The Owners – Strata Plan 83572 v Jackson Teece Chesterman Willis Pty Ltd

1. [1]

   The plaintiff is the Owners Corporation in respect of a development in Hunter Street, Newcastle known as “Bellevue on Bellevue”.

2. [2]

   The development comprises a commercial suite and three two-bedroom residential units in the former Bellevue Hotel and an adjacent seven storey residential apartment building containing 28 two-bedroom residential units.

3. [3]

   The development site is located immediately adjacent to the Hunter River, within 1km of the Newcastle oceanfront.

4. [4]

   Construction of the development commenced in June 2007. The builders were Bay Building Investments Pty Ltd and, later, Merewether Technologies Pty Ltd. Neither is involved in these proceedings.

5. [5]

   By October 2008, the façade to the seven storey building had been constructed using a James Hardie product comprised of compressed fibre cement sheeting known as “ExoTec” façade panels.

6. [6]

   The Owners Corporation was created on registration of the strata plan on 19 April 2010.

7. [7]

   By the time the strata plan was registered, construction was almost complete but leaking was occurring through the façade of the building on all levels.

8. [8]

   A final occupation certificate was issued on 19 October 2010.

9. [9]

   The only remaining defendants are Mr Mark and Mrs Naomi Neumann; the fourth and fifth defendants.

10. [10]

    The Owners Corporation has settled with the first and second defendants, Jackson Teece Chesterman Willis Pty Ltd and Michael Fitzgerald Consulting Engineers Pty Ltd. The third defendant, Momentum Mortgages Limited (Receivers and Managers appointed), has been deregistered.

11. [11]

    In August 2010, Mr and Mrs Neumann operated a partnership trading as “Mark Neumann Building” and were engaged by the then project manager of the development, Cyre Group Ltd, to carry out remedial works in respect of the façade.

12. [12]

    As only Mr Neumann was involved in the day to day work on the site, I shall, without any intending any disrespect to Mrs Neumann, refer simply to him.

13. [13]

    Mr Neumann performed the rectification work in January and February 2011. That work was residential building work for the purposes of the Home Building Act 1989 (NSW).

14. [14]

    Although the Owners Corporation’s claim against Mr Neumann once ranged much wider, the question now is whether the Owners Corporation has established that the remedial work done by Mr Neumann in relation to the façade was in breach of the warranty implied by s 18B of the Home Building Act that the work would be done with due care and skill.

Decision

1. [15]

   The Owners Corporation has not established that the work done by Mr Neumann was done without due care and skill.

2. [16]

   Nor has the Owners Corporation established that it has suffered any loss as a result of the work Mr Neumann did.

3. [17]

   In any event, Mr Neumann has a defence to the Owners Corporation’s claim under s 18F of the Home Building Act.

4. [18]

   The proceedings must be dismissed with costs.

A troubled development

1. [19]

   On 8 November 2004 the Development Application was lodged with Newcastle City Council on behalf of the then owner and developer of the property, Task Developments Pty Ltd.

2. [20]

   By the time application was made for a Construction Certificate, on 30 April 2007, the applicant developer was Task Developments 2 Pty Ltd (“Task 2”).

3. [21]

   Task 2 borrowed funds from Momentum which took a mortgage over the property. On 13 October 2008 receivers and managers (“the Receivers”) were appointed to Momentum.

4. [22]

   On 14 February 2009 the Receivers caused Momentum to take possession of the property.

5. [23]

   By the Receivers, Momentum appointed Cyre Group as its project manager with effect from 1 September 2009.

6. [24]

   On 11 September 2009, Cyre Group appointed Jackson Teece as architects to the project.

The leaking façade

1. [25]

   It is common ground that water is penetrating the building through the ExoTec façade.

2. [26]

   Mr Neumann’s building expert, Mr Peter Ellis has opined that “[w]ater penetration to the building is due to defects in the original installation of the cladding system”.

