Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Jason and Michelle Zammit trading as Zammit's Quality Constructions v Saul Markunsky and Shereen Markunsky [2015] NSWCATCD 21 Hearing dates: 19, 20 and 21 August 2014 Decision date: 23 February 2015 Jurisdiction: Consumer and Commercial Division Before: D Goldstein, Senior Member Decision: 1. Saul Markunsky and Shereen Markunsky must pay Jason and Michelle Zammit trading as Zammit's Quality Constructions the sum of $17,489.40 within 14 days of the date of this order 2. Either party is at liberty to make a costs application in these proceedings. 3. Any costs application pursuant to section 53 of the Consumer, Trader and Tenancy Tribunal Act 2001 or regulation 20 of the Consumer, Trader and Tenancy Tribunal Regulation 2009 must be lodged in the Tribunal and served on the costs respondent within 21 days of the date of this order either attaching or referring to the documents relied upon in support of the application. 4. The costs respondent will have 21 days after the date of receipt of the costs application referred to above, to lodge in the Tribunal and serve on the costs applicant the submissions, if any, in response to the costs application, such submissions either attaching or referring to the documents relied upon. 5. The cost applicant will have 14 days after the date of receipt of the cost respondent's submissions to lodge in the Tribunal and serve on the costs respondent the submissions, if any, in reply, such submissions either attaching or referring to the documents relied upon. 6. The Tribunal will determine any costs application on the basis of the papers lodged in the Tribunal Catchwords: Section 94(1A) of the Home Building Act 1989, quantum meruit, mitigation of loss and defects. Legislation Cited: Civil and Administrative Tribunal Act 2013, Consumer, Trader and Tenancy Tribunal Act 2001, Consumer, Trader and Tenancy Tribunal Regulation 2009 Home Building Act 1989 Cases Cited: Brenner v First Artists' Management Pty Ltd [1993] 2 VR 221, Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273, Pender v Robwenphi Pty Limited & Anor [2008] NSWSC 1144, Stephenson v State Bank of New South Wales (1996) 39 NSWLR 101, Talga v MBC International Limited (1976) 133 CLR 622, The Owners - Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067, TCN Channel 9 v Hayden Enterprises Pty Limited Texts Cited: Dorter & Sharkey, Building and Construction Contracts in Australia, Second Edition Category: Principal judgment Parties: Applicants: Jason and Michelle Zammit trading as Zammit's Quality Constructions Respondents: Saul Markunsky and Shereen Markunsky Representation: Counsel: Mr Moschoudis for the applicants Mr Ahmed for the respondents Solicitors: Bateman Battersby for the applicants KWS Legal for the respondents File Number(s): HB 12/59836 Publication restriction: Unrestricted reasons for decision 1. In these proceedings the applicants seek an order in their favour in the sum of $41,531.00 in relation to work carried out at the applicants' residence. In final submissions this amount was reduced to $40,603.00. 2. The respondents have brought a cross application, HB 13/33297, in which they seek order that they do not have to pay the amount sought by the applicant in these proceedings. In addition they seek damages for breach of contract and in tort, the amount of $64,500.00 in restitution and the sum of $25,000.00 for the diminution in the value of their property. 3. These proceedings and the cross application were heard at the same time. At the hearing the parties prepared a three volume bundle of documents. 4. The Consumer Trader and Tenancy Tribunal was abolished as of 1 January 2014 and the Consumer, Trader and Tenancy Tribunal Act 2001 and the Consumer, Trader and Tenancy Tribunal Regulation 2009 were repealed. As the application was not fully determined at that time, the proceedings were 'unheard proceedings' as defined in clause 6 of Schedule 1 of the Civil and Administrative Tribunal Act 2013. 5. Transitional provisions in relation to unheard proceedings are set out in clause 7 of Schedule 1 of the Civil and Administrative Tribunal Act 2013. Pursuant to section 7(3) of Schedule 1 to that Act, the current Tribunal has and may exercise all the functions that the Consumer, Trader and Tenancy Tribunal had immediately before its abolition, and the provisions of the Consumer, Trader and Tenancy Tribunal Act and Consumer, Trader and Tenancy Tribunal Regulation continue to apply to unheard proceedings which expression includes pending proceedings. 6. There is no dispute between the parties that the builder's claim is a building claim for the purposes of section 48A of the Home Building Act 1989 (the 'Act') and that the Tribunal has the jurisdiction to hear and determine the claim under section 48I of the Act. 7. These proceedings and the cross proceedings were heard over three days in August 2014. 8. The parties have filed pleadings in these proceedings as well as an Agreed Statement of Issues. 9. The parties have in accordance with the orders made at the conclusion of the hearing filed and served hundreds of pages of written submissions. They have not provided me with a transcript as part of their submissions which makes transcript references without full extraction little, if any, benefit. While I have read and considered the parties written submissions, it is not possible for each and every issue raised in the submissions to be specifically addressed in these reasons. 10. In these reasons, I will refer to the applicants as the builders and to the respondents as the owners. 11. The disputes between the parties and these prolonged proceedings have, with the benefit of hindsight, arisen due to the fact that the owners chose to embark upon this home renovation project with a minimum of preparation. The owners did not have plans, drawings and specifications prepared to embody their requirements. The form of contract used by the builder was basic. However, as will be seen, the lack of a precise scope of the work that the builder was required to carry out was a cause of many of the disputes that have occurred. 12. When parties to a contract do not use a standard form of residential building contract combined with a precise set of drawings and a specification, they expose themselves to uncertainty, since it will fall to a court or Tribunal to make findings about the scope of work because of their inability to agree upon the work that the builder was to carry out. In ordinary circumstances, a thoughtfully considered set of drawings will avoid such issues. The contracts 1. There is an issue whether the builders entered into one contract with the owners which was varied on a number of occasions, or whether the builder entered into a number of contracts with the owners, each contract being in connection with specific work. 2. The builders' position is that there were 14 separate contracts and a number of variations to the works to be performed under the contracts. The owners' position is that one contract was entered into and varied on a number of occasions. 3. It is common ground that the builders did not take out Home Owners Warranty Insurance as required by section 92 of the Act in relation to the work carried out at the residence. 