Deacon v National Strategic Constructions Pty Ltd; National Strategic Constructions Pty Ltd v Deacon [2017] NSWCATAP 185
Consumer and Commercial Division - Home Building
Judgment of: K Rosser, Principal Member; G Sarginson, Senior Member
The Appeal Panel allowed an appeal, in part, from the Consumer and Commercial Division, holding (at [32]) that the Tribunal below had erred in law by reason of a misapplication of the principle in Bellgrove v Elldrige (1954) 90 CLR 613; HCA 36. The Appeal Panel, otherwise, dismissed the homeowner’s remaining appeal grounds (at [104] and [116]) and all of the builder’s appeal grounds (at [41], [50], [53], [61] and [91]).
In relation to the homeowner’s successful appeal ground, the Appeal Panel held (at [26]-[27]):
“[26] When assessing damages for the cost of rectification of defective home building work, the applicable principle was set out by the High Court in Bellgrove v Eldridge (1954) 90 CLR 613 as follows, at pp 617-618:
In the present case the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her…her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give her the equivalent of a building on her land which is substantially in accordance with the contract…the work necessary to remedy defects in a building and so produce conformity with the plans and specifications may, and frequently will, require the removal or demolition of some part of the structure…that work which is required to achieve conformity and the cost of the work, whether it be necessary to replace a small part, or a substantial part, or, indeed the whole of the building is, subject to the qualification which we have already mentioned and to which we shall refer, together with any appropriate consequential damages, the extent of the building owner’s loss.
[27] The “qualification” to which the High Court referred in Bellgrove v Eldridge was that the remedial work must be “necessary to produce conformity” with the contract and “a reasonable course to adopt”. However, it is only in “fairly exceptional circumstances” that a method of rectification will be held to be an “unreasonable” course to adopt: Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [15]; Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd [2017] NSWCA 27 at 186; Barwick v Shetab [2017] NSWCATAP 127 at [88].”
Relevantly, the Tribunal at first instance accepted the homeowner’s expert evidence on the nature of a defect and appropriate method of rectification, but rejected the appellant’s expert evidence on the cost of the rectification. Instead, the Tribunal accepted the lower costing of the builder’s expert evidence, which had proposed a different method of rectification (at [18]).
In the light of the High Court’s statement in Bellgrove v Eldridge, the Appeal Panel held (at [28]-[32]) that:
“[28] There may be situations where experts identify more than one method of rectification to produce conformity with the contract and the Tribunal must assess the evidence to determine which method (and cost) is the most appropriate to produce conformity. The Tribunal must, in such cases, determine the appropriate method of rectification and be satisfied that it is not an unreasonable course to adopt. However, this was not a case where the experts agreed on the nature and extent of the defect, and the issue of disagreement was the most appropriate method of rectification to produce conformity with the contract.
[29] In circumstances where the Tribunal found that [homeowner’s expert] proposed method of rectification was necessary to produce conformity with the contract, it must follow that unless the proposed method was an unreasonable course to adopt the cost of rectification was the amount identified by Mr Lewer. No finding was made that [homeowner’s expert’s] proposed method of rectification was not a reasonable course to adopt. There was no evidence that [builder’s expert] had assessed the cost of rectification based on applying levelling compound and re-tiling the slab. Rather, [builder’s expert] had costed a completely different method of rectification.
[30] The Tribunal did not find that [builder’s expert’s] proposed method of rectification was appropriate. In such circumstances, the Tribunal erred in finding that the quantum of damages for the cost of rectification of the concrete slab is the amount identified by [builder’s expert] for the cost of grinding the slab, which the Tribunal did not accept as the appropriate method of rectification, rather than the amount identified by [homeowner’s expert] as the cost of applying levelling compound and re-tiling the slab.
[31] A finding regarding the general credit of the expert witnesses does not relieve a decision maker from making findings of fact regarding the nature of the defect and the cost of rectification to produce conformity with the contract, nor does it allow a decision maker to select the cost of rectification of one expert over another without explaining the basis of such a finding.
[32] We are satisfied that the Tribunal erred in law by reason of a misapplication of the principle in Bellgrove v Elldrige. Accordingly, the homeowner succeeds on this ground of appeal.”
In rejecting the builder’s appeal grounds, the Appeal Panel considered the relevance of the rules of the evidence to the operation of procedural fairness (at [33]-[41]) and the relevance of objective standards to the assessment of whether residential building work has been performed in accordance with the warranties set out in s 18B of the Home Building Act 1989 (NSW) (at [42]-[53]).
In relation to the builder’s appeal ground concerning procedural fairness, the Appeal Panel observed (at [36]-[37]) that:
“[36] The builder submits that although rules of evidence do not apply in the Tribunal (s 38(2) of the NCAT Act), rules of evidence provide a guide to assessment of the probative value of evidence, within the context of the duty to provide procedural fairness to the parties: Chi Building Pty Ltd v Wedgwood [2016] NSWCATAP 64 at [40]-[41]; Head Mod Nominees Pty Ltd v Macken [2016] NSWCATAP 106 at [69].
[37] It is clear that the rules of evidence are relevant to the operation of procedural fairness. In a home building dispute where both parties are represented and the amount in dispute is significant, a relatively strict consideration of rules of evidence may at times be appropriate to ensure procedural fairness, in comparison to a dispute involving a small amount of money and in which the parties are not legally represented.”
In relation to the builder’s appeal ground concerning breaches of statutory warranties, the Appeal Panel observed (at [46]) that:
“Although objective standards such as Australian Standards, the Building Code of Australia and the Guide are of significant relevance in establishing whether work has been performed in a proper and workmanlike manner (Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61 at [10]), the absence of such evidence does not automatically mean a homeowner has failed to establish breach of statutory warranty. In our view, the relevant principle was succinctly stated by Senior Member Goldstein in G MacFayden and Anor v G Tadrosse [2014] NSWCATCD 194 at [46] as follows:
…[E]vidence that work does not comply with the Building Code of Australia would establish a basis for a finding that sub section 18B(c) of the Act has been breached. Evidence of the details in which work does not comply with the contractual plans and specifications would form the basis for a finding that sub section 18B(a) of the Act has been breached. Evidence of work not being carried out in a proper and workmanlike manner would in my view involve identification of the work in question, a statement of how the expert would expect it to be carried out in in a proper and workmanlike manner and then identification of the factors which establish that the way in which the work has been carried out falls short of it being carried out in a proper and workmanlike manner. Evidence of this nature, if accepted, would form the basis for a finding that sub section 18B(a) of the Act has been breached.”
| 