3. [27]

   The Owners Corporation’s building expert, Mr John Worthington has opined:

4. [28]

   As the correspondence between Cyre Group, Jackson Teece and Mr Neumann in November and December 2010 reveals, the consensus of opinion was that the most significant shortcoming in the installation of the façade was the failure of the builder to install head flashing in the windows. Such flashing, if properly installed, would have caused water permeating through the façade to be repelled from the face of the building to the outside. It appears that if the water ingress problem at this development is to be resolved, the façade will have to be removed to enable head flashing to be installed. The likely cost of that exercise is in excess of $1.1 million.

5. [29]

   Mr Neumann was not involved in the installation of the façade. It had been in place some two years before his engagement by Cyre Group and had been leaking for some time prior to that engagement.

6. [30]

   James Hardie specified that the ExoTec panels were to be installed with a 10mm nominal expressed joint between adjacent panels, that “[i]n coastal areas located within 1km of the shoreline…all horizontal and vertical expressed joints must be filled with a suitable sealant” and that moisture should be managed in the installation in the following way:

7. [31]

   James Hardie also specified that “normal maintenance requirements” included “annual checks and maintenance for the exposed sealant”.

The engagement of Mr Neumann

1. [32]

   On 12 August 2010 Mr Neumann met with Mr Peter Donn from Jackson Teece.

2. [33]

   Mr Donn gave Mr Neumann two sets of “Architectural Defects Inspection Reports” which set out, for each unit and common area, defects requiring rectification. Mr Donn sought a quotation from Mr Neumann to carry out the work referred to in those reports.

3. [34]

   Later that day, Mr Neumann wrote to Mr Marlon Zunac from Cyre Group, care of Momentum:

4. [35]

   Mr Neumann set out a schedule of rates for labour charges. Mr Neumann agreed he was “taking on this work on pretty much a do-and-charge basis”.

5. [36]

   Although Mr Neumann’s letter spoke of offering to “rectify defects and complete unfinished items”, the subsequent course of dealings between him, Mr Zunac and Mr Donn reveals that Mr Neumann’s obligations were not at large. Rather, they were subject to supervision by Cyre Group and Jackson Teece and to the approval and direction by Cyre Group. Cyre Group was, in turn, acting under the instructions of the Receivers. Evidently, the Receivers were funding the completion of the development.

6. [37]

   The following day, 13 August 2010, Mr Zunac instructed Jackson Teece to inform Mr Neumann that “our clients” (the Receivers) had agreed to retain Mr Neumann “for outstanding works to Bellevue Hotel”. Mr Jason Elsley from Jackson Teece wrote to Mr Neumann stating that “we are pleased to advise that our clients have accepted your Letter of Offer”.

7. [38]

   Thereafter, Cyre Group engaged Mr Neumann’s services in an ad hoc fashion. For example, in late September 2010, Mr Zunac instructed Mr Donn to instruct Mr Neumann to carry out work in respect of door hardware and various sanitary compartments.

8. [39]

   The Owners Corporation no longer makes any complaint about such matters. All complaints hitherto made, otherwise than in respect of the work Mr Neumann did in relation the façade in January and February 2011, have been abandoned.

Sealing the expressed joints on the façade

1. [40]

   The first mention in email correspondence of the possibility that work might be done sealing the expressed joints on the façade was contained in an email that Mr Zunac sent Mr Neumann on 1 November 2010 as follows:

2. [41]

   Mr Zunac referred to Unit 7.01. That unit was on the top floor of the seven storey building. It was, by then, occupied and suffering water ingress. Evidently, Mr Zunac was “waiting for a response regarding final payments”, presumably from the Receiver. Thus Mr Zunac referred to the possibility that “some trades” might return to do work in Unit 7.01 “which may involve some facade work and sealing of express[ed] joints”.

3. [42]

   Mr Zunac invited Mr Neumann to put forward a proposal for those “rectification services”.