4. Given that the builders are precluded from claiming damages, or enforcing a remedy for a breach of contract against the owners by section 94 (1)(a) of the Act, as relied upon by the owners, I cannot see that it is relevant to the builders' claim to resolve the parties' competing positions on the nature of the contracts or contract entered into. 5. As a formality, in so far as the builders seeks an order in their favour for payment under the contract or contracts that they entered into with the owners, such a claim is dismissed by reason of section 94 (1)(a) of the Act. 6. Under section 94 of the Act the builders only remedy is under section 94 1(A) of the Act. Recovery on a quantum meruit 1. The first issue to be decided in the builders' case is whether they are entitled to recover on the basis of a quantum meruit. 2. In paragraph 69 of the owners' Amended Points of Defence they rely upon a failure by the builders to insure the work performed in contravention of section 92 of the Act to enliven section 94(1)(b) of the Act so that the builders are not entitled to be paid on a quantum meruit basis for the work they carried out at the premises. 3. The owners further allege that it is not just and equitable for the builders to recover any amount from them under section 94(1A) of the Act. 4. Section 92 (2) of the Act states as follows: 'A person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless: (a) a contract of insurance that complies with this Act is in force in relation to that work in the name of the person who contracted to do the work, and (b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract.' 1. Section 94(1) of the Act states as follows: '(1) If a contract of insurance required by section 92 is not in force, in the name of the person who contracted to do the work, in relation to any residential building work done under a contract (the uninsured work), the contractor who did the work: (a) is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and (b) is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit).' 1. Section 94(1A) of the Act states as follows in connection with the above sections: '(1A) Despite section 92 (2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis.' 1. The effect of the above sections is that the builders are not entitled to recover on their claim for money due under the contracts they allege were entered into with the owners. Further, the builders will not be entitled to recover on a quantum meruit for the work they allege that they have carried out for the owners and not been paid for unless I consider recovery to be just and equitable. 2. Section 94(1A) of the Act was considered by Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273. At paragraphs 43 – 61 of his judgement his honour considered the 'just and equitable criterion under section 94(1A)' of the Act and the factors bearing upon the just and equitable assessment. 3. In considering the just and equitable criterion Barrett J. referred to a number of authorities which establish that the words just and equitable are of wide significance. His honour referred to a passage of the judgement of Sheller JA in Stephenson v State Bank of New South Wales (1996) 39 NSWLR 101 where his honour quoted from a decision of the High Court in Talga v MBC International Limited (1976) 133 CLR 622. 4. The passage quoted was: 'Stephen, Mason and Jacobs JJ dealing with the issue raised for the Court by the Banking Act 1974 of whether it was just and equitable that a transaction should be treated as valid, said: 'The court will have before it an existing transaction replete with all its surrounding facts and circumstances and in their light will determine what is just and equitable. In doing so it will certainly be exercising a wide discretion that this is a commonplace of the curial process; the court will be bound to act judicially, exercising its discretion by reference only to such considerations affecting the transaction as, on an examination of the legislation, may be seen to be material to the decision which it is called on to make. Irrelevant matters, matters such as the plaintiffs instanced in the course of argument, which have no rational connection with the policy of the regulations but would be expressive only of the personal predilections of the Court, cannot be allowed by it to play any part in its decision.' 1. Barrett J. observed that this approach was endorsed by Campbell J in Sullman v Sullman [2002] NSWSC 169. 2. At paragraph 49 of his judgement Barrett J. stated in connection with section 94(1A) of the Act: 'The inquiry directed by the statute is therefore, in effect, whether the surrounding circumstances are such as to justify the creation of a right and an obligation as to the payment of the sum separately determined to represent fair remuneration. The Act, as I see it, does not attempt to control quantification. That is left to the general principle imported by the expression "quantum meruit". The Act is concerned with factors influencing a decision whether, in the particular circumstances in which the court finds the parties, it is fair that one receive the quantum meruit sum and the other pay it.' 1. The owners have referred me to the decision of Hall J in Pender v Robwenphi Pty Limited & Anor [2008] NSWSC 1144. In that case Hall J stated, commencing at paragraph 41, in connection with the decision of Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd: 'In relation to the analysis undertaken by Barrett J in Eddy Lau Constructions (supra), the following propositions may be derived from the judgment:- (1) The words "just and equitable" are of the widest significance and involve evaluations of questions of fact. (2) In exercising the wide discretion under the provision, a Court or Tribunal is to have regard to considerations affecting the particular transaction as are material to the decision to be made. Irrelevant matters are those that have no rational connection with the policy of the statutory requirement. (3) The statutory discretion under s.94(1A) must be exercised judicially in light of the whole of the circumstances surrounding the relevant subject matter. (4) Inquiry is directed to ascertaining whether the surrounding circumstances are such as to justify the creation of a right and an obligation as to the payment of the sum separately determined to represent fair remuneration. (5) The Act is concerned with factors influencing a decision whether, in the particular circumstances in which the Court finds the parties, it is fair that one receive the quantum meruit sum and the other pay it. It is apparent from the analysis by Barrett J in Eddy Lau Constructions (supra) that the conduct of the party in breach is an important matter for consideration. In that respect, ignorance or oversight of the statutory requirement under the Act stands in marked contrast to a contravention that is wilful or deliberate. In the present case, the determination of the Tribunal was, in effect, that the first defendant's contravention was an inadvertent one, it being a company accustomed to undertaking commercial and industrial work and not home building or renovation work. The Tribunal accepted, as it was entitled to, the evidence given which explained the first defendant's ignorance or inadvertence. These were matters of fact for the Tribunal's determination. In the circumstances of the present matter, on the evidence there was no identification of any particular form of disqualifying conduct by or on behalf of the first defendant that was material to be taken into account in determining what was "just and equitable". The Tribunal was also entitled to have regard, as Barrett J did in Eddy Lau Constructions (supra) to the fact that, if the first defendant was not granted relief under s.94(1A), the plaintiff would receive the benefit of the work undertaken by the first defendant without having to pay for that work and for the materials supplied. I will return to this issue of "benefit" below. Finally, there was no factor establish(ed) that resulted in any detriment flowing to the plaintiff by reason of the particular breaches or contraventions by the first defendant. Again, such matters involve a factual determination for the Tribunal.' 1. I will have regard to the above passages from the relevant authorities in considering the issue of whether or not the builders will be entitled to recover on a quantum meruit for the work they allege that they have carried out for the owners and have not been paid for. 2. In their submissions, at paragraph 11, the builders refer to the position that they found themselves in when the lack of home owner's warranty insurance was drawn to their attention. Their position is that their failure to obtain HOWI was due to oversight on their part. I accept that submission and t evidence in support. 3. The evidence is that the builders attempted to remedy the situation. The evidence to support this is annexed to the statutory declaration of Jason Zammit dated 22 May 2013 at pages 218 – 221 of the agreed bundle and as referred to in the builders' submissions in support of their claim. 4. I accept that the builders promptly attempted to remedy their failure to obtain HOWI by making an application to obtain retro-active HOWI as is permitted by section 94(3) of the Act. As it happened to be successful in such an endeavour, they required the co-operation of the owners. Such co-operation was not forthcoming from the owners. I accept that the owners may have considered that there were legitimate reasons for them not to sign the necessary paperwork to allow the builders to obtain HOWI. 5. The most significant factor arising out of this evidence is the prompt action by the builders to remedy the HOWI situation as soon as they became aware of their failure to comply with section 92 of the Act. 6. The owners' written submissions address the issue of the Tribunal's consideration of whether it is just and equitable for the builders to recover on a quantum meruit. 7. The first point raised by the owners is the question of defective work. It is said that the value of defective work claimed by the owners far exceeds the builder's quantum meruit case. This submission is answered by the passage quoted from Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd earlier in these reasons, namely: 'The inquiry directed by the statute is therefore, in effect, whether the surrounding circumstances are such as to justify the creation of a right and an obligation as to the payment of the sum separately determined to represent fair remuneration. The Act, as I see it, does not attempt to control quantification. That is left to the general principle imported by the expression "quantum meruit". The Act is concerned with factors influencing a decision whether, in the particular circumstances in which the court finds the parties, it is fair that one receive the quantum meruit sum and the other pay it.' 1. If, as submitted, the value of the work carried out by the builders has no value to the owners because it was substantially defective rendering it of little or no value, that will be reflected in the assessment of the quantum meruit. 2. As pointed out by the builders in their submissions, Barrett J. dealt with the relevance of defects under that heading at paragraphs 77 – 82 of his decision. Paragraph 82 confirms the correctness of an approach which allows for the rectification of defects in determining a quantum meruit sum. 3. The owners also rely on the fact that the builders' failure to obtain HOWI has had an effect on the resale value of the residence. The amount claimed by the owners in connection with this issue is $25,000.00. I have considered this aspect of the owners' case in my reasons for decision in cross application, HB 13/33297. In those reasons I have dismissed this aspect of the owners' case on the basis that the owners have not established that they have sustained loss by reason of the failure to obtain HOWI. It follows that this factor should not be taken into account in considering whether it is just and equitable for the builders to recover on a quantum meruit. 4. In Pender v Robwenphi Pty Limited & Anor Hall J. stated 'The Tribunal was also entitled to have regard, as Barrett J did in Eddy Lau Constructions (supra) to the fact that, if the first defendant was not granted relief under s.94(1A), the plaintiff would receive the benefit of the work undertaken by the first defendant without having to pay for that work and for the materials supplied.' This is a relevant factor which I will take into account when deciding whether I consider it to be just and equitable for the builders to be entitled to recover on a quantum meruit basis. 1. I have found that the builders' failure to take out HOWI was due to an oversight on their part, rather than wilful or deliberate contravention of the requirements of section 92 of the Act. I have also taken into account the serious matter that in this case, the owners will receive the benefit of the work undertaken by the builders without having to pay for all of that work and materials supplied if the builders' section 94(1A) application is refused. 2. Having regard to all of the circumstances and evidence that I have been referred to and the reasons set out above, I have reached the conclusion that it is just and equitable for the builder to recover on a quantum meruit in connection with the work that it carried out at the residence. Assessment of the quantum meruit 1. The builders rely upon the report of Mr Craig Nisbett dated 17 May 2013 to quantify the value of the work carried out by them. The owners rely upon the report of Mr Anthony Grieve dated 28 June 2013 to respond to Mr Nisbett's report. Mr Nisbett also prepared a report in reply. 2. I accept each of Mr Nisbett and Mr Grieve as appropriately qualified experts to give opinion evidence in the Tribunal regarding the assessment of the value of residential building work. Neither party challenged the status of the opposing expert to give opinion evidence. 3. The parties have not cited applicable authorities on the question of how a quantum meruit claim is to be established. In the absence of any authorities I have had regard to the judgement of Bryne J. in Brenner v First Artists' Management Pty Ltd [1993] 2 VR 221 as summarised in Dorter & Sharkey Building and Construction Contracts in Australia, Second Edition as setting out the following principles: 1. 'The courts task is not to assess damages for breach of contract, but to ascertain what is fair and reasonable compensation for the benefit of the services performed, and accepted actually or constructively by the recipient; 2. The enquiry is not primarily directed to the cost to the plaintiff of performing the work since the law is not compensating that party for loss suffered; however, the actual cost should not be ignored; 3. Any price or commission agreed between the parties may be received as evidence of the value the parties themselves put on the services performed, even where the services have not been totally performed, but the agreed amount is not determinative of the matter.' 1. Principles relevant to how a quantum meruit is assessed were also discussed by Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd. I do not intend to reproduce large sections of that judgement in these reasons. However, his Honour's discussion of the 'Relevance of evidence of actual cost of certain elements', and 'The relevance of defects' and his conclusions in connection with these subjects will be referred to, if relevant. 2. Mr Nisbett has valued the work performed by the builder at $123,857.00 while Mr Grieve has valued the work at $103,454.00. 3. It is common ground that the owners have paid the sum of $64,500.00 in connection with the work carried out by the builders. 4. The builders' submissions point out that Mr Nisbett's assessment of the value of the work carried out by the builder allows 7% for preliminaries and then 20% for overhead and profit. The submissions go on to state that in relation to defects, the experts agreed that the amount for overhead and profit would be 30%. In those circumstances, it is submitted that the allowance for overhead and profit in the quantum meruit case should be 30%. 5. I do not agree that should be the case. If Mr Nisbett's evidence on the quantum meruit case is that the allowance for overhead and profit is 20%, I do not agree that position should be changed by a submission that serves the builder's financial interests. 6. No doubt Mr Nisbett had good reasons to state that the allowance for overhead and profit should be 20% on a quantum meruit, but 30% in relation to defects. However, that is his evidence and in my view it is not appropriate to alter that position in the absence of his evidence disclosing reasons for a change of position. 7. The owners' submissions refer to a number of matters in relation to the question of which expert's valuation should be preferred. 8. At paragraph 52 of their 4 November 2014 submissions, the owners set out a passage from the transcript where Mr Nisbett states that he has assessed the reasonable value of the work contracted for. The implication is that Mr Nisbett has not given an opinion of the work actually carried out. While that implication may reasonably be drawn from the transcript, the fact is that in his report Mr Nisbett has clearly stated that he has estimated the cost of the completed work by the builder and that he was instructed to do that. I note that the scope of the work performed by the builder and referred to in section 10 of Mr Nisbett's report was provided to him by the builders' solicitor's letter dated 24 April 2013, as referred to in Annexure D to his report. I do not accept this criticism of Mr Nisbett's valuation. 9. Mr Grieve's report dated 28 June 2013 assessed the value of work carried out by the builders as being in the sum of $103,454.00. His report states that he was instructed to follow Mr Nisbett's numbering system which means that he worked on the same scope of works as Mr Nisbett, namely that provided to Mr Nisbett by the builders' solicitors. 10. Mr Grieve's report in relation to the quantum meruit assessment proceeds on an exception basis. That is to say Mr Grieve agrees with Mr Nisbett's assessments, except where he identifies the item in issue and then states Mr Nisbett's valuation of the item and then his own. 11. Every point of difference between the two valuations is thereby exposed in Mr Grieve's report. 12. Mr Nisbett allows 27% for preliminaries and margin on the quantum meruit work. Mr Grieve allows 30% for overhead and profit. He does not allow for preliminaries, no doubt that being included in overhead. Despite this minor difference, the overall difference between the experts' assessments is $20,403.00 which is not substantial. 13. The parties submissions do not, apart from three issues raised by the owners, raise specific reasons for preferring one expert's valuation over the others. 14. The owners raise by way of three examples, Mr Nisbett allegedly over estimating the time to carry out certain work. The first item in question is 10.6.3 which relates to the Kitchen/Rumpus Room. Mr Nisbett allows 24 hours at $55.00 per hour to carry out this work for a total of $1,320.00. Mr Grieve allows 8 hours at $55.00 per hour to carry out the same work for $440.00, a difference of $880.00. 15. The second example is item 10.5.2 which relates to the Dining Room servery. Mr Nisbett allows 32 hours at $60.00 per hour to carry out this work for a total of $1,920.00. Mr Grieve allows 16 hours at $60.00 per hour to carry out the same work for $390.00 (sic). The correct calculation is $960.00. However the difference is the same, $960.00 as stated by Mr Grieve. 16. The third example is variation 5, item 10.15.39 for the installation of bi-fold external doors. Mr Nisbett allowed 16 hours for the installation of the bi-fold external doors at $60.00 per hour for a total of $960.00. Mr Grieve allows 8 hours at $55.00 per hour to carry out the same work for $440.00, a difference of $520.00. 17. Having regard to the examples cited by the owners, the evidence in support and both parties' submissions, I accept that in these three instances the valuation of Mr Grieve should be preferred to Mr Nisbett's. The effect of this finding is that the total of Mr Nisbett's quantum meruit valuation will decrease by $2,360.00. 18. The owners rely on submissions under the heading 'Amounts improperly claimed by the Builder' to reduce their expert's quantum meruit assessment. These submissions are to the effect that there was no agreement between the parties to the carrying out of the work. The owners do not dispute that the work was carried out. Nor does their expert. I do not accept these submissions. In Brenner v First Artists' Management Pty Ltd, Byrne J stated that: 'The courts task is not to assess damages for breach of contract, but to ascertain what is fair and reasonable compensation for the benefit of the services performed, and accepted actually or constructively by the recipient' 1. Notions of whether work would have been claimable as a variation under an enforceable contract have no relevance to the assessment of the value of work carried out in a quantum meruit basis. 2. As regards the issue of the repair of the roof at paragraph 74 of the owners' submissions, I prefer the builders' submissions on this point. 3. The evidence of the experts on the quantum meruit valuation is as stated not substantially far apart. I have reduced Mr Nisbett's valuation by $2,360.00 as stated above with the result that it is $121,497.00. 