The Claim
The homeowner applicants, Mr and Mrs Langov, sought a monetary order against the builder respondent, Mr Denkov in the sum of $169,864 for defective and incomplete work.
Facts
The parties entered into a written building contract naming Linda Langov as the “owner” and Kole Denkov as “the builder” to build a new home in Bardia, NSW for a contract price of $1.5 million.
The contract was a standard form Housing Industry Association Contract issued in June 2014. The contract required that the contractor must provide the owner with a certificate of home warranty insurance for work over $20,000 before commencement of the work.
Ms Langov obtained an owner builder permit and home owners warranty insurance naming her as the insured in respect of the building works. However, the builder failed to also obtain home owners warranty insurance in his name and, in omitting to do so, breached s. 92 of the Home Building Act 1989 (NSW).
In his submissions, the builder claimed that he entered into the contract in his capacity as a “project manager” rather than a “builder”. The builder further contended that his role was distinctly that of “project manager” because in Schedule 2 of the Contract, the builder struck out the word “builder” and replaced it with the word “project manager”.
To the contrary, the Langov’s submissions contented that the builder was in fact a builder because, of amongst other factors, he signed the Contract on a Cost Plus basis on 9 February 2015 in his capacity as a “builder” and during construction works, the builder was undertaking, supervising and coordinating activities on site and was otherwise performing the usual tasks of a builder. The contract was found not to be one for project management work.
The Tribunal found that there was overwhelming evidence that the builder coordinated and supervised all tradespeople, their work and was with few exceptions, responsible for their payment. At [37], the Tribunal concluded that it was satisfied that the execution of a contract for the provision of building work by the builder is probative in itself to establish that he was the builder and the statutory warranties for defective work apply.
Work Order as the preferred outcome
The Langov’s submitted that the Tribunal should not consider a work order because the builder, Mr Denkov, was unlicensed and had provided no evidence of renewal of his carpenter’s licence. They further submitted that they had lost all confidence in the builder and his company and that he was incapable of rectifying the defective work and should not be permitted to return to the site. The builder was previously given ample opportunity to rectify the defective slab but was unable or unwilling to rectify the defects.
The Langov’s sought damages for defective work and relied on the statutory warranties contained in s. 18B of the Home Building Act.
To the contrary, the builder contended that the Langov’s had not properly terminated the contract and as a result, the contract remained on foot. The Tribunal referred to Brewarrina Shire Council v Beckhaus NSWCA [2005] at [53] and stated that the issue that may arise is that if the contract remained on foot, strictly speaking, the builder would remain in control of the site and would have a contractual obligation and right to complete the contract and the homeowner would be barred from making a claim.
On the facts, neither the Langov’s nor the builder terminated the contract in writing in accordance with the terms of the contract and the termination provisions. However, the Langov’s, in or about February 2016, refused the builder entry onto the site and demanded that the builder remove his material and tools from the site. The builder agreed to remove his belongings from the site over the course of that weekend.
The Tribunal stated, at [64], that it was not satisfied on the evidence that the contract remained on foot. The builder left the site more than 18 months prior and no steps were taken by the builder either to perform the contract. The builder, who was at all times legally represented, did not state that the Langov’s terminated the contract and the builder did not take steps to accept that the Langov’s had, by requesting that the builder remove his belongings, terminate the contract.
The Tribunal further, at [66] held that it was satisfied that the Langov’s, by demanding possession of the site, and the builder, by leaving the site, the parties mutually intended not to be bound by the contract and the contract was abandoned by both parties on or around 26 February 2016, being the date that the builder removed all of his belongings from the site.
Defective Work
The Langov’s relied upon an expert report which conclude that “the building works within it is inappropriate for its intended use, or does not comply with the Australian Standards/BCA and therefore warrant a refund as requested at $163,706.”. The Scott Schedule to the expert report set out six defective items, being brick work, steel beams, defective concreting, basement waterproofing, correcting roof sheets and defective window installation.
The Langov’s contends that the Tribunal should award damages as set out in the expert report. The report remained untraversed and unopposed.
The builder relied upon a quantity survey report to assess “the Bardia site labour costs”. It was assessed that the labour costs “total for indicative construction labour costs estimate” to be $2,594,981 and estimates that total building costs, including materials and labour costs to exceed $4 million.
The builder sought an order that he not have to pay $206,000 for defective and incomplete work. In addition, the builder sought an order that the homeowners pay $48,225.38 to him for outstanding project management costs pursuant to the contract.
The Tribunal stated that the QS was asked to prepare a “construction budget cost estimate indication for proposed new residence” and in doing so, he assessed the project value of the competed work, not the value of the work undertaken by the builder.
The Tribunal, at [53], held that by reason of the fact that the contract was abandoned, the builder is not liable for incomplete components, but otherwise accepted the Langov’s expert evidence.
The Tribunal, at [55] referred to the principle in Bellgrove v Eldridge [1954] that the damages to be awarded by the Tribunal must be necessary to produce conformity with the contract and also a reasonable course to adopt.
Orders made by the Tribunal
Given that the builder breached the contract and the statutory warranties, the Tribunal held that the Langov’s were entitled to the cost of making the work or building conform to the contract. Pursuant to the principle in Bellgrove v Elldridge, the excavation of the basement in order to achieve conformity with the contract, which the Langov’s expert stated required the most extensive rectification work, was not an exercise of futility and betterment.
The Tribunal did not make a work order because the builder, Mr Denkov, was unlicensed and the Home Building Act does not allow unlicensed workers from re-entering a building premises to complete works in the event that they are not licenced and insured.
Another factor which caused the Tribunal to not make a work order is that another builder was currently on site performing rectification work and has significantly progressed the work since the builder left the site in February 2016.
Overall, the Tribunal ordered that the builder pay the homeowners the amount of $161,066.