VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
CIVIL DIVISION
BUILDING AND PROPERTY LIST	
vcat reference No. BP370/2019	
CATCHWORDS	
The Australian Consumer Law and Fair Trading Act 2012: the applicant, a builder which undertook rectification work for insurance companies, entered into two contracts with the respondent  subcontractor; applicant alleged defects in respondent’s work on each project; respondent declined opportunity to rectify; applicant’s claim for damages for breach of contract assessed; claim under each contract dismissed; counterclaim allowed.	

APPLICANT	Pattersons Insurerbuild Pty Ltd (ACN: 076 016 996)	
RESPONDENT	AWS Services Vic Pty Ltd (ACN: 163 375 031)	
WHERE HELD	Melbourne	
BEFORE	Member C Edquist	
HEARING TYPE	Hearing by videoconference	
DATES OF HEARING
DATE OF APPLICANT’S SUBMISSIONS
DATE OF RESPONDENT’S SUBMISSIONS	15, 16 and 17 July 2020
23 July 2020
31 July 2020	
DATE OF ORDER	16 September 2020	
CITATION	Pattersons Insurerbuild Pty Ltd v AWS Services Vic Pty Ltd (Building and Property) [2020] VCAT 799	
Order
1 	The applicant Pattersons Insurerbuild Pty Ltd’s claim against the respondent AWS Services Vic Pty Ltd is dismissed.
2 	On the respondent AWS Services Vic Pty Ltd’s counterclaim, the applicant Pattersons Insurerbuild Pty Ltd must pay to the respondent the sum of $9,900.
3 	The respondent has leave to make an application for interest within 30 days. Submissions as to interest must include calculations and state the legal basis upon which the claim is based. 
4  	The respondent has leave to make an application for costs within 30 days. 
5 	The respondent has leave to make an application for reimbursement of fees within 30 days. 

6 	The Principal Registrar is directed to refer any application for interest, costs or reimbursement of fees to Member Edquist who will give directions as to how the application is to be dealt with.

C Edquist
Member			

APPEARANCES:		
For Applicant	Mr J Waters of Counsel	
For Respondents	Mr C Abreu, director, in person

Reasons
Background
1.	The applicant Pattersons Insurerbuild Pty Ltd (Pattersons) is in the business of remediating buildings for insurance companies. This case concerns two contracts which it entered into with a waterproofing subcontractor with which it often used to do business, AWS Services Vic Pty Ltd (ACN 163 375 031) (AWS).
2.	The first contract related to a house in Kooluna Court, Frankston North, Victoria (the Frankston contract). The contract was made in January 2014. The first part of this proceeding relates to alleged defects in the work performed by AWS at the Kooluna Court property.
3.	The second contract was larger. It related to rectification works required in a block of apartment in Charnwood Road St Kilda Victoria (the St Kilda contract). The contract was formed in March 2014. The second part of the case relates to defects allegedly existing in the work performed by AWS in the ensuite bathroom in unit 7 at the Charnwood Road property.
JURISDICTION
4.	Although in each case the work performed related to a residence, the enabling enactment which gives the Tribunal its jurisdiction is not the Domestic Building Contracts Act 1995 (the DBC Act ) for the reason that the definition of domestic building contract contained in that Act in s 5  excludes a contract made between the builder and a subcontractor. Pattersons submits that it is to be viewed as a builder and AWS as its subcontractor. I accept this submission, and therefore the carveout in s 5 applies. 
5.	Although each contract is not technically a domestic building contract, each was certainly a contract made between a purchaser of goods and services and the supplier of those goods and services. Accordingly, the dispute arising under each contract is to be viewed as a consumer and trade dispute within the meaning of s 182(1) of the Australian Consumer Law and Fair Trading Act 2012 (ACLTF Act). The Tribunal accordingly has jurisdiction to hear each dispute under s 184(1) of the ACLFT Act.
Formation of the Frankston contract
6.	Pattersons engaged AWS to carry out works in relation to the property in Frankston North after the owners (the Frankston owners) had made a claim on their insurer. Following an inspection on behalf of the insurer, a five page scope of works was prepared including rectification of water damage in the garage, the ground floor study and stairwell following a leak from the balcony above. Rectification of the balcony was also specified. It is relevant to note, for the reasons that will become apparent below, that the description of work relating to the balcony did not include repair or replacement of the grate drain.
7.	Mr Abreu, the director of AWS, gave evidence that he was invited to inspect the premises. He discussed the scope of work with Alex Albanese of Pattersons, who subsequently confirmed the scope of works in an email addressed to the estimator at AWS. The work was set out under three headings, namely first floor balcony repairs, garage repairs, and work on the basement and retaining wall. After this, AWS provided a quotation of $33,000 inclusive of GST to carry out the specified works. The contract was formed when Pattersons accepted this quotation by issuing a purchase order for $33,000 on 22 January 2014. The documentation suggests the work got underway in the middle of May 2014.
8.	Pattersons contend that although the purchase order they issued did not itself set out any general conditions of contract, general conditions which were contained in their standard service level agreement (Service Level Agreement) was incorporated by reference. Mr Abreu accepts that this was the case, and I find that the general conditions contained in the Service Level Agreement formed part of the contract.
9.	In its written submissions, AWS asserted that Pattersons had not complied with the Building and Construction Industry Security of Payment Act 2002. For this reason it contended that the Service Level Agreement “should not come into play”. I do not accept this submission. AWS had rights under the Act which it should have exercised in a timely manner. The fact that Pattersons may have breached the Act is not a reason to disregard the general conditions of contract embodied in the Service Level Agreement.
Relevant clauses in the Service Level Agreement
10	As Pattersons rely heavily on certain conditions in the Service Level Agreement, it is appropriate to set the relevant warranties out.
Subcontractor Warranties 
4.1 The Subcontractor warrants that: 
(a) it will perform and complete the Works in accordance with: 
(i) this Agreement (including the Purchase Orders) and in accordance with the Service Level Requirements and any plans and specifications in relation to the Works; 
(ii) the Statutory Requirements, Good Industry Practices and in compliance with relevant standards, tolerances and codes, including Australian Standards; and 
(iii) any directions of Pattersons from time to time; 
(b) it will perform and complete the Works with a high degree of professional skill, care and diligence expected of a prudent, competent and experienced contractor performing work of a nature similar to the Works; 
(d) the Works, when completed will be suitable for its intended use and occupation as described or ascertainable from a Purchase Order and Scope of Works and fit any description given by Pattersons; 
(f) the Works will be free from Defects; 
(g) the materials, goods and fittings supplied will be of a good and merchantable quality, new and free from any charge or encumbrance in favour of any third party and complying with the terms of this Agreement; 
18. Payment 
18.2 The Contractor may submit payment claims (or in a schedule of progress payment are agreed with Pattersons) by providing a tax invoice (complying with the GST Act), containing the following information: 
(a) Purchase Order number; 
(b) Address of job; 
(c) Subcontractor information including ABN number; 
(d) details of the amount of any GST paid or payable by the Subcontractor; 
(e) a description of the Works completed for the relevant claim period; and 
(f) calculation of the amount claimed, by reference to the rates in Appendix B, with materials and labour breakdown. 
18.5 Any payment other than a final payment is on account only. 
18.8 Pattersons may deduct, withhold or set off from moneys due to the Subcontractor any money due from the Subcontractor to Pattersons. 
20. Indemnities and Limitation of Liability 
20.1 The Subcontractor shall indemnify and continue to indemnify Pattersons against any Loss or claim suffered or against Pattersons in connection with any act or omission by it, or its employees, contractors or agents: 
(a) in breach of this Agreement or relevant legislation (including any privacy legislation); 
(b) in tort (including negligence), in equity or otherwise at law; and 
(c) in respect of personal injury, death or Loss to any property of Pattersons or third party, 
arising out of or in relation to the Subcontractor carrying out the Works, except to the extent caused by Pattersons. 
