McLachlan v Edwards Landscapes Pty Ltd

This is an appeal from a decision of a Local Court Magistrate transferring a home building dispute that had been commenced in that Court to the NSW Civil and Administrative Tribunal (‘NCAT’ or ‘the Tribunal’). The transfer was sought by the builder, but resisted by the homeowners.

The issue raised by the appeal is narrow: it is whether the building dispute, that had been commenced in the Local Court, was one that could be heard by the Tribunal.

The background facts are confined. Shortly stated, they are as follows.

Kurt and Jillian McLachlan (‘the plaintiffs’) are the owners of a residential property – 30 Saddington Street, South Turramurra, NSW.

They retained, by agreement dated 10 October 2018, Edwards Landscapes Pty Ltd (‘the defendant’) – essentially to install an inground swimming pool with associated landscaping in accordance with a landscaping plan that formed part of that agreement. The contract sum was $65,111 inclusive of GST. The estimated completion date was 2 March 2019.

The pool was installed, but the plaintiffs allege that the works were defective, and did not conform to the contractual requirements.

The plaintiffs, by statement of claim (the ‘SOC’) filed on 1 July 2022, commenced proceedings against the defendant in the Local Court seeking to recover damages “for the rectification costs of the defects”: SOC, par 34(a). Based upon what is alleged in the SOC, the plaintiffs complain there are a range of defects in connection with the building works, the most significant of which appears to be the allegation that the defendant failed to install any, or any adequate, expansion joints around the pool coping (which were thereafter overlaid with tiles): SOC, pars 28-29. Beyond these allegations about the standard of workmanship, little is known about the claim.

The defendant did not file a defence to this claim. Rather, following correspondence between the legal representatives relating to the jurisdiction of the Tribunal, the defendant filed a notice of motion, on 9 September 2022, seeking an order, pursuant to s 48L(2) of the Home Building Act 1989 (NSW) (‘the HBA’) for the transfer of the proceedings to NCAT. Put simply, in circumstances where there is a “building claim” and that claim is “one that could be heard by the Tribunal” (s 48L(1) of the HBA) – proceedings in a court must be transferred to the Tribunal if a defendant in the proceedings makes application for the transfer: s 48L(2) of the HBA.

The defendant’s notice of motion was heard on 27 October 2022, and an order transferring the proceedings was made. That order is the subject of the plaintiffs’ challenge in this Court.

The plaintiffs’ summons sought to appeal from the order of the Magistrate as of right, but also, in the alternative, sought leave to appeal. The defendant argued that the plaintiffs had no right to appeal, but were required to seek leave.

Section 39(1) of the Local Court Act 2007 (NSW) (‘the LCA’) permits a party to proceedings before the Local Court “who is dissatisfied with a judgment or order of the Court may appeal to the Supreme Court, but only on a question of law”. Section 40(1) of the LCA permits a party to proceedings before the Local Court “who is dissatisfied with a judgment or order of the Court on a ground that involves a question of mixed law and fact may appeal to the Supreme Court but only by leave of the Supreme Court”. A party to proceedings, dissatisfied with an interlocutory judgment or order may appeal to the Supreme Court, but only by leave: s 40(2)(a) of the LCA.

The plaintiffs argued that they had an appeal as of right – arguing that the transfer of the proceedings to the Tribunal was “to a body without jurisdiction to hear such claims [and this] amounts to a final disposition of those claims” (plaintiffs’ summons, ground 3).

I do not accept that submission. In my view the decision of the Magistrate is clearly interlocutory – there was no final disposition of the rights of the plaintiffs – and leave to appeal from the decision is necessary: s 40(2)(a) of the LCA. That conclusion is consistent with the decision in Laycock v Putty Community Association Incorporated [2006] NSWSC 900 at [22] – where Hoeben J held that a decision on jurisdiction, by a Local Court Magistrate, was interlocutory. It is also a conclusion that is consistent with well-established principle: Hall v Nominal Defendant (1966) 117 CLR 423, 439-440; 443-444; [1966] HCA 36; Sanofi v Parke Davis Pty Ltd (1982) 149 CLR 147, 152-153; [1982] HCA 9.

As I explain later (see [45]-[48], below), leave should be refused.

The defendant’s application sought the transfer of proceedings pursuant to s 48L(2) of the HBA, and it is convenient to start with that provision. Section 48L of the HBA, relevantly, provides:

A number of matters should presently be noted arising from s 48L(1). First, the section is directed to a “building claim” – a term that is defined by ss 48A(1) and (2) of the HBA. The plaintiffs conceded that their claims satisfy this definition – although it will be necessary to return to this concession later in these reasons. The Magistrate proceeded on this basis – as did the argument in this Court. Secondly, the section is engaged if, and only if, “the building claim is one that could be heard by the Tribunal” under Part 3A, Division 4 of the HBA: upon satisfaction of these matters, then if an application is made by a defendant to proceedings to transfer them to the Tribunal, the transfer of the proceedings is mandatory: s 48L(2). Thirdly, a determination of whether a “building claim is one that could be heard by the Tribunal” under Part 3A, Division 4 of the HBA directs attention to s 48K of the HBA – the section which confers the jurisdiction of the Tribunal in relation to building claims.

Section 48K of the HBA provides:

The focus of the arguments was on ss 48K(3) and (7). The plaintiffs relied on s 48K(3) to support their argument that the Tribunal lacked jurisdiction – at least in respect of the plaintiffs’ claim that did not rely upon breach of any statutory warranty implied under Part 2C. (It should be noted, however, that although the plaintiffs’ summons made reference to ss 48K(2) and (4), no submissions were directed to those sections). The defendant relied upon s 48K(7) to argue that the Tribunal had jurisdiction over the claim because, in reality, it was simply one for breach of a statutory warranty.

The Magistrate’s reasons are brief. In order to understand the conclusion reached, it is best to start with the arguments of the parties – arguments that were essentially repeated in this Court.

The defendant’s argument was that the terms of s 48L(1) were met, requiring the transfer of the proceedings to the Tribunal. The first limb in s 48L(1) – the requirement that the proceedings are “in respect of a building claim” – was conceded by the plaintiffs. As to the second limb in s 48L(1), the essential argument of the defendant was that the terms of s 48K(7) were satisfied – because the building claim was one arising from a breach of a statutory warranty implied under Part 2C of the HBA and within the 6 year time period required when the claim involves an allegation of breach that results in a major defect – and a finding was made to that effect, with the consequence that transfer was mandatory.

The plaintiffs’ argument was that the Tribunal did not have jurisdiction because s 48K(3) excluded it. The essential submission put was that the “claim” – the commencement of the proceedings in the Local Court – was ‘lodged’ 3 years after the building services were supplied and although, the Tribunal had jurisdiction in cases where the building claim was one arising from a breach of statutory warranty, the plaintiffs’ claim was more extensive – seeking recovery of damages relying upon multiple causes of action.

Having set out the respective arguments, I turn now to the reasons of the Magistrate.

The decision of the Magistrate, reproduced in full, is as follows:

These reasons are more confined than one might have expected. However, no point was taken by the plaintiffs about them being legally insufficient – thus, it is unnecessary to dwell further upon their brevity.

The parties accepted on appeal that the “essence” of these reasons involves the following:

Before dealing with the detail of the arguments advanced by the parties, it is necessary to say something further about the plaintiffs’ claim, and the concept of a “building claim”.

I have earlier drawn attention to some parts of the plaintiffs’ claim. The claim itself, however, merits close attention bearing in mind the findings made by the Magistrate, including the finding about the character of that claim. To recap: the two findings were: (a) that the claim was “in relation to the building of a swimming pool”; and, (b) the claim for damages based upon breach of the home building statutory warranties were "front and centre" of that claim.

There is no challenge to either finding. Given the arguments advanced, it is useful to briefly explain the basis for making them – what was alleged in the SOC. The focus of the claim is upon what is described in the SOC as the “Pool Surround Works”. This is evident from the following:

It is also important to recognise that, although the plaintiffs’ SOC raised claims for breach of contract, the Australian Consumer Law, the Design and Building Practitioners Act 2020 (NSW) (‘the DBP Act’) and in negligence, SOC, par 34(a) confines the claims to damages measured by the cost of rectifying the defects. Undoubtedly the structure of the plaintiffs’ claim underpinned the two findings by the Magistrate – viz., that the plaintiffs’ claim was in relation to the “building of a swimming pool” and that at the forefront of the claim was a claim under the HBA for that allegedly defective work.

It is important to note as well the further matter that was alleged in SOC, par 28 – namely, that the defective Pool Surround Works was a major defect. In proceedings for breach of a statutory warranty under the HBA, what constitutes a ‘major defect’ is defined under s 18E(4) of the HBA. The term is important for a further reason: the warranty period for a breach that results in a major defect in residential building work is 6 years “or 2 years in any other case”: s 18E(1)(b) of the HBA. Again, these matters undoubtedly underpinned the conclusion that the jurisdiction of the Tribunal was engaged by reason of s 48K(7) of the HBA.

As I have earlier noted, the parties argued the application below on the basis that the plaintiffs’ proceedings in the Local Court were a “building claim” so as to satisfy the first limb in s 48L(1) of the HBA. What constitutes a “building claim” for the purposes of Part 3A of the HBA is defined by ss 48A(1) and (2).

Sections 48A(1) and (2) provide:

Two matters should be noted about these provisions. First, it is clear that the definition can be satisfied in different ways, reflecting the fact that there are different types of “building claims”. Secondly, without limiting s 48A(1), s 48A(2) provides that a building claim includes any claim for compensation for loss arising from a breach of a warranty implied under Part 2C.

The fact that there are different types of “building claims” is recognised by s 48K. The point can be made by reference to the competing arguments in this case, and the provisions relied upon by the plaintiffs and defendant respectively:

The submissions of the parties did not address this distinction, nor its impact upon the relief sought by the defendant in its notice of motion. As I have earlier pointed out, the entire focus of the submissions – in this Court, and below – was upon the second limb in s 48L(1) – viz., whether the proceeding commenced by the plaintiffs “is one that could be heard by the Tribunal”.

The defendant’s argument was that it was an agreed fact that the plaintiffs’ claim was a building claim (s 48A), such that the only issue before the Magistrate on the transfer application was whether the requirement, within s 48L(1) of the HBA for that claim to be “one that could be heard by the Tribunal”, was satisfied. As to the second limb in s 48L(1), the defendant argued that this only requires the Court to “form the view” whether the jurisdiction of the Tribunal was engaged, which it did by making the two key findings referred to – viz., that: (a) the claim was “in relation to the building of a swimming pool”; and, (b) the claim for damages based upon breach of the home building statutory warranties was "front and centre" of that claim.

The defendant further submitted that the Magistrate found that s 48K(7) was satisfied. This was argued to be so because: (a) there is a two-year “limitation period” in connection with proceedings for breach of a statutory warranty in connection with minor defects: ss 18E(1)(b) and (4) of the HBA; (b) these proceedings were commenced 3 years after any breach, with the consequence being that the claim on the warranties sought to be advanced could only be in connection with major defects – which have a 6 year “limitation period”: ss 18E(1)(b) and (4) of the HBA, consistent with what was pleaded in the SOC, par 28 (see [28(6)], above); and (c) the Magistrate held that it was “an appropriate matter” to be transferred to the Tribunal, given the two findings made earlier referred to.

The plaintiffs argued that s 48K(3) stood against this conclusion, as did the fact that the plaintiffs’ SOC advanced “not only claims for breach of the statutory warranties outlined in HBA s 18E” but “include claims for breaches to the contract, Australian Consumer Law, the [DBP Act] and duty of care the Builder owed to the Owners” (plaintiffs’ submissions, par R). The plaintiffs further submitted that, as a result, s 48K(7) “has no application in the present scenario” (plaintiffs’ submissions, par R). As to this last matter, put slightly differently, the plaintiffs conceded that, but for the differing ways in which they sought to advance their claim for damages, s 48K(7) was engaged.

Neither party drew attention to any relevant authority although, during submissions, the plaintiffs referred to the decision in Tinsley v Masterton Homes Pty Ltd [2013] NSWCTTT 26: the plaintiffs argued that this decision “only assists if the entire claim, the claim in its totality” is one for breach of a statutory warranty implied under Part 2C.

The essential proposition drawn from Tinsley is that “a claim for breach of statutory warranty within the meaning of s 48K(7) should not be limited by reason of the operation of s 48K(3)”: at [29]. The decision in Tinsley expressly approved what was said, to that effect, in Marks v Stafflair [2012] NSWCTTT 199 at [32]. That reasoning has been approved in the Tribunal: David Cameron Jones t/as Oz Style Homes v Panchal [2018] NSWCATAP 238 at [30].

The plaintiffs accepted the correctness of the reasoning, but argued that it did not apply to the present case because the plaintiffs’ claims extended beyond being a claim merely for breach of a statutory warranty: the plaintiff emphasised that there were claims for “breaches to the contract, Australian Consumer Law, the [DBP Act] and duty of care the Builder owed to the Owners”, with the consequence that s 48K(3) was engaged.

I do not accept the plaintiffs’ submissions for the following reasons. First, there are two factual findings about the nature of the plaintiffs’ claims – viz., (a) that the claim was “in relation to the building of a swimming pool”; and, (b) the claim for damages based upon breach of the home building statutory warranties were “front and centre” of that claim. Those findings were not – at least expressly – challenged by the plaintiffs. To the extent that they may be taken to have been so, it should simply be noted that they are factual findings which, in and of themselves, are insusceptible to review on appeal by this Court: there is no right of appeal from a finding of fact. Furthermore, any complaint about them is not an error of law: that is because a finding that “is against the evidence and the weight of the evidence, that it ignores the probative force of the evidence which is all one way” is an error of fact, not of law: Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139, 156. Moreover, “no error of law occurs simply because the judge prefers one version of the evidence to another or one set of inferences to another”: Azzopardi at 151.

Secondly, in connection with the Magistrate’s characterisation of the plaintiffs claim, to conclude – as the Magistrate did – that the claim under the HBA was “front and centre” of the dispute reflects, in my view, an application of the principle that “a statute must be applied to the substance rather than the form of a transaction”: Emad Trolley Pty Ltd v Shigar (2003) 57 NSWLR 636; [2003] NSWCA 231 at [79]; Secretary, Department of Treasury and Finance v Kelly (2001) 4 VR 595; [2001] VSCA 246 at [10]. The findings of the Magistrate have the consequence that the circumstances of the present case were properly characterised, as a matter of substance, as within s 48K(7) of the HBA. Contrary to what was argued by the plaintiffs, in my view it does not follow – merely because a home building claim is put as one for breach of a statutory warranty under the HBA but also in a juristically different way – that, axiomatically, s 48K(7) cannot be satisfied. It might, or might not be: it would depend upon an assessment of what is alleged. That is what occurred here. The Magistrate focused upon substance, and was not distracted (particularly given, as I have already noted, the plaintiff’s claim for damages – irrespective of the cause of action relied upon – was “for the rectification costs of the defects”: SOC, par 34(a)) by any creativity in the pleading.

Thirdly, to the extent that the plaintiffs’ appeal reduced to the contention that the Magistrate was in error in making this assessment, then the principles referred to in [42], above, stand against its acceptance. Furthermore, to the extent that it extended to a failure to make findings that the terms of s 48K(3) was satisfied, none were necessary given the finding that, as a matter of substance, the plaintiffs’ claim was within s 48K(7) of the HBA.

In any event, separate from the above analysis, in my view leave to appeal should be refused.

The matters affecting a decision to grant leave under s 40(1) of the LCA were considered in Café Du Liban Pty Ltd v Bespoke Garage Pty Ltd [2017] NSWSC 779 at [4] and in Namoi Sustainable Energy Pty Limited v Buhren [2022] NSWSC 175 at [34]-[39]. These considerations apply equally to an application for leave under s 40(2)(a) of the LCA, and they align with principles relating to the grant of leave in other contexts. For example, it has been said that leave to appeal will ordinarily only be granted “concerning matters that involve issues of principle, questions of general public importance or an injustice which is reasonably clear, in the sense of going beyond what being merely arguable”: Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]; Cheng v Motor Yacht Sales Australia Pty Ltd t/as the Boutique Boat Company (2022) 108 NSWLR 402; [2022] NSWCA 118 at [15]-[16] (‘Cheng’).

In Namoi, Bellew J identified the matters relevant to the question of leave under s 40(1) of the LCA as follows (citations omitted):

In my view, leave should be refused for the following reasons.

For the above reasons, I make the following orders: