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JM Kelly (Project Builders) Pty Ltd v Queensland Building Services Authority; Group Kildey Pty Ltd v Queensland Building Services Authority[2015] QCAT 66

JM Kelly (Project Builders) Pty Ltd v Queensland Building Services Authority; Group Kildey Pty Ltd v Queensland Building Services Authority[2015] QCAT 66

CITATION:

JM Kelly (Project Builders) Pty Ltd v Queensland Building Services Authority [2015] QCAT 66

PARTIES:

JM Kelly (Project Builders) Pty Ltd

(Applicant)

 

v

 

Queensland Building Services Authority

(Respondent)

APPLICATION NUMBER:

GAR007-11; GAR183-11

PARTIES:

Group Kildey Pty Ltd

(Applicant)

 

v

 

Queensland Building Services Authority

(Respondent)

APPLICATION NUMBER:

GAR008-11; GAR175-11

MATTER TYPE:

General administrative review matters

HEARING DATE:

19 – 20 March 2014; 6 May 2014

HEARD AT:

Brisbane

DECISION OF:

Member Favell

DELIVERED ON:

2 February 2015

DELIVERED AT:

Brisbane

ORDERS MADE:

1.  The directions given to Group Kildey Pty Ltd numbered 36341 and 35692 are set aside.

2.   The directions given to JM Kelly (Project Builders) Pty Ltd numbered 36338 and 35691 are set aside.

CATCHWORDS:

Whether defective building work – whether applicants carried out defective building work – whether directions to rectify should issue – whether it would be unfair to give a direction

Queensland Building and Construction Commission Act 1991 (previously the Queensland Building Services Authority Act 1991) ss 67A, 72, 86, Schedule 2

Queensland Civil and Administrative Tribunal Act 2009 ss 17, 18, 20, 24, Schedule 3

R v His Honour Judge Miller [1987] 2 QR 446

Imperial Homes (Queensland) Pty Ltd v Queensland Building and Construction Commission [2014] QCAT 42

Baulderstone Hornibrook Pty Ltd v Beneficial Finance Corporation Ltd [1998] QCA 351

Builders Licensing Board v Superway Constructions (Syd) Pty Ltd [1975] CLR 616

L.S. v Mental Health Review Board [2013] WASCA 128

APPEARANCES and REPRESENTATION (if any):

APPLICANT:

JM Kelly (Project Builders) Pty Ltd represented by Mr T Sullivan QC instructed by Cooper Grace Ward Lawyers

Group Kildey Pty Ltd represented by Mr A Harding instructed by Macpherson Kelley Lawyers

RESPONDENT:

Queensland Building Services Authority represented by Mr Brett Turnbull of HWL Ebsworth Lawyers

REASONS FOR DECISION

  1. [1]
    The application relates to premises at 5 Lilla Street, Woody Point. Group Kildey Pty Ltd (‘Kildey’) was the developer of the building, a multi-story residential unit complex.
  2. [2]
    The construction of the building was commenced by Austin Australia Pty Ltd, which subsequently went into liquidation after having completed the shell of the building up to and including the fourth floor.
  3. [3]
    Kildey then engaged JM Kelly (Project Builders) Pty Ltd (‘JMK’) to complete the building pursuant to a construction management agreement on or about 5 February 2004.[1] JMK engaged trade contractors to perform the work necessary to complete the building.[2]
  4. [4]
    In December 2010 and June 2011 the then Queensland Building Services Authority (now Queensland Building and Construction Commission (‘QBCC’)) issued directions to rectify and/or complete to JMK and Kildey.
  5. [5]
    JMK and Kildey filed reviews in January 2011 and July 2011 pursuant to section 86(1) of the then Queensland Building Services Authority Act 1991 (Qld) (‘QBSA Act’) in respect of their respective directions. Those reviews are proceedings GAR007-11 and GAR183-11 (with respect to JMK) and GAR008-11 and GAR175-11 (with respect to Kildey).
  6. [6]
    The alleged defective building work essentially relates to cracking in the coating of the ‘Rapidwall’ single panel walling system and water entry through window openings and sliding doors.[3]
  7. [7]
    The respondent, the QBCC, in its initial written submissions relied on s 72(5)(g) of the QBSA Act to assert Kildey’s liability as a “principal”. During argument I was told that it instead relied on s 72(5)(d) because Kildey caused the building work under the trade contracts to be carried out and carried the work for profit or reward. The Statement of Reasons in respect of Kildey show the Commission determined there was defective work and then, based on the contract between Kildey and JMK, concluded that Kildey engaged JMK to carry out building work which turned out to be defective. It then determined Kildey was an entity ‘potentially’ caught by section 72(5)(g).
  8. [8]
    In the QBCC’s Statement of Reasons for its decision in respect of Kildey to issue the directions, it stated:[4]
    1. Based on the contract between Kildey and JMK, the QBCC concluded that Kildey engaged JMK to carry out the building work which ultimately turned out to be defectively performed.
    2. QBCC therefore determined that Kildey was an entity that is potentially caught by s 72(5)(g) of the Act and consequently, an entity that may receive a Direction to Rectify.
    3. Based on the letters dated 28 May 2009 and 25 August 2010 and further because the respondent is not in a position to determine which party is correct in relation to the design issues and the directions given to JMK by the applicants’ director Mr Graham Kildey (who is an architect), it was appropriate to issue the direction to the applicant because if JMK’s version of events is accepted, then the applicant would fall within section 72(5)(g) of the Act and should receive a Direction to Rectify.
  9. [9]
    Section 72 of the QBSA Act relevantly provides:

72 Power to require rectification of building work

  1. (1)
    If the authority is of the opinion that building work is defective or incomplete, the authority may direct the person who carried out the building work to rectify the building work within the period stated in the direction.
  1. (2)
    In deciding whether to give a direction under subsection (1), the authority may take into consideration all the circumstances it considers are reasonably relevant, and in particular, is not limited to a consideration of the terms of, including the terms of any warranties included in, the contract for carrying out the building work.
  1. (3)
    The period stated in the direction must be at least 28 days unless the authority is satisfied that, if the direction is not required to be complied with within a shorter period—
  1. (a)
    a substantial loss will be incurred by, or a significant hazard will be caused to the health or safety of, a person because of the defective building work; or
  1. (b)
    the defective building work will cause a significant hazard to public safety or the environment generally.
  1. (4)
    Subject to subsection (3), the period stated in the direction must be a period the authority considers to be appropriate in the circumstances.
  1. (5)
    For subsection (1), the person who carried out the building work is taken to include—
  1. (a)
     a licensed contractor whose licence card is imprinted on the contract for carrying out the building work; and
  1. (b)
    a licensed contractor whose name, licence number and address are stated on the contract; and

(ba)  a licensed contractor whose name is stated on the contract for carrying out the building work; and

(bb)  a licensed contractor whose name is stated on an insurance notification form for the building work; and

(bc)  a licensed contractor whose licence number is stated on the contract for carrying out the building work; and

(bd) a licensed contractor whose licence number is stated on an insurance notification form for the building work; and

(be) a licensed contractor whose PIN was used for putting in place, for the building work, insurance under the statutory insurance scheme; and

  1. (c)
    a building contractor by whom the building work was carried out; and
  1. (d)
    a person who, for profit or reward, carried out the building work; and
  1. (e)
    a person who, under the Domestic Building Contracts Act 2000, is a building contractor under a domestic building contract who managed the carrying out of the building work; and
  1. (f)
    a construction manager engaged under a construction management contract to provide building work services for the building work; and
  1. (g)
    a principal who was the contracting party for a building contract for building work for a building, or part of a building, intended for sale if—
  1. (i)
    the building, or part of a building, is not, and has never been, the principal place of residence of the principal; and
  1. (ii)
    the principal engages a building contractor or a construction manager to carry out the building work in a way, or using materials, likely to result in the work being defective or incomplete; and
  1. (iii)
    the principal knew, or ought to have known, that the way the work was to be carried out, or the materials to be used, was likely to result in the work being defective or incomplete; and

Example where principal knew that work or materials were likely to result in defective or incomplete building work—

A principal may know materials are likely to result in work being defective because of advice received from a building contractor or construction manager.

  1. (h)
    a person who was the nominee for a licensed contractor that is a company, for work carried out by the company while the person was the company's nominee.

(5AA) A direction to rectify may be given to more than 1 person for the same building work.

(5A)  In subsection (2), a reference to a contract for carrying out building work includes a reference to a domestic building contract for managing the carrying out of building work.

  1. (6)
    If in order to rectify building work it is necessary to do so, the direction may require that a building or part of a building be demolished and building work be recommenced.
  1. (7)
    If a direction is given under this section to a person who is not currently licensed to carry out the required work, the person must have the work carried out by a licensed contractor.
  1. (8)
    A direction cannot be given under this section more than 6 years and 3 months after the building work to which the direction relates was completed or left in an incomplete state unless the tribunal is satisfied, on application by the authority, that there is in the circumstances of a particular case sufficient reason for extending the time for giving a direction and extends the time accordingly.
  1. (9)
    The fact that a direction is given under this section does not prevent disciplinary action in respect of the defective or incomplete building work.
  1. (10)
    A person who fails to rectify building work as required by a direction under this section is guilty of an offence.

Maximum penalty—250 penalty units.

  1. (11)
    For the purposes of subsection (5)(c) and (d)—
  1. (a)
    a person carries out building work whether the person—
  1. (i)
    carries it out personally; or
  1. (ii)
    directly or indirectly causes it to be carried out; and
  1. (b)
    a person is taken to carry out building work if the person provides advisory services, administration services, management services or supervisory services for the work.

  1. (14)
    The authority is not required to give a direction under this section to a person who carried out building work for the rectification of the building work if the authority is satisfied that, in the circumstances, it would be unfair to the person to give the direction.

Example for subsection (14) –

The authority might decide not to give a direction for the rectification of building work because of the amount payable but unpaid under the contract for carrying out the building work.

  1. [10]
    The term “principal” is defined as follows:[5]

Principal means a person who is the contracting party for a building contract and who –

  1. (a)
    is not a building contractor; or
  2. (b)
    is a building contractor, but did not enter into the building contract in the course of carrying on business as a building contractor.
  1. [11]
    Section 72(5)(g) was inserted by the Queensland Building Services Authority and Other Legislation Amendment Act 2007. The explanatory notes[6] to that enactment relevantly stated:

Clause 51 amends section 72 (Power to require rectification of building work) to expressly state the circumstances when a construction manager, a developer or a nominee is taken to have carried out building work for section 72(1).

  1. [12]
    “Building work” is defined in schedule 2 as:
  1. (a)
    the erection or construction of a building; or
  1. (b)
    the renovation, alteration, extension, improvement or repair of a building; or
  1. (c)
    the provision of lighting, heating, ventilation, air-conditioning, water supply, sewerage or drainage in connection with a building; or
  1. (e)
    any site work (including the construction of retaining structure) related to work of a kind referred to above; or
  1. (f)
    the preparation of plans or specifications for the performance of building work; or

(fa) contract administration carried out by a person in relation to the construction of a building designed by the person; or

  1. (g)
    fire protection work; or
  1. (h)
    carrying out site testing and classification in preparation for the erection or construction of a building on the site; or
  1. (i)
    carrying out a completed building inspection; or
  1. (j)
    the inspection or investigation of a building, and the provision of advice or a report, for the following –
  1. (i)
    termite management systems for the building;
  2. (ii)
    termite infestation in the building;

but does not include work of a kind excluded by regulation from the ambit of this definition.

  1. [13]
    “Construction management contract” is defined in schedule 2 as:

…a contract under which the principal engages a construction manager to provide building work services for building work carried out for the principal under construction management trade contracts.

  1. [14]
    “Building work services” is defined in schedule 2 as:

…1 or more of the following for building work –

  1. (a)
    administration services;
  2. (b)
    advisory services;
  3. (c)
    management services;
  4. (d)
    supervisory services.
  1. [15]
    “Construction management trade contract” as defined in schedule 2: ‘means a building contract described in section 67A’.
  2. [16]
    Kildey denies that it can be considered to be a person who carried out the building work under s 72(5)(g) on the following grounds:
    1. Kildey did not engage a building contractor or construction manager to carry out the building work. It was JMK who engaged the contractor who supplied and installed Rapidwall and engaged the window and sliding door contractors.
    2. Kildey submits that the trade contracts were made between JMK (contracting personally and not as agent for Kildey) and the particular subcontractor. Kildey submits that the terms of the contracts would be inappropriate if JMK was merely acting as agent.[7]
    3. Kildey contends that it was JMK’s obligation under the construction management contract to examine the suitability and expertise of potential trade contractors.[8]
  3. [17]
    Kildey denies any knowledge (actual, implied or otherwise) of the defective work, specifically in relation to the failure to incorporate control joints in the ‘Rapidwall’ and the design defects with the windows and doors as identified by expert evidence.
  4. [18]
    Kildey submits in the alternative that, should the Tribunal find that Kildey was a person who carried out building work within the meaning of s 72 of the QBSA Act, the Tribunal ought to exercise its discretion not to give directions to Kildey on the basis that to do so would be unfair in the circumstances. Kildey submits that the appropriate order is that the decisions to issue the directions to Kildey should be set aside.
  5. [19]
    The Commission submits that JMK is caught by section 72(5)(g) as extended by section 72(11) of the Act although in the Statement of Reasons[9], the Commission concluded JMK had caused the trade contractors to undertake the building work the subject of the complaint and the work was defective.[10]
  6. [20]
    JMK contends that the following clauses of the construction management agreement do not render it liable for the works except where JMK expressly provided a design:
    1. Clause 7(a)(iii) provides that Kildey warranted to JMK that it would not incur any liability for the design or any failure or inadequacy in design of the Works, other than design provided by the Construction Manager
    2. Clause 8(a) proves that Kildey was to fully inform JMK in writing of its requirements for the work.
    3. Clause 8(c) provides that Kildey is responsible for the design of the Works, other than the design provided by JMK.
    4. Clause 8(f) provides that Kildey ensures that JMK is, without charge, provided sufficient copies of all Design Documents necessary for the execution of the Works.
    5. Clause 8(g) provides that Kildey shall accept responsibility for the cost and expenses and also for the accuracy and adequacy of services, information, drawings, specifications and any other matters made known to JMK by the Project Team.
  7. [21]
    Clause 5 of the agreement provides as follows:
  1. (i)
    It is the duty of JMK to administer the Trade Contracts on behalf of the Principal, including the review and processing of all payments, claims, variations, costs, adjustments and applications for extensions etc.

(j) i.  JMK is to monitor the work of Trade Contractors in order to assess their performance and likely future performance and recommend any course of action that may be available to Kildey where requirements of a Trade Contract are not being met

ii. JMK is to monitor the work of Trade Contractors in order to be reasonably satisfied that the work has been performed in accordance with the requirements of the Trade Contract.

  1. [22]
    JMK contends that the obligations under clause 5 are obligations which were to take place in light of the operation of clauses 7 and 8 relied upon. Read together, the clauses do not, so JMK contends, impose an obligation on JMK to construct the Rapidwall nor carry out proofing of the existing designs for the Rapidwall.
  2. [23]
    JMK denies any responsibility for the works it did not undertake which were performed prior to its contract, namely the completed Rapidwall works up to level 4 of the building.
  3. [24]
    JMK contends, in reliance on the construction of the contract, relevantly:
    1. Kildey warranted to JMK that it would not incur any liability for the design or any failure or inadequacy in design of the Works, other than design provided by the Construction Manager.[11]
    2. Design of the works did not lie with JMK, except in the circumstances where JMK expressly provided a design. JMK assert that no exception applies and that JMK did not provide any design for the Rapidwall, the windows or sliding doors.
  4. [25]
    The Tribunal may affirm the Directions to Rectify issued in respect of the property. If so, JMK submits that the 28 day time period for compliance is neither appropriate nor sustainable. The cost of individual rectifications or of cladding the building will be very expensive.[12] Accordingly JMK asks for a rectification period of 12 months.
  5. [26]
    JMK contends that the windows said to leak back inside of the sill from the sill drain holes in the storm vents on level 4 were chosen by Kildey as part of the redesign of the building to use Rapidwall. The cause of that water ingress, it contends, is likely a manifestation of the water tracking through the Rapidwalls themselves.[13]
  6. [27]
    It is alleged that there are radial cracks coming from the external corners of some window openings[14] which the experts agreed was a contribution to the cause of water penetration.[15]
  7. [28]
    JMK contends that because it did not design the Rapidwall nor was able to monitor the construction work in relation to the window cut-outs,[16] any causal responsibility for the leaking falls outside of its obligations in the contract.
  8. [29]
    No destructive testing was undertaken on the sliding doors.[17] JMK submits that without destructive testing it is not currently possible to say that the cause of the water ingress is misconstruction, or misconstruction that attracts JMK’s liability pursuant to clause 5 of the contract.[18]
  9. [30]
    Kildey also submits, on the basis of the expert evidence, that without destructive testing of the windows and doors it is not straightforward to say the actual cause of the water entry.[19] Kildey submits that the expert evidence falls short of the level of confidence as would allow the Tribunal to make positive findings as to the causes of water entry. Accordingly Kildey submits that the Tribunal does not make the windows and doors matters in respect of which it would issue a Direction to Rectify.[20]
  10. [31]
    Kildey contends that there is no basis for the assertion that Kildey was involved in the design of the sliding doors and windows.[21]
  11. [32]
    As for the remaining three floors, JMK asserts that it is the ‘innocent party’ (to use the language from R v Judge Miller) and that it would be unfair to rectify the work which was effectively a design fault for which it expressly had no liability under the contract.[22]
  12. [33]
    JMK relied upon the absence of control joints in the Rapidwall design drawings to argue its contractual obligations therein were not relevantly enlivened. JMK’s Brisbane Construction Manager, Mr Stack, gave evidence that the design of the Rapidwall did not provide for control joints.[23] Mr Walker, JMK’s Site Manager on the project from 31 May 2004 to 25 May 2005, confirmed that the structural engineering drawings did not make provisions for control joints.[24] This was uncontested at trial.[25]
  13. [34]
    Insofar as the Rapidwall is concerned, Kildey contends that it did not know, and was not in a position where it ought to have known, that the way the work was to be carried out or the materials used were likely to result in the work being defective or incomplete.
  14. [35]
    Kildey contends it was introduced to Rapidwall by Austin Australia Pty Ltd, the original building contractors. Kildey relied on Dare Sutton Clarke (engineers) and Rapidwall so far as the use of Rapidwall to construct the building was concerned.[26] Kildey contends that there is no basis for a finding being made that Kildey ought to have known that the installation of the Rapidwall failed to incorporate control joints to accommodate movement of the building.
  15. [36]
    Kildey accepts that one of the directors of Dare Sutton Clarke was a director of Rapidwall, and Graham Kildey had knowledge of such.[27]

Garage water penetration

  1. [37]
    The Direction to Rectify asserts water penetration in the basement garage area but does not deal with any alleged water penetration into any storage areas in the garage.[28] The evidence of Mr Walker was that as a costs saving measure it had been discussed with Mr Dutton that the waterproofing membrane was only to be applied in surfaces over habitable areas.[29]

Balcony Waterproof Turn Up system

  1. [38]
    The diagram showing a turn up on a balcony adjacent to a Rapidwall panel was not a contractual design document.[30] The waterproofing, including the turn up, was deleted as a cost-saving measure because it was not a “habitable area”. Accordingly, JMK submits it was not part of the scope of the contract.
  2. [39]
    Kildey submits that this issue did not remain as a “live issue” following the oral evidence of the experts.[31]

Coating System

  1. [40]
    There is no apparent problem with the actual coating which was applied to the Rapidwall. The coating bond ‘appears sound except where damage by cracking, surface penetration, mechanical damage or water penetration’.[32]

Interface of Rapidwall with building elements

  1. [41]
    The horizontal joint between a parapet and a Rapidwall panel said to be defective does not reflect the waterproofing system which was in place at the time JMK’s involvement ceased. Mr Kildey gave evidence that after the termination of JMK’s involvement in the project fresh waterproofing work on level 8 was performed by a contractor. JMK further contends that the junction between the concrete blade wall and Rapidwall at ground level is clearly below level 4 and is where the Rapidwall had been constructed at the time it commenced its involvement.

Balcony Balustrades

  1. [42]
    JMK submits that because there was no expert evidence in respect of item 15 in the 17 June 2011 Direction to Rectify or unit 24 in the 17 December 2010 Direction to Rectify these items should be dismissed.[33]
  2. [43]
    JMK submits that the absence of waterproofing on the balustrades is a result of those areas being non-habitable and therefore forming part of the cost cutting measures which were beyond the scope of JMK’s involvement in the project.
  3. [44]
    JMK submits that the miscellaneous items raised in the Joint Expert Reports should be dismissed. QBCC does not dispute this.
  4. [45]
    The power in the Tribunal to review a ‘reviewable decision’ defined in s 17(2) and Schedule 3 to the QCAT Act is found in s 18 of the QCAT Act.
  5. [46]
    Section 86(1)(e) of the QBSA Act[34] a decision to issue a Direction to Rectify was and is a ‘reviewable decision’.
  6. [47]
    Section 20 of the QCAT Act requires the Tribunal to conduct a fresh hearing on the merits and its task is to arrive at the ‘correct and preferable decision’. The Tribunal in determining the matter stands in shoes of the Commission and it may:
    1. confirm or amend the decision under review;
    2. set aside the decision and substitute a new decision; or
    3. set aside the decision and return it to the decision-maker with or without directions.[35]
  7. [48]
    Important in determining the decisions under review is s 72 of the QBSA Act which provides for the power to require rectification and building work.
  8. [49]
    The power is enlivened if the authority is of the opinion that building work is defective or incomplete. If that is so there is a discretion in the authority to direct the person who carried out the building work to rectify the building work within a period stated in the Direction. That period must be a period which the authority considers to be appropriate in the circumstances.
  9. [50]
    In deciding whether to give a direction the authority may take into consideration all the circumstances it considers are reasonably relevant.
  10. [51]
    There is a further discretion in the authority in that it is not required to give a direction to a person who carried out building work for the rectification of the building work if the authority is satisfied that in the circumstances it would be unfair to the person to give the direction.
  11. [52]
    In R v His Honour Judge Miller[36] the majority of the Court[37] found defective workmanship which engaged the exercise of discretion.[38] The Court was of the view that it was unjust for the builder in the circumstances to have a Direction to Rectify made against it. The circumstances were that the matter concerned waterproofing material applied to a concrete slab as provided for in the particular contract. The waterproofing failed. The evidence was that the material used had not been specified in the original building contract and the owner had sought to reduce costs as possible despite warnings by his architect to the contrary he arranged for a variation to use some material which failed. There had been no implied warranty by the builder that the product was fit for purpose and there was no faulty workmanship in its application.
  12. [53]
    On the question of whether the direction would be unjust Derrington J said:

The learned Judge at first instance did not refer to or discuss the discretion in a way that might be expected if he had a correct understanding of it… Finally, it is difficult to image a case where the exercise of the discretion in favour of the builder could be more convincingly demanded. All the considerations which are relevant in circumstances such as this are favourable to the Prosecutor. Not only was it acting properly and in conformity with the contract without any fault in its performance of the work, but the owner, after expert and independent advice, deliberately took the risk in his choice of the materials for the sake of a cheaper price. If a discretion has been executed in the judgment below, it must have miscarried in the result. The conclusion is that the discretion which the Court below was required to exercise was either exercised incorrectly or was not exercised at all. In any case there was an error. In the result I agree with the order proposed by Connolly J.

  1. [54]
    In R v His Honour Judge Miller McPherson J said:

In this matter I agree with the reasons for judgment of Derrington J… Like my brothers I agree that section 59(1) confers a discretion whether or not to make an order under the section, and that circumstances here are such as to require that the matter of exercising that discretion be considered by the judge hearing the appeal from the Board’s order. I agree with the terms in which the proposed order is formulated and the reasons for judgment of Connolly J in this case.

  1. [55]
    In that case Connolly J said:

If section 59(3) be understood as, I have indicated, it should, then follow that the learned Judge has, with respect, formed an error of law which is clear upon the face of the reasons of the judgment. I depart from this, having had the advantage of reading a judgment prepared by my brother Derrington I quite fail to understand how, in the circumstances of this case, the Board thought it appropriate to exercise this discretion to order the Prosecutor to make good which is faulty and unsatisfactory solely by reason of the Prosecutors having strictly complied with the terms of the contract freely made and, in one important respect at least, strongly influenced by the desire of a building owner to save money.

  1. [56]
    In Imperial Homes (Queensland) Pty Ltd v Queensland Building and Construction Commission[39] the learned Member considered the submission made by the QBSA to the effect that the applicant as a licensed builder is responsible for ensuring works are carried in accordance with the BCA and the relevant Australian standards not simply following plans designed by an engineer and concluded[40]:

It is not absolute that a builder will be liable to rectify defects even though he was following architects or other professionals’ plans or directions. The line of cases considers the type of defect and whether it is the reasonable expectation of the knowledge and ability of the builder to be able to assess the suitability of the plan. An experienced builder, who follows a plan that it knows, or could reasonably be expected to know, is in error, cannot nevertheless just slavishly follow the plan, but is expected to exercise good construction practice.

  1. [57]
    The applicant JMK contends that the principles from those authorities are relevant to the reviews concerning it.
  2. [58]
    It submits that in determining the fairness (or unfairness) of making a direction that the following matters support their contention that the discretion should not be exercised to issue the directions:
    1. The Rapidwall system was a proprietary system, in the sense it was manufactured, designed, supplied and installed by Rapidwall group;
    2. Kildey had originally designed the building using conventional materials. Kildey decided to dispense with the use of the conventional construction material of reinforced blockwork, in favour of Rapidwall, for two reasons, namely reduced cost and reduced time savings;[41]
    3. Not only was the Rapidwall system a proprietary one, it was also put forward by the prior builder and an engineering firm. The engineering firm (Dare Sutton Clarke) was connected with the Rapidwall group and Mr Kildey understood Rapidwall was the invention of Dare Sutton Clarke.[42] Mr Kildey gave evidence that the obligation to design the Rapidwall from an engineering and structural perspective was that of, Dare Sutton Clarke;[43]
    4. The installation of the Rapidwall was undertaken by the Rapidwall group pursuant to the structural engineering drawings produced by Dare Sutton Clarke which was associated with the Rapidwall group. Those structural drawings do not show any control joints for the Rapidwall installation. The workshop drawings do not show any control joints for the Rapidwall installation. No design drawings supplied to JMK provided for control joints in installation;
    5. Prior to the contract being entered into with JMK, the Rapidwall had been installed from the ground floor to the fourth level without any control joints having been installed. JMK’s responsibility was to complete that portion of the building which had not yet been constructed;
    6. There was nothing in the already constructed portion of the building which would have put JMK on notice that control joints were required as part of this proprietary system;
    7. The problems associated with the Rapidwall system stem from design defects which JMK is not responsible for under the contract. It is correct to say that the water ingress problem in this review is essentially identified by the experts as arising from the Rapidwall system.
  3. [59]
    I accept the matters summarised by JMK as being relevant in determining the fairness or unfairness of making a direction in the present case.
  4. [60]
    I agree that JMK cannot be responsible for works which it did not undertake and were performed prior to its contract. Accordingly in my view JMK was not the person or entity who carried out the building work which was done prior to its contract and up to level 4 of the building.
  5. [61]
    In respect of the remaining three floors JMK submits that it is in fact the innocent party and that it would be unfair to require it to rectify the work which was effectively a design fault for which it had expressly no liability for under the contract.
  6. [62]
    Further in support of the discretionary position (in particular the example given in section 72(14)) JMK submits that it is relevant to consider that it still owed significant monies under the original contract where the cost of rectification will be significant. I accept that to be a relevant consideration.
  7. [63]
    JMK submits it is relevant to know the circumstances known to both parties and the Kildey and JMK at the time of the formation of the contract in construing the contract between them.
  8. [64]
    It is submitted that the relevant circumstances include:
    1. The building was partly constructed. The construction extended to the fourth level in respect of the Rapidwall.
    2. Kildey had asked JMK to tender on the basis of design documents which had already been brought into existence for the purpose of the prior partial construction of the building.[44]
    3. The design drawings included structural engineering drawings generated by engineers which related to the use of Rapidwall. The design drawings contemplated the Rapidwall product being used to finish the building.
    4. The Rapidwall product was a proprietary system in that is was manufactured, designed, supplied and installed by the Rapidwall group.
    5. The Rapidwall system was not a masonry system such as a reinforced blockwork system.
  9. [65]
    I accept that it was within that context that the construction management agreement was entered into.
  10. [66]
    JMK as part of its submissions has provided an annexure containing an extract of relevant terms of the contract.
  11. [67]
    I emphasise the following features:
    1. Clause 7 deals with the principles of warranties. Clause 7(a)(iii) provides that Kildey warranted to JMK that it would not incur any liability for the decision or any failure or inadequacy in design of the works, other than design provided by the construction manager;
    2. Clause 8 then dealt with the concept of principal’s responsibilities;
    3. Clause 8(a) provided that Kildey was to fully inform JMK in writing of these requirements for the works;
    4. Clause 8(c) provided that Kildey was to be responsible for the design of the works, other than the design provided by JMK. Clause 8(c) matches the warranty in clause 7(a)(iii);
    5. Clause 8(f) provides that Kildey was to ensure that JMK was, without charge provided with sufficient copies of all design documents necessary for the execution of the works. Clause 1(a) define construction documents as those documents, including bills of guaranty (if any) provided by the consultants. Consultant meant any person engaged by Kildey to provide consultancy services in connection with the work;
    6. Clause 8(g) provided that Kildey shall accept responsibility for the cost and expenses and also for the accuracy and adequacy of services, information, drawings, specifications and any other matters made known to JMK by the project team. Project team is defined n clause 1(a) to include persons engaged by Kildey to provide management design services in connection with the works, (including Kildey, and any of its consultants or any other person engaged by Kildey to be members of the project team).
  12. [68]
    I accept that the design of the works did not lie with JMK or Kildey in the sense that it is relevant to this application. I also accept that JMK had no involvement in the selection of Rapidwall, the design of the building for use of Rapidwall, or in the abandoning of the conventional system of masonry construction using reinforced blockwork. It was given existing design documents and the contract entered into reflected that they were to undertake the work on the basis that Kildey was solely responsible for the design including the adequacy of the design.
  13. [69]
    During the hearing the QBCC pointed to clause 5 of the contract. In my view it provided for a duty in JMK to administer the trade contracts on behalf of the principal and an obligation to monitor the work of trade contractors in order to assess their performance and likely future performance and recommend any course of action that may be available to Kildey. In my view it was not an obligation to carry out the work. In my view it was obligation which was to be understood in the light of clauses 7 and 8 which provided for design responsibilities to lie with Kildey.
  14. [70]
    The evidence is that none of the design documents contained requirements for control joints. The construction of the first four floors did not contain control joints and the construction of the further three floors was consistent with the prior construction not having control joints.
  15. [71]
    An obligation in clause 5 was for JMK to monitor the work of trade contractors in order to be reasonably satisfied that the work had been performed in accordance with the requirements of trade contracts.
  16. [72]
    I accept that there is no basis to contend that the work was done other than in accordance with existing design documents under the contract or that the work was performed other than consistently with the prior construction work of the Rapidwall system.
  17. [73]
    In my view if there is any inadequacy in the design of the Rapidwall system that was not a matter that lay with JMK but rather was an obligation assumed by Kildey (as between it and JMK) and the subject of an express warranty under clause 7.
  18. [74]
    There is nothing to suggest that JMK or Kildey was aware or ought reasonably to have been aware that the design was faulty.
  19. [75]
    I do not accept that JMK or Kildey ought to have known that the control joints were necessary for the proprietary Rapidwall system.
  20. [76]
    I accept the evidence of Mr Stack, the Brisbane Construction Manager for JMK who had controlled the day to day operations project that the Rapidwalls were built according to their design which did not include any control joints.
  21. [77]
    I also accept the evidence of Mr Walker the site manager for JMK on the project. I accept that there were no design documents for control joints given to JMK during construction. I accept that there were no workshop drawings which required control joints and the structural engineering drawings did not make provision for control joints.
  22. [78]
    The windows used in the building were a proprietary design by Gateway Aluminium to be used specifically in conjunction with Rapidwall technology.[45]
  23. [79]
    There have been assertions that from time to time those windows have leaked. The cause of the leaking needs to be examined in order to determine whether there is a defect in the building work or whether there is incomplete building work.
  24. [80]
    There had been no destructive exploratory works undertaken in respect of the windows.[46] The experts acknowledge the need for destructive testing.[47] JMK contends that the windows were chosen by Kildey as part of the redesign of the building to use Rapidwall and they were not selected by JMK and are not matters for which they can be responsible.
  25. [81]
    In my view this is a case where the evidence does not support actual defective building work. There is no evidence to support misconstruction by the installer of the windows. There is evidence which may suggest that the leakage is explained by a design fault.
  26. [82]
    In my view in the absence of evidence from a destructive investigation I cannot find that in respect of the windows building work is defective.
  27. [83]
    The Joint Expert Report identified radial cracks from external corners from some window openings they agreed was contributing to the cause of water penetration.[48]
  28. [84]
    The evidence is that Architects Australia produced drawings for the location and nature of window cut-outs and Rapidwall constructed those cut-outs as part of the construction of the Rapidwall delivered to site.
  29. [85]
    I accept that there is no evidence that there was any actual construction work done in relation to the window cut-outs which JMK could have monitored.
  30. [86]
    The experts were unable to say what caused the cracking.[49] In respect of that aspect I am unable to form the opinion that that building work is defective or incomplete. Further I am unable to be satisfied that JMK was responsible for that cracking.
  31. [87]
    No destructive testing had been undertaken in relation to the sliding doors.[50]
  32. [88]
    The evidence is such that without destructive testing it is not possible to say that the cause of the water ingress because of the sliding doors is actual defective construction or building work or defective building work for which JMK could be held liable.
  33. [89]
    I accept that to simply say that water is ingressing in the vicinities of the doors is not enough.
  34. [90]
    It may be that there is a design error in relating to the Rapidwall system and what is being observed is consistent with water tracking down through the walls and when it hits door frames it is able to exit internally in the vicinity of the doors.
  35. [91]
    It is also possible that there is water blowing in across the sill through weepholes.
  36. [92]
    I cannot be satisfied that even if seals have failed it was because of a construction issue that is defective building work.
  37. [93]
    The waterproofing of the podium is dealt with at Item 17 in the 17 June 2011 Direction to Rectify and at Item 7 in the 17 December 2010 Direction to Rectify.
  38. [94]
    There was no evidence in the Joint Expert Report and the Individual Experts Report which dealt with the Item. I am unable to be satisfied that any building work in that regard is defective or incomplete. Further I accept the evidence of Mr Walker in this regard as to the scope of works for waterproofing.[51]
  39. [95]
    I accept there was a revised quotation which represented a varied contractual position between Kildey and JMK.[52] I accept that the Direction given by Mr Dutton was that water proofing membrane was only to be applied over areas with habitable rooms below.[53]
  40. [96]
    As to any issue of Rapidwall coating the evidence is that there was no problem with the actual coating which was applied.[54]
  41. [97]
    I accept the submissions made on behalf of JMK concerning the interface of Rapidwall with building elements.[55] The area referred to on level 8 where there is a horizontal joint between a parapet and a Rapidwall panel which is said to be defective has been the subject of fresh water-proofing by a contractor after JMK’s involvement had ceased.[56] In that regard I could not be satisfied that if it was defective building work it was defective building work for which JMK was responsible. Insofar as an area at ground level near apartments 1 and 2 is concerned that being clearly below level 4 it is not something for which JMK is responsible.
  42. [98]
    Item 15 of the 17 June 2011 Direction to Rectify and page 4 and page 5 of the 17 December 2010 Direction to Rectify deals with balcony balustrades. There was no expert evidence in support of those items.
  43. [99]
    In that regard I cannot be satisfied that there was any defective building work.
  44. [100]
