing the walls by means of the tie down rods and top plates as specified in Mr Rendell's report of 3 October 2000 together constitute a major structural defect under sub-clause (a) of the definition of major structural defect in Clause 31 of the Building Services Corporation Regulation 1990. Those defects are inherent. 2) I direct that the application be listed for a telephone directions hearing before me at 4pm on 21 December 2000 so that directions can be made with respect to the further conduct of the application. Reasons for Decision: 1 On 28 May 1999 Mr Rich ('the Applicant') lodged a Notice of Appeal in the Fair Trading Tribunal against a decision of the Fair Trading Administration Corporation ('the Respondent') dated 4 May 1999. That decision was to decline the Applicants' claim under Clause 5(1) of the insurance scheme known as the Building Services Corporation Comprehensive Scheme. This scheme covers indemnity for losses incurred by the Applicants in respect of residential building work. The residential building work, the subject of the claim, was the construction of the Applicants' home at ... , Young. The work was commenced in September 1991. 2 As a result of evidence obtained in the course of the hearing the Respondent made a further decision on 5 October 2000, in respect of defects enumerated in a report from Mr Rendell, a building consultant retained by the Applicant. That decision was conveyed to the Applicant and to the Tribunal by the Respondent's Counsel, Ms Kennedy, on the final day of hearing. The decision was to decline the claim on the basis that, while the Respondent accepted that the defects were major structural defects, the claim was made out of time, and was not encompassed in the original claim. The Applicant contended that the defects reported on by Mr Rendell did not constitute a new and separate claim as the Respondent maintained, but formed part of the initial claim which had been declined by the Respondent, and was therefore within time. 3 With the consent of the parties, it was agreed that I would determine whether or not there was a separate second claim, and if so, that I treat the application as including an appeal against the Respondent's decision of 5 October 2000. In adopting this course I bore in mind the Tribunal's duty to determine proceedings in an informal, expeditious and inexpensive manner. 4 It should also be noted that at the same time as this application was heard, I had listed for hearing before me another application involving an appeal against a decision of the Respondent relating to a property at ... , Young, in which the Applicants are Mr and Ms Shiller. The parties in each case were represented by the same Counsel and Solicitors, and aside from some minor differences, the issues to be determined were identical, as was much of the evidence. While it was initially intended to hear each application consecutively, it rapidly became apparent that this would only lengthen each hearing. It was therefore agreed by the parties' respective Counsel and myself, that I should hear evidence common to both applications only once, and take that evidence into account in determining each application. Jurisdiction 5 The Fair Trading Tribunal may exercise such functions as are conferred or imposed on it by the Fair Trading Tribunal Act 1998 ('the FTTA') and by any other Act or law (section 6 FTTA). The Home Building Act 1989 ('the HBA') is an Act that confers jurisdiction on the Tribunal. Section 39 of Schedule 4 of that Act provides, in summary, that the provisions of the Building Service Corporation Act 1989 ('the BSC Act') and the Building Services Corporation Regulations 1990 ('the BSC Regulations') remain in force in relation to residential building work insured under that legislation prior to its repeal. The building work in ... , Young, was covered by that insurance, and so that legislation applies in this case. 6 Section 85 of the BSC Act provided for a right of appeal to the former Commercial Tribunal by a claimant aggrieved by a decision in relation to the Scheme. Clause 37 of Schedule 4 of the HBA provides that the provisions relating to appeals to the Commercial Tribunal, contained in Part 5 of the BSC Act, continue to apply to decisions made in relation to claims under the Scheme. Under the transitional provisions contained in Schedule 5 of the FTTA, a reference to the former Commercial Tribunal is to be read as a reference to the Fair Trading Tribunal (clause 6). Accordingly, this Tribunal now has the jurisdiction previously conferred on the Commercial Tribunal in respect of appeals in relation to the Scheme. 7 The Fair Trading Administration Corporation has the functions and powers previously held by the Building Services Corporation in relation to provisions of insurance under the Building Services Corporation Insurance Scheme (section 39(2) of the Home Building Act 1989). Pursuant to section 88 of the BSC Act, the Tribunal has the power to confirm the decision of the Respondent or to substitute for that decision any other decision or order that the Respondent could have made. The Relevant Law 8 Section 91 of the BSC Act provides for the establishment of the Comprehensive Insurance Scheme ('the scheme') to apply to residential building work carried out after 4 February 1991. The terms of the scheme are found in Form 4 of Schedule 1 to the BSC Regulations. It covers certain residential building work that was carried out by a person who was the holder of an appropriate licence under the BSC Act (clause 3). The scheme provides that successors in title to the owner of the land on which the residential building work was carried out are beneficiaries (clause 4). 9 Losses indemnified under the scheme include losses in rectifying defects in insured work (clause 5(d)) and losses in repairing damage caused to the dwelling by a defect in the insured works (clause 5(e)) up to a maximum, aggregate claim of $100,000 for a single dwelling (clause 6). Claims must be made within time limits set out in the terms of the scheme. Clause 7 provides, in part, as follows: "TIME LIMITATIONS 7.(1) Subject to subclause (2), to qualify for the benefits under this Scheme the beneficiaries must notify the Corporation in writing of the matters that could give rise to the losses referred to in clause 5 of 5A within the following times: (a) … (b) for loss relating to heads of claim in clause 5(1)(d) or (e) incurred in rectifying major structural defects or in repairing damage to the dwelling that has occurred in consequence of major structural defects- within 6 months after the beneficiary first becomes aware of the defect, but not later than 7 years from: (i) the commencement of insured building work which is not also insured owner builder work; or (ii) … (c) for loss relating to heads of claim in clause 5(1)(d) or (e) other than those referred to in paragraph (b)–within 6 months after the beneficiary first becomes aware of the defect, but not later than 3 years from: (i) the commencement of insured building work which is not also insured owner builder work; or (ii) … (d) … (e) … (2) The Corporation may extend the times specified in subclause (1) if it is satisfied that the delay in notification was due to circumstances outside the control of the beneficiary. (3) If the Corporation exercises its discretion under subclause(2) , it may assess the indemnity for the cost of: (a) completing incomplete work or rectifying defective work; or (b) … on the basis of the reasonable market costs prevailing at the latest time the notification would have been required to be made in the absence of that discretion." 10 Clause 10 of the scheme provides that the BSC has no further liability under the scheme more than 10 years after the commencement or the residential building work, "for any reason attributable to that work". 11 "Residential Building Work" is defined (as far as is relevant here) in section 3 of the BSC Act as follows: " "residential building work" means any work involved in, or involved in coordinating or supervising any work involved in: (a) the construction of a dwelling; or (b) the making of alterations or additions to a dwelling; or (c) the repairing, renovation, decoration or protective treatment of a dwelling." 12 "Dwelling" is defined in section 3 of the BSC Act as follows: " "dwelling" means a building or portion of a building that is designed, constructed or adapted for use as a dwelling (such as a detached or semi-detached house, transportable house, terrace or town house, duplex, villa-home, strata or company title home unit or residential flat)." - It includes any swimming pool or spa constructed for use in conjunction with a dwelling and such additional structures and improvements as are declared by the regulations to form part of a dwelling. - It does not include buildings or portions of buildings declared by the regulations to be excluded from this definition." 13 'Major structural defect' is defined in clause 31 of the BSC Regulations: "major structural defect" means an inherent or damage-induced defect: (a) in an element that provides essential supporting structure to the whole or any part of a dwelling ( for example, a footing, beam, column or a suspended slab) which renders the element inadequate for its structural purpose; or (b) in a substantial functional element essential to the habitability of a dwelling ( for example, a panel wall, masonry veneer wall or slab on ground) which is of such a kind that the element itself does not have adequate structure for its purpose." 14 "Damage-induced defect" is defined in clause 31: "damage-induced defect" means a defect in an element of a dwelling, or part of a dwelling, caused when the element was damaged: (a) by the holder of a licence, or holder's employee or agent, in doing residential building work connected with that dwelling; or (b) as a consequence of such work having been done defectively." 