4. [43]

   On 5 November 2010, Mr Zunac wrote to Mr Donn:

5. [44]

   This is the first reference in the correspondence to the absence of head flashing in the windows and the relationship between that and the water ingress. Mr Neumann had removed the wall lining within Unit 7.01 and had discovered that the reason for water ingress in that unit was the absence of head flashing.

6. [45]

   Mr Zunac asked Jackson Teece to visit the site and provide recommendations and said that upon review of those recommendations he would give instructions as to the “best course of action”. This email shows that Mr Zunac, on behalf of Cyre Group, was in charge of the process and was the person who would determine what work was to be done.

7. [46]

   Later on 5 November 2010, and as requested by Mr Zunac, Mr Donn met Mr Neumann at Unit 7.01. Mr Donn wrote to Mr Zunac, with a copy to Mr Neumann:

8. [47]

   In this email, Mr Donn confirmed that no head flashing had been installed in the window in Unit 7.01. Mr Donn stated that the “immediate remedial works” would be to “apply sealant” to the “affected area” from inside the unit.

9. [48]

   Item 6 dealt with long-term remedial works, after the internal area had dried out, and involved installation of head flashing. Mr Neumann gave this evidence in cross-examination in relation to those matters:

10. [49]

    On 22 November 2010 Mr Donn and Mr Neumann inspected the roof of the building. In his affidavit Mr Neumann said that:

11. [50]

    On 23 November 2010 at 7:50am Mr Neumann reported to Mr Zunac:

12. [51]

    In cross-examination Mr Neumann said that what he observed was that:

13. [52]

    Mr Neumann continued:

14. [53]

    Mr Neumann’s reference to the “building maintenance climbing team” was a reference to an abseiling contractor, Ottra Pty Ltd trading as Off the Top Rope Access. A representative of that organisation was also present at the rooftop meeting on 22 November 2010.

15. [54]

    In his email, Mr Neumann said “now they [the abseiling team] can seal the building from the outside and will get back to us with a quote soon”. I do not read this as a statement by Mr Neumann that he was giving any warranty that the work of the abseiling team would in fact “seal the building”. Rather, I think a fair reading of Mr Neumann’s email is that he was stating no more than that it was possible that an abseiling team such as Ottra could carry out the application of a sealant to the building.

16. [55]

    Later on 23 November 2010 at 1:29pm, Mr Zunac wrote to Mr Neumann referring to “our conversation today” and to Mr Neumann’s 23 November 2010 email and requesting him to “please proceed with obtaining the quotation [from Ottra] for sealing the facade express[ed] joints”. Mr Zunac concluded: “Once this has been received, we will forward [it to the Receivers] for approval and respond accordingly”.

17. [56]

    Later on 23 November 2010 at 4:14pm, Mr Donn wrote to Mr Zunac, with a copy to Mr Neumann:

18. [57]

    Mr Bland who appeared for the plaintiff, placed some reliance on Mr Donn’s statement that Mr Broadbent, who was an employee of Mr Neumann, had “reiterated the suggested scope of work to ‘waterproof’ the façade”.

19. [58]

    However Mr Donn’s association of that statement with Mr Neumann’s email sent earlier that day (set out at [50] above) makes clear to me that Mr Broadbent did no more than repeat Mr Neumann’s suggestion that an abseiling contractor could, if required by Cyre Group, apply sealant to the building “from the outside”.

20. [59]

    In cross-examination Mr Neumann said that he did not know and could not say who suggested the use of a sealant. Mr Bland asked “could it have been you?” to which Mr Neumann replied:

21. [60]

    As I have said, at [40] above, Mr Zunac’s email of 1 November 2010 suggests he first raised the possibility of sealing the expressed joints in the façade on the exterior of the building.

22. [61]

    In any event, the more important aspect of this email is Mr Donn’s statement that he was “concerned that such an application will breakdown over a relatively short period of time”.

23. [62]

    His parenthetical note to Mr Neumann (“hope you don’t mind us providing some input on this”) shows that Mr Donn saw himself as providing advice to Mr Zunac that overrode any suggestion Mr Neumann might make.

24. [63]

    Later on 23 November 2010 at 4:34pm, Mr Zunac replied to Mr Donn’s email by stating:

25. [64]

    Mr Zunac’s reference to “a more permanent solution” was clearly a reference to Mr Donn’s statement that “it makes more sense” to remove the fibre cement panels and install head flashing (above at [56]).

26. [65]

    Mr Zunac’s email prompted Mr Donn to contact James Hardie. This occurred later on 23 November 2010 at 5:10pm.

27. [66]

    According to an internal James Hardie note, Mr Donn explained that the Bellevue apartments “header flashings [were] not installed” and that Mr Neumann, the “new contractor on site”, “wants to pump [Sikaflex] into all express[ed] joints as a remedy”.

28. [67]

    That may have recorded the James Hardie’s representative’s understanding of Mr Neumann’s position. But the correspondence above shows that it was an overstatement to say that Mr Neumann “wanted” to adopt this course. It was simply one that he had exposed as a possible option.

29. [68]

    Also on 23 November 2010 at 7:34pm, Ottra wrote to Mr Neumann:

30. [69]

    Ottra proposed a scope of works including to “[s]eal with Bostic or similar product all joints as directed by [Mr Neumann]” with Mr Neumann “to supply all sealants”.

31. [70]

    The next morning, on 24 November 2010 at 7:46am, Mr Neumann forwarded Ottra’s quotation to Mr Zunac concluding:

32. [71]

    In his postscript to this email, Mr Neumann was giving Mr Zunac the clearest possible warning that Mr Neumann regarded application of sealant to the expressed joints on the façade as being no more than “remedial external patching” and that the best course was to remove the façade and install “the correct head flashings”.

33. [72]

    As Mr Donn was shortly to discover, James Hardie was adamant that window flashing was necessary to ensure that its ExoTec panelling was appropriately water resistant.

34. [73]

    Contrary to Mr Bland’s submissions, I do not see anything in Mr Neumann’s opening sentence that somehow dilutes the force of Mr Neumann’s warning. All Mr Neumann was saying in the first sentence was that he had suggested to the representative of Ottra that he should try to find one day before Christmas to conduct the “remedial external patching” above the location on the building where windows were actually leaking.

35. [74]

    Section 18F of the Home Building Act, relevantly, provides:

36. [75]

    I regard Mr Neumann’s postscript to his 24 November 2010 email as being clear advice to Mr Zunac that the proposed “remedial external patching” was not the “best” means by which to deal with the problem of water ingress.

37. [76]

    Later on 24 November 2010 at 9:43am, Mr Zunac responded to Mr Neumann’s email set out at [70] above, with a copy to Mr Donn, by stating:

38. [77]

    On 1 December 2010 Mr Donn reported to Mr Zunac that he had spoken to a technical representative from James Hardie, Mr Luke Woods, and that he had pressed Mr Woods “on what his advice would be”. Mr Donn continued:

39. [78]

    Thus Mr Donn told Mr Zunac that James Hardie’s position was the same as that which Mr Neumann had recommended; namely, that the façade should be removed and head flashings installed.

40. [79]

    On 6 December 2010 Mr Hamzat Matar, a Technical Support Officer from James Hardie, wrote to Mr Donn repeating the matters I have set out concerning James Hardie’s specifications and recording that:

41. [80]

    On 8 December 2010 Mr Donn forwarded to Mr Zunac Mr Matar’s advice under covering letter. In that letter Mr Donn stated:

42. [81]

    This letter is vital background to an understanding of the work that Mr Neumann did. In this email, Mr Donn advised Mr Zunac, in the clearest possible terms, that the preferable course was to remove the façade and install head flashings. Mr Donn made clear that the alternative, to apply sealant to the expressed joints of the façade was “not ideal” and would only result in “some level of weather protection to the façade”.

