Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Christopher Kerrie Gates v Crown Constructions Pty Limited [2014] NSWCATCD 172 Hearing dates: 30 June 2014 Decision date: 23 September 2014 Before: GA Kinsey, General Member Decision: 1. The respondent Crown Constructions Pty Ltd is ordered to pay the applicant Christopher Kerrie Gates the amount of $5,060.00 within 28 days of the date of this order. Catchwords: Building claim, building defects, home warranty Legislation Cited: Home Building Act 1989 (NSW) Civil and Administrative Tribunal Act 2013 (NSW) Cases Cited: The Owners - Strata Plan No 76674 Category: Principal judgment Parties: Christopher Kerrie Gates (applicant) Crown Constructions Pty Ltd (respondent) File Number(s): HB 14/02808 Publication restriction: Unrestricted reasons for decision Application 1 In an application filed in the Tribunal on 14 January 2014 the applicant sought an order that the respondent pay an amount of $6,600.00. 2 The applicant alleged that the respondent had breached its statutory warranty obligations pursuant to section 18B of the Home Building Act 1989 by failing to rectify water leaks and drummy tiles in the bathroom. Jurisdiction 3 Section 48K(1) of the Home Building Act 1989 (the "Act") provides that: The Tribunal has jurisdiction to hear and determine any building claim brought before it in accordance with this Part in which the amount claimed does not exceed $500,000 (or any other higher or lower figure prescribed by the regulations). 4 A "building claim" is defined in section 48A of the Act as follows: 48A Definitions In this Part: building claim means a claim for: (a)the payment of a specified sum of money, or (b)the supply of specified services, or (c)relief from payment of a specified sum of money, or (d)the delivery, return or replacement of specified goods or goods of a specified description or (e)a combination of two or more of the remedies referred to in paragraphs (a)-(d), that arises from a supply of building goods or services whether under a contract or not, or that arises under a contract that is collateral to a contract for the supply of building goods or services, but does not include a claim that the regulations declare not to be a building claim. "building dispute" means a dispute that has been notified as referred to in section 48C. "building goods or services" means goods or services supplied for or in connection with the carrying out of residential building work or specialist work, being goods or services: (f)supplied by the person who contracts to do, or otherwise does, that work, or (g)supplied in any circumstances prescribed by the regulations to the person who contracts to do that work. 5 Section 48A(2) of the Act Provides that a "building claim" includes: (b) a claim for compensation for loss arising from a breach of statutory warranty implied under Part 2C. 6 The Tribunal finds that the applicant's claim is a building claim as defined and it has jurisdiction to hear and determine the application. Background 7 It is common ground that the applicant purchased a two storey brick residence at Lilyfield on or about 14 August 2009. 8 It is undisputed that the builder of the dwelling was the respondent Crown Constructions Pty Ltd. 9 A copy of the Contract for Sale of Land dated 8 July 2009 was attached to the application. Copies of a Final Occupation Certificate issued by Leichhardt Council dated 16 December 2008 and Residential Builders Warranty Insurance issued by QBE Insurance (Australia) Limited dated 27 November 2007 were annexed to the Contract. 10 Approximately 2 years ago the applicant reported to the respondent that there were water leaks in the ensuite shower area which have now been repaired. The applicant advised the Tribunal that in or about May 2011, a water proofer attended the property and fixed the problem. 11 On 1 June 2013 the applicant informed the respondent by email that "the waterproofing in the ensuite has begun to fail and I'm getting leaks coming through the ceiling at the front door." 12 The respondent arranged for a plumber to do an inspection and carry out repairs. The plumber determined that the problem was a waterproofing issue. 13 Subsequently, further investigations were undertaken by Ichor Constructions and Bathroom Elegance in July 2013 to identify problems with the waterproofing. 14 Ichor Constructions in a report dated 2 July 2013 suggested "the water proofing membrane within the shower recess has failed and cannot be corrected without removing the existing tiles and screed." 15 The report also recommended either removal of the entire shower, re-waterproof and restore (Option 1) or removal of the entire bathroom, re-waterproof and restore (Option 2). 16 The Bathroom Elegance report dated 10 July 2013 and prepared by Steve Novkovic recommended against "using an 'over the tile' waterproofing solution as this would not address the real issue - the underlying waterproofing needs to be replaced. At a minimum, the floor in the shower recess be removed so it can be fixed properly." 17 The respondent contended that the waterproofing problem could be rectified by either Megasealed or The Shower Repair Centre. He provided quotes from Megasealed which offered a 25-year warranty and The Shower Repair Centre which provided a 12-year warranty. The quoted cost of the repairs was between $720.00 - $800.00. 18 Both repair methods involved the application of a hydro barrier sealant over the tiles rather than complete removal of tiles and installation of a new waterproofing membrane. 19 The applicant refused to accept the solutions proposed by the respondent. He wanted the respondent to remove the tiles, re-do the waterproofing; reinstate the bathroom and make good the damaged ceiling. 20 The applicant also complained to the respondent about the tiling in the ensuite bathroom. He claimed that the tiles needed to be removed and the area re-tiled. He alleged the tiles were drummy and would likely fall off. 21 The applicant arranged for Bathroom Elegance to renovate the bathroom in accordance with the quotation from Bathroom Elegance dated 30 August 2013. 22 The applicant engaged Bathroom Elegance to renovate the bathroom. The applicant tendered a copy of a quotation dated 30 August 2013 and a report from Steve Novkovic dated 12 November 2013 which set out his observations when the works were completed. Evidence and Submissions 23. The applicant relied on documents in support of his claims. He tendered a folder containing a typed statement, response to the statement of Peter Royal, a summary of additional findings, photographs, building reports from Ichor Constructions and Bathroom Elegance, quotations and correspondence. 24. The applicant gave sworn evidence at the hearing to supplement his documentary material. 25. The respondent tendered two folders of documents which included submissions, correspondence between the parties, photographs, the statements of Vito Marzullo, Peter Royal and John Minchenko and the expert report of Paul Skrinnikoff dated 12 May 2014. Discussion and Findings 26. On the evidence, the Tribunal finds that the construction of the building was "residential building work" as defined in section 3 of the Act. 27. Section 18B of the Act sets out the warranties which are implied in every contract to do residential building work. 28. It is not disputed that the waterproofing in the bathroom failed. Accordingly, the respondent was in breach of the statutory warranties implied by section 18B of the Act and had an obligation to rectify the defect. 29. There is a dispute about whether the applicant's claim that the tiling in the bathroom was defective and required rectification. The respondent did not concede that there was a defect in the bathroom tiling. Waterproofing 30. The applicant claimed $5,060.00 for the cost of rectifying the defects in the en suite shower. This was the amount paid to Bathroom Elegance as per the quotation dated 30 August 2013 to repair the shower. The quotation details the work undertaken. 31. The respondent disputed the extent of the work required to fix the water leaks in the shower and submitted that the application of a hydro barrier sealant as suggested by Megasealed and The Shower Repair Centre would have achieved a satisfactory result. The maximum cost of this work was $800.00. 32. The respondent argued that the applicant had failed to mitigate his loss after it had offered to engage Megasealed and The Shower Repair Centre to carry out rectification work. The respondent says that it was not allowed to return the property to rectify the water leaks and therefore the applicant had failed to mitigate his loss. 33. The applicant sought advice from two experts concerning the water leaks in the shower and the best method to fix them. 34. Matthew Grave from Ichor Constructions inspected the bathroom and provided a report dated 2 July 2013. His findings and recommendations are detailed in paragraphs 14 and 15 of his report. 35. Steve Novkovic of Bathroom Elegance also provided a report. His findings and recommendations are similar to Matthew Grave and are set out in paragraph 16 of his report. 36. The respondent relies principally on the report of Paul Skrinnikoff of Allskope Constructions Pty Ltd dated 14 May 2014. The introduction to the report is as follows: "This report has been written by Paul Skrinnikoff on the 14 May 2014 to assess both the Applicant and Respondents correspondence and evidence of the water leak and rectification of the residential dwelling 90 Charles Street Lilyfield." 37. Mr Skrinnikoff concluded that there had clearly been a failure in the waterproofing. At paragraph 6 of his report he states: "In respect of the scope of works it would appear that the epoxy sealant recommended by Megasealed and The Shower Repair Centre could have been applied successfully and it would appear difficult to believe that both companies has recommended similar treatments if they did not believe such works would be successful." 38. The issue for determination by the Tribunal is whether the application of a sealant to the tiles is a sufficient method of rectifying the water leaks in the shower or is the appropriate method recommended by Messrs Grave and Novkovic being the removal of the tiles, applying a new waterproofing membrane and retiling. 39. Both Messrs Grave and Novkovic inspected the bathroom before the applicant commenced rectification work. After their inspections, they recommended against the application of a hydro barrier sealant. Mr Skrinnikoff has not inspected the bathroom but prepared his report on documentation provided by the respondent. 40. As to whether the application of a hydro-barrier sealant by either Megasealed or The Shower Repair Centre is an appropriate method of rectifying the water leaks, the Tribunal prefers the evidence of Messrs Grave and Novkovic to that of Mr Skrinnikoff. 41. The Tribunal has considered the other evidence presented by the parties on this issue. On the evidence, the Tribunal finds that the works required to rectify the water leaks in the shower are as detailed in the quotation of Bathroom Elegance dated 30 August 2013 under the heading "Specifications for Shower Repair". 42. On the evidence, the Tribunal finds that the application of a sealant is not an appropriate method to repair the water leak in the shower. The proposed treatment is a "band aid" solution which does not fix the fundamental problem. 43. The Tribunal finds the cost of $5,060.00 as per the quote of Bathroom Elegance is fair and reasonable. The cost of the repair is supported by Matthew Grave who estimated the cost to remove the entire shower, re-waterproof and restore at between $5,000.00 - $7,000.00. Mr Skrinnikoff did not comment on the reasonableness of the charges made by Bathroom Elegance or provide any estimate of cost to do the work. Tiling 44. The applicant makes a claim for $1,540.00 to remove the wall tiles in the bathroom, preparation of the wall and re-tile it. 45. The applicant claimed that the tiles were drummy and had not been fixed correctly. The applicant relied on the reports of Ichor Constructions and Bathroom Elegance. 46. Although the tiles were drummy, the applicant's evidence was that no tiles had fallen off the wall. The Tribunal accepts the evidence of Mr Skrinnikoff in paragraph 7 of his report where he states: "In respect of the wall tiles, drumminess does occur several years after the tiles have been laid and are not always the cause of faulty workmanship but indeed simply of the type of substrate on which the tiles have been laid on. As I have not inspected the wall itself I cannot make any further comment other than to note that from the original date of Mr Gates claim up until the commencement of demolition works no tiles were reported to have fallen off and hence it would appear difficult to support the assertion made by Mr Gates particularly as the photos provided by Mr Gates show glue marks almost throughout the entirety of the bathroom." 47. Accordingly, the Tribunal is not satisfied on the balance of probabilities that the applicant has proved his claim for payment of $1,540.00 for the tiling. That claim is dismissed. Duty to Mitigate 48. The respondent argued that there was a failure by the applicant to mitigate his loss. The respondent argued that the applicant had denied it an opportunity to rectify the defects and therefore the applicant had acted unreasonably. 49. The relevant legal principles are set out in the recent case of The Owners - Strata Plan No. 76676 v Di Blasio Constructions Pty Ltd [2014] NSWSC1067 where Ball J at 42-46 stated: "42. Generally speaking, a person who suffers loss as a consequence of a breach of contract is required to act reasonably in relation to that loss in order for the loss to be recoverable. An important aspect of this general principle is that the party who has suffered a loss is under a duty to mitigate its loss. Sometimes the use of the word "duty" in this context is criticised, since there is no requirement that the plaintiff act in a particular way and no requirement that the plaintiff minimise its loss: see, eg, J Carter, E Peden and GJ Tolhurst, Contract Law in Australia, (5th ed, 2007, LexisNexis) at [35-35]. Rather, the principle is that the plaintiff is not entitled to recover losses attributable to its own unreasonable conduct. As O'Connor J explained in Hasell v Bagot, Shakes & Lewis Ltd [1911] HCA 62; (1911) 13 CLR 374 at 388: One of the principles on which damages are assessed [is] that a party to an agreement suffering injury from the other party's breach of its terms is bound to exercise reasonable care in mitigating the injurious consequences of the breach, and is not entitled to recover from the party in default any damage which the exercise of reasonable care on his part would have prevented from arising. 