15 It is for the Applicants to prove their case to the Tribunal on the civil standard of proof, namely the balance of probabilities. Issues 16 There are a number of issues to be determined in this case which are inter-related. The first is whether the defects, which are the subject of the original claim encompassed the defects in the alleged second claim. If so, they will be "major structural defects" and the claim will have been made within time. If not, it will be necessary to determine whether the defects encompassed in the first claim are 'major structural defects' within the meaning of that phrase in the BSC Regulations. If they are not 'major structural defects', they are described as general defects. 17 An issue would then arise as whether the Tribunal should exercise its discretion to accept the claims outside of the time limits set in the terms of the BSC Comprehensive Insurance Scheme. It is agreed that the building work, which is the subject of the dispute, commenced in September 1991. In accordance with the terms of the scheme set out above, Mr Rich would have been required to notify FTAC (or before it the BSC) of the defects by September 1994 in the case of general defects, and by September 1998 in the case of major structural defects. Outside of these time limits it is for the Tribunal to determine whether the failure to notify was due to "circumstances outside of the control" of the Applicants. The determination of the extension of time issues is not considered in these reasons. If, after the Tribunal determines the issues mentioned in paragraph 16, an extension of time issue arises it was agreed that written submissions would be sought from the parties before any determination is made. The Evidence 18 In order to understand the nature and complexity of the issues it is necessary to traverse the evidence presented to the Tribunal in some detail. 19 The Tribunal heard sworn evidence from the following persons – a) called on behalf of the Applicant – i. the Applicant himself, Mr Rich; ii. his partner, Ms Rich; iii. Mr Rendell, a Building Consultant iv. Mr Shayler, National Technical Manager, CSR Building Materials - Hebel v. Mr Simpson, a Consulting Civil and Structural Engineer; vi. Mr Tierney, a Concreter who had worked on both houses; and vii. Mr Burnes, also a Concreter who had worked on both houses. b) called on behalf of the Respondent – i. Dr Kanan; and ii. Mr McNamara, Principal Structural Engineer. 20 The Tribunal had tendered to it expert reports from – a) Mr Rendell dated 22 June 2000 and 3 October 2000. b) Mr Shayler dated 27 July 1999 and 30 July 2000. c) Mr Simpson 18 September 1999, 30 May 2000 and 4 October 2000; and d) Mr McNamara dated 1 February 2000, 11 August 2000, 12 September 2000 and 22 September 2000. 21 In addition the Tribunal had tendered to it affidavits by: a) Mr Rich dated 26 November 1999; b) Mr Tierney dated 14 August 2000; c) Mr Burnes dated 14 August 2000; and d) Mr Kuster, the builder of the house, dated 29 September 2000. 22 The Applicant's claim is based on the fact that there is extensive cracking to both the external and internal walls of the house, with consequent problems resulting from an alleged failure of the structures weather proofing. At the commencement of the hearing there was a marked difference between the understanding of the experts retained by the Applicant and those retained by the Respondent as to the method of construction of the house. 23 The Applicant's home was constructed using Hebel bricks. These are aerated auto-claved concrete bricks, and are typically used to crate a single skin structure, without internal framing, which is rendered to make it weatherproof. The precise date of commencement of the building is unclear, although Young Shire Council records indicate that the footings were inspected 2 September 1991. The Applicant's purchase of the property was finalised on 1 May 1992. 24 In his affidavit of 20 November 1999 Mr. Rich outlined what then followed: 3. Approximately 8 months after we had moved in following settlement of our purchase we noticed cracks appearing in different parts of the inside and outside of the house. I contacted [Mr Kuster], the principal of P A Kuster Pty Ltd, by telephone and informed him of the problem. He told me he would come up to have a look but despite numerous other calls he failed to show. Eventually after about 12 months since I first contacted him I sent him a letter demanding he attend my place to inspect the problem otherwise I would take legal action. Mr Kuster responded to the letter and after an inspection he patched up the cracks. 4. However, the patch work was unsuccessful and after a month to six weeks the cracking re-appeared. I kept ringing Kuster to let him know the problem hadn't been fixed and that the cracking was getting worse. Everytime he told me he would come back and fix the problem. He never responded to these calls although he made promised that he would come and see to the problem. 5. The cracking continued to get worse and worse. I didn't know where to turn. I then decided to ring [Mr Basham] who owned a property across the road which Kuster had also built and told him of our problems. He told me that he was having the same problems. He also told me that I had 7 years to lodge a claim with the Department of Fair Trading and we decided to keep in contact with each other regarding the cracking in our respective house. 6. Some time later I spoke to [Mr Basham] and he told me he had been in contact with a structural engineer by the name of Simpson who was coming to look at the problem. [Mr Basham] told me he would ask Simpson to see me when he was in Young to look at his house. 7. I engaged Mr Simpson to do the report on my house and he prepared the report dated June 1998. I then decided to make a complaint to the Department of Fair Trading which I did at the end of July 1998. 8. The Department investigated our complaint but by its letter dated 6 October 1998 advise us that Kuster was not prepared to rectify the works and we should submit an Insurance Claim Form. However we were informed that we should obtain three quotes to accompany the Claim. I tried to get quotes from local builders but no seemed to be interested. 9. So I decided in March 1999 to lodge the Insurance Claim Form anyway following advice from an officer of the Department of Fair Trading. 10. I eventually obtained 3 or 4 quotes from builders. 11. At no stage did we realise that our claim should have been submitted earlier. 25 With respect to the problems caused by the cracking in the house, Mr Rich said: a) that the bed in his eldest daughter's bedroom had to be moved because: i. the wall moves, and ii. moisture penetrated during winter. b) in winter, mould forms throughout the house and condensation drips off the windows. c) when windy, drafts circulate throughout the house. This is so despite efforts to stop drafts, by fitting rubber seals around the doors and using snakes to block gaps under doors. d) that there are constant drafts in his bedroom making it was necessary to have the heater on all the time in the cooler months. e) that water comes down the bathroom's walls. f) that his daughter's rooms are cold despite the fact that the roof is insulated. g) that some of the cracks in the house are visible both internally and externally. 26 Mr Rich gave evidence of two meetings with Dr Kanan of PPK Consultants, expert consultants retained by the Respondent. In view of the conclusions I have reached it is not necessary to outline that evidence of determine the conflicts it raised between Mr and Mrs Rich's recollection of those meetings and Dr Kanan's. 27 Mrs Rich also gave evidence of the first inspection by Dr Kanan from PBK. As to the effects of the condition of the house on their day to day life, Mrs Rich said: a) that her children get coughs and colds regularly, as do the whole family. b) the walls are wet and mouldy, and they have spent a large amount of money cleaning them. The windows are wet and drip continually. c) the house is cold and wet. d) the house is breezy and despite efforts, they are unable to locate the source of the drafts. e) they have been so cold in the house that they have changed their heating from electric to gas. f) that their daughter Courtney's room, which is at the rear left hand side of the property, is always damp: there is water on the windows, mould on the ceiling and walls. They had to remove her bed from the walls because the bedding was getting damp and mouldy. g) the heating is on every day in the cooler seasons. She described living in the house as depressing. 28 There was considerable expert evidence called by both parties as to the nature and cause of the defects in Mr and Mrs Rich's home. Before turning to that evidence it is convenient to refer to the evidence of Mr Tierney and Mr Burnes, who both worked on the construction of the house. Their evidence had a considerable impact on the Tribunal's consideration of the expert evidence. 29 Mr Tierney is a concreter /handy man. He said that in constructing both the Rich and Shiller homes, a system called the Australian Litebrick Company System was used. This involved a cement slab being laid, into which holes were drilled, with rods then glued into the holes at regular distances. Mr Tierney said that the rods, once glued into the holes, were very firmly fixed. He called these rods the "set-out rods". They were 1m high. 30 Once the rods were drilled into the slab, the first course of Hebel bricks was laid in a course of mortar to provide an even surface. When an even surface had been achieved, Hebel blocks were put, one over the other, on top of the steel rods and dry stacked, without the use of adhesive or mortar. The set out of the rods and the bricks was in accordance with a colour-coded plan provided by the Litebrick Company. The bricks were made in such a way that they were keyed into each other, having tongue and grove ends. Each brick had holes drilled through it so that the brick could be inserted over a rod if necessary. 