Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Jensen v Bartels [2016] NSWCATCD 27 Hearing dates: 16 February 2016 Decision date: 12 April 2016 Jurisdiction: Consumer and Commercial Division Before: K Rosser, Senior Member Decision: 1. The respondent is to pay the applicant the sum of $39,996.06 immediately. 2. The respondent is to pay the applicants' costs, on a party-party basis, as agreed or assessed. Catchwords: Residential building work; termination of contract; incomplete work; defective work; consequential loss; costs Legislation Cited: Home Building Act 1989 Civil and Administrative Tribunal Act 2013 Civil and Administrative Tribunal Rules 2014 Cases Cited: Latoudis v Casey [1990] 170 CLR 534 Oshlak v Richmond River Council [1998] HCA 11 Category: Principal judgment Parties: Jim Jensen and Wintie Jensen – Applicants Cornelis Louis Bartels - Respondent Representation: Snelgroves Solicitors – Applicant Self-represented Respondent File Number(s): HB 15/46047 Publication restriction: Nil Reasons for decision Introduction 1. The applicants seek damages in respect of defective and incomplete work and damage to an existing building. Their claim arises from a residential building contract between the parties, which were entered into on 23 March 2013. The applicants claim to have lawfully terminated the contract by way of a termination notice dated 30 April 2015. 2. I have made orders in favour of the applicants for the reasons set out below. Background 1. The respondent is a licensed builder. The contract between the parties was in relation to alterations and additions to the applicants' family home. 2. The contract was a standard form contract and the contract price was $257,290. The parties agreed on a number of variations totalling $29,765. It is not in dispute that as a result of the agreed variations, the adjusted contract price was $307,240. A home owners warranty insurance certificate with a declared value of $257,290 was provided by the respondent. The contract provided for a construction period of 120 days 3. It is not in dispute that the applicants paid the respondent the sum of $281,590, which included a number of cash payments. 4. By late 2013, the parties had fallen into dispute. The dispute continued into 2014. According to the respondent, there were issues with the applicants' ability and willingness to pay, the access provided to the site and the applicants' refusal to sign off on variations. According to the applicants, the respondent was not undertaking the contract works expeditiously. 5. In August 2014, the respondent purported to suspend works for a second time, the first purported suspension notice having been given in December 2013. 6. A building inspection from the Office of Fair Trading attended the site on 4 September 2014. He made a rectification order that was subject to a number of conditions. The respondent claims that the applicants did not comply with the conditions. The applicants claim that the respondent did not comply with the rectification order. The work required under the rectification order was to be completed by 7 November 2014. 7. On 24 November 2014, the respondent commenced proceedings in the Tribunal, claiming payment of $5500 (which the respondent stated had been paid to his subcontractor) and stating that he wished to terminate the contract because of the serious breaches of the contract by the applicant: HB 14/56381. The application was listed for hearing on 5 December 2014. The respondent failed to appear at the hearing and his application was dismissed for non-appearance. The respondent did not commence any further proceedings. 8. In an email dated 11 December 2014, the respondent (through his agent, Mr Burch) wrote to the applicants stating that the contract had been terminated by mutual consent. The applicants responded to the email, denying that that this had occurred. 9. The applicants engaged the services of Mr Doug Coombes, a building consultant and their expert witness in these proceedings. Mr Coombes prepared a report dated 18 February 2015. 10. The applicants served a Notice of Breach on the respondent on 25 March 2015. They state that no further work was carried out by the respondent and no attempt was made to rectify the breaches set out in the breach notice. 11. In 30 April 2015, the applicants served a Notice of Termination on the respondent. They claim that the notice was returned because the respondent would not accept service by post. The notice was served by a process server on 20 July 2015. 12. The applicants claim loss and damage arising from the respondent's breach of contract and breach of statutory warranties set out in s 18B of the Home Building Act 1989 (the HB Act). Proceedings in the Tribunal 1. The applicants filed the application on 3 August 2015. With their application, they filed a bundle of documents, including Mr Coombes' report. 2. It was first listed for directions on 11 September 2015. Both parties appeared and, in view of the quantum of the claim, were given leave to be legally represented. 3. The applicants having filed the material on which they sought to rely at the hearing with their application, the respondent was directed to file and serve all documents on which he sought to rely at the hearing by 16 October 2015. Directions were also made in the event that the respondent filed a cross-application. The documents the respondent was to file included any expert report on which he sought to rely. On the assumption that the respondent would obtain expert evidence in defence of the application, directions were made for a meeting of expert witnesses and the preparation of a joint expert report. 4. The respondent failed to comply with the Tribunal's directions and no cross-application was filed. 5. The matter came before the Tribunal for further directions on 4 December 2015. The respondent did not appear. Rather, on that date, a bundle of documents was filed, with the respondent stating that he did not propose to appear because he had been unwell. The respondent did not provide an expert report. 6. The applicants filed brief material in reply to the respondent's documents. 7. The matter was set down for a three hour hearing on 16 February 2016. On 11 February 2016, without leave to do so, the respondent filed further documents in defence of the claim. This included comments on Mr Coombes' expert report. 8. On 8 February 2016, the applicant filed a consolidated bundle of all documents to be relied on at the hearing. 9. At the hearing on 16 February, the applicants' solicitor Mr Snelgrove solicitor did not object to the Tribunal receiving the respondent's additional documents. He tendered a supplementary report prepared by Mr Coombes, which was added to the applicant's hearing bundle. The bundle was marked as Exhibit 1. The respondent's documents filed on 4 December 2015 are Exhibit 2 and those filed on 11 February 2016 are Exhibit 3. 10. During the hearing, the respondent referred to other documents in his possession, which had not been filed. The respondent was given the opportunity to make an application to file and serve the documents. He was put on notice that if this resulted in an adjournment of the hearing, an order for him to pay the applicants' costs could be made. The respondent did not make any application in relation to the documents. 11. At the hearing, the first applicant (Mr Jensen) and Mr Coombes gave evidence. They were cross-examined by the respondent. The respondent then gave oral evidence (mixed with submissions). He was cross-examined by Mr Snelgrove. Jurisdiction 1. I find that the parties entered into a contract for the performance of residential building work in March 2013. I find that the application constitutes a building claim in accordance with s 48A of the HB Act, which the Tribunal has jurisdiction to hear and determine under s 48K of that Act. Evidence and submissions 1. In making a decision in relation to the application, I have considered the sworn oral evidence of Mr Jensen and Mr Coombes, the sworn oral evidence and submissions of the respondent, the oral submissions made on behalf of the applicants by Mr Snelgrove and the documents tendered by both parties. Issues 1. The issues to be determined are: 1. Did the applicants lawfully terminate their contract with the respondent? 2. If so, are the applicants entitled to the cost of completing the contracted works? 3. If they are entitled to completion costs, what is the reasonable cost of completion? 4. Have the applicants established that the respondent undertook defective work and, if so, what is the reasonable cost of rectifying the defective work? 5. Are the applicants entitled to damages for the cost of repairing damage to the existing building, and if so, what is the reasonable cost of repairing that damage? 6. Have the applicants established the basis for an order for costs? Consideration Did the applicants lawfully terminate their contract with the respondent? 1. The respondent's position is that he gave a Notice of Breach in August 2014 and that the contract was terminated by mutual agreement in December 2014. He therefore argues that the applicants did not lawfully terminate the contract. 2. I do not accept the respondent's argument in this regard. 3. First, I find that the respondent's Notice of Suspension dated 14 August 2014 was ineffective because it did not comply with clause 15(a) of the contract; that is, it did not "identify in sufficient detail, supported by relevant documents or reports, the purpose of and outcome required by the Notice". The Notice (at Annexure K of Exhibit 3) provides no details of the alleged breaches by the applicants. During the hearing, the respondent argued that a letter which had been sent to the home warranty insurer and copied to the applicants set out the details of the breaches. However, as pointed out to the respondent, this letter (at Annexure J of Exhibit 3) is dated 22 August 2014 (that is, after the Notice of Suspension). It therefore could not have accompanied the Notice of Suspension. 4. Further, I find that the email sent to the applicants on 11 December 2014 (Exhibit 1 p 198) was not an effective termination notice. First, it refers to the contract as having been terminated by mutual consent. The respondent has provided no evidence that mutual termination of the contract occurred. Second, in response to the email, Mr Jensen wrote to the respondent by email, stating that the contract had not been terminated by mutual agreement, that the respondent had abandoned the site, that he would be seeking legal advice that that the applicants were awaiting the Office of Fair Trading Inspector's report: Exhibit 1 p 199. There is no evidence that the respondent took any action in response to Mr Jensen's email, which he could reasonably have been expected to do, if he had evidence that the contract had been terminated by mutual agreement. 5. While the email of 11 December 2014 does not effectively terminate the contract, it notified the applicants that the respondent no longer intended to be bound by the contract. In relation to this, the email stated that the contract had been terminated by mutual consent and that the all insurance in respect of the project had been cancelled. In these circumstances, I find that the email of 11 December 2014 constitutes a repudiation of the contract by the respondent. 6. I find that on 25 March 2015 the applicants served on the respondent a Notice of Breach under clause 13 of the contract. The Notice identified the breaches and gave the respondent 20 business days in which to remedy the breaches. The Notice nominates defective and incomplete work identified in Mr Coombes' report, the respondent ceasing work and not returning to the site and the respondent's intention not to be bound by the contract as advised in the 11 December email as the breaches on which the Notice was based. The respondent was given 20 working days in which the remedy the breaches. The respondent took no action in this regard. 7. I have already found that the 11 December 2014 email constitutes a repudiation of the contract. I have found below that work undertaken by the respondent was defective and incomplete in accordance with Mr Coombes's report. In these circumstances, I find that the applicants' Notice of Termination dated 30 April 2015 was a valid termination notice given under clause 13 of the contract, as the respondent had not remedied the breaches notified in the Notice of Breach. 8. It follows that I find that the applicants lawfully terminated the contract with the respondent. Are the applicants entitled to the cost of completing the contracted works? 1. The applicants lawfully terminated the contract prior to the contracted work and agreed variations being completed. I am satisfied that they are entitled to the cost of the reasonable and necessary work required to complete the contract, less any amount of the contract price that remains unpaid. What is the reasonable cost of completion? 1. The applicants rely on the report prepared by Mr Doug Coombes dated 18 February 2015 and Mr Coombes' supplementary report dated 14 February 2016. The supplementary report responds to assertions the respondent made about the original report in the documents provided to the Tribunal on 11 February 2016 (Exhibit 3). 2. I accept that Mr Coombes' reports constitute expert evidence. In relation to this, Mr Coombes is an independent building consultant who is sufficiently qualified and experienced to give an expert opinion. His reports comply with NCAT Procedural Direction 3 for Expert Witnesses, and in particular with clause 16 of that Procedural Direction. 3. The respondent provided no expert evidence, despite being given an opportunity and being encouraged to do so. While I accept that the respondent is an experienced builder, he is a party to the proceedings and his opinion therefore cannot be regarded as independent. The respondent cannot provide expert evidence in his own cause. Further, the respondent was given leave to be legally represented and had ample opportunity to obtain legal advice in relation to the evidence which could be obtained to defend the applicants' claim against him. At the hearing, the respondent indicated that he had chosen neither to obtain legal advice or an expert report for financial reasons. 4. In the documents he submitted to the Tribunal, the respondent challenged some of Mr Coombes' conclusions. The respondent cross-examined Mr Coombes during the hearing. Mr Coombes did not resile from the opinions expressed in his reports, either in respect of incomplete work, defective work or consequential damage (which are considered below). 5. In defence of the claim for incomplete work, the respondent had two central arguments. One is that the front porch tiling was not part of the contracted works. Completion of this work had been costed by Mr Coombes in his report, on the basis that the porch was shown on the drawings. The applicants conceded that it was not part of the works, although they claimed that it originally had been. An examination of the respondent's quotation (at p 113 of Exhibit 1) indicates that construction of the porch area was part of the quoted works. However, tiling of the porch is not referred to under the heading "Ceramic tiling". The applicants concede that a total of $1145.44 (which includes the estimated cost of labour, materials, plus preliminaries, margin and GST) should be deducted from the claimed completion costs. 6. The respondent's second substantive point in relation to completion costs is that plumbing costs were a provisional cost item of $7,000 under the contract and that he spent in excess of $12,000 on the work. However, the respondent filed no evidence to support that assertion. When he said he had the evidence, he was given an opportunity to make an application to file it. As noted above, the respondent was put on notice that if such an application were granted, an order for costs could be made against him if an adjournment of the proceedings was required. The respondent made no application to file further material. 7. In these circumstances, I am not satisfied that Mr Coombes' opinion in respect of plumbing completion costs should be rejected or varied. In the absence of any expert evidence from the respondent, I accept that Mr Coombes' estimate of the cost of completing both the plumbing work and the other contract and agreed variation work is reasonable. 8. Mr Coombes estimates completion costs at $51,651.24. From this sum must be deducted $1145.44 for the estimated porch tiling costs, leaving a balance of $50,505.80 as the reasonable cost of completing the contracted works. 9. That part of the contract price that remains unpaid must be deducted from the reasonable costs of completion. During the hearing, the respondent agreed that the adjusted contract price was $307,240 of which the applicants had paid $281,590. This means that $25,650 of the contract price remains unpaid and is to be deducted from the completion costs. 10. Accordingly, I find that the applicants have established an entitlement to an award of $24,855.80 in respect of completion costs. Have the applicants established that the respondent undertook defective work and, if so, what is the reasonable cost of rectifying the defective work? 1. Pursuant to s 18B(a) of the HB Act (as it was worded at the time the contracted works were undertaken), the respondent warranted that the works would be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract. This statutory obligation is reflected in clause 16(i) of the contract. 2. The applicants rely on Mr Coombes' report dated 18 February 2015 to establish that part of the work undertaken by the respondent is in breach of that statutory warranty and requires rectification. 3. For the reasons set out in [39] above, I accept Mr Coombes' report constitutes expert evidence. Mr Coombes' opinion in relation to building defects was not altered under cross-examination. In the absence of any expert evidence from the respondent, I prefer Mr Coombes' opinion in relation to the existence and method of rectification of defects to the respondent's evidence and submissions. I find that rectification of the work is a reasonable course to adopt. I find that the defects set out Mr Coombes report and the Scott Schedule constitute defects in breach of the statutory warranty set out in s 18B(a) of the HB Act. 4. The respondent did not challenge Mr Coombes' estimate of rectification costs. Given that it is uncontroverted by any other expert opinion, I accept Mr Coombes' estimate in this regard, which is $14,128.75 (including preliminaries, GST and margin). Are the applicants entitled to damages for the cost of repairing damage to the existing building, and if so, what is the reasonable cost of repairing any that damage? 1. The applicants claim consequential loss arising from damage to the existing building. The damage is noted in Mr Coombes' 18 February 2015 as water staining to the existing lounge room and bedroom 3 ceiling and damage to the north wall of the lounge room. Consequential loss is claimable if the loss arose naturally from the breach and if the loss may reasonably have been in the contemplation of both parties at the time they made the contract. 2. The respondent did not, either in the documents he tendered or orally, dispute liability for damage to the existing building. In these circumstances, I find that the damage arose from the work undertaken by the respondent. I therefore find that the applicants have established an entitlement to damage in respect of the loss. On the basis of Mr Coombes' report, I find that the proposed rectification work is reasonable and necessary. 3. Mr Coombes estimates the rectification cost at $1,011.51 (including preliminaries, margin and GST). In the absence of expert evidence controverting Mr Coombes' opinion, I find that the estimated cost of rectification is reasonable. Have the applicants established the basis for an order for costs? 1. Section 60(1) of the NCAT Act provides that each party to proceedings in the Tribunal is to pay the party's own costs. This is subject to s 60(2) of the Act, which provides that the Tribunal may award costs only if it is satisfied that there are special circumstances warranting an award of costs. Section 60(3) lists factors the Tribunal may have regard to in determining whether special circumstances exist. 2. However, s 60 is also subject to Rule 38 of the Civil and Administrative Tribunal Rules 2014. This rule provides that despite s 60, in matters in the Tribunal's Consumer and Commercial Division the Tribunal may make an order for costs even in the absence of special circumstances where the amount claimed or in dispute in the proceedings exceeds $30,000.00. 3. This matter was determined in the Consumer and Commercial Division and the amount claimed exceeded $30,000.00. Rule 38 therefore applies and the Tribunal has a discretion as to whether to make an order for costs. Special circumstances do not need to be established. 4. Rule 38 does not specify the factors the Tribunal must take into account in exercising the discretion. In these circumstances, I am satisfied that the appropriate starting point is the well-established position at common law; that is, that the purpose of making a costs order is to provide compensation to the party in whose favour the order is made for the expense the party has been put to in prosecuting or defending legal proceedings. In general terms, this means that a party who is successful is entitled to an order for costs in its favour, subject to exceptions generally involving misconduct on the part of that party: Latoudis v Casey [1990] 170 CLR 534 and Oshlak v Richmond River Council [1998] HCA 11. 5. I am satisfied that an order for costs should be made in favour of the applicants because the applicants were successful in the proceedings and because the applicants' conduct of the proceedings does not disentitle them to an award of costs. The applicants complied with the Tribunal's directions and otherwise did not conduct the proceedings in a manner which disadvantaged the respondent. 6. In these circumstances, I am satisfied that the applicants have established a basis for an award of costs in their favour, to be paid on the usual basis. Conclusion 1. I have found that the applicants lawfully terminated their contract with the respondent and are accordingly entitled to be awarded completion costs. 2. I have found that the respondent undertook defective work and the applicants are entitled to be awarded the cost of rectifying the defects. 3. I have found that the respondent caused damage to the existing property and that the applicants are entitled to the reasonable cost of repairing the damage. 4. I am satisfied that work proposed by Mr Coombes in his report of 18 February 2015 is reasonable and necessary to complete the work, rectify defects and repair the damage to the existing property. I am satisfied that the estimated costs of completion (less the cost of tiling the porch and the unpaid contract sum), rectification and repair set out in Mr Coombes' report are reasonable. 5. The applicants have established a basis for an award of damages as follows: 1. $24,855.80 for completion costs 2. $14,128.75 for rectification costs 3. $1,011.51 for repair costs 1. The total amount of damages awarded to the applicants is therefore $39,996.06. 2. I have ordered the respondent to pay the applicants' costs. K Rosser Senior Member Civil and Administrative Tribunal of NSW 12 April 2016 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: 03 June 2016