4. Overall, I prefer Mr Nisbett's valuation because generally speaking it provides a more detailed break-down of activities and costs. I will find that the valuation of the work carried out on a quantum meruit basis is $121,497.00. Defects 1. As stated above, paragraph 82 of Barratt J's decision in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd justifies an approach where defective work is taken into account in the assessment of a quantum meruit claim. His honour stated: 'The quality of the work and matters such as its correspondence with specification and fitness for its intended purpose are thus elements of the process of valuation of work for quantum meruit purposes. It follows that the referee was correct in applying a deduction for defects rectification in determining the quantum meruit sum.' 1. The owners claim damages for breach of the warranties set out in section 18B of them Act. However, the owners do not in connection with individual defect claims identify which of the warranties set out in section 18B it is alleged that that the builder breached. As a result, the builder is not in a position to make submissions regarding the warranty said to be breached 2. A Scott schedule was prepared and completed by the experts. 3. On 17 December 2013 a conclave was held between the parties' experts convened by Tribunal Member Topolinsky. I have had regard to the 36 page Joint Memorandum of Experts Conclave signed by the parties' experts. At the time of the conclave the owners' expert's estimate of loss was $88,678.00. The builders' expert's estimate of loss was $10,972.94. There were agreements reached at the conclave regarding rectification methodology and costs on an 'if found' basis. 4. The value of any defects found in favour of the owners will be deducted from the quantum meruit valuation. 5. Regrettably there were only a few instances where agreement was reached that disposed of a defect item in all respects. As a result there are some 19 or more defect items in dispute as well as the usual issue of preliminaries and margin. Mitigation 1. This is an appropriate point to consider the builders' mitigation point as, if it is successful, that will be a complete answer to the owners' defects case. 2. In connection with mitigation, the builders make submissions regarding this subject in their written submissions in reply to the owners' claim dated 31 October 2014. The submission is that the losses suffered by the owners have been as a result of their failure to mitigate their loss. 3. The builder's refer to a meeting held at the residence on 19 April 2012 when discussions were held in connection with certain items of work. I accept that there were offers made by the builders and their sub-contractors to remedy some minor items of work. However, I do not regard the meeting of 19 April 2012 as a response by the builders to rectify defects in the work they had performed. There were some minor concessions made and in respect of some items, the builders were stating that the item of complaint by the owners was not their responsibility. 4. In my view the builders' position is best expressed in its email of 15 May 2015, to Mr Markunsky in response to his email of 9 April 2012 which was a defects list. The builder's response is detailed and in a number of instances states that the builders will attend to a defect item. In some cases it states that additional costs will be incurred and in other instances it states that the defect item is not its responsibility. 5. However the builders' email concludes by stating that 'Completion of all existing work and outstanding payment is required to be paid before any additional work can be carried out.' 6. In TCN Channel 9 v Hayden Enterprises Pty Limited (1989) 16 NSWLR 130 Hope JA stated at p158 E that the onus was on the defendant in connection with mitigation. 'The plaintiff does not have to show that he has fulfilled his duty; the onus is on the defendant to show that he has not, and to show the extent to which he has not done so.' 1. In The Owners - Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067 Ball J. stated at paragraph 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' [sic, builder] '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.' 1. Having regard to the relevant facts and the above authorities, I have reached the conclusion that the owners' refusal to allow the builders and its subcontractors to remedy some minor defective work and the range of matters referred to in the builders email of builders of 15 May 2015 was not unreasonable because of the condition imposed by the builders at the conclusion of the email as set out above. 2. The builders did not state their unconditional willingness to rectify defective work for which they were responsible. The owners acceptance of the builders' rectification offer exposed them to increased costs which could not at the relevant time be ascertained. Their refusal was I find not unreasonable. 3. I reject the builders' submission that the losses suffered by the owners in relation to defective work was caused as a result of their failure to mitigate their loss. 4. I will deal with each defect item in turn. I will refer to the agreements reached at the conclave in connection with the disputed defects. Bathroom – step to hall 1. There is a factual dispute about whether or not the parties reached an agreement about the removal of the step from the bathroom to the hall. 2. I have had regard to the evidence referred to in connection with this item. I have also had regard to the parties' submissions on this item. I note that the owners do not identify the specific warranty in section 18B of the Act that they allege the builder breached. 3. I accept Mr Zammit's evidence that there was no agreement between the parties that the step from the bathroom to the hall would be removed by the builder. Further, this work was not stated in the builder's quote for the bathroom work. 4. I also accept and prefer the builders' submissions on this item in particular at paragraph 42. 5. This aspect of the owners' defects case is dismissed. Shower design 1. The experts agree that the design of the shower is what I might describe as undesirable and that as a result rectification work is necessary to deal with water escaping the shower recess. 2. There is an issue about which party was responsible for the design of the shower recess. 3. The owners' submission is that the builder was responsible for the design of the bathroom. I do not accept that the builder designed the bathroom. I find on the evidence that I have been referred to in the submissions that the builder carried out the work that he was asked to do. 4. So far as the water jets are concerned, I accept the builder's evidence that he liaised with Mrs Markunsky regarding the placement with the water jets. 5. I find that the owners have not established that the builder was responsible for the design of the shower. 6. The owners' case for defective work is based on section 18B of the Act. That section and the warranties set out in sub sections (a) to (f) do not provide a warranty that a builder will design residential building work with reasonable care and skill. Even if the builder did provide the design, a negligent design would not breach the warranties in section 18B of the Act. In that regard, the owners have not referred me, or the builder, to the warranty in section 18B of the Act which is alleged to have been breached. 