23. Defects [Discussed below]
The claim made in relation to the Frankston contract
11     Pattersons contend that AWS completed its work in about July 2014. Furthermore, it said that because of complaints about further leaking from the Frankston owners, AWS attended the site on 7 August 2014, 10 December 2014 and 25 January 2015. It was suggested that in mid March 2015 AWS confirmed its works at Kooluna Court were complete. Notwithstanding, Pattersons refused to pay AWS’s final accounting full. It withheld $9,900. None of these matters is in issue. What is in issue is the legal effect of these facts. 
Liability under the defects liability mechanism 
12    As Pattersons invoked the defects liability mechanism set out in clause 23 of the Service Level Agreement, it is necessary to review that mechanism. The clause reads:
23. Defects 
23.1 The Subcontractor must, at its own cost, rectify any Defect by reperforming the Works (or part thereof) or correcting the Defect promptly and prior to the expiration of the defects liability period, which commences on the Date of Completion and lasts for a period of one (1) year. 
23.2 The Subcontractor must carry out any rectification work at the times and in a manner causing as little inconvenience to the Client. 
23.3 Pattersons may issue a Defective Works Order to the Subcontractor to rectify the Defect. Upon receiving a Defective Works Order from Pattersons, the Subcontractor must immediately (but not later than three (3) Business Days from receipt of the Defective Works Order), at its own cost, reperform, rectify or replace to Pattersons’ satisfaction, any Defect in the Works and shall comply with all directions of Pattersons relating to this. 
23.4 If the Subcontractor fails to comply with its obligations under clause 23.3, Pattersons may arrange for another subcontractor to rectify the Defect listed in a Defective Works Order. Any resulting cost incurred by Pattersons in having the works listed in a Defective Works Order rectified will be a debt due and payable by the Subcontractor to Pattersons. 
23.5 If the Client or Pattersons reasonably refuses to have the Subcontractor carry out the rectification work or is of the reasonable opinion that the Subcontractor is not suitably qualified to rectify the Defect (including because it has breached a term of this Agreement), Pattersons may arrange for another subcontractor to rectify the Defect. Any resulting cost incurred by Pattersons in having the Defect rectified will be a debt due and payable by the Subcontractor to Pattersons. 
23.6 Any Works rectified under this clause 23 is subject to a further full defect liability period of 12 months, which commences on the date of completion of any such rectification. 
23.7 The expiration of the defects liability period does not in any way, operate as a release or discharge of any of the Subcontractors’ present or prospective liability with regard to the Works under this Agreement or under any law. 
13 	Under clause 23.1 a defects liability period (DLP) of one year is established, commencing on the Date of Completion. During the DLP, AWS is obligated at its own cost to rectify any defect by re-performing the relevant part of the works. Clause 23.3 empowers Pattersons to issue a defective works order to AWS in respect of any defect. This step is critical as it triggers AWS’s obligation to reperform, rectify or replace any defect within a maximum of 
three days. Clause 23.4 empowers Pattersons to engage another contractor to rectify a defect if AWS fails to comply with an obligation under clause 23.3. Any cost resulting will be a debt due and payable by AWS to Pattersons. Clause 23.6 provides that in respect of any works rectified under clause 23, a further DLP of 12 months will apply, commencing on the date of completion of the rectification. Finally, clause 23.7 confirms that the expiration of the defects liability period does not operate as a release or discharge of any liability on the part of AWS with respect to the works. 
14 	As AWS had been called back to site repeatedly under the DLP mechanism, and because it completed defect rectification in mid March 2015, it follows under subclause 23.6 that the recommenced DLP came to an end in mid March 2016.
Australian Leak Detection inspections
15     After AWS left the site for the last time in March 2015 problems of leaking into the residence from the balcony continued. This is to be inferred from the fact that in May 2015 Pattersons procured a report from Australian Leak Detection concerning the Kooluna Court residence. Mr Jye Myers of that firm inspected the Kooluna Court property on 8 May 2015. We shall return to this report below. 
16 	There was no evidence that AWS was called by Pattersons to inspect either before or after Australian Leak Detection inspected the site on 8 May 2015.
17    Evidently the leaking problem was not resolved because Australian Leak Detection was asked to inspect the house at Kooluna Court again on 8 October 2015. On this occasion, the premises were inspected by a new inspector, Mr Jason Van Tilberg. No reliance was placed on this report at the hearing by Pattersons, and the report was not quoted in Pattersons’s written submissions. 
18    There is no evidence that AWS was called to the site before or after Australia Leak Detection carried out its second inspection in October 2015. 
David Gough’s inspection  
19    The next development evident from the documents is that David Gough of Just Inspections, a building inspection service, inspected the balcony at the Kooluna Court residence on 11 March 2016. A 9 page report was produced, signed by the managing director of Just Inspections, Terry O’Donoghue, not Mr Gough.
20     On receipt of the Just Inspections report in March 2016, Pattersons sent it to AWS, asserting “We have identified defective work at the above property due to poor workmanship by you”. It was also asserted that AWS had previously been advised of defects with the balcony and had attended to rectify them, but it failed to do so and that another contractor would now be engaged to undertake the works.
21     AWS did nothing further, other than to point out that “10k” had been held back from its account, and that Pattersons could do what they liked, and take the cost out of that sum.
22     By letter of demand 28 August 2017, Pattersons advised they had incurred rectification costs of $37,540.04 inclusive of GST. Payment was demanded by 11 September 2007. There is no evidence that AWS responded. The demand for payment was repeated at the end of 2018. On this occasion, AWS did deny liability. The upshot was that Pattersons initiated this proceeding in February 2019.
Pattersons’s fallback position regarding damages 
23.	Although Pattersons contend in their written submissions that they are entitled to damages for a number of defects which have given rise to leaks, they also emphasise that it is not necessary for it to be established that any particular defect gives rise to a leak before damages can be awarded. The proposition advanced is that once a defect has been established in the membrane, damages must be awarded. Those damages will include the replacement of the membrane, the balcony tiles, the substrate and grout. If the source of the leak is found to be the grate drain and not the membrane, the consequential losses arising because of the need to carry out paint and plaster repair to the residence below will, however, not be claimable.
24.	Pattersons contends in its written submissions, at [70]: 
The measure of damages for defective workmanship by a builder, or subcontractor such as AWS, is governed by Tabcorp Holdings Ltd v Bowen Investments Pty Ltd in which the High Court confirmed that the ruling principle with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harman as follows: 
           The rule of the common law is, that where a party sustains lost by reason of a   breach of contract, he is, so far as we can do it to be placed in the same situation, with respect to damages, as if the contract had been performed.
25.	In my view, the limited quotation extracted from the High Court’s decision by Pattersons does not do justice to the complexity of the judgment. In Tabcorp, the High Court had referred to its earlier decision in Bellgrove v Eldridge , a domestic building case, in which the Court had recognised an exception to the general rule expressed in Harman. 	
26.	In Bellgrove, Dixon CJ, Webb and Taylor JJ in a joint judgment observed that the ordinary measure of damage is the cost of the building work which is required to achieve conformity with the building contract (at pp 617 - 618). If the remedial work requires the demolition and reconstruction of the original work then, subject to one qualification, that is the appropriate measure of damage.
27.	The qualification to which the High Court referred was “not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt.” 
28.	In Tabcorp, the High Court at [17] discussed Bellgrove and observed that the case “tends to indicate that the test of ‘unreasonableness’ is only to be satisfied by fairly exceptional circumstances.” It was noted that the “reasonableness” exception was not found to exist in Bellgrove. The Court said that the usual rule will only apply where the innocent party is, as Oliver J said in Radford v De Froberville, "merely using a technical breach to secure an uncovenanted profit." 