43. [82]

    Mr Zunac must have read this advice in light of Mr Donn’s statement on 23 November 2010 that the sealant to be applied to the expressed joints may well “breakdown over a relatively short period of time”.

44. [83]

    Mr Donn also emphasised that the manufacturers of the two sealants proposed by Mr Neumann, including the Sikaflex that was ultimately used, were “resistant to provide a warranty statement”. In effect, Mr Donn was recommending “the cheaper alternative option”, presumably because he was aware of a disinclination on the part of the Receiver to expend more funds than was absolutely necessary to get the building complete.

45. [84]

    Thus, in his letter, Mr Donn said that to “bring this matter to conclusion”, Mr Neumann would use the Sikaflex product to apply sealant to a sample area and review its performance. Mr Donn then sought Mr Zunac’s “review and instruction”.

46. [85]

    Mr Neumann carried out the application of the Sikaflex sealant to a sample area. In his affidavit Mr Neumann said:

47. [86]

    On 8 December 2010, Mr Zunac, who had evidently by now heard of the results of Mr Neumann’s testing of Sikaflex using a sample, wrote to Mr Neumann:

48. [87]

    This email bespeaks Mr Zunac’s desire to achieve a “quicker and cheaper” solution to the problem of removal of the façade and installation of flashing.

49. [88]

    Later, on 10 December 2010, Mr Neumann replied to Mr Zunac’s 8 December 2010 email estimating that “the time for labour and supervision will be 3.25 weeks” and that the likely cost to apply the Sikaflex sealant would be in the order of $41,000. Mr Neumann concluded his email by stating that the “Sikaflex has held well in the test panel and the colour is a good match”.

50. [89]

    By 17 December 2010 Mr Zunac had evidently decided to adopt what Mr Donn had described in his letter of 8 December 2010 as being the “cheaper alternative option” to “apply sealant to every expressed joint on the façade” (see [80] above).

51. [90]

    Thus, one of the Receivers, Mr Mark O’Reilly, reported to Mr Paul Bollen, a director of Momentum:

52. [91]

    Mr O’Reilly reported that Cyre Group had “researched the full range of potential rectification methods” and proposed that the solution was the “application of water proof sealant to all adjoining areas between the facade panels” and that Cyre Group were “confident that this will prevent the occurrence of any further water damage”.

53. [92]

    Mr O’Reilly did not mention the reservations that had been expressed by both Mr Neumann and Mr Donn to the proposal that Cyre Group was recommending, nor the advice of James Hardie; presumably because Mr Zunac had not told him.

54. [93]

    There the matter rested until the New Year.

55. [94]

    On 18 January 2011 Mr Bollen replied to Mr O’Reilly’s email of 17 December 2010:

56. [95]

    Mr Bollen’s reference to the possibility that “the problem could reappear” bespeaks a recognition by him that Cyre Group’s proposal may well result in no more than a temporary solution to water ingress problem.

57. [96]

    Mr O’Reilly forwarded Mr Bollen’s email of 18 January 2011 to Mr Zunac and said:

58. [97]

    Mr Zunac then wrote to Mr Neumann:

59. [98]

    Mr Neumann replied on 19 January 2011:

60. [99]

    In his affidavit Mr Neumann gave the following account of the work done:

Did Mr Neumann warrant that the work he did would render the building “waterproof”?

1. [100]

   In final submissions Mr Bland said:

2. [101]

   Implicit in that submission is the proposition that Mr Neumann agreed, warranted or represented that the result of his application of sealant to the expressed joints was that the façade would be water resistant.

3. [102]

   I do not accept that submission.

4. [103]

   Mr Neumann’s “engagement” was to do the work as Cyre Group instructed.