    In my view there is no evidence to support a finding of actual defective building work for which JMK is responsible in respect of page 10 of the 17 June 2011 Direction to Rectify, page 13 of the 17 June 2011, page 8 of the 17 June 2011 Direction to Rectify, page 4 of the 17 December 2010 Direction to Rectify and page 5 of the 17 December 2010 Direction to Rectify.
  45. [101]
    The Commission accepts that the Tribunal has jurisdiction to conduct the present proceedings.[57]
  46. [102]
    The Commission submits that the building work is defective and it relies on the Joint Evidence Report[58] where it is concluded ‘there are no control joints evident in the Rapidwall façade…the experts agreed that control joints should be constructed to accommodate differential movement caused by any action’. It submits that the cracking in the coating of the Rapidwall has allowed water to penetrate and it represents a category 1 defect. It submits that the Tribunal ought to accept that the work is defective and that the discretion in s 72 has been enlivened.
  47. [103]
    I do not accept that JMK engaged the contractors on behalf of Kildey. The Commission accepts that only a person who carried out defective building work can lawfully directed to rectify. It submits that JMK is an entity who is deemed to have carried out the defective work and that if the Tribunal accepts that Kildey was the principal under the trade contracts then it is also a party who may be the subject of a direction to rectify.
  48. [104]
    The Commission submits that JMK provided administration services, advisory services, management services and supervisory services in relation to work carried out by Rapidwall Technologies Queensland and by the operation of s 72(11) of the QBSA Act JMK is taken to have carried out that work.
  49. [105]
    It submits that as JMK was undertaking its services for commercial gain it was carrying out those services for profit or reward within the meaning of s 72(5)(d) of the QBSA Act.[59] I note that section 72(11) applies for the purposes of subsections 5(c) and 5(d).
  50. [106]
    In its written submissions, the Commission submitted that JMK was ‘by operation of section 72(5)(g) and 72(11)(b) of the QBCC Act a person who is deemed to have carried out the defective work and they may be directed in relation to it’. Section 72(11)(b) however does not apply for section 72(5)(g).
  51. [107]
    Insofar as the Commission’s position against Kildey is concerned it submits that if it be accepted that JMK entered in to the trade contracts as undisclosed agent for Kildey then Kildey falls squarely within s 72(5)(d) of the QBSA Act. In that regard it says that Kildey caused the building work under the trade contracts to be carried out and it relies on Baulderstone Hornibrook[60] and it carried out the work for profit or reward.[61]
  52. [108]
    The Commission contended that section 75(d) applied with respect to Kildey and relies on the proposition that Kildey carried the building work to be caused out and accordingly ‘carried out the building work’. It relied on a quotation from Baulderstone Hornibrook[62] wherein Pincus JA accepted an argument that a person “carried out building work” if he caused it to be carried out. That decision relied on the section 72(8)(a)(ii) which provided ‘a person carries out building work whether the person…directly or indirectly causes it to be carried out’. That provision was removed from section 72 in 2000.
  53. [109]
    The relevant revision of the Act defines “carry out” in schedule 2 for building work as:
  1. (a)
    carry out the work personally;
  2. (b)
    directly or indirectly cause the work to be carried out;
  3. (c)
    provide building work services for the work.
  1. [110]
    Section 72(11) has the same definition for the purposes of subsections 5(c) and (d).
  2. [111]
    On the basis that both Kildey and JMK caused the work to be carried out then the first part of section 72(5)(d) is made out.
  3. [112]
    Assuming that the Tribunal accepts that there is defective building work and that JMK or Kildey carried out that defective work the Commission submits that in the exercise of discretion a direction ought to issue.
  4. [113]
    It submits that JMK ought to be subject to the direction because:
    1. The building suffers from water penetration which is a category 1 defect;
    2. Kelly cannot demonstrate that the Rapidwall was installed in accordance with the relevant drawing;
    3. There is no evidence by which JMK can assert that the Rapidwall is installed in accordance with the design;
    4. The words such as “monitor” and “assess” place some onus on JMK to put itself in a position to determine first what Rapidwall was required to do under its contract and second whether Rapidwall was in fact performing.
  5. [114]
    In the Submission in Reply the Commission in response to JMK’s submissions submitted “Kelly’s witnesses” therefore cannot say and the Tribunal cannot accept that Kelly built what the specification required or that the Rapidwall failed as a result of design (rather than construction issues).
  6. [115]
    That argument seems to me to require JMK to prove that it was not responsible for any defects. To my mind the proper test is to determine whether I can be properly satisfied of an opinion that building work is defective or incomplete and defective or incomplete building work was carried out by JMK or Kildey. The onus in this proceeding is on the party seeking the favourable outcome to justify the outcome.[63]
  7. [116]
    In its submission in Reply to the submissions of Kildey the Commission submits ‘that Kildey has not demonstrated that the sub-contracts/trade contracts were inherently incapable of being entered into for an undisclosed principal’. It relies on Kildey being an undisclosed principal such that it has caused building work to be carried because JMK entered into subcontract/trade contracts as undisclosed agent for Kildey. I do not find that to be so.
  8. [117]
    The extent of the building work which JMK caused to be carried out is limited to that above floor 4 but the extent of building work which Kildey caused to be carried out is not so limited and extends to the whole building.
  9. [118]
    In both the cases of Kildey and JMK the building work was carried out for profit and reward and the second limb of section 72(5)(d) is made out.
  10. [119]
    “Building work” is defined as set out earlier. Relevantly it includes ‘the erection or construction of a building’ and ‘the preparation of plans or specifications for the performance of building work’.
  11. [120]
    The evidence in my view does not support defective work in the erection or construction of the building. It does support defective work in the preparation of plans or specifications for the performance of building work.
  12. [121]
    I am not satisfied that either JMK or Kildey caused the defective work in ‘the preparation of plans or specifications for the performance of building work’. What they did was cause an already designed and specified propriety system to be used which system later proved to be defective.
  13. [122]
    In any event even if JMK or Kildey did cause defective building work to be carried out in my view in all of the circumstances I have identified as being relevant it would be unfair to both JMK and Kildey for a direction to rectify to be given to either of them.
  14. [123]
    I do not find that section 72(5)(g) is made out because I am not satisfied that the requirements of section 72(5)(g)(ii) and (iii) are made out.
  15. [124]
    The directions given to Kildey number 36341 and 35692 are set aside. The directions given to JMK number 36338 and 35691 are set aside.