Discussion as to liability under the Frankston contract
29.	Pattersons's case against AWS relied heavily on the observations made by Mr Gough at the time of his inspection in 2016. The March 2016 report was not relied on at the hearing, because it was not in the form of expert report required by VCAT Practice Note 2 (PNVCAT2). In an attempt to overcome this shortcoming, Mr Gough’s current employer Buildcheck was commissioned to convert the initial report into a report compliant with PNVCAT2. This report (the Buildcheck report) was signed by Mr Gough on 27 November 2019.
Mr Gough’s findings and recommendations
30.	Mr Gough was called at the hearing and adopted the Buildcheck report as his evidence. His findings, extracted from the executive summary, are as follows:
The most likely cause of the water leakage as observed is the failure of the membrane at the drainage channel interface.
Concerns surround the following: 
•	The manner in which the membrane has been terminated. 
•	The thickness of the membrane. 
•	The adhesion of the membrane to the surface beneath.
•	The inability of the membrane layer to drain. 
•	Lack of movement joints. 
•	Efflorescence staining
31.	Mr Gough’s recommendations were to:
[R]eplace the floor and upgrade the drainage channel as follows: 
•	Remove existing tiles and mechanically clean the screed back to its base material. 
•	Install new membrane system in accordance with AS4654.2
•	Install new tiles in accordance with AS3958.
32.	The recommendation that the tiles had to be removed and the membrane replaced throughout the balcony was clearly premised on Mr Gough’s view that “the membrane cannot be fixed in isolation to the area of potential leakage”. 
Mr Gough’s evidence
33.	I turn now to Mr Gough’s evidence, which is principally contained in the Buildcheck report. I have great difficulty in accepting that I should place much weight on Mr Gough’s evidence, for the following reasons. 
Expert evidence
34.	The first issue relates to Pattersons’s contention that much weight should be placed on the Buildcheck report as it is an expert’s report prepared in accordance with PNVCAT2. I reject this contention.
35 	It is not necessary to examine every paragraph of the Practice Note, but paragraph 1 must be highlighted. It reads: 
         Expert witness evidence may be relied upon by the Tribunal to form an opinion about a specialised or technical matter that is relevant to the issues to be determined in a proceeding. Where expert evidence is provided in the form of a written report and/or the expert being called as a witness, it is important that the expert’s opinion is soundly based, complete, impartial, dispassionate, and within the scope of his or her expertise. 
36.	When a party to litigation in the Tribunal engages an expert to carry out an investigation into an alleged building defect, that party must pay attention at the time of the engagement to the need to provide transparent instructions and all relevant information. The report must be procured for the purpose of being used as expert evidence in the Tribunal, so that from the outset the expert can be seen to be acting impartially and dispassionately and can meet the requirement under paragraph 8 of the Practice Note that they have “ a paramount duty to the Tribunal and not to the party retaining the expert.” It may not be possible to establish these requirements in retrospect.
Impartiality
37.	The first concern I have with Mr Gough’s report is that it is not impartial. A critical feature of the report is that Mr Gough confirmed that in preparing the Buildcheck report he had conducted no further investigation since the initial inspection in March 2016, and he had relied entirely upon the initial report.
This is a critical concession because it undermines the standing of the Buildcheck report as an independent expert’s report, because the report can be no more independent than the Just Inspections report prepared in March 2016 upon which it was closely based. 
38.	With these points in mind I turn to the instructions and documents provided to Mr Gough. It is clear from the first page of the Just Inspections report of 11 March 2016 that it was in prepared on instruction from Pattersons. There is no record of any written instructions being provided, and so it can be inferred that the briefing was oral, possibly at the meeting on site with Pattersons’s personnel which is referred to in the report. 
39.	The stated objective of the report was to determine the cause of a water leak to the study ceiling below the balcony, to review the balcony and to review the calcification of the balcony tiles. The documents referred to in the preparation of the Buildcheck report of November 2019 include the Just Inspections report of March 2016, the Victorian Building Authorities Guide to Standards and Tolerances 2015, AS 4654.2-2012 and AS 3958.1. Critically, there is no reference to either of the Australian Leak Detection reports which were prepared respectively in May 2015 and October 2015. Pattersons held these reports. If Pattersons required an objective and impartial report from an expert as to the cause of the leak, they ought to have provided this information to Just Inspections.
40.	The Just Inspection report was sent to AWS on 24 March 2016 under cover of a letter which described it as an “independent report in relation to your balcony works, which concludes that you are liable for defective works.” The letter went on to advise that as AWS had previously failed to rectify defects, and as the owner did not wish AWS to be involved in further works, Pattersons had no option but to engage another contractor to carry out rectification works. As such, the report can be viewed as having been obtained by Pattersons for a partisan purpose, namely for delivery to a subcontractor with a view to convincing that subcontractor to return to site after the expiration of the DLP. It can be concluded fairly from these circumstances that the author did not necessarily approach the task of investigating the cause of the leak from the balcony objectively, with the aim of informing the Tribunal of the cause. The Just Inspections report was clearly not an independent expert’s report. Because the Buildcheck report was closely based on the Just Inspections report, I find that the Buildcheck report is also not a report from an impartial expert.
Awareness of PNVCAT2
41.	Furthermore, paragraph 7 of PNVCAT2 provides:
Parties to a proceeding must ensure that any expert retained by them to provide a report for use in the proceeding is made aware of the contents of this practice note at the time of such retainer.
42.	Clearly Mr Gough, when he was employed by Just Inspections in March 2016, was not provided with a copy of the Practice Note before his inspection. Accordingly, I find that the Buildcheck report does not meet this technical requirement of PNVCAT2. In the particular circumstances of this case, this technical breach cannot be overlooked, as perhaps it might be in the case of an experienced expert witness who through previous experience is well aware of the contents of PNVCAT2, and who demonstrates that awareness by the manner in which they undertake their task. The breach cannot be overlooked in this case because the manner in which the predecessor to the Buildcheck report was initially procured and subsequently used was inimical to the purposes of PNVCAT2.
Changes in the Buildcheck report
43.	I acknowledge that in the Buildcheck report Mr Gough augmented the Just Inspections report by adding  an introduction, a preamble, a recitation of the instructions he had received, a statement about the limitations of the report, a list of documents relied on or referred to, a “VCAT Statement”, and an executive summary statement. I find that by merely augmenting the earlier report which did not comply with PNVCAT2, by making these essentially cosmetic changes to it, did not convert the noncompliant report into a compliant report.
Expertise
44.	It is necessary to raise two other issues with the Buildcheck report. 
The first relates to Mr Gough’s expertise. Under the heading “VCAT Statement” Mr Gough sets out his qualifications and experience. He holds a bachelors degree in technology (building surveying). For the past four years he has worked with Buildcheck/Just Inspections undertaking defects reports. It is to be inferred from the statement that he began working as a forensic building consultant in 2015. It follows that he was not particularly experienced when he prepared the Just Inspections report in March 2016.
45.	Prior to working with Buildcheck/Just Inspections Mr Gough says he worked as a senior assistant to a private building surveyor and inspector for 13 years. This involved “mandatory and non-mandatory building inspections and all forms of regulatory compliance for residential and commercial properties.” He states that “Over the past 17 years I have developed the knowledge and expertise to deal with building defects and the preparation of specifications for the rectification thereof.”
46.	The issue I have with this declaration of expertise is that it is clear that Mr Gough has no practical experience as a tiler/waterproofer. Moreover, he does not give any indication of the experience he has gained in his career in relation to tiling and waterproofing issues. There is accordingly a question as to whether he has the relevant expertise to be qualified as an expert witness in this case. 
Relevant enquiries
47.	Secondly, I turn to the question of whether Mr Gough carried out all relevant enquiries. In the “VCAT Statement” Mr Gough declares: 
I have made all the enquiries regarding [number deleted] Kooluna Court, Frankston North that I believe are desirable and appropriate, and that no matters of significance which I regard as relevant have to my knowledge been withheld from the Tribunal.
48.	Notwithstanding this declaration, Mr Gough was forced to concede at the hearing that he had not conducted a water test to determine the cause of the leaking into the residence below the balcony, and relied on a visual inspection only. 
49.	In my view, this was inappropriate, as in in my experience an expert witness who is investigating a leak invariably performs a water test. The need for a water test in the present case was not just theoretically desirable, but may well have been critical. I say this because when Mr Jason Van Tilburg of Australian Leak Detection inspected the Frankston property in October 2015 he performed a spray test at three points. Where the balcony tiles met the skirting tiles, the result was “passed”. Similarly, where the balcony tiles met the surrounding wall, they “passed”. The only failed test was where the strip drain (the grate drain) was sprayed. I consider that Mr Gough did not make all “desirable and appropriate” enquiries at his inspection in March 2016. 
Conclusion regarding the Buildcheck report
50.	For all these reasons, I reject Pattersons’s contention that the Buildcheck report should be accorded the status of an expert’s report. It is not an expert’s report technically because of non-compliance with paragraph 7 of PNVCAT 2, and the report upon which it was closely based was not obtained for an impartial purpose. Moreover, because Mr Gough did not carry out a water test to determine the cause of the leak in circumstances where there were at least two viable theories as to the source of the leak, I do not think he has discharged his duty as an expert in any event, even if he was otherwise qualified and experienced enough to do so, which I doubt for the reasons previously stated.
Ramifications of the finding that the Buildcheck report is not an expert report 
51.	Pattersons placed reliance on the evidence of Mr Gough, asserting that because he has produced an expert report compliant with PNVCAT2 great weight must be given to his evidence.
52.	Because I have found that the Buildcheck report of Mr Gough is not an expert’s report and because he had not carried out a critical water test, I am not prepared to place any weight his evidence. This is fatal to Patterson’s case, because they presented no other evidence. As noted, they did not call any witness of fact who had been to site and who could give direct evidence of the work carried out by AWS.
The grate drain
53.	However, lest it be thought that the Tribunal is determining this aspect of the case on a technicality, and not in accordance with its substantial merits as required by s 97 of the VCAT Act, I note that even if I was prepared to give weight to Mr Gough’s evidence, Pattersons would still be confronted by the fact that there was direct evidence that at least one cause of the leaking into the residence below the balcony was the defective grate drain.
54.	Mr Abreu gave evidence that the defective nature of the grate drain had been identified at the outset. However, Pattersons was not prepared to pay for its replacement at the time that AWS was engaged, and this was not part of AWS’s scope of works. However, in April 2016, after Pattersons had put AWS on notice that it was going to engage another contractor to rectify AWS’s (allegedly) defective works. Pattersons issued a purchase order which varied the original scope of works prepared in October 2013. The variation was to replace the stainless steel box gutter (the grate drain) because “it does not comply with regulations in that there is no provision for overflow of water. To solve this problem the entire box gutter will have to be removed and replaced.”
55.	The replacement of the grate drain was not carried out by the contractor which replaced the balcony tiling. The tiling contractor was Roscon Property Service. The grate drain was replaced by Toscano Plumbing .
56.	A purchase order dated April 2016 addressed to Toscano Plumbing authorising the work on the drain was tendered. A corresponding invoice from the plumber for $5,977.40 was issued about two weeks later, and Pattersons then paid for the work fact that this work. I consider that it is inconceivable that Pattersons would pay such a substantial sum for work which it did not consider was necessary. I accordingly have no difficulty in finding, on the balance of probabilities, that the grate drain was a cause of leaking into the residence below the balcony.
57.	For the reasons explained, Pattersons’s has adduced no acceptable evidence to establish that a defect in the membrane placed by AWS was also a cause of the leak. Accordingly, there is no basis to make a finding of liability against AWS. 
58.	Far from being “the most likely cause of the water leakage”, as postulated by Mr Gough, the membrane may not have been a cause of the leakage at all, and was at most a contributing factor.
PatTersons’s arguments based on Mr Gough’s evidence
59.	By way of completeness, I address these arguments. In its written submissions, Pattersons concede that the complaint about thickness of the membrane could not be pressed, as Mr Gough had not referred to the manufacturer’s instructions. However, they rely on four defects Mr Gough opined existed in AWS’s works at the Frankston property:
(a)	the membrane failed to extend into the drainage channel, contrary to 4654.2 and was not installed in accordance with the BCA, Australian Standards all best practices; 
(b)	the substrate above the membrane had been siliconed above the membrane, which prevented it from draining into the drainage channel; 
(c)	no movement joints were installed; and 
(d)	there was efflorescence due to the choice of grout.
60	Lest Patterson consider I have been overly harsh with Mr Gough’s evidence, I examine these defects in turn. The last three allegations can be disposed of quickly, and it is convenient to deal with them first.
The substrate above the membrane had been siliconed
61.	The Buildcheck report, under the heading “Water Retention,” refers to a silicone seal on the membrane along the length of the drainage channel (the grate drain) which prevents the membrane draining into the channel. Pattersons, in their written submissions, contend that this is a defect that constitutes a breach of the warranties given by AWS, and that AWS conceded the defect.
62.	I do not accept that AWS conceded this claim. On the contrary, Mr Abreu at the hearing, made the point that Mr Gough had assumed that the silicone had been placed by AWS. Pattersons was not in a position to respond, as it had not called any witness of fact such as a site supervisor or project manager who had first hand knowledge of what AWS work had actually done. In its written submissions, AWS confirmed it had not placed the silicone and raised the question of whether Pattersons had. 
63.	Furthermore, AWS pointed out that the silicone would not have caused a failure of the membrane: it would merely have trapped water between the tiles and the membrane, but not caused a leak downstairs.
64.	In these circumstances, I find that Pattersons have failed to establish that AWS placed the silicone in question or that the silicone caused the failure of the membrane. 
Movement joints 
65.	Mr Gough highlighted that AS3951.8 requires intermediate movement joints to be installed at approximately 4.5m centres in order to accommodate deflections of the base of movements in the tiles. As the length of the balcony was approximately 8.5m, a single movement joint in the centre was required. AWS conceded the defect in its submissions, but pointed out that there was an expansion joint around the perimeter of the balcony. Moreover, AWS submitted that the lack of a movement joint would not cause the membrane to fail, which was a point that Mr Gough acknowledged.
66.	As to rectification, Mr Gough recommended removal of the grout and tile adhesive and the installation of a flexible sealant to the joint. Mr Abreu, at the hearing, acknowledged that this was the appropriate method of rectification. Complete removal of the tiling and the underlying membrane and screed was not required.
67.	Mr Gough did not provide an estimate of cost of replacing the inflexible grout as a standalone item, because he was of the view that the entire balcony required renewal.
68.	I refer below to the issue of the defective grate drain. Because the grate drain had to be replaced, removal and replacement of the tiles (and the underlying membrane and screed) was required in any event. 
69.	For both these reasons, no damages are allowed to Pattersons because of the lack of a movement joint.
Efflorescence 
70.	Mr Gough recorded in his report that there “are numerous areas of efflorescence emanating from the grout joints.” He opined that this was due to “the migration of soluble salts from the tiles, adhesive or grouts that evaporates at the surface to leave the distinctly powdery salt deposits”. He highlighted that in the Victorian Building Authority’s Guide to Standards and Tolerances 2015, calcification and efflorescence on decks and balconies is regarded as a defect.
71    Clause 13.08 of the Guide to Standards and Tolerances 2015 provides:
Calcification or efflorescence caused by water coming from a deck or balcony that occurs on walls below or beside the deck or balcony, or that appears in the mortar joints of the deck or balcony tiling, is defective. Activities of others, such as owners watering plants, may also contribute to the efflorescence, which may not be attributed to the work of the builder.
72     Mr Gough referred to this clause, but he did not discuss possible causes of the efflorescence, even though one of his photographs showed there were pot plants on the deck. In these circumstances, it might have been postulated by AWS that the grout it used was suitable, and that it was the use of the tiled deck by the owners which had caused the problem.
73     However, AWS did not adopt this position. It met the allegation head on, asserting that efflorescence “is a natural occurrence on all outdoor structures”. It contended that there was no grout on the market in Australia that does not produce efflorescence.
74     In the circumstances, I find that a defect did exist.
75     As to rectification, Mr Gough’s first observation was that washing and sealing the tiles to remove the salt could be adopted as both a short-term and long-term solution. I agree. On this basis no substantial award of damages is justified.
76.	In my view, the principle that an owner cannot exploit a technical breach of a building contract to secure “an uncovenanted profit” or windfall is relevant to the efflorescence defect. Its existence is not a justification for spending tens of thousands of dollars to remove and replace the existing tiles. This would not be reasonable and necessary, and I find that to award damages on this basis would be to give Pattersons a windfall. 
77     However, Mr Gough opined that when the problem of efflorescence was considered in the context of “the problems with the membrane”, complete renewal of the tile floor was recommended. 
78    In my view, this opinion is unhelpful. The issue of efflorescence must be looked at in isolation. Mr Gough opined that on its own it did not justify removal and replacement of the tiles. If, on the other hand, other defects with the membrane necessitate renewal of the tile floor, then the question of who is to pay for the renewal must be determined in the context of a discussion about responsibility for faults of the membrane.
79     As will be seen, faults in the grate drain were such that the tiles had to be removed and replaced in any event. This fact also means that there is no actionable loss flowing from the existence of efflorescence.
The turn down of the membrane 
80.	Mr Gough stated that he found the membrane terminated at the edge of the tiles and was not turned down into the drainage channel. This statement was placed next to a photograph which presumably was intended to illustrate the point. However, reference to the photograph indicates that Mr Gough’s comment is not clearly justified by the image, because it shows membrane extending down the edge of the tiles to the lip of the gutter.
81.	Mr Gough in his report extracted a diagram from AS4654.2, being the Australian Standard for Waterproofing membranes for external above-ground use. This showed that the membrane should extend into the gutter by a minimum of 35 mm. Pattersons assert in their submissions that Mr Abreu conceded that the turndown was limited to about 15mm. Pattersons accordingly contend that the membrane was defective. Moreover, the existence of the defect represented a breach of the contract, because under clause 4.1(a)(ii) of the Service Level Agreement AWS warranted that it would perform the works in accordance with “relevant standards, tolerances and codes, including Australian Standards.” 
82.	On the basis of the first photograph contained in Mr Gough’s report, a finding that the membrane was defective might be justified on the basis that it did not extend into the gutter by 35 mm. However, other photographs on page 3 suggest that the membrane may have been placed substantially into the gutter. It is regrettable these images are not clear, and that an objective reference object such as a ruler or a coin was not placed in the photographs so that accurate measurements could be established.
83.	It seems likely that in the location illustrated by the first photograph of Mr Gough’s report, the membrane did not extend into the gutter by 35 mm. Mr Abreu appears to accept that this was the case, but breach of the Building Code of Australia and AS4654.2 is denied. The denial of liability is based on the membrane going down to the lip of the gutter, and it was the gutter that was defective. AWS contends that as the “drain channel lip goes directly up the wall behind the sheeting, this would make it virtually impossible for the leak to be in this area.” Furthermore, AWS contends the downturn:
was to the extent of the existing drain, it could not have gone down any further without compromising the membrane. The membrane can only go down to the nearest lip which is what was done.
84.	Regrettably, Mr Gough had not considered the impact of a defect in the grate drain when he prepared his report, because no information about the defective drain was included in the documents he listed he had received or referred to in the preparation of this report. The upshot is that even if I had been prepared to place substantial weight on Mr Gough’s evidence-which I am not for the reasons discussed above-there exists a hiatus in the evidence.
Conclusion regarding the existence of a defect in the membrane
85.	In these circumstances, I am not prepared to find that there was a defect in the membrane because it did not extend into the gutter by 35mm. On this basis, the claim against AWS in relation to the allegedly defective membrane fails.
No loss in any event flowed from the alleged membrane defect
86.	Even if I had been prepared to conclude that there had been a defect in the membrane because it did not extend to a mandated depth into the gutter, I cannot be satisfied on the basis of the evidence presented that the defect has caused Pattersons any loss. This is because there is a fundamental question as to the cause of the leak from the balcony into the residence below. The point is raised in AWS’s submissions where they say:
Pattersons were advised at the outset that the drain was not compliant and refused to remove this as part of the scope of work or relay this back to the insurance company. The owner of the property also mentioned this to Pattersons. This point was ignored and then later brought up by their own expert witness.
87.	Pattersons are clearly sensitive to this issue, because they devote an entire section of their submissions to the topic. They concede that “There is no conclusive evidence as to the cause of the leak at the Frankston Residence”. They note Mr Gough’s evidence was that “The location of the water leaking inside is indicative of the failure of the waterproof membrane at the drainage channel junction”. They go on to assert that Mr Gough’s opinion was that: 
the location of the water damage indicated the water damage was caused by the failure of the membrane where it was meant to-but did not-turndown sufficiently into the drainage channel.
88.	Importantly, however, Pattersons refer to the observation made by Mr Myers of Australian Leak Detection that there were leaks in the grate drain and that he recommended that the joint between the wall of the grate drain be made watertight. After this, a concessions is made which I regard as critical, namely:
[T]here was evidence before the Tribunal that the cause of leak affecting the Frankston Residence could have been the defective membrane or the grate drain. 
89.	Pattersons then set out a number of reasons why “the Tribunal ought to find that on the balance of probabilities, the leak was caused by the failure of the membrane at the drainage channel junction”.
90.	Firstly, they highlighted that Mr Abreu’s evidence ought to be discounted because he had no personal knowledge of the works conducted at the Frankston Residence, save for his recollection that there were 4 or 5 “checkups” at the property. 
91.	Secondly, Pattersons emphasise that although AWS had been given the original report prepared by Mr Gough (published under the Just Inspections letterhead), AWS had not obtained its own expert report at the time, and at the hearing did not present any evidence to establish an alternative cause of the leak.
92.	I put these two submission to one side as they are not relevant. The issue of whether the leak was caused by the failure of the membrane where it met the 
grate drain, or because of a defect in the grate drain itself, does not turn on AWS’s evidence.
93.	Thirdly, even though the report from Australian Leak Detection dated 5 May 2015 prepared by Mr Myers had been secured by Pattersons, and the report had been put into evidence by Pattersons, Pattersons sought to discount the report as follows:
The author of the Australian Leak Detection document, Jye Myers, was not called to give evidence by either party, notwithstanding that Mr Myers contact details were attached to his document. While the Tribunal “may inform itself on any matter as it sees fit” [s 98(1(c) of the VCAT Act] and “is not bound by the rules of evidence”[s 98(1)(b)], it is submitted that the appropriate course with the Australian Leak Detection report of Jye Myers in these circumstances is to give it little weight.
94  	I am unable to discard Mr Myer’s view’s, however, because notwithstanding this attack on Mr Myers report, Pattersons quote from his findings. In order to put Mr Myer’s findings in contexts, I set them out in full.
Upon arrival the initial leak located was found to have been silicone sealed water tight.
Locate leak to stainless steel waste grate where grate meets surrounding wall. Access to area is difficult however when water was run to area to re-create rain water was found to track to study ceiling below. Appears the initial leak was one avenue to allow water to enter leak however water is still able to leak through by tracking along the grate capping. 
Thermal imaging inspection to front lounge proceeding (appendix 1) found water to also be entering the ceiling space above when water was sprayed to the opposite end of balcony waste grate. Appears to be a common issue with the balcony where the balcony waste grate meets the rendered wall at both ends.
95	In a separate section, Mr Myers set out his recommendation regarding repairs, as follows:
Builder attend to join where balcony waste grate meets rendered wall/surrounding area so water tight.
96.	Pattersons contend that Mr Myers’s recommendation does not relate to a failure in the grate drain itself, but to a failure in the connection between the drain “and the building elements that immediately surround it, namely the membrane installed by AWS”. I reject this contention. When Mr Myer’s recommendation is read in the context of his finding is that there were several potential sources of the leak, namely the points at both ends of the grate where it met the surrounding wall, as well as “by tracking along the grate capping”, it seems quite clear that he is recommending repair where the grate meets the walls.
97.	Pattersons go on to contend that in weighing the competing evidence, I ought to give greater weight to the evidence of Mr Gough, who “produced an expert report compliant with PNVCAT2” than the evidence of Mr Myers, and the “undeveloped assertion that the grate drain was the cause of the leak” made by AWS.
Discussion
98.	I have already found above, at [50], that Mr Gough’s report was not that of an expert. I have also indicated, at [52], that I accord his evidence no weight.
99.	Against this, I have difficulty in accepting Pattersons’s argument that the evidence of Mr Myers should be discounted entirely. I say this because Pattersons has demonstrated an inconsistent attitude to the evidence. On the one hand, they highlight that Mr Myers was not called to give evidence. This is significant, because it is well established that as a matter of procedural fairness, the Tribunal should not rely on the evidence of an expert witness who is not called to give evidence and accordingly is not available for cross examination. The evidence of such a witness is untested, and should be accorded little weight. On the other hand, Pattersons quoted from Mr Myers’s report, and sought to persuade the Tribunal to draw inferences from his findings. In these circumstances, I am prepared to place some weight on Mr Myer’s report.
Conclusion
100.	The claim against AWS in connection with the Kooluna Court property is dismissed.
Formation of the ST KILDA contract
101.	The St Kilda contract involved in apartment building comprising 13 units. Prior to November 2013 the building had suffered severe water damage and evidently a claim had been made on an insurer. That insurer engaged Pattersons to undertake rectification works. Pattersons developed, with AWS, a scope of work dated March 2014 which involved remediation to all but two units in the building, as well work to common areas. It is not alleged AWS was responsible in any way for design. AWS quoted $230,000 inclusive of GST to perform the works, and Pattersons directed AWS to proceed. The works were paid for progressively against progress claims for $33,000, $55,000, $50,000, $58,217.50 and $30,782.50 which were issued between 14 March and 18 July 2014.
Attendances during the defects liability period
102.	Following the completion of its works, AWS was directed to attend at the St Kilda property in November 2014 to rectify an issue in unit 2. That was attended to, and no issue remains concerning that unit.
103.	AWS was also directed to attend on 12 February 2015 to rectify caulking in the shower in the ensuite in unit 7. AWS confirmed completion of this work on 13 February 2015.
The owner’s complaint
104.	On 22 November 2016 the owner of unit 7 complained to Pattersons that water was leaking out of the bathroom and had caused damage to the floorboards. There is no evidence that this complaint was passed onto AWS.
The Australian Leak Detection inspection
105.	On 2 June 2017 Australian Leak Detection inspected unit 7 to carry out an investigation in order to locate the source of water damage to the bathroom door jamb, tiles next to the shower recess, a floating floor and skirting in the passage and kitchen, and under the floating floor.
The defective works order of July 2017
106.	On 10 July 2017 Pattersons sent AWS a defective works order asserting the existence of defective works in unit 7. The defective works were described as follows:
Shower screen not removed as per specification and water has leaked out of the shower recess through the shower screen and onto the floating floor and damaged the door frame as well, floor and wall tiles need to be replaced as per AS standards and floorboards redone and door frame replaced.
107.	Although the defective works order allowed AWS two weeks to complete the work, Laurie Pettigrove from Pattersons followed up with an email dated 20 July 2017. Relevantly, the email advised: 
I had a pressure test carried out and it was found that water was escaping through the shower screen, and out to the door and onto the floor. 
The scope of works requested that the shower screen be removed and the walls waterproofed and tiled. 
However the old shower was left in situ, which has compromised the quality of the waterproof membrane. 
This is allowing water to escape. 
We now require the bathroom to be redone, the doorframe and architraves replaced and the floating floor replaced. 
108.	On the same day, Pattersons’ in-house legal counsel sent a “leak detection test” to AWS. At the hearing it was suggested that this was the Australian Leak Detection report relating to the inspection on 2 June 2017.
109.	AWS did not respond.
The claim made in relation to the ST KILDA contract
110.	On 20 November 2017 Pattersons sent a letter of demand to AWS. The letter referred to the defective works order issued in July and asserted that warranties contained in the Service Level Agreement had been breached. Payment of rectification costs paid of $25,843.30 inclusive of GST was demanded.
111.	AWS did not respond and, as noted, Pattersons instituted this proceeding in February 2019.
Discussion as to AWS’s liability
112   The burden of proof rests with Pattersons. In order to sustain its claim for damages it must demonstrate on the balance of probabilities that AWS has breached its contract. 
The scope of works
113	In order to assess the claim, it is necessary to understand the scope of work undertaken by AWS. With respect to the unit 7 ensuite, the work mandated in the scope of works included the following:
Carefully remove the shower screen, vanity basin, toilet suite, mirror, tap ware, fittings and accessories and set aside for re-use (except the vanity carcass and toilet suite).
Remove all of the wall tiles to the shower recess only up to the nearest full tile to the top of the shower screen, all of the floor tiles and the bottom two rows of the remaining wall tiles, mortar bed, adhesive, waterproofing membrane, laitance and any other contaminants from the wall and floor substrates.
Allow to repair/replace any damaged substrate linings to the bathroom then prepare the walls and slab ready to receive a new waterproofing application. 
Apply suitable waterproofing methodology to the walls and slab in strict accordance with the BCA, AS 3740 and the manufacturers installation instructions. Ensure that the materials used are appropriate and compatible for their application. Particular attention must be directed to detailing at corners, turn ups, interfaces of dissimilar materials, dressing down into drainage flanges, shower set down/hob, door openings and the like.
Allow a Prime Cost Sum… for the supply of wall and floor tiles to match as close as possible to existing…
Supply and install neatly a suitable flexible neutral mould resistant sealant to all tiled wall/wall and tiled wall/floor junctions in accordance with the BCA, AS3740 and AS3958.1
Reinstate the mirror, shower screen, tap ware, bathroom fittings and accessories…
Liability under the defects liability mechanism 
114	In issuing a defective works order in July 2017, Pattersons were expressly seeking to invoke its rights under the defects liability mechanism set out in clause 23. This mechanism has been discussed above, at [11]. Central to the operation of the clause is clause 23.3, which empowers Pattersons to issue a defective works order which will trigger in AWS an obligation to reperform, rectify or replace the defect. 
115	Mr Abreu confirmed at the hearing that AWS had completed the rectification of the caulking in the shower screen on 13 February 2015. By operation of clause 23.6, a further DLP of 12 months was triggered in connection with the shower screen caulking with effect from that date. In the absence of any other defective works order, the DLP in relation to the balance of the unit 7 ensuite works would have expired 12 months after completion of the original works, that is to say in July 2015.
116	There is no evidence that Pattersons issued a further order under the defects liability clause after February 2015, and on this basis I find that the second DLP in relation to the shower screen caulking expired on 13 February 2016. 
117	It follows that Pattersons had no power under the clause to issue a further defective works order after 13 February 2016. Accordingly, I find that AWS was not obligated to return to site under the July 2017 defective works notice. Indeed, AWS would have had no obligation to respond to any defective works order issued after February 2016. The upshot is that the responsibility to rectify any defect arising after this date fell to Pattersons, and if AWS failed to respond when called upon to rectify a defect it would have been necessary for Pattersons to engage another contractor.
The rectification process
118	It is clear from the evidence that Pattersons took inadequate steps to mitigate its loss. Rather, it appears to have sat on its hands until after September 2017, when it engaged D&E Homes to begin the rectification work in the bathroom by stripping out the tiling and membrane and the damaged elements. Pattersons then engaged a range of other contractors to undertake aspects of the remediation works. This process appears to have been completed when Manor Tiling completed the retiling of the ensuite in February 2018.
The claim made under the contract
119	At the hearing, the effect of the expiration of Pattersons’s power under the defects liability clause to direct AWS to return to site to correct a defect was discussed. Pattersons submitted that this did not extinguish AWS’s liability for defective work under its contract. I accept this submission. AWS’s liability for breach of contract is an issue separate to AWS’s obligation to return to site to rectify defects under the defects liability mechanism. Whether AWS has contractual liability in all the circumstances is now examined.
120 	Pattersons’s claim that AWS breached of the following clauses of the Service Level agreement:
•	Clause 4.1(a)-warranty that works will be completed in accordance with the scope of works, statutory requirements, good industry practices and relevant standards, tolerances and codes;
•	clause 4.1(b)- warranty that all works will be performed with a high degree of professional skill, care and diligence expected of a prudent, competent and experienced contractor; 
•	clause 4.1(d) -that the works, when completed, will be suitable for their intended use and occupation; 
•	4.1(f) -that the work will be free from defects;
•	clause 20.1-indemnity by AWS of Pattersons against any loss suffered or claim made against Pattersons in connection with any act or omission by AWS;
•	clause 23.3-agreement by AWS to rectify all defects notified by Pattersons; 
•	clause 23.4- agreement by AWS that should it fail to rectify a defect, Pattersons will be entitled at the cost of AWS to engage another contractor to rectify the defect.
The defective works order
121	As noted, the first allegation made by Patterson in the defective works order of July 2017 was that AWS had failed to remove the shower screen as required by the scope of works. This was merely the first theory put forward by Pattersons as to the cause of the defective work.
122  	Mr Abreu demonstrated by referring to the initial scope of works that it was not part of AWS’s contract to replace the shower screen. AWS was merely to remove temporarily the shower screen before replacing the tiles in the shower alcove and then to reinstate the screen. Pattersons’s position then changed.
Did the fact that the defective works order was based on an incorrect fact render it invalid?
123	Pattersons addressed this issue in their written submissions. They contend that the fact that the defective works order began with an incorrect statement did not invalidate the order, because it still put AWS on notice of defects in its work and the damage consequently caused.

124	With a reservation, I am prepared to accept this submission. The reservation arises from the fact that the purpose of a defective works order is to put the contractor on notice of precisely what works are defective so they can be rectified. However, in the present case, the statement that the shower screen had not been removed as required by the specification was only one of the details referred to in the notice. The notice also referred to the substantial consequential damage that had been caused, namely damage to the door frame, the floor boards and the wall tiles. The notice also required the consequential damage to be repaired. To this extent, I consider the defective works order had validity.

125	However, as noted, Pattersons’s case does not turn on the form of the defective works order, as the order had been issued out of time. Accordingly, AWS’s liability turns on whether it had breached its contract.
Mr Smith’s report
126  When it became clear that Pattersons could not rely on the proposition that AWS had breached its contract by failing to remove the shower screen, Pattersons placed heavy reliance on the evidence of Mr Stephen Smith from Australian Leak Detection. Mr Smith had inspected the ensuite on 2 June 2017 and subsequently prepared a report. At the hearing Mr Smith was called. He adopted his report and in addition gave oral evidence.
Mr Smith’s report did not comply with PNVCAT 2
127  As Pattersons seek to place so much weight on Mr Smith’s report, it is necessary to address Pattersons’s concession that the report was not compliant with PNVCAT 2. In its submissions, Pattersons invited the Tribunal to overlook this, and to accept both the report and Mr Smith’s oral evidence. Pattersons did so partly on the basis of Mr Smith’s evident experience, which involved conducting an estimated thousand leak detection inspections per year over the past 23 years. Pattersons also placed reliance on the fact that AWS did not take issue with Mr Smith’s expertise.
128   I am not inclined to overlook the fact that Mr Smith’s report was not prepared in accordance with PNVCAT 2. The report did not comply with the Practice Note in material ways. Apart from the fact that there was no evidence that Mr Smith had been made aware of PNVCAT 2 at the time that he was commissioned, in accordance with paragraph 7, the report did not contain much of the material referred to in paragraph 11, namely:
•	Mr Smith’s qualifications, experience and area of expertise; 
•	reference to any private or business relationship between the himself and Pattersons; 
•	all instructions that defined the scope of the report; 
•	the facts, matters and assumptions upon which the report proceeded.
129 	While I am satisfied, on the basis of the evidence given by Mr Smith at the hearing that he had sufficient expertise and experience to qualify as an expert, I am not satisfied that the report was an impartial report. It was not prepared by Mr Smith on the basis that he was going to give evidence to the Tribunal as an expert witness, and accordingly I cannot be satisfied that Mr Smith understood that under paragraph 8 of the practice note he had “a paramount duty to the Tribunal” and not to the party retaining him. Of particular concern is the fact that the report was, according to Pattersons’s own case, provided to AWS on 20 July 2017, which was the day that Laurie Pettigrove sent an email to AWS demanding that the bathroom be re-done and the consequential damage repaired. In other words, the report was used in a partisan way to support Pattersons’s position in a contractual fight it was initiating against AWS.
130 	I have been invited by Pattersons to give Mr Smith’s report “appropriate weight”. For he reasons I have just outlined, I consider the appropriate weight is “very little”. Nonetheless, as Mr Abreu was prepared to accept at least one of Mr Smith’s findings, it is appropriate to review Mr Smith’s evidence.
The theory that the tiles in the shower alcove had not been replaced
131 	At the hearing, Mr Smith was taken to photos which he said showed new grout had been laid on top of existing grout in the shower alcove. When he was asked whether he thought the shower tiles had been replaced, he answered that he thought they had not been. 
132 	This was an entirely new suggestion, and was not an allegation made in the written report. It according took Mr Abreu by surprise. He was indignant about the proposition, describing it as “ridiculous” in circumstances where the works had been supervised by Pattersons and that AWS’s invoice had been paid in full. 
134 	Because this allegation had been made for the first time during the course of the hearing, AWS’s ability to present evidence to rebut it was limited. This point is not to be passed over lightly. One of the purposes of requiring an expert’s evidence to be reduced to writing is so that the expert’s report can be served prior to the hearing in a timely manner to enable the opposing party to consider it and if necessary obtain evidence of its own on the issues raised. I consider that AWS was denied procedural fairness by the presentation of this new evidence by Mr Smith. This is another reason for discounting the weight to be attached to it. It is also a reason why no criticism can be laid at the feet of AWS for failing to call the tiler who carried out the work, or the site supervisor or project manager who managed the job.
135  	However, some evidence as to the changing nature of the tiling in the bathroom was available in the form of the photographs which Mr Abreu tendered. The first photograph was of the shower alcove, which Mr Abreu said had been obtained by one of his employees from the internet off realestate.com’s website. This photograph was labelled as being from May 2011. The second photograph was of the shower alcove and had been taken by AWS. Mr Abreu said it showed the state of the alcove after AWS had completed its work. In this photograph, the shower screen was identical to the shower screen the first photograph, but the tiling was clearly different. Specifically, in the earlier photograph there was a decorative band of black tiles running from the shower screen in a perpendicular manner across the floor of the shower over the shower grate to the rear wall, and vertically up the rear wall of the alcove. The black band was three tiles thick. In the second photograph, there was also a decorative black band of tiles in the same location, but it was only two tiles thick. The tiling had clearly been altered. The third photograph was said also to be from realestate.com, this time in 2018. It showed the shower alcove had been retiled again, but this time a new shower screen had clearly been installed.
136 	Pattersons contend that no reliance can be placed on the photographs sourced from realestate.com’s website because there was no evidence about their provenance. No one from realestate.com had been called to authenticate the photographs and their dates. This submission is obviously well founded, and accordingly I infer from the photographs no more than the proposition that the tiling in the bathroom had evidently been altered at least twice.
137   Pattersons highlight that Mr Abreu, at the hearing, appeared to embrace Mr Smith’s evidence saying that he accepted the report “100%”. I think this observation is taken out of context. I listened to Mr Abreu’s evidence at the hearing closely. He clearly took objection to Mr Smith’s theory that the placing of new grout over old meant that the tiling in the shower alcove had not been replaced by AWS. His enthusiastic acceptance of Mr Smith’s evidence related to Mr Smith’s opinion that the exit of water from the shower alcove was by reason of failed silicone around the shower screen. This is an issue which we shall come to.
138  	In determining the question of whether the tiling in the shower alcove had been replaced by AWS as required by its scope of work, I observe I heard evidence from Mr Abreu that the tiling in the alcove was removed and replaced by AWS. I am mindful of Pattersons’s attack on his evidence, which highlighted Mr Abreu’s inability to say with certainty what tiles had been removed and replaced without referring to the written scope of work. However, Mr Abreu’s uncertainty was as to a matter of detail. His evidence that tiles in the shower alcove had been removed and replaced was unequivocal, and I accept it.
139 	I also note Mr Abreu’s observation that Pattersons had paid AWS’s account in full. This is an important point, as clause 18.4 of conditions set out in the Service Level Agreement provides:
Pattersons will only pay the amount claimed in the payment claim or (the amount it proposes to pay if the amount in the payment claim is disputed by Pattersons) if: 
(a) the Subcontractor submits a valid payment claim in accordance with clause 18.2; and 
(b) in respect of a final payment claim, Pattersons deems acceptable the Works carried out by the Subcontractor in accordance with this Agreement and upon receipt of an executed Certificate of Satisfaction (or any document evidencing the same to the satisfaction of Pattersons) and the other documents specified in clause 14.2. 
140 	Although not conclusive evidence that the tiles were replaced, payment for the work by Pattersons is certainly suggestive that they were. The payment was at least consistent with proper performance of AWS’s scope of work. 
141	Pattersons, on the other hand, did not present any evidence from any employee who had any knowledge of the job to say that the tiling had not been replaced. Furthermore, Pattersons did not call any tenant or owner of unit 7 to give evidence about changes to the tiling in the shower alcove. No explanation was given about why none of these witnesses were called. The only evidence Pattersons relied on was the photographs taken by Mr Smith purportedly showing the placing of grout upon grout. 
142 	As Mr Abreu explained, the grout in the shower alcove had been completed by July 2014, and it might been touched up before it was inspected and photographed by Mr Smith in June 2017.The upshot is that I regard Pattersons’s evidence as extremely weak. I find that, on the balance of probabilities, Pattersons have not discharged the onus on them of demonstrating that AWS did not replace the tiling in the shower alcove.
The theory that there was a break in the membrane under the tiles
143 	When it became clear at the hearing that Mr Smith’s theory about the failure to replace the tiling in the shower alcove was under attack, a new suggestion was put forward, namely that there was a break in the membrane under the tiles outside the shower. This contention was based on what Mr Smith was said to have stated in explaining the importance of a picture of a water meter he had taken. 
144	This was a critical allegation because it would, if sustained, have explained how water had managed to emanate from the ensuite throughout the unit in a manner which clearly implicated AWS.
145 	A difficulty facing Pattersons was that Mr Smith had made no allegation about the failure of the membrane in his written report. If he had held the opinion that the membrane had failed, it is hard to understand why he would not have mentioned such a significant matter. 
146 	Furthermore, if Mr Smith had during his inspection considered that breakdown of the membrane was a possibility, he certainly had not established this by any dyed water test. Specifically, of the 21 tests performed referred to in the report, only three had failed. These were a spray test to the shower wall tiles, a spray test to the shower screen, and a static test to the shower base.
147	Mr Abreu, at the hearing, strongly contested the allegation that the membrane had failed. He said that there was no evidence presented by Pattersons that the unit below had suffered any suffered water damage, which would be expected if the membrane had failed as suggested.
148 	Pattersons dispute the relevance of this lack of evidence, contending:
The absence of evidence cannot prove the absence of complaints, or damage, particularly when AWS could have sought such evidence or confirmation that there were no complaints, but did not do so. 
149 	I regard this attack on AWS’s case as unfair as, like the theory about the failure to replace the tiles, the theory that the membrane had failed took AWS by surprise. This naturally limited its ability to call evidence to counter it.
150 	I also regard the attack as misconceived, because it was Pattersons that was asserting that the membrane had failed, and accordingly it was up to Pattersons to adduce evidence to demonstrate that fact.
151 	Mr Abreu at the hearing ultimately challenged the suggestion that Mr Smith had actually given evidence that the membrane had failed. This prompted me to check my own notes of the evidence given by Mr Smith. I could find no reference to damage to the membrane. When I suggested that the issue could be resolved by reference to the transcript, Pattersons withdrew the suggestion that Mr Smith had said that the membrane had failed. 
Pattersons’s fallback position- res ipsa loquitur
152 	At this point of the hearing there was a discussion regarding the source of AWS’s liability. It was pointed out that Pattersons had started with the proposition that AWS had caused the water leakage problem by failing to remove the shower screen. This had been disproved by reference to the scope of works. Pattersons then alleged that the tiles had not been removed in the alcove, as required. In the face of Mr Abreu’s evidence that the tiles had been replaced, the theory about the failure of the membrane was ventilated. Then this theory was withdrawn. What then was Pattersons case? 
153	Pattersons’s counsel contended that AWS was liable because there were obviously defects in the work because there was leakage throughout the flat. In lawyer’s language, he was arguing res ipsa loquitur-“the thing speaks for itself”
154 	Mr Abreu’s response was that it had been demonstrated by the photograph in the Australian Leak Detection report that showed dyed water passing under the shower screen but over the tiles that the silicone around the shower screen had broken down. He noted that Mr Smith had confirmed this was the case and that Mr Smith had, under questioning, agreed that silicone tended to break down and that this might occur within 12 months. 
Findings regarding the res ipsa loquitur submission and cause of the leaks
155 	Having regard to the photographic evidence that the silicone under the shower screen had broken down to the extent that water could run freely over tiles away from the shower, Pattersons cannot succeed in a plea of res ipsa loquitur, that is to say, there can be no other explanation for the water damage to the unit than defective work on the part of AWS.
On the contrary, because break down of silicone under the shower screen was acknowledged by Mr Smith and was demonstrated by a photograph in his report I accept, on balance, AWS’s contention that this was the cause of the leaking in unit 7. 
156 	It remains to deal with the two final submission made by Pattersons regarding the liability of AWS’s for the emanation of water from the ensuite bathroom.
Responsibility for silicone maintenance
157 	As noted, Mr Smith deposed that silicone could degenerate within a year. Mr Abreu suggested the process was more likely to take at least 2 years. Notwithstanding this evidence, Pattersons contended that AWS