7. I prefer the builders' submissions at paragraph 45. 8. This item of the owners' defects case is dismissed. Shower screen and Water stop 1. This alleged defect is another example of an issue that has arisen because of a lack of a documented design of the bathroom work. 2. There is a factual dispute about what the parties discussed and whether there was any agreement regarding the provision of a shower screen and water stop. 3. Mr Markunsky states that he gave the builder a sketch of the owners' bathroom requirements. He denies that he advised the builders that he did not want a shower screen or a water stop. There is no evidence from the owners that the builders advised them that there ought not be a shower screen or a water stop. 4. This alleged defect falls under the heading of design. As stated above, the owners' case for defective work is based on section 18B of the Act. That section and the warranties set out in sub sections (a) to (f) do not provide a warranty that a builder will design residential building work with reasonable care and skill. Even if the builder did provide the design, a negligent design would not breach the warranties in section 18B of the Act. In that regard, the owners have not referred me, or the builder, to the warranty in section 18B of the Act which is alleged to have been breached. 5. I accept the builder's evidence that it did not install the shower screen. That work was performed by Stephen Borg of Elegant Kitchens. 6. I find that the owners have not established that the builder was responsible for the design of the shower screen or a water hob. This aspect of the owners' defects case is dismissed. Falls to bathroom floor 1. There was an agreement between the experts at the conclave that the builders were responsible for this defect. Unfortunately there was no agreement as to rectification methodology or the cost of rectification. 2. The conclave notes, as signed by the parties' experts, state that 'Common ground is that floor replacement is required.' The conclave notes also state 'Common ground that to rectify the bathroom only bottom row of all tiles need removing and replacing (full height to shower recess). NOTHWITHSTANDING, AG maintains that all walls must be stripped based on the fact it is a single dwelling and there would be too much disruption to existing finishes' 3. Mr Nisbett estimates the cost of rectification to be $7,470.00. Mr Grieve for the owners estimates the rectification cost to be $14,455.00 exclusive of supervision. These costs are agreed. The issue is whose rectification methodology is to be preferred. 4. The builder's submissions at paragraphs 51 – 58 seek to avoid the consequences of the agreement of the experts at the conclave by concluding that 'As such the issue of the falls to the floor should not be found to be a defect against the builder and the claim in respect to rectification works should be rejected in its entirety.' 5. I reject that submission. Where a party's expert has agreed to a position at a conclave expressly convened to examine the extent to which common ground can be found between experts, I am of the view that the party should not be permitted to resile from that agreement. 6. Mr Grieve's more expensive rectification methodology is that all walls must be stripped based on the fact it is a single dwelling and there would be too much disruption to existing finishes, namely the tiles above the bottom row wall tiling. I accept and prefer the owners submissions at paragraphs 49 -60 of its 13 October 2014 submissions and the evidence there referred to. It should be borne in mind that the owners' remedy is 'once and for all'. If Mr Nisbett's costings were allowed, but his rectification methodology was found to be imperfect for the reasons stated by Mr Grieve, the owners would not be entitled to seek any further relief. This is an additional basis for preferring Mr Grieve's rectification methodology and his costing. 7. I will find in the owners favour in the sum of $14,455.00. The issue of supervision costs will be dealt with separately. Window – quantum agreed $580.00 1. It is alleged that the brick work does not match the existing brick work. The owners also allege that it is agreed that the brickwork is 'defective per se' – in itself. The evidence does not support the contention that the brickwork is defective in itself. 2. The issue is whether the owners told the builder that they intended to render the residence. The builders' evidence is that the owners stated the residence would be rendered. The owners deny this. As such the builder's position is that in light of that information, it was not relevant that the brickwork did not match the existing. 3. The owners position is that they only considered rendering the property after the mismatch in brickwork became apparent. 4. I have considered the evidence and the parties' submissions. 5. The owners have not identified the particular warranty they allege was breached. However, if their evidence is to be accepted, clause 18 B (a) of the Act would be the relevant statutory warranty. 6. I accept the builders' evidence that the owners informed Mr Zammit that the property was to be rendered and it was on this basis that he used common bricks. I also have placed weight on the builder's submissions regarding the document provided by the owners to Mr Goddard which did not raise this issue and the report of Mr Goddard dated 5 September 2012, contained at pages 233 to 236 of the bundle. 7. This aspect of the owners defects claim is dismissed. Exhaust fan 1. I accept the owners' submissions and the evidence referred to. They will be successful on this item of the claim in the sum of $240.00. Installation of fixtures rectification cost agreed - $800.00 1. This item relates to the rectification of the toilet and the towel rail in the bathroom. I note that the rectification cost of $800.00 was agreed by the experts. 2. The owners' submission is that the electrical towel rail and the toilet seat were not properly installed by the builder. 3. I accept the evidence of Mr Zammit in connection with this item as referred to in the builders' submissions, paragraph 89. Overall, I prefer the builders' submissions in connection with this item of the owners' defects case. 4. This item of the owners case is dismissed. Smoke Alarms – amount claimed $310.00 1. The conclave notes are that three smoke detectors were tested and found to be in working condition. The notes also state that 'Ground floor unit lead does not appear to shut properly' 2. The evidence of the experts at the hearing was that the faceplate of the unit on the ground floor was not shutting properly. 3. The owners' expert is submitted to be of the opinion that the faceplate was likely to have been damaged during the installation. He states that the cost to rectify is $155.00. 4. I accept Mr Grieve's evidence that the face plate was most likely damaged during the installation. There is little other evidence relating to the cause of the damage to this item. 5. The owners will be successful on this item of the claim in the sum of $155.00. Dishwasher – amount claimed $480.00 1. The owners' expert states that in his opinion the hot and cold water supplies to the dishwasher were installed in a way that breached the Building Code of Australia ('BCA'). 2. During cross examination the owners' expert appeared to retreat from the position that there had been a breach of the BCA or an Australian Standard. He maintained the position that location of the outlets would in the case of a leak allow water to run down onto the electrical supply resulting in the risk of an accident. 3. In their submissions the owners submitted that the location of the outlets were an unnecessary risk for the owners and as a result were a defect. 4. The owners are obliged to establish a breach of one or more of the warranties set out in section 18B of the Act. There is no warranty in that section which refers to unnecessary risk. 5. The owners have failed to establish that section 18B of the Act has been breached. There is no breach of the BCA or a relevant Australian Standard alleged. This item of their defects claim is dismissed. Light Switch at top of stairs 1. The experts have agreed that the builders are responsible for this defect. Rectification is agreed at $120.00. Ceiling lights 1. The experts have agreed that the builders are responsible for this defect. Rectification is agreed at $120.00. Dining room lights 1. This item is not pressed by the owners. Dining room light switch 1. This item is not pressed by the owners. Picture light / quantum agreed $120.00 1. I accept the owners' submissions. 2. The owners will be successful on this item of the claim in the sum of $120.00. Steamer switch 1. The experts have agreed that the builders are responsible for this defect. Rectification is agreed at $120.00. Spotlights / quantum agreed $160.00 1. I accept the owners' submissions. 2. The owners will be successful on this item of the claim in the sum of $160.00 Telephone line – amount claimed $240.00 1. The owners have not made submissions in connection with this item. 2. There is no evidence to establish that there has been a breach of the statutory warranties by the builder in connection with this item. 3. I accept the builders' submissions. 4. This item of the owners' defects claim is dismissed. Hang doors and fix hardware 1. The experts have agreed that the builders are responsible for this defect. Rectification is agreed at $1,500.00. Clean site of building debris 1. The experts have agreed that the builders are responsible for this work. Rectification is agreed at $700.00. Ground floor rooms – quantum agreed at $1,680 1. There is a factual dispute about whether the builder suggested to the owners that they remove the old cornices to achieve a square set ceiling, or whether the owners stated to the builder that they wanted the old cornices removed in order to achieve a square set ceiling. 2. The first issue is which witness is to be believed in connection with the proposal for the removal of the cornices. 3. I prefer the evidence of Mr Zammit that it was the owners who requested him to remove the old cornices. I also accept that this conversation had taken place after the renovation of the kitchen where the ceilings were square set. 4. The owners also submit that in any event the builders work was defective because it wasn't done properly. 5. The owners complaint is that the line between the walls and ceilings is wavy, which is not aesthetically pleasing. The most probable cause of the wavy line is that the ceiling joists, to which the ceiling has been fixed, are out of level and this is a major contributing factor to this wavy line. 6. The builder has been criticized for not packing out the joists to achieve a level line. 7. As the owners' expert Mr Grieve stated in evidence, it is possible to pack the joists out if the work involved the replacement of the ceiling. In other words the ceiling would be removed, the packing out work could be carried out, the ceiling would be replaced, and the ceiling would meet the walls level, so the intersection of the wall and ceiling would be a 'nice clean corner'. 8. However in the circumstances of the work carried out by the builder at te residence, the builders did not replace the ceiling. They laid a new ceiling over the old ceiling. The agreement between the parties in connection with the ground floor rooms did not require the builder to remove the old ceiling and replace it with a new ceiling. 9. Having reviewed the parties' evidence and their submissions, I find that the owners requested the builder to remove the old cornices to achieve a square set ceiling. Further I find that the owners have not established that the builders breached the warranties set out in section 18B of the Act in the work that they carried out in connection with this item. 10. If anything the relevant facts disclose that the matters complained of by the owners are likely to occur in renovations which rely on work carried out at some previous time. Further I would observe that cornices have the effect of covering up a wavy line at the junction of a wall and a ceiling and they did precisely that in the room the subject of this discussion. 11. For the reasons set out above this item of the owners defects claim is dismissed. En suite – amount claimed $7,704.00 1. There is a factual dispute about the scope of work the builder was to carry out in the en-suite. 2. The owners' expert has stated that he was 'instructed that the builder agreed to make the West wall vertical before retiling the wall.' 3. The owners allege that there was an oral agreement to have this defect rectified. The owners also rely upon Mr Markunsky's email of 9 April 2012 where he states that 'wall is sloping (this is what we were charged to fix). I note that Mr Zammit replied to this email on 15 may 2012 when he stated in response 'I did not quote to fix walls that were out of plumb, I only quoted to remove bath, fix leaking bath and replace the tiles that were supplied by you to patch the walls as best as possible.' 4. I prefer the builders' submissions and the evidence referred to in those submissions, including the submissions regarding the pump cover and the adjustment of the door handle. 5. This item of the owners' defects claim is dismissed. Walk in robe / Nib walls –quantum agreed $340.00 1. There is a factual dispute about whether or not the owners requested the builders to remove the nib wall. 2. The owners state that there was no agreement for the builders to do this work. The builders state that Mrs Markunsky requested the work to be carried out. 3. I accept the builders' submissions and its evidence in connection with this item. I find that the builder undertook the work in question at the request of Mrs Markunsky. 4. This item of the owners' defects claim is dismissed Brickwork – quantum agreed $1,410.00 1. I have previously found against the owners in connection with the brickwork/ rendering issue. 2. Yet there remains the question of the window sill. However the owners' expert has not provided an assessment of the cost of providing window sills. 3. In any event as submitted by the builder, there was an agreement between Mr Zammit and Mrs Markunsky that window sills would not be provided. The builders' submissions also state that in any event the builders offered to install the sills if that was what the owners wanted. The owners did not take up the builders' offer. 4. I accept the builders' submissions and the evidence referred to in connection with this item. 5. For the reasons stated, this item of the owners' defects claim is dismissed. Study and lounge room windows – Brick work 1. For the reasons stated in connection with the window which is scott schedule item 1.2, I have found in the builders' favour on the basis of the finding that the builders used common bricks as they were told that the owners intended to render the residence. 2. On this basis this defect item is dismissed Install windows and fix architrave 1. The experts have agreed that this is incomplete work. The agreed cost is $580.00. Powder room tiling fall 1. The experts have agreed that the builders are responsible for this defect. Rectification is agreed at $2,950.00. Laundry: remove wall sheeting and fix plumbing 1. The experts have agreed that the builders are responsible for this defect. Rectification is agreed at $800.00. Skylight over staircase 1. The experts have agreed that the builders are responsible for this defect. Rectification is agreed at $300.00. Cut out bi-fold door opening – quantum agreed $890.00 1. For the reasons stated in connection with the window which is scott schedule item 1.2, I have found in the builders' favour on the basis of the finding that the builders used common bricks as they were told that the owners intended to render the residence. 2. On this basis this defect item is dismissed. Install window to lounge room - quantum agreed $890.00 1. For the reasons stated in connection with the window which is scott schedule item 1.2, I have found in the builders' favour on the basis of the finding that the builders used common bricks as they were told that the owners intended to render the residence. 2. On this basis this defect item is dismissed. Preliminaries and margin 1. The parties' experts agree that an amount of 30% should be applied to the value of rectification work on account of preliminaries and margin. Supervision 1. The owners' expert states that in his opinion that the rectification work will require supervision. He assesses that cost to be $15,000.00 based on 75 hours work at $200.00 per hour. 2. The builders' expert disagrees with this item. He states rectification should be carried out by licensed persons or a builder who should be competent enough to supervise their own work. 3. I have read the parties submissions in connection with this item of the owners' defects claim. The amount for preliminaries and margin relates to a builder's costs and allowances for profit and overhead. The overhead proportion of the agreed 30% would relate to the builder's supervision costs. 4. I agree with Mr Grieve for the owners that it is appropriate for owners in a rectification project to be represented by a project manager, or I would add by an architect. In that regard I accept Mr Grieve's evidence as referred to at paragraph 184 of the owners' submissions. 5. I do not accept the builders' submissions about a doubling up of supervision costs. An owner's project manager and a builder's supervisor fulfil different functions and serve different interests. 6. Mr Grieve has estimated 75 hours work for a project manager on a net total of $48,376.00 claimed for defective work. The owners have been successful in obtaining a net order in their favour for $22,320.00 for defective work, which is 46% of the amount originally sought. I will allow the owners to recover for supervision in an amount equal to 46% of 75 hours, namely 34.5 hours at $200.00 per hour giving a total of $6,900.00. I will add this amount, plus GST, $7,590.00, to the total amount awarded in favour of the owners on their defects case. 7. The total amounts found in the owners' favour in connection with defects are : 1 Bathroom – step to hall Nil 2. Shower design Nil Falls to Bathroom floor $14,455.00 2 Window Nil Exhaust fan $240.00 4 Installation of fixtures Nil 5 Smoke Alarms $155.00 6 Dishwasher Nil 7 Light Switch at top of stairs $120.00 8 Ceiling lights $120.00 9 Dining room lights Nil 10 Dining room light switch Nil 11 Picture light $120.00 12 Steamer switch $120.00 13 Spotlights $160.00 14 Telephone line Nil 15 Hang doors and fix hardware $1,500.00 16 Clean site of building debris $700.00 17 Ground floor rooms Nil 18 En suite Nil 19 Walk in robe / Nib walls Nil 20 Brickwork Nil Study and lounge room windows - brickwork Nil Install windows and fix architrave $580.00 Powder room tiling fall $2,950.00 Laundry: remove wall sheeting and fix plumbing $800.00 Skylight over staircase $300.00 Cut out bi-fold door opening Nil Install window to lounge room -quantum agreed $890.00 Nil Total $22,320.00 Preliminaries & Margin 30% $6,696.00 Sub total $29,016.00 GST 10% $2,901.60 Grand Total $31,917.60 1. As stated above the figure of $6,900.00 plus GST, $7,590.00 is to be added to the sum of $31,917.60 leading to a total of $39,507.60. The builder's claim 1. I have found that the builder is entitled to recover on a quantum meruit basis pursuant to section 94(1A) of the Act. I have also found that Mr Nisbett's valuation of the work carried out by the builder is to be accepted. The effect of those findings is that the value of the work carried out by the builder is $121,497.00. 2. I have deducted the total amount of defects and supervision fees found in the owners favour from the sum of $121,497.00. This brings the quantum meruit calculation to a net amount of $81,989.40 ($121,497.00 - $39,507.60). 3. As stated above it is common ground that the owners have paid the sum of $64,500.00 to the builder. 4. Deducting the sum of $64,500.00 from the net quantum meruit assessment of $81,989.40, leaves a balance of $17,489.40 payable by the owners to the builders. 5. I will order the owners to pay the builders the sum of $17,489.40 within 14 days of the date of this order. Costs 1. Either party is at liberty to make a costs application in these proceedings. 2. Any costs application pursuant to section 53 of the Consumer, Trader and Tenancy Tribunal Act 2001 or regulation 20 of the Consumer, Trader and Tenancy Tribunal Regulation 2009 must be lodged in the Tribunal and served on the costs respondent within 21 days of the date of this order either attaching or referring to the documents relied upon in support of the application. 3. The costs respondent will have 21 days after the date of receipt of the costs application referred to above, to lodge in the Tribunal and serve on the costs applicant the submissions, if any, in response to the costs application, such submissions either attaching or referring to the documents relied upon. 4. The cost applicant will have 14 days after the date of receipt of the cost respondent's submissions to lodge in the Tribunal and serve on the costs respondent the submissions, if any, in reply, such submissions either attaching or referring to the documents relied upon. 5. The Tribunal will determine any costs application on the basis of the papers lodged in the Tribunal D Goldstein Senior Member Civil and Administrative Tribunal of New South Wales 23 February 2015 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: 05 May 2015