43. The duty to mitigate, however, is not the only example of the application of the general principle. Another is the principle that a plaintiff whose property is damaged or defective as a consequence of the defendant's breach is generally entitled to recover the costs of reinstating the property so that it corresponds to the contractual promise, except to the extent that it is unreasonable to insist on reinstatement: Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 at 618-9. 44. In the case of building contracts, it is also generally accepted that the owner must give the builder a reasonable opportunity to rectify any defects. Often, of course, the building contract itself requires the owner to repair defects or sets out a procedure by which defects are to be made good: see, eg, Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302; (2010) 26 BCL 335. But, even if it does not, the owner is required to give the builder an opportunity to minimise the damages it must pay by rectifying the defects, except where its refusal to give the builder that opportunity is reasonable or where the builder has repudiated the contract by refusing to conduct any repairs: see J Bailey, Construction Law, (Vol II, 2011, Informa Law) at [14.109]; Cassidy v Engwirda Construction Co (No 2) [1968] Qd R 159 (reversed on other grounds in Cassidy v Engwirda Construction Co (No 2) [1968] QWN 47 (HC); (1968) 42 ALJR 168). That obligation may be an aspect of the duty to mitigate, since it may be less expensive for the builder rather than a third party to rectify the defects, particularly if the builder is still on site. But the obligation is not simply an aspect of the duty to mitigate. The cost to the builder of undertaking the repairs is likely to be less than the amount that a third party would charge the owner for the same work. In that case, the owner is not mitigating its loss, but rather the builder's damages. The question of what is reasonable depends on all the circumstances of the particular case. One relevant factor is what attempts the builder has made to repair the defects in the past and whether, in the light of the builder's conduct, the owner has reasonably lost confidence in the willingness and ability of the builder to do the work: see A Chambers, Hudson's Building and Engineering Contracts, (12th ed, 2010, Sweet & Maxwell) at [4-144]; Eribo v Odinaiya [2010] EWHC 301 (TCC) at [70]. 46. It is for the defendant to prove that the plaintiff has acted unreasonably. It is not for the plaintiff to prove that it acted reasonably: TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd [1963] HCA 57; (1963) 180 CLR 130 at 138; Burns v MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653 at 673 per Brennan J; TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 158 per Hope JA (with whom Priestley and Meagher JJA agreed); Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [187] per Giles JA (with whom Handley and Stein JJA agreed)." 50 The Tribunal rejects the respondent's submission that the applicant failed to mitigate his loss. The applicant had engaged in a dialogue with the respondent and on the advice of Messrs Grave and Novkovic had decided the application of a sealant would not fix the problem. The respondent did not propose an alternative solution and the applicant had reasonably concluded that he was not going to reach an agreement with the respondent. 51 In the Tribunal's opinion, the applicant was justified in engaging another tradesperson to undertake the rectification work to minimise the damage from the water leaks. The applicant no longer had confidence in the respondent and wanted the works done by someone else as soon as possible. Conclusion 52 The respondent Crown Constructions Pty Ltd is to pay the applicant Christopher Kerrie Gates the sum of $5,060.00 within 28 days of the date of this order. GA Kinsey General Member Civil and Administrative Tribunal of New South Wales 23 September 2014 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: 07 November 2014