Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Owners Corporation SP 4670 v Con Korakis t/as Mihcon Building [2015] NSWCATCD 44 Hearing dates: 23 March 2015 Decision date: 01 April 2015 Jurisdiction: Consumer and Commercial Division Before: Jeffery Smith, Senior Member Decision: 1. Con Korakis t/as Mihcon Building shall pay to the Owners Corporation SP 4670 the sum of $327,067.40 within 30 days of the date of these orders. 2. If the parties are unable to agree on the issue of costs leave is granted for each party to file and serve within 21 days of the date of these orders a short written submission on that issue. 3. If any party seeks a hearing on the issue of costs leave is granted to make such a request in writing to the Divisional Registrar within 21 days of the date of these orders. If no request is made for a hearing the issue will be dealt with in chambers based on submissions received pursuant to 2, above. Catchwords: Lending of builder's licence to unlicensed person, agency of ostensible authority Legislation Cited: Home Building Act 1989, Civil and Administrative Tribunal Act 2013 Cases Cited: Xiao Hui Ying v Perpetual Trustees Victoria Ltd [2012] VCA 316, Solak v Bank of Western Australia [2009] VSC 82, Adam Shepard in his capacity as Registered Trustee of the bankrupt estate of Dr Neil Gordon Stuart Wallman v Paul Miadenis & ors [2011] NSWSC 1431, Leybourne v Permanent Custodians Ltd. [2010] NSWCA 78, Australian Nursing and Midwifery Federation v Kaizen Hospitals (Essendon)Pty Ltd. [2015] FCAFC 23, Crabtree-Vickers Pty. Ltd. v Australian Direct Mail Advertising and Addressing Co Pty Ltd. [1975] HCA 49.) Texts Cited: Agency Law, Simon Fisher, 2000, Butterworths Category: Principal judgment Parties: Owners Corporation SP 4670 (applicant) Con Korakis t/as Mihcon Building (respondent) Representation: Counsel: Mr Southwick instructed by Ms Yang, solicitor, for the applicant Mr Stomo instructed by Ms Klonis, solicitor, for the respondent File Number(s): HB 14/04074 Publication restriction: Nil reasons for decision INTRODUCTION 1. This application was filed in the Tribunal on 16 January 2014 seeking orders for compensation in the sum of $493,518.00 in respect of allegedly defective residential building work. Initially the application named a number of individual lot owners as additional applicants but those parties later withdrew without any issue of costs being raised. 2. The matter proceeded to a number of directions hearings and a conclave of experts was conducted with the assistance of a Tribunal Member on 13 May 2014. 3. As a result of that conclave there was agreement by the parties in relation to the nature and extent of the defects in the waterproofing and the agreed scope of necessary remedial work. It was also agreed that the total cost of remediation was $297,334.00 plus GST, being $327,067.40 in all. 4. However, it was not agreed that the respondent was liable for all of the cost of remediation. 5. Hence, when the matter came on for hearing on 23 March 2015 the issue for determination was whether the respondent was liable for all the cost of remedial work or for a lesser sum based on the defence raised. 6. It was agreed that if the Tribunal was of the view that the respondent was liable for all of the rectification costs, orders should be made in the applicant's favour in the abovementioned sum. 7. However, if the Tribunal was persuaded that there was merit in the respondent's defence it would be necessary to determine the proportion of the whole sum for which the respondent was liable. 8. At the hearing there was some difficulty with the expert evidence in that the respondent's expert had not previously seen the second report prepared by the applicant's expert (going to the issue of dividing the remedial work) and the respondent's expert was unavailable for the second day of the hearing. Further, the experts were unable to progress their discussions directed at arriving at some common ground. These difficulties raised concerns that the matter would take much longer than the time allocated and in any event would not be able to be completed in the two days allocated for hearing. 9. Therefore the parties agreed that the Tribunal should proceed by taking all lay evidence and submissions on liability and then adjourning for a reserved decision. If the Tribunal's determination was that the respondent was liable for all remedial work then orders finalising the matter could be made without the need for further hearing. If the determination of the Tribunal was that the respondent was not liable for remedial work flowing from additional works not included in the written contract entered into between the parties, then a further hearing would be required to take the expert evidence. 