31 The construction of each house proceeded with the Hebel bricks, as modified, being dry-stacked. When they were laid to a level where they had reached the top of the 1m high set-out rods, a connecter was used to add a further metre of height to the rods. This was a simple process as the rods were threaded, and it was simply a matter of using a connecter to screw the two together. This process continued until the walls reached the desired height. At this point, a top plate of timber was drilled and fitted over the top of the set-out rods. Washers, bolts and nuts were then fitted, and the walls were tensioned down. Mr Tierney said that there was no adhesive used on the walls externally. He said it was his understanding that Council had been told of the method and had approved it. 32 Mr Tierney said that the set-out rods were placed at varying distances apart depending on where they were sighted, at distances of between 1200mm down to 450mm in the corners. Mr Tierney said that he thought that the houses had been designed by Mr Carpenter, a local architect. Mr Carpenter's plans had been given to the Litebrick Company who had prepared a laying plan for the Hebel bricks, which was colour-coded showing which bricks, of what size, were to be used where. Mr Tierney said that in laying the bricks at both houses, these plans had been followed. He did not know if Mr Carpenter was aware that the bricks were to be dry stacked. 33 Mr Tierney was cross-examined extensively by Ms Kennedy. In the course of cross-examination, he told of how he, his partner Mr Burnes and a local builder, Mr Kuster, had come to be involved in the formation a company, Ferbane Pty Ltd, which had developed the Rich and Shiller homes using the Australian Litebrick Company construction method. Much of the evidence given by Mr Tierney assisted the parties in finding further information about the construction method, but is not relevant to my determination of the issues in this case. 34 In cross-examination Mr Tierney said: a) CSR Hebel manufactured the bricks for the Australian Litebrick Company; b) the Australian Litebrick Company drilled the bricks at its own premises: he did not know if CSR Hebel was aware of this; c) that Hebel bricks were extremely water resistant and that an external coating, created by Edgar Lucth from Queensland, called 'Supa Coat', was used as render. This involved the application of a blue substance to seal the bricks before putting on a render of Supa Coat. The blue coating stopped flakiness and provided a surface for the Supa Coat to be applied to. Mr Tierney said that the Supa Coat used on the Rich's property was different to that used on the other properties as it contained more pebbles and provided a rougher texture. d) with respect to the internal walls of the properties, these were not constructed using the Australian Litebrick method, but Hebel's ordinary method as the bricks were extremely thin and could not be drilled. Hebel glue was therefore used on all internal walls. e) where internal walls abutted onto external walls, no ties were used, but the internal walls were fixed to the external walls by using Hebel glue. f) that the only information the Australian Litebrick Company provided to he and his partners about the building system were the colour-coded plans. g) that when working on the Rich's home he had done a bit of everything including laying the bricks, fitting of set-out rods, as well as the cement work around the house. h) there was a damp course at the property. He commented that the Council had inspected the footings. i) with respect to the specification of the building, that he was never shown the specifications, but that he knew the Council was aware of the system being used, because there had been a meeting with Mr Page, the Building & Health Inspector, from the Council, explaining how the system worked. It was put to him that the specifications given to Council showed that the bricks were to be glued. He agreed that this was the case, but said that the first time he had seen the specifications was the day before he gave evidence. 35 Mr Burnes, also a Concreter, gave evidence, that he had worked on the construction of these dwellings. He said that the brickwork was dry stacked, on threaded rods, at distances of between 600mm & 1200mm. These rods were chemically anchored into the slab and, when the bricks had been dry stacked, were bolted down using the specifications provided by the Litebrick Company. Internally, the walls were 100mm thick. The blocks had a tongue and groove on them which enabled them to be fitted together. 36 Mr Burnes confirmed Mr Tierney's evidence that the Litebrick Company drilled a hole in the Hebel blocks at its premises across the road from CSR Hebel in Gosford. He was unable to say whether CSR knew that the bricks were being drilled or were being used without adhesives. He said that the Council knew of the method of construction because when they inspected the footings, they would have seen the dry stacked brick blocks above and below the footings. When told that there were specifications that said that the walls were to be glued using adhesive, he said that it was news to him. The specifications did not reflect what really happened. 37 In cross-examination, Mr Burnes recalled a meeting with Mr Page, the Building Inspector, Mr Jackson from the Australian Litebrick Co, Mr Kuster and Mr Tierney where the method of construction was discussed. He could not recall what was said. 38 Mr Burnes said that the render on the houses were provided by Edgar Lucht, who came down while they were building Rich's home and showed them how to use his products. The outside render was trowelled on while the inside was sprayed on. He agreed that a blue substance was first applied. He did not know whether the render was CSR approved. He was asked about how the internal and external walls were secured to each other where they abutted. He said there was tie every 2nd course and a thin layer of glue. 39 The evidence given by Mr Tierney and Mr Burnes in the course of the hearing as to the method of construction, provided levels of detail and access to information which had not previously been available to the various expert witnesses retained by the parties. That evidence led each of those experts to reassess their respective opinions to various degrees. 40 There was a six week period following that evidence up to 5 October 2000 for them to do so. These inquiries led to an affidavit sworn by Mr Kuster, the builder of the house, being filed on 3 October 2000 (and tendered 5 October 2000). Attached to the affidavit were a series of documents concerning the Lite Brick system which Mr Kuster said had been in his possession and had been given to the Young Council. These were: a) a uniform distributed load test report on Hebel – Litecrete from the CSR Concord Research & Development Centre (undated); b) a report dated August 1991 from Associate Professor Page of the University of Newcastle reporting test results on AAC "Litebrick" Panels; c) a copy letter dated 26 November 1991 from the Brisbane City Council to Lite Brick Holdings Pty Ltd advising that: …approval is granted to use the Lite Brick A.A.C. Building System in the Brisbane City Council Area provided the System is used strictly in accordance with the Manufacturer's and Engineer's recommendations. d) a copy letter dated 18 December 1992 from the Queensland Department of Housing Local Government and Planning to Lite Brick AAC Holdings Pty Ltd advising that the Lite Brick AAC Building System had been approved for use in the Departments construction program - …subject to the following: + System is to be installed strictly in accordance with technical information supplied with original submission. + "Supa Coat" textured coating is to be applied to the AAC block by approved applicators only and is to be applied in accordance with information supplied with original submission. + approved licensed block layers only are permitted to perform work associated with the system. e) a undated document entitled "Design Data for Processing"; and f) a copy undated letter from Graeme Holmes & Associates Pty Ltd, Consulting Civil & Structural Engineers explaining the Litebrick Wall System. 41 In outlining the expert evidence I consider it necessary to have regard to the initial opinions given by the various experts and how they changed in the light of this information. 42 The Applicant called Mr Rendell who in evidence in chief was taken through his report in some detail. He said that he concluded that the property was suffering from major structural defects for a number of reasons. These were: a) Non-compliance with Ordnance 70 in relation to special masonry. b) Rain and water was not prevented from entering the dwelling. c) Non-compliance with the manufacturer's specifications with respect to damp-proofing, dry-beds, wall intersections, the absence of fibre-glass matting, and the presence of tie-rods. d) The fact that the bricks had been dry-stacked and that no adhesive had been used to bind them. He acknowledged that the tie-rods – set-out rods - fulfilled this function in part. Mr Rendell said that he did not consider that the structure was structurally sound, or serviceable. 43 In cross-examination, it was put to him that the non-compliance with Ordnance 70 was not a true non-compliance as the certificates he said he would require were discretionary only. He was asked about his experience in working with Hebel bricks and listed a large number of projects where Hebel had been used of which he was the project manager. He said that in the last 12 months, he had had to investigate the use of Hebel on a number of occasions and it was only in that time that he had investigated them deeply. It was put to him that the specifications for the use of Hebel had changed dramatically since 1991/92 when these dwellings were constructed and now. He agreed that he had used edition 6 of the Hebel manual in preparing his report, and had not seen editions 3, 4 & 5. He had spoken with Mr Sabe from CSR to see if they had changed dramatically. 44 Mr Rendell agreed that structural codes were aimed at securing four essential elements – strength, stability, durability and serviceability. It was put to him that the strength of the structure had not been compromised – he disagreed, cited a number of items in his report. He thought that the cracking was the most obvious example of this. 45 He was asked on what basis he had concluded that the Hebel bricks had been dry-laid. He said this was on the basis of a non-invasive examination by him and on the report from Mr Simpson. He said that he had examined those bricks that he could see, and could see no sign of adhesive between the blocks. 