Footnotes

[1]  Tab 115 of the bundle.

[2]  Tab 113 of the bundle.

[3]  Respondent’s Submissions, paragraph 10(d)(iii).

[4]  Kildey’s submissions, filed 10 April 2014, paragraph 10, Tab 11 of the bundle.

[5]  QBSA Act Schedule 2 and s 67A.

[6]  Explanatory Notes to the Queensland Building Services Authority and Other Legislation Amendment Bill 2007.

[7]  Clauses 17.1, 19.1 and 35.6 of the Trade Contracts; Kildey’s submissions, filed 10 April 2014, paragraph 22.

[8]  Kildey’s submissions, filed 10 April 2014, paragraph 23.

[9]  Document 12 in the bundle of hearing documents.

[10]  Document 12 in the bundle of hearing documents, paragraph 4.

[11]  JMK’s submissions, filed 11 April 2014, paragraph 32(a).

[12]  Transcript (19 March 2014) Table 1-136 line 17 to tab 137, tab 27.

[13]  JMK’s submissions, filed 11 April 2014, paragraph 81.

[14]  Joint Expert Report, paragraph D5, page 6, tab 13.

[15]  Transcript (19 March 2014) 1-47 line 43 – Transcript 1-49 line 10.

[16]  JMK’s submissions, filed 11 April 2014, paragraph 85.

[17]  Joint Expert Report, paragraph E4, tab 13; Individual Export Reports paragraph 10, page 9, tab 14 (Mr Helmhold); Individual Export Reports paragraph 10, page 3, tab 15 (Mr Lethlean); Individual Export Reports paragraph 10, page 10, tab 16 (Mr Palmer and Mr Wright).

[18]  JMK’s submissions, filed 11 April 2014, paragraph 94.

[19]  Transcript (19 March 2014) 1-103 lines 5-45 and 114 lines 20-45.

[20]  Kildey’s submissions, filed 10 April 2014, paragraph 17.

[21]  Kildey’s submissions, filed 10 April 2014, paragraph 27.

[22]  JMK’s submissions, filed 11 April 2014, paragraph 28.

[23]  Stack Statement, Affidavit of Mr Stack paragraph 74, 77 – 82.

[24]  Walker Statement, paragraph 63.

[25]  JMK’s submissions, filed 11 April 2014, paragraph 70 – 62.

[26]  Kildey’s submissions, filed 10 April 2014, paragraph 26; Transcript (20 March 2014) 2-19 lines 5 – 10.

[27]  Transcript (20 March 2014) 2-18 lines 35 – 45; 2-19.

[28]  JMK’s submissions, filed 11 April 2014, paragraph 97.

[29]  JMK’s submissions, filed 11 April 2014, paragraph 109; Transcript (19 March 2014) 2-79 lines 40 – 45.

[30]  JMK’s submissions, filed 11 April 2014, paragraph 118.

[31]  Kildey’s submissions, filed 10 April 2014, paragraph 15.

[32]  Joint Expert Report, paragraphs B1-B7, pages 5-6, tab 13.

[33]  JMK’s submissions, paragraph 126 – 128.

[34]  As it stood at the time proceedings were commenced.

[35]  QCAT Act s 24.

[36]  [1987] 2 QR 446.

[37]  Derrington and McPherson JJ.

[38]  At page 458.

[39]  [2014] QCAT 42.

[40]  At paragraph [67].

[41]  See Affidavit of Kildey.

[42]  Transcript page 2-16, line 24 to 2-19, line 28.

[43]  Transcript page 2-18, line 40 – 45.

[44]  Evidence of Kildey paragraph 18 tab 104.

[45]  Kildey Affidavit paragraph 10.

[46]  Tab 13 Joint Report page 6 paragraph d(2).

[47]  Tab 14 page 8 paragraph 7 from Mr Helmold, Tab 15, page 2 paragraph 7 of Mr Ali Lethlean, tab 16 page 7 paragraph 7 of Mr Palmer and Mr Right.

[48]  Paragraph D5 of page 6 of the Joint Expert Report at Tab 13.

[49]  Transcript page 1-47 line 43 through to 1-49 line 10.

[50]  Joint Expert at paragraph E4 at tab 13, Individual Expert Reports tab 14 page 9, paragraph 10 in respect of Mr Helmond, tab 15 page 3 paragraph 10 in respect of Mr Lethlean, tab 16, page 10 paragraph 10 in respect of Mr Palmer and Mr Right.

[51]  Paragraphs [26] to [31] Affidavit of Mr Walker; Exhibits 9 – 12; Tab 17 of the Bundle and Exhibits at Tabs 26-29 of the Bundle; Transcript 1-17 Line 44 to Transcript 1-81, line 34.

[52]  See document tab 29 – an email of 2 August 2014 from Mr Dutton.

[53]  Transcript page 1-81 line 16-22; Transcript page 1-79, line 11-14; Transcript page 1-97 line 20 through to Transcript page 1-98 line 11.

[54]  Joint Expert Report tab 13 pages 5 and 6 at paragraphs B1 to B7.

[55]  Paragraph C1 to C4 of the Joint Expert Reports at tab 13 page 6.

[56]  Transcript page 2-32 line 1 to 2-34 line 30.

[57]  QCAT Act s 18; QCAT Act s 17(2), Schedule 3 and QBSA Act s 86(1)(e).

[58]  Tab 13 in the Trial Bundle.

[59] Baulderstone Hornibrook Pty Ltd v Beneficial Finance Corporation Ltd [1998] QCA 351 at [17].

[60]  At [7].

[61] Baulderstone Hornibrook Pty Ltd v Beneficial Finance Corporation Ltd [1998] QCA 351 at [17].

[62]  Respondent submission page 11.

[63] Builders Licensing Board v Superway Constructions (Syd) Pty Ltd [1975] CLR 616 at 620; L.S. v Mental Health Review Board [2013] WASCA 128 at [90] to [99].

Close

Editorial Notes

  • Published Case Name:

    JM Kelly (Project Builders) Pty Ltd v Queensland Building Services Authority; Group Kildey Pty Ltd v Queensland Building Services Authority

  • Shortened Case Name:

    JM Kelly (Project Builders) Pty Ltd v Queensland Building Services Authority; Group Kildey Pty Ltd v Queensland Building Services Authority

  • MNC:

    [2015] QCAT 66

  • Court:

    QCAT

  • Judge(s):

    Member Favell

  • Date:

    02 Feb 2015

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
Baulderstone Hornibrook Pty Ltd v Beneficial Finance Corporation Limited [1998] QCA 351
4 citations
Builders Licensing Board v Sperway Constructions (Syd.) Pty. Ltd. (1975) 135 CLR 616
2 citations
Imperial Homes (Queensland) Pty Ltd v Queensland Building and Construction Commission [2014] QCAT 42
3 citations
L.S. v Mental Health Review Board [2013] WASCA 128
2 citations
R v His Honour Judge Miller and Builders' Registration Board; ex parte Graham Evans & Co (Qld) Pty Ltd [1987] 2 Qd R 446
3 citations

Cases Citing

Case NameFull CitationFrequency
Castro v Queensland Building and Construction Commission [2025] QCAT 1192 citations
1

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