10. The Tribunal acceded to that proposed course of action. JURISDICTION 1. There was no dispute that the Tribunal has jurisdiction pursuant to the Home Building Act 1989 s 48K and the Civil and Administrative Tribunal Act 2013 Part 3 to hear and determine the application. RESPONDENT'S CASE 1. A quotation in the sum of $67,677.50 was provided to the applicant by Mr Adamopoulos acting on behalf of Sydney Spray Waterproofing Pty Ltd on 7 June 2011 to carry out a scope of waterproofing work. The Owners Corporation was not prepared to go ahead with a contract for that work because Mr Adamopoulos did not hold a valid licence. Mr Korakis agreed to endorse the contract as a licenced contractor. 2. Subsequent to the performance of the works specified in the contract, Mr Adamopoulos negotiated further additional works with the applicant and performed those works with the approval of the applicant. The respondent was not involved in negotiating those works, did not perform those works and was unaware of the scope of those works. Quotations and tax invoices, purporting to be prepared by the respondent were provided to the applicant. Those quotations and tax invoices were prepared without the knowledge or authority of the respondent. 3. Mr Adamopoulos created an elaborate fraud by preparing the quotations and invoices in the name of the respondent and forging his signature on them. This was done to overcome the reluctance of the applicant to enter into a contract with an unlicensed entity. 4. Having deceived the applicant Mr Adamopoulos also convinced the respondent that he had entered into separate agreements with the Owners Corporation independent of the first agreement and the applicant continued to make payments into the respondent's bank account. 5. The respondent relied on the dictum "fraud unravels everything" and cited the decision Xiao Hui Ying v Perpetual Trustees Victoria Ltd [2012] VCA 316 to that effect. 6. Further reliance was placed on the decision in Solak v Bank of Western Australia [2009] VSC 82 where it was decided that neither the bank nor the borrower whose signature was forged were bound by the covenants of the mortgage by virtue of the fraud of a third party. 7. The respondent quoted an excerpt from the decision of the NSWSC in Adam Shepard in his capacity as Registered Trustee of the bankrupt estate of Dr Neil Gordon Stuart Wallman v Paul Miadenis & ors [2011] NSWSC 1431 where it was said (in part) "..…It matters not that the victim is foolish or gullible. Persons who are vulnerable because of their gullibility are the persons who are more likely to be the targets of fraud and deceit…such a person…is no less entitled to the protection of the law simply because it is difficult to comprehend the stupidity of his conduct." 1. The respondent accepts he is responsible for the work specified in the written contract and the damages that flow from the defects in that work. 2. The respondent's gullibility in the assistance of Mr Adamopoulos to facilitate the banking may be difficult to comprehend but he is nevertheless entitled to the protection of the law. 3. The respondent relied on the following evidence, * Statements, with attachments, of Mr Con Korakis dated 5 September 2014 and 24 September 2014, * Expert reports of Mr Iskowicz dated 31 March 2014 and 11 November 2014 (not relevant at this time). 1. In addition Mr Con Korakis gave evidence on affirmation and was cross examined on his evidence. APPLICANT'S CASE 1. The applicant entered into a contract with Sydney Spray Waterproofing Pty Ltd on 9 September 2011 but declined to continue with it because Mr Adamopoulos was unlicensed. 2. The applicant entered into a contract in the sum of $67,677.50 with the respondent on 26 September 2011 for the scope of works described in the quotation previously provided by Mr Adampopoulos. 3. The additional works performed by Mr Adamopoulos were clearly contemplated by the contract and were performed as a variation agreed to pursuant to the contract. 4. Despite the respondent being unaware of the additional work being carried out for the applicant, the respondent became aware of the work and, in effect, ratified it as part of the contracted works. 5. The legal principle relied upon by the applicant was summarised in Leybourne v Permanent Custodians Ltd. [2010] NSWCA 78, at para 131 where it was said "A principal can ratify the making of a contract entered into by a purported agent when the agent did not in truth have authority to make the contract on behalf of the principal. The ratification has retrospective effect, and the agent is treated as having had the requisite authority" : Union Bank of Australia Ltd v McClintock (1922) 1 AC 240 at 248; [2006] NSWSC 1028 at [81]; Jones v Peters [1948] VicLawRp 56; (1948) VLR 331 at 335. 1. Reliance was also placed on the decision of the Federal Court in Australian Nursing and Midwifery Federation v Kaizen Hospitals (Essendon) Pty Ltd. [2015] FCAFC 23. 