5. [104]

   The only warranty he gave was that imposed by s 18B of the Home Building Act: that is, his work will be done with due care and skill.

6. [105]

   By the postscript to his 24 November 2010 email (see [70]), Mr Neumann, in terms, disavowed representing that his work was anything beyond “remedial external patching”. He warned that this was not the best way to solve the water ingress problem.

7. [106]

   These matters were understood by Cyre Group. Jackson Teece had made clear that they were concerned that application of sealant to the expressed joints may “break down over a relatively short period of time” (see [56] above) and that application of sealant to the expressed joints “not ideal” and no more than a “low-cost option to apply some level of weather protection to the facade” (see [80] above).

8. [107]

   Nonetheless, Cyre Group instructed Mr Neumann to proceed this way.

Did Mr Neumann perform the work with due care and skill?

1. [108]

   The Owners Corporation’s coatings expert, Dr Stuart Bayliss, inspected some of the ExoTec panels on 15 October 2016, almost six years after Mr Neumann had applied sealant to the expressed joints.

2. [109]

   In cross-examination Dr Bayliss said that he expected that the Sikaflex sealant would, as a general rule, have an effective lifespan of 15 years “plus or minus 5 years”.

3. [110]

   Dr Bayliss agreed that in a location near the ocean, with natural deterioration expected in such a position, the likely effective lifespan of Sikaflex was at the lower end of that range.

4. [111]

   Dr Bayliss said in one of his reports:

5. [112]

   Dr Bayliss included in his report six photographs which appear to show some cracking in the sealant, as well as separation of the sealant from the adjacent panel.

6. [113]

   Dr Bayliss also pointed to “several issues” in the methodology adopted by Mr Neumann which, he said, “would contribute to sealant failure”.

7. [114]

   However, there was no evidence from Dr Bayliss, or any other witness, that the relatively few examples of sealant separation has played any role in the penetration of water to the building.

8. [115]

   There has been no maintenance of the façade since the sealant was applied in January and February 2011, despite James Hardie’s recommendation that there be “annual checks and maintenance for the exposed sealant” (see [31] above).

9. [116]

   Ms Carola Wright, one of the lot owners, gave this evidence about maintenance of the façade:

10. [117]

    I am not able to conclude from this evidence that Mr Neumann did not perform the work with due care and skill.

11. [118]

    Further, there is no evidence that any shortcoming in Mr Neumann’s work has made any difference to the manner in which water is penetrating the building. There could be a number of reasons, including lack of maintenance, why the sealant has separated from the adjacent panels in the few places the subject of Dr Bayliss’s evidence.

Did Cyre Group instruct Mr Neumann to do work contrary to Mr Neumann’s written advice?

1. [119]

   In any event, for the reasons I have set out above, Mr Neumann has a defence under s 18F of the Home Building Act as Cyre Group instructed Mr Neumann to carry out the work in a manner contrary to the advice Mr Neumann gave in the postscript to his 24 November 2010 email.

Assuming Mr Neumann performed the work without due care and skill, what damage has the Owners Corporation thereby suffered?

1. [120]

   There is a further problem, and that is that there is no evidence of what damage, if any, the Owners Corporation has suffered as a result of any want of due care and diligence in Mr Neumann’s application of the sealant to the expressed joints.

2. [121]

   In final submissions, I asked Mr Bland to direct me to any such evidence.

3. [122]

   Mr Bland’s response was:

4. [123]

   I gave Mr Bland an opportunity, following close of oral submissions, to direct my attention to any evidence which would enable me to come to any conclusion about this matter.

5. [124]

   He was not able to do so. Mr Bland’s note, sent the day following final submissions, did no more than refer to extracts from the Owners Corporation’s records of payments made to various contractors for work done in relation to water ingress. Those records cast no light on the relevant question.

Conclusion

1. [125]

   It is for those reasons the proceedings should be dismissed with costs.