46 He was asked on what basis he concluded that there were no ties between abutting walls. He said that where there were vertical cracks between abutting walls, it should be possible to see ties. His examination of the cracks between abutting walls – that is where external-internal walls abut external walls - had showed no evidence of ties. He qualified his statement by saying, that was not to say they were not there, but that he could not see any when he would have expected to. 47 He said that single-skin walls, should not be regarded as impervious to rain and needed to be rendered or sealed. This was the purpose of the rendering. He put the bubbling of the render around the edges of the Rich's property down to one of two causes: rendering inappropriately applied or the wrong render. 48 It was put to him that mesh reinforcing control joints and slip joints were not required by the Hebel manual at the time of the construction of the building. He said that he was not aware of this. He agreed that if mesh reinforcing had not been required, he would not have used it, but was not prepared to concede as much with respect to control joints and slip joints. He described these as common building practice. 49 He was questioned about his views of crack width and reliance on the Australian standard to determine that crack width indicated structural damage. In reply to this, Mr Rendell said that the number of cracks and their size, in the context, indicated a lack of structural integrity. He qualified this by saying that he was not saying that the walls could not hold the roof up, or that they were not stable, but their serviceability was poor. 50 It was put to him that the paths around the property were higher than the damp course, thereby allowing surface water to enter the walls. He said that this might be the situation at the side, was the situation at the front, but was definitely not the situation at the rear of the property. This is so as the damp course at the rear was 3 or 4 brick levels above the concrete pathway. He had taken moisture levels at a spot above the damp-course and had found readings of 99.9, the highest possible, and 77.7. 51 Mr Rendell gave further evidence ( following my granting the Applicant leave to re-open their case) on 5 October 2000. In doing so he was taken through a further report dated 3 October 2000 which outlined his opinion having taken into account, and investigated, information obtained about the Litebrick construction method. 52 Mr Rendell said that upon receiving design data for the use of the Litebrick construction method – obtained by the Respondent's experts - he had gone to the Rich's home to examine the state of the fastenings. He had removed some of the roof tiles, at both the front and back of the house, and cut back the sizillation in order to get a clear view. Of major concern, he found: a) the wooden top plate is not F17, seasoned, kiln dried hardwood as specified in the design data, but F8 pinus radiata, a softwood. b) in two places on the front elevation of the house he found that the top plate had a thickness of less than 23mm, whereas the design data specified that in no instance was the top plate to be less than 35mm thick. c) the top plates where they abutted were not spliced as specified in the design data. In the instance he observed there was: … just a rough, out-of-square, out-of line, butt joint with a 3-4mm gap. The only tie between the two top plate members were 2 X jolt head nails, both skewed from one member to the other. This meant that there was no continuity of top plates around the building's perimeter as specified in the design data. d) that of the 10 rods he examined at the Rich's house he could turn the nuts on 8 by hand. None of the nuts were tensioned to the specified level of 15kN. One nut was so loose that he could insert a 20c coin under the washer. e) none of the tie-rod bolts he examined was fitted with "load indicating washers" as specified, and the washers fitted were undersized. f) the rods were randomly spaced, invariably at greater distances than those set out in the design data. g) none of the piers he observed were reinforced with fibre glass as specified in the design data. h) the masonry pier in the north-east corner of the house which supports a lintel spanning an opening of 1800mm, has only one tie-down rod. This does not comply with the design data requirement that there be, "2 X Member rods either side of all openings 1200mm or wider". That pier also was not as wide as specified. 53 Mr Rendell concluded that the large number of non-compliances with the Litebrick design data had most likely led to the defects set out in his first report. He was of the view that the non-compliances constituted a major structural defect. He remained of the view that the defects enumerated in his first report still constituted major structural defects, the damage being inherent and defect induced as a result of the failure to comply with the design data. 54 The following points emerged from Ms Kennedy's second cross-examination of Mr Rendell: a) he had tested the nut tension on 10 of the rods. b) he was unable to say how many rods there were in the structure as they were set out randomly. c) that the design data recommended the set out of rod centres rather than specifying them. 55 Ms Kennedy challenged Mr Rendell's conclusions that the problems he had discovered following receipt of the Litebrick design data were responsible for the defects set out in his first report. Mr Rendell said that the fixing and top-plate problems were logically responsible for the cracking, which were the result of the cumulative effects of that poor work. The Litebrick system relied on tensioning to provide the structural stability which Hebel constructions normally gained from the use of adhesive. The absence of tensioning, together with the other non-compliances, had, in his opinion, led to the cracking. Mr Rendell agreed that he would always refer such questions to an engineer, but commented that 'basic logic and experience tells me' that that the construction defects led to the cracking. 56 Mr Rendell was questioned further about the Table of Classification of Damage with Reference to Walls – Table C1 of Appendix C of AS 2870-1996 'Residential Slabs and Footings – Construction' – a copy of which is annexure 1 to these reasons. It was put to him that the cracks in the walls at the Rich's house were damage category were 1 and 2 cracks and that they were not structural. Mr Rendell disagreed saying that a degree of judgement had to be applied when applying the Table, as is indicated in the notes to the Table. It remained his view that the cracks were of damage category 3 because of the nature of the construction of the walls, the effect of the cracks on living conditions in the house, and his conclusion that the cracking was likely to deteriorate. 57 Mr Shayler, the National Technical Manager of CSR Hebel, and a Civil and Structural Engineer gave evidence on behalf of the Applicant. He did so before the evidence of Mr Tierney and Mr Burnes was led, and without the benefit of knowing of, or seeing, the material attached to Mr Kuster's affidavit. Mr Shayler has been the National Technical Manager for CSR Hebel since August 1998, and two reports he had written, dated 27 July 1999 and 31 July 2000 respectively were tendered. It was Mr Shayler's view, having inspected Mr Rich's property on 28 March 2000, that there was cracking in both the exterior and interior walls, and that the exterior coating on the premises had failed. Mr Shayler said that in his opinion the house was not structurally sound as the Hebel bricks had been dry stacked, without the use of adhesive. He explained the strength of AAC Hebel structures was dependent on the bonding of the block created by adhesive. CSR Hebel had never tested dry stacked walls and it was difficult to predict the effect of the absence of adhesive. Mr Shayler also noted that the absence of both slip and control joints in the structure would contribute to its instability. 58 In cross-examination Mr Shayler was asked on what basis he concluded there was no adhesive used in the construction? He replied that a number of factors had led him to do so. First, the report by Mr Simpson said that no adhesive had been used. Other indications of the absence of adhesive were: a) that many of the cracks in the house followed the jointing pattern. Mr Shayler was of the view that this was unusual unless there was no adhesive. b) the adhesive was not visible, and should be so as it should have been applied so that it was 2 to 3mm thick. Ms Kennedy challenged Mr Shayler as to the thickness of adhesive required, suggesting that at the time of construction a thickness of only 1mm was required. He denied this. She put to him that it was highly unlikely that the walls were dry-stacked, and that his conclusions as to the structural integrity of the house would differ if the walls were not dry stacked. Mr Shayler maintained his view that the walls were dry stacked. 59 Ms Kennedy challenged Mr Shayler on his views with respect to slip and control joints, and the requirements for them in the Hebel Technical Handbooks. Given the later evidence that the house was constructed in accordance with the Lite Brick System design data, I consider that evidence to be of little relevance. 60 Mr Simpson, a consulting civil and structural engineer was called by the Applicant. His reports of 18 September 1999 and 30 May 2000 were tendered. Mr Simpson had inspected a series of house constructed in Young by Mr Kuster, including the Rich and Shiller homes, in May of 1998. He had determined the method of construction by examining photographs of the houses under construction and by questioning an owner who had observed the construction. 61 His understanding was that the houses were constructed of dry stacked Hebel bricks as a single skin, with 12mm steel reinforcing rods at 900mm centres. He assumed that there were reinforcing bars as the roofs had not blown off. On his inspection in 1998 he observed a consistent pattern of cracking in all houses, which followed the joint line – the weak point - between the Hebel blocks. He commented that if there was adhesive he would not expect the cracking to follow the joint line. In his report of 18 September 1999 he commented that: Hebel blocks should be laid using thin bed adhesive between all blocks as recommended by the manufacturers CSR Hebel. Alternatively, it is possible to construct the walls with the rods and no adhesive provided reinforcing mesh is used over all block joints during the rendering process. This method is sometimes used in Queensland. 62 Mr Simpson said that the walls did not provide a full weatherproof seal. He was of the view, given the method of construction, that the cracking would get worse. This was so as the Hebel blocks would be compressed and shrink over time, which together with a loosening of the tie bars, would allow further movement. 63 In cross-examination it was suggested that the cracking evident in the houses were settling cracks. He replied that the houses were built on moderately reactive clays, and that he thought settling cracking would be minimal. He agreed with Ms Kennedy's proposition that there were four elements to structural adequacy: strength, stability, durability and serviceability. He accepted that the first three were evident in the houses, but was of the view that the houses were not serviceable as they were not weatherproof. Mr Simpson was challenged on this conclusion. He said that if a Hebel wall was properly constructed and rendered, no extra waterproofing should be necessary. In his view this was not the case with these houses. He was referred to the reports prepared by PPK Consultants and by Mr Rendell, both of which he had read. It was put to him that the cracking was all category 2 cracking for the purposes of AS 2870-1996, and that it was not structural. In reply Mr Simpson said that in his view AS 2780-1996 did not really address the issue of serviceability and habitability. In any case, a distinction needed to be made between a single skin wall such as existed here and cavity walls or brick veneer constructions. While category 2 cracking may be acceptable in cavity walls or brick veneer constructions, in his view it constituted a major problem in single skin walls. It was put to him that the cracking would be considerably worse, if there was no adhesive used with the Hebel bricks. He maintained his view that there was no adhesive used, although he did qualify this by saying that he believed adhesive was used around the windows. 64 Mr Simpson was not recalled to give further evidence after the design data for the Lite Brick construction method came to light. A further report from him was however tendered, by consent, on 5 October 2000. That short report dated 4 October 2000 was written after Mr Simpson had read Mr Rendell's report of his investigation of whether the Rich and Shiller homes complied with the Lite Brick design data. He wrote: The Rendell Report compares the as built building method used on the said premises against the specifications for the construction method adopted as outlined in the document titled "Tests of AAC Litebrick Panels", the report by Graeme Holmes & Associates Pty Ltd and the document titled "Design Data for Processing" plus other reports as mentioned in the supplementary report. In general the writer concurs with the conclusions of the Rendell report. The total lack of pre-tensioning in the vertical wall bars combined with the lack of tensile strength in the render (as evidenced by the extensive render cracking) means that the walls as a major structural element contain major structural defects from both a strength/stability viewpoint as well as a weatherproof/habitability viewpoint. The walls in these two houses have not been constructed in accordance with relevant specifications. 65 The Respondent called two expert witnesses both from PPK Environment & Infrastructure Pty Ltd. The first was Dr Kanan, a Senior Structural Engineer, whose evidence was interposed during the Applicant's case, after Mr Tierney and Mr Burnes had given their evidence. 66 In evidence in chief Dr Kanan said that he had inspected the Rich's house on 16 December 1999 on instructions from the Respondent. While there he had taken extensive notes and taken photographs of what he observed. He recalled that when he had arrived, he had sat down at a table with Mr and Mrs Rich and discussed with them what he intended to do, and had asked them about various bits of information he needed. He had then started the inspection. Mr Rich had originally accompanied him. When he finished, he had again spoken with Mr Rich who had asked when the report would be ready. He had told him it would be 2 or 3 weeks. Dr Kanan could not recall exactly what was said. He thought Mr Rich might have asked if it was structural, in which case he would have told him he would get a copy of the report from the Department. Dr Kanan said he recalled discussing living in Queensland with Mr Rich. Mr Rich had offered to drop Dr Kanan back in town, which offer he had accepted. 67 Dr Kanan said that when he returned to his office he had prepared a draft report, which he had discussed with his principal, Mr McNamara. After that discussion the final report had been finalised between the two of them. 68 Dr Kanan had met Mr Rich again on 4 April 2000 when preparing a report on the Shiller's house. By that time he had completed the Rich's report. He said that Mr Rich had approached him and asked how things were going. He had replied that there was another problem, referring to the Shiller's house. 69 Much of the cross-examination of Dr Kanan was directed to the inconsistencies between his recollection of the event of 16 December 1999 and 4 April 2000, and that of Mr and Mrs Rich. Given the conclusions I have reached, it is not necessary to set out that evidence in these reasons. Dr Kanan was asked why he had not signed the report form PPK, if it was his report. He replied that the practice at PPK was for the investigating engineer to prepare a draft report, which was then discussed and refined together with the principal – in this case Mr McNamara – who acts as a quality assurance reviewer. The principal then signs the final report. He said that his draft report and the final report were the same, apart from editorial and grammatical corrections. He was unable to produce a copy of his draft as the reports were not saved by versions. 70 The other expert called by the Respondent was Mr McNamara the Principal Civil/Structural Engineer with PPK. Reports signed by Mr McNamara relating to the Rich's house and dated 1 February 2000, 11 August 2000, 12 September 2000 and 22 September 2000 were tendered. In evidence Mr McNamara explained that PPK has a "very vigorous" reporting system which allows it to report in a "uniform and consistent" manner. This procedure was followed with both the Rich and Shiller houses. Dr Kanan had conducted a thorough survey inspection of the properties and had then drafted a report based on the observations he had made. That report had been discussed with Mr McNamara and then redrafted by Dr Kanan, until it met with Mr McNamara's approval. He had then sighed the report. "I effectively prepared the report", said Mr McNamara. He had since inspected the house, when the Tribunal conducted a view of the property during the hearings conducted in Young in August 2000. 71 Mr McNamara said that the findings of the initial inspection of the property (conducted by Dr Kanan) was numerous cracking in the property which could be broken down into three types: a) vertical and diagonal cracking; b) block wall joint cracks which followed the path of the block joints; and c) render cracking. 72 Mr McNamara explained that cracking is caused by a combination of movements within the structure: a) roof timber shrinkage; b) concrete slab shrinkage; c) differential movements, resulting from the daily expansion and contraction of materials due to heat and cold; and d) foundation movement and reactive movement. Any masonry wall, he said, will have some cracking - the current code considers 1mm acceptable. In the both houses, Mr McNamara said that the various cracks could be attributed to various causes. Thus cracks one course down from the roof were due to roof movement, while the diagonal cracking was typical of settlement cracks, which wall shrinkage could often exacerbate. 73 Mr McNamara said that the walls constituted a major structural element of a structure, with an important structural role as well as a functional role. Mr McNamara said that when he wrote the first report he expected the walls to have been properly glued, and considered that the cracks did not affect the load carrying capacity of the walls. Walls, he said, have to be strong enough to carry the load placed upon them, they have to be durable, stable and serviceable. The structural codes set out the basic criteria required to meet these objectives. He concluded that the Rich's house was stable, strong, durable and serviceable, and, based on the foundation code Table in AS 2870-1996, that the cracking was minor. His view was that the cracking at the Rich's house was not significant, although he conceded that that might not be the case for those living there. 74 Mr McNamara had addressed the issue of the absence of control and slip joints in his report of 11 August 2000. His view that was that there was no requirement for control or slip joints in the Rich's property at the time it was constructed. In his report of 11 August 2000 he had undertaken a comprehensive review of the codes and the relevant Hebel technical manuals applicable at the time before reaching this conclusion. He explained that at the time he had undertaken this analysis he believed that the house had been built in accordance with CSR Hebel recommendations. He thought the rods referred to in Mr. Simpson's report were tie down rods for the roof, which would have been drilled, and faced, down the inside face of the walls. The first time he knew this was not correct was when he heard Mr Tierney and Mr Burnes give their evidence to the Tribunal. It is informative to set out what Mr McNamara said about this in that report: Mr Simpson states that 'no mortar was used between the blocks'. The basis of this statement is unclear although his earlier report on four houses in [Young] (April 1998) also states the "reported" absence of adhesive on the external walls but the use of thin bed adhesive on the internal walls. The PPK inspection noted that all faces of the walls were rendered and it was generally not possible to see any jointing in the blocks. The one area where external block walls are exposed appear to be properly bonded. Such a statement of reliance on steel rods to stabilise the walls seems unlikely because: - the walls would be highly unstable without the adhesive. It would be possible to easily push over wall or push out individual blocks; - the 12 mm rods which are required to hold down the roof would supply minimal benefits to wall strength and stability; - a tradesman who applies adhesive to the internal wall is unlikely to omit it on the external walls; - the building would have been seen by Council inspectors and other tradesmen prior to wall rendering. Any experienced person would have strongly questioned the absence of adhesive; and - the specification for the work included in Young Council's files indicates that the work was to be carried out by a CSR Hebel approved Contractor ([Mr Kustor]) and that the workmanship was to be of a type approved by CSR Hebel. The statement that the un-mortared joints was the genesis of the cracks is inconsistent with the fact that the claimed adhesive fixed internal walls show a similar level of damage as the claimed dry fixed external walls. The second point of concern raised relates to the waterproof performance of the wall. None of the inspections have identified telltale evidence of rain entry to any walls. Also the current masonry code AS3700 – 1998 states that for an external single skin wall reliance for waterproofing should be placed on an applied costing. Failure of that coating, if it has occurred, is not a structural failure. Mr Simpson therefore based his conclusion of a structural defect on a seemingly erroneous assumption. 75 With respect to the issue of whether the dampness at the house was a result of the absence of a dampcourse, Mr McNamara said that in an earlier report he had canvassed the possibility that there was no dampcourse. He now accepted that there was a dampcourse, in the light of the evidence to the Tribunal, but considered that the height of the path at the front of the property, above the dampcourse, was a cause of rising damp. 76 Mr McNamara was taken to his report of 11 September 2000 which sets out his assessment of the structure in the light of full information about the construction methods used, and with the benefit of the design data and test reports on the Lite Brick system. He said that following brief discussions with Professor Page and Mr Holmes, he had concluded that the Lite Brick system offered a level of structural equivalence with Hebel construction methods and he concluded that the structure was properly fixed. His report states his opinion: Evaluation of Wall Strength and Stability From the Tribunal evidence that the internal AAC walls were constructed with thin bed adhesive and the previous evaluations of their defects I reconfirm that the defects in these walls are 'General Defects' in accordance with Clause 31 of the Building Services Corporation Regulation 1990. I also confirm that the defects in external walls as constructed utilising the 'Lite Brick' wall system are also 'General Defects' in accordance with the regulations based on the evidence provided to the Tribunal, the above documentation and telephone discussions. These confirm the likelihood of adequate structural stability and strength for the external AAC walls and a structural equivalence to the thin bed adhesive walls which were previously assumed in and accepted as structurally adequate in my earlier analysis. The basis of this opinion is: - that the external walls have performed structurally adequately for the period of approximately eight to nine years since their construction. By structural adequacy I refer to the ability to support, without obvious distress, the applied loading including win earthquake or accidental impact. - the level of defects in the external walls which, although slightly higher than the internal walls, can be attributed to the more severe environmental conditions that the external walls are subjected to - particularly ground movement, material shrinkage and temperature and moisture effects; - the system adopted by Lite Brick Holdings utilises prestressing principles which are commonly used and are well understood in structural engineering. Whilst we do not have the design drawings and a record of construction relevant to the above property I understand from discussions with [Mr Holmes] that special engineering designs were prepared for each house layout to ensure the structural adequacy of the walls. The evidence provided to the Tribunal gave no indication of any short cuts to these requirements during the construction of the walls; - the fact that testing undertaken by University of Newcastle and CSR confirms this structural adequacy confirms the serious and professional approach adopted by Lite Brick in proving the structural adequacy of the system. The fact that both the Brisbane City Council and Queensland Department of Housing, Local Government and Planning have independently reviewed and have accepted the system gives an additional level of confidence in the system; - I have presented the opportunity during discussions with Professor Page and Mr Holmes to raise any concerns that they may have with the system which may have been gained through their experience in evaluating the Lite Brick system. Whilst clearly neither engineer was in a position to endorse the system they also did not nominate any areas of concern. Because the substitution of stressed rods and vertical block keys are structurally equivalent to the adhesive jointed blocks it is not surprising that these two wall types have cracked similarly. As stated in the previous assessments the cracking of these houses are consistent with movements within and adjacent to the walls. These mechanisms include: - foundation movements - both settlement and ground heave; - shrinkage of the blocks - a known phenomenon with AAC materials- - temperature effects; - shrinkage of the ground slab; - moisture movements in the roof trusses. As stated in previous reports the cracking in the walls is a result of site environmental conditions including temperature and moisture changes, ground movement and natural material shrinkage and expansion. Because regular vertical control joints and horizontal slip joints were omitted from the masonry wall construction these movements could not be readily accommodated in the walls without causing cracking. These joints were not a requirement of building practice at that time. Because relatively shallow foundations were constructed in accordance with building ordinance requirements of that time the vertical movements in those walls is greater than a building designed in accordance with the current Building Code of Australia requirements. Whilst these cracks are unattractive and causes obvious discomfort to the residents they do not weaken the wall and are unlikely to lead to premature failure of the house. it is also relatively simple and inexpensive to repair these cracks with a suitable flexible sealant which will, after repainting, address any visual and climatic concerns. Future cracking should be at a relatively reduced scale to that of today. 77 Mr McNamara then turned to the impact of the findings made by Mr Rendell as to how the structure failed to comply with the Lite Brick design data. Specifically, he considered the absence of proper top plate splicing, and the lack of tension in the tie rod bolts to be of major concern, and to put the structural stability of the building in doubt. As to the other non-compliances detected by Mr Rendell, he was unable to say what impact they may have on the structural integrity, but did think that they might possibly exacerbate the problems created by the top plate splicing and lack of tie rod tensioning. Mr McNamara said that he did not lack of stressing force in the walls, created by the failure to tension down the walls as specified. He was of the view that the looseness in the walls created by the lack of tension, should have enabled micro-movement between the blocks, and not led to the cracking that was evident. He remained of the view that the cracks were a mixture of settling cracks and movement cracks associated with shrinkage and normal expansion and contraction. 78 In cross-examination Mr McNamara agreed with the suggestion that with the Rich's house the failure of the render would make the structure less strong. He also agreed that, with dwellings, the concept of serviceability of a structure implies that it be reasonably habitable, and that one of the functions of a wall is to keep the elements out. He agreed that he had done no independent checks to see if the Lite Brick System was followed. 79 In addition to the large volume of evidence presented to the Tribunal, I also had the advantage of a view of both the Rich and Shiller houses. Discussion of the Evidence 80 There is little dispute as to the factual background to this appeal. What is hotly in dispute is the nature, extent and cause of the defects in the Rich's house, and whether or not the cracking alone constitutes a major structural defect for the purposes of the BSC Comprehensive Insurance Scheme. To resolve the later, I must first determine the nature, extent and cause of the defects. 81 There are two strongly divided views as to the nature and severity of the cracking among the various experts called by the parties. Mr Austin and Mr Rendell are of the view that the cracking is structural, and results from the method of construction. They think that the problems of non compliance with the Lite Brick design data highlight and go some way towards explaining the cracking, while creating serious issues as to the structural stability of the houses themselves. Mr Rendell, while the only professional witnesses without an engineering qualification, tenaciously chased down the defects and provided much of the information upon which the others formed their opinions. At all times both Mr Austin and Mr Rendell had a clear idea of the construction method used to build the houses, and based their findings on that knowledge. The only facet of the construction method they had not discovered, before Mr Tierney and Mr Burnes gave their evidence, was the keying of the blocks. Mr Shayler, from CSR Hebel, agreed with their earlier conclusions, on the assumption that their understanding of the construction method was correct. 82 Dr Kanan and Mr McNamara took the opposing view that the cracking was relatively minor. Mr McNamara did agree that the failure to properly splice the top plates, and to tension down the tie rods constituted a serious structural problem. He insisted, however, that the cracking was not related to these defects. 83 If one closely examines the reports submitted by PPK a number of things become clear: a) in the first report, of 1 February 2000, the assumption is made that the building was constructed in accordance with normal Hebel methods. This is so despite the fact that the authors had access to the Simpson report which clearly set out Mr Simpson's understanding of the construction method, and his sources. Indeed the PPK report addresses and criticizes Mr Austin's report. No explanation is given as to why it was assumed that the building was constructed in accordance with normal Hebel methods, rather than as stated by Mr Austin, who had made inquiries as to the method used. b) in the second PPK report of 11 August 2000 (quoted at paragraph 74 above) Mr McNamara, who still had not inspected the premises himself, commented on Mr Austin's 'reports' of the lack of adhesive, and listed a number of reasons as to why the reported method of construction was unlikely. This included a statement that, 'The one area where the block walls are exposed appear to be properly bonded'. This was something that neither Mr Austin or Mr Rendell could see. It is also something I could not detect at my view of the property. c) the third report of 12 September 2000 (quoted at paragraph 76 above) addresses the issue of the impact of the evidence given to the Tribunal that the house was built using the Lite Brick construction method. As noted, this evidence did not cause Mr McNamara to change his opinion. Of particular interest is the fact that he reviewed and affirmed his opinion without making any further inspections or tests at the house. The problem, in not doing so, was highlighted by Mr Rendell's discoveries when he did conduct further on site investigations. 84 The other issue requiring comment with respect to the PPK reports and Mr McNamara evidence is the methodology adopted in preparing the first and second reports. While there is nothing inherently wrong about an engineer, such as Mr McNamara, giving an opinion based upon the observation of others, that opinion is necessarily dependent on the accuracy and relevance of those observations to the issues at hand, and is, of its nature, likely to be given less weight by a tribunal of fact than a expert report based on an expert's own observations: see PQ v Australian Red Cross Society (1992) 1 VR 19 per McGarvie J. and Ramsay v Watson (1961) 108 CLR 642. That is certainly my view when I come to weigh the PPK reports against those of Mr Austin and Mr Rendell, especially as a number of the assumptions and observations which Mr McNamara and Dr Kanan relied upon were proved incorrect. 85 I have little confidence in the PPK reports and in Mr McNamara's evidence. The PPK opinions have been made on the basis of a series of assumptions which proved unfounded. viz, the false assumption that the house was not built as stated by Mr Austin, and the later false assumption that it was built in accordance with the Lite Brick design data. Expert opinion evidence to be persuasive in cases such as this should be based on independent inquiries and investigation, followed by expert assessment and evaluation. I am persuaded that this was not the case with the PPK reports. I conclude that while Mr McNamara's evidence and reports may be uniform and consistent, they are not persuasive. I prefer the evidence of Mr Austin and Mr Rendell, which does not suffer from any of defects I perceive in that of Mr McNamara. Application of the Law 86 In making submissions of law Counsel for both parties referred me to a decision of Senior Member Fleming in Penn v Fair Trading Administration Corporation (2000) NSWFTT 5 as to the interpretation of the meaning of major structural defect in Clause 31 of the BSC Regulation. Senior Member Fleming wrote (at paragraph 45): Are the defects 'major structural defects'? To determine this issue the Tribunal must first consider the meaning of the definition of 'major structural defect' found in Regulation 31 of the BSC Regulations and set out above. To facilitate this discussion it is set out again here: "major structural defect" means an inherent or damage-induced defect: (a) in an element that provides essential supporting structure to the whole or any part of a dwelling (for example, a footing, beam, column or a suspended slab) which renders the element inadequate for its structural purpose; or (b) in a substantial functional element essential to the habitability of a dwelling (for example, a panel wall, masonry veneer wall or slab on ground) which is of such a kind that the element itself does not have adequate structure for its purpose[s]. The definition is in terms which convey that it is intended to be comprehensive and exclusive, in for instance the use of the word 'means'; Sherritt Gordon Mines Ltd v FCT (1976) 10 ALR 441 at 455. At the same time each limb of the definition is to be read disjunctively. The examples cited in each limb are illustrative of the nature of the 'element' to which each applies and they themselves are not exclusive. … Regulation 31(1)(a) distinguishes 'an element' which has a, singular, structural purpose . Regulation 31(1)(b) distinguishes a 'substantial functional element' that may have inadequate structure for its purposes . … The Tribunal accepts that the 'element' which is defective in this dispute, with the exception of the retaining wall in the garden, is the cavity brick wall of the house. The evidence before the Tribunal is that this 'element' of the dwelling is made up of an inner and outer brick 'skin', a cavity between them which should be clear of debris, weepholes to allow for water drainage and flashings covering joints to prevent water entry. The Tribunal finds that the 'cavity brick wall' as a whole is the element which is defective, and that the defect is as a result of the poor standard of work carried out in construction. The evidence before the Tribunal illustrates the difficulties in the definition of 'major structural defect' where an 'element' of a dwelling may both provide 'essential supporting structure' to the dwelling and be a 'substantial functional' element of the dwelling. The Tribunal accepts that it is clearly wrong to state that a cavity brick wall does not have a function in keeping water from penetrating into the interior of the house. However, at the same time the Tribunal finds that the two limbs of the definition are directed at different aspects of a building. Clause 31(1)(a) is, in the Tribunal's view, directed at those aspects of the building which are 'essential' to the structural integrity of the building. Without them, the building would not be structurally sound. It would be without 'support'. On the evidence before the Tribunal, a 'cavity brick wall' of a 'cavity brick dwelling' primarily provides the essential structural support for the building. While it also functions to prevent water entry its primary 'structural purpose' is to support the building. Without the walls the building would not be able to stand up. The Tribunal finds support for this view in the wording of the definition and in particular in the reference to ' structural purpose ' in Clause 31(1)(a). The Tribunal also accepts the evidence of Professor Marosszeky that 'structural purpose' has a particular meaning in the context of building, which refers to the ability of the building to withstand the load placed on it. Clause 31(1)(b) refers to the effect of the defect on the 'habitability' of a dwelling. However the examples contained in this clause, namely a panel wall, masonry veneer wall or slab on the ground, are all elements of a dwelling which, according to the expert evidence before the Tribunal, relate to non-structural aspects of the building. They are 'substantially functional' in that they, for instance, prevent the transmission of sound within the structure or provide protection from the ground below or, in the case of a masonry veneer wall, provide protection from the weather. To a lay person it is clear that a building is not habitable without walls, be they cavity brick or of some other construction. However, in the Tribunal's view, to interpret this in this simple way would be to misconstrue the wording of the definition and to effectively encompass all parts of the building within Clause 31(1)(b). As with the issue of functionality all elements of a building may be said to affect its habitability. A dwelling would similarly not be considered habitable without a floor, ceiling, windows, roof, suspended slab in the case of a multi story dwelling, or without the supporting structures of beams, footings etc which ensured that it was safe and structurally sound. The Tribunal is of the view that the use of the word 'habitability' contained in Clause 31(1)(b) must be referable to the 'substantial functional element' that is identified as defective. It is not intended to also encompass structural elements of the building. The Tribunal reads the word 'element' in Clause 31(1)(b) as qualified by the words 'substantial' and 'functional'. In other words, the element itself must be a substantially functional one to come within clause 31(1)(b). The example is given of a masonry veneer wall. Evidence was given to the Tribunal as to the difference between this and a cavity brick wall. In the case of a masonry veneer wall it is the timber or steel frame internal to the wall which fulfils the load bearing, or 'structural purpose', of the wall and the masonry veneer which functions as weatherproofing. In this case, the purpose of the masonry veneer wall is substantially functional. The Tribunal is of the view that the cost of rectifying the defective work is not relevant to whether the defect is a 'major structural', or 'general' defect. In this case there is no dispute that rectification work will be needed and that this will be at a significant cost to the Penns. 87 Having given that passage a lot of thought, I am in substantial agreement with the comments of Senior Member Fleming. I have set the extract from Penn out at some length, as the remarks made need to understood in the context of the structure to which they relate. Ms Kennedy argued that Penn decided that where an element provided essential supporting structure and was also a substantial functional element essential to the habitability of the structure, then it could only be classified as a major structural defect under clause (a) of the definition, and not clause (b). Thus, she submitted that even if I were satisfied that the cracking in the walls (as a substantial functional element essential to the habitability of the dwelling) meant that they did not have sufficient structure for their purposes in terms of clause (b), I could not find that this constituted a major structural defect because the walls (as notified in the original claim) were adequate for their structural purpose in terms of clause (a). This is so because the Tribunal in Penn found that the word habitability in sub-clause (b) related to substantial functional elements only, and did not apply to structural elements. 88 The difficulty with such an analysis is starkly highlighted in the present situation where the structure has a single skin wall, which all concerned acknowledge is designed to serve a structural purpose, as well the as the purposes of excluding the elements and vermin, etc. In that sense the walls are a functional element essential to the habitability of the house. I am satisfied that the walls do not have sufficient structure to fulfil that purpose, yet on Ms Kennedy's submissions that lack of structure does not constitute a major structural defect because, in her submission, the walls provide essential supporting structure and are adequate for that purpose. While the two limbs of the definition of major structural defect in Clause 31 are clearly disjunctive, there is nothing in the definition which indicates that they are mutually exclusive. 89 A close reading of the passage from Penn shows that the Tribunal there was endeavouring to highlight the distinction between the two tests in the definition of major structural defect, and was anxious to make the point that an element which provides essential supporting structure would not suffer a major structural defect for the purposes of paragraph (a) of the definition, if it lacked adequate structure for the purpose of habitability, yet was adequate for its structural purpose. This is so, as the test with respect to lack of adequate structure for the purposes of habitability is set out in clause (b) of the definition, and requires that the element be a substantial functional element essential to habitability. If an element satisfies the requirements of both limbs of the definition, in that it provides essential supporting structure and is also a substantial functional element essential to habitability, there is no reason why it could not suffer a major structural defect under either or both limbs of the definition, provided the criteria specified in the definitions is met. In my view Penn should not be read as saying otherwise. It is clear from the Senior Member's findings of fact that, while she did not go through the process of applying paragraph (b) of the definition, she was of the view that it did not apply, and confined her considerations to paragraph (a) of the definition. 90 Each of the examples given in the definition are illustrative of building elements which clearly satisfy the criteria set out in the limb of the definition to which they relate. None of the examples cited in Clause 31 relate to building elements which might satisfy the requirements of both limbs of the definition. This is understandable as to do so would only create confusion. The absence of such an example, however, does not justify the conclusion advanced by Ms Kennedy. 91 The purpose of the BSC Comprehensive Insurance Scheme was to provide protection, within defined limits, to those whose homes suffer from either general defects or major structural defect as defined. Clause 31 in defining major structural defects acknowledges that they can be structural or can arise because a functional element essential to habitability does not fulfil its purposes. I can see no basis for finding that an element which fulfils both a structural purpose and is a functional element essential to habitability, cannot suffer a major structural defect because, while it fails to fulfil one those purposes, it continues to fulfil the other. In my view such a construction is artificial, and imposes a Catch 22 on those who own homes which are constructed in such a way that single elements of the structure satisfy both limbs of the definition of major structural defect. In my opinion, the issue of whether a defect is a major structural defect will in each case require the particular defect, and the context in which it arises, to be assessed in the light of each limb of the definition of major structural defect. If the element under consideration fulfils both a structural purpose and is a substantial functional element essential to habitability, the inquiry should be directed to whether there is a major structural defect under either limb of the definition. 92 Applying that approach to the Rich's home, I am satisfied that: a) the cracking to the external walls is a major structural defect under sub-clause (b) of the definition of major structural defect in Clause 31. Those defects are both inherent from the manner in which the walls and the house were constructed, and damage induced as a result of that faulty construction. b) the cracking in the external walls is a major structural defect under sub-clause (a) of the definition of major structural defect resulting from the walls being inadequately stressed. Those defects are both inherent from the manner in which the walls and the house were constructed, and damage induced as a result of that faulty construction. c) the numerous defects in stressing the walls by means of the tie down rods and top plates, as specified in Mr Rendell's report of 3 October 2000, together constitute a major structural defect under sub-clause (a) of the definition of major structural defect. Those defects are inherent. 93 It should be understood that in so finding I have formed the view: a) that the claim as initially made by Mr Rich and rejected by the Respondent did relate to a major structural defect; b) that the cracking in the external walls alone constituted a major structural defect; c) that the construction defects in the stressing of the walls, by use of the tie rods and top plates, was a contributing cause to the major structural defect in the external walls, and was properly part of the first claim. In making this finding, I accept the opinions of both Mr Rendell and Mr Austin on this issue; and d) that the cracking in the internal walls, while undoubtedly significant, amount to general defects as they do not satisfy the requirements of either limb of the definition of major structural defect. Orders 94 In the light of the above it will not be necessary to consider the extension of time issues. I propose to formally record my findings in paragraph 92. The parties will no doubt require some time to consider their respective positions and the further conduct of the application. I propose to direct that the application be listed for a telephone directions hearing before me at 4pm on 21 December 2000 so that directions can be made with respect to the further conduct of the application. Annexure 1 CLASSIFICATION OF DAMAGE DUE TO FOUNDATION MOVEMENTS (Normative) TABLE C1 CLASSIFICATION OF DAMAGE WITH REFERENCE TO WALLS Description of typical damage and required repair Approximate crack width limit (see Note 3) Damage category Hairline cracks < 0.1 mm 0 Fine cracks which do not need repair < 1 mm 1 Cracks noticeable but easily filled. < 5 mm 2 Doors and windows stick slightly Cracks can be repaired and possibly a small amount of wall will need to be replaced. Doors and windows stick. Service pipes can fracture. Weather tightness often impaired. 5 mm to 15 mm (or a number of cracks 3 mm or more in one group) 3 Extensive repair work involving breaking-out and replacing sections of walls, especially over doors and windows. Window and door frames distort. Walls lean or bulge noticeably, some loss of bearing in beams. Service pipes disrupted. 15 mm to 25 mm but also depends on number of cracks 4 NOTES: 1 Crack width is the main factor by which damage to walls is categorized. The width may be supplemented by other factors, including serviceability, in assessing category of damage. 2 In assessing the degree of damage, account shall be taken of the location in the building or structure where it occurs, and also of the function of the building or structure. 3. Where the cracking occurs in easily repaired plasterboard or similar clad-framed partitions, the crack width limits may be increased by 50% for each damage category. 4. Local deviation of slope, from the horizontal or vertical, of more than 1/100 will normally be clearly visible. Overall deviations in excess of 1/150 are undesirable. 5. Account should be taken of the past history of damage in order to assess whether it is stable or likely to increase. 6. The straight edge is centred over the defect, usually, and supported at its ends by equal height spacers. The change in offset is then measured relative to this straight edge. COPYRIGHT _____________ P. H. Molony Senior Member I HEREBY CERTIFY THAT THIS IS A TRUE AND ACCURATE RECORD OF THE REASONS FOR DECISION OF THE FAIR TRADING TRIBUNAL 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.