2. The applicant relied on the following evidence * Affidavits of George Gulczynski, with attachments, dated 13 October 2014 and 22 January 2015, * Expert reports of Michael Kelett dated 9 August 2013 and 22 January 2015 (but not relevant at this time), * Cheque buts and bank statements being Exhibit 1. 1. In addition Mr Gulczynski gave evidence on affirmation and was cross examined on his evidence. FACTS 1. It is not disputed that a quotation was prepared for the applicant by Mr Adamopoulos on behalf of Sydney Spray Waterproofing Pty Ltd in the sum of $67,677.50 and dated 7 June 2011. It is noted and it is not in dispute that the quotation included the words "Due to the poor condition and maintenance of the existing waterproofing on the roof top and other areas there may be some unforseen spalling (concrete cancer) damage to the existing underneath slab. If there is any damage to the slab it will have to be addressed and assessed. The cost of extra work will be a variation." 1. The respondent agreed under cross examination that he had read the quotation carefully. 2. It is agreed by the parties that subsequent to that quote being provided to the applicant the applicant entered into a contract with Sydney Spray Waterproofing Pty Ltd but then declined to proceed because Mr Adamopoulos did not hold an appropriate licence to do the work. A copy of that contract does not appear to be in evidence but I accept that contract was made. (Nothing turns on the issue). 3. A contract was entered into between the respondent and the applicant dated 26 September 2011. The contract was a standard form fixed price contract issued by the Office of Fair Trading for residential building work over $25,000.00. 4. It is not disputed that the name and signature on the contract are those of the respondent, the licence number on the contract is that of the respondent nor that statutory "home warranty" insurance was effected in the name of the respondent. 5. The contract sum was $67,677.50 (identical with the sum quoted by Adamopoulos on 7 June 2011) and the agreed scope of works was ascertainable only by reference in the contract to the quotation provided on 7 June 2011. 6. The contract provided for a deposit of $7,677.50 to be paid and a schedule of progress payments was included. 7. Importantly, the contract also provided at Clause 13 a mechanism for varying the contract. 8. It is not disputed that the sums payable in accordance with the contract and the sums paid for the additional work were paid into the bank account of the respondent. Payment was made by the applicant in response to tax invoices prepared by Adamopoulos and provided to the applicant. 9. The respondent denied that he had prepared or signed the tax invoices issued to the applicant. The applicant disputed that denial and submitted that a hand writing expert ought to have been called to settle the point. I do not recall that it was put to the respondent during cross examination that he had in fact signed those invoices. 10. In view of the design (lay out) of the tax invoices compared with the ones usually employed by the respondent it is very unlikely that the respondent had anything to do with the preparation or issuance of the tax invoices. I am therefore satisfied on the balance of probabilities that those tax invoices were prepared without the knowledge of the respondent. 11. However, it is noted that the respondent did not deny that he had become aware of the invoices for the additional work after that work was completed. 12. It is clear from the bank statements in evidence and the cross examination of the respondent that all of the sums paid by the applicant to the respondent (with some minor exceptions for which an explanation was proffered) were passed on to Adamopoulos by the respondent. 13. It is not disputed that the whole of the contract plus the additional works were negotiated and agreed between the applicant and Adamopoulos. It is not disputed that Adamopoulos performed all of the works, although the respondent did on occasion attend the site. ISSUES 1. The essence of the dispute is this. 2. The respondent's position is that the additional work performed by Adamopoulos was done without the knowledge or consent or authority of the respondent and constituted a new agreement between Adamopoulos and the applicant. In entering into that new agreement Adamopoulos had constructed an elaborate fraud to conceal from the applicant the fact that it was contracting with an unlicensed entity. 3. The applicant's position is that the additional work was done by Adamopoulos on behalf of the respondent but was done under the contract between the respondent and the applicant or, in the alternative, if there was a new agreement that agreement was between the applicant and the respondent with Adamopoulos acting as the agent of ostensible authority of the respondent. ADDITIONAL WORK / VARIATIONS 1. The contract itself contained provision for variations to the contract (Clause 13). The quotation was the only contract document referred to in the contract (Clause 1). The quotation itself had been read and carefully considered by the respondent. It noted the poor condition of the waterproofing and the potential for additional work at additional cost (Note 1). 2. I am satisfied therefore that the respondent was on actual notice of that issue and was therefore aware of the potential for the need for variations to the contract. 3. I accept that Adamopoulos was never given actual authority by the respondent to issue invoices in the name of the respondent. Nevertheless it was a necessary part of the process, if Adamopoulos was to be paid for his work, that invoices be issued. 4. The respondent provided his bank account details to facilitate that process and accepted payments into his account and passed them on to Adamopoulos. 5. When additional work was done the respondent did not refuse payments or return money to the applicant. He accepted the payments and continued to pass on the payment to Adamopoulos. 6. Although the respondent played no part in negotiation of the additional work and the price of it, he did not deny that he subsequently became aware of the work having been done and had some idea of the scope of the work. Despite that the respondent made no attempt to limit in any way the activities of his friend Adamopoulos. APPLICATION OF RELEVANT LAW 1. An agent of ostensible authority is an agent who, although not having the express authority of the principal, nevertheless appears to a third party to have authority as a result of the conduct of the principal towards the third party (see for example Crabtree-Vickers Pty. Ltd. v Australian Direct Mail Advertising and Addressing Co Pty Ltd. [1975] HCA 49.) 2. The principle is succinctly stated by Professor Simon Fisher in his text "Agency Law" at 4.4.7 where it is said "Ostensible authority is based on appearances, not realities and the response of the legal system is to match the appearance created by the principal to the expectations of the third party as a result of responding to the principal's conduct." 1. In the circumstances of this case the respondent's conduct was to sign a contract in his own name with the applicant. It was a contract with whom the applicant's only previous and subsequent dealings were with Adamopoulos, a fact well known to the respondent. Adamopoulos physically did the work and provided the applicant's with invoices for the work. Both of these facts were also known to the respondent, even though the issue of invoices was known ex post facto. The respondent did not seek to limit in any way the dealings between Adamopoulos and the applicant nor to vary his actions in light of further knowledge gained during the course of the dealings between Adamopoulos and the applicant. All money paid under the contract was paid by the applicant to the respondent. 2. That is, as far as the applicant was aware from the respondent's conduct Adamopoulos was employed by the respondent to perform the work the respondent had contracted to do and to negotiate the terms of the contract. 3. Adamopoulos in that way became an agent of ostensible authority for the respondent and was entitled on the face of the actions of the respondent to negotiate any necessary variations to the contract with the applicant. This analysis is even more compelling when one considers the above finding that the respondent had actual knowledge of the potential for the need for additional work. 4. Far from being a "foolish and gullible" person against whom Adamopoulos perpetrated an elaborate fraud, as submitted by the respondent, I am satisfied the respondent deliberately armed Adamopoulos with the necessary means to circumvent his legal obligations under the Home Building Act 1989 s 4 and in so doing took upon himself the liability pursuant to the statutory warranties under that Act for any defective work performed. CONCLUSION 1. For the above reasons I am satisfied that the "additional works" performed by Adamopoulos constituted a variation to the contract between the parties and were done pursuant to the contract entered into between the applicant and respondent on 26 September 2011. 2. It follows therefore that the respondent, as the contracting builder is liable for all of the damages flowing from the defective works. COSTS 1. If the parties are unable to agree on the issue of costs I have made some directions to deal with that issue. Jeffery Smith Senior Member Civil and Administrative Tribunal of New South Wales 1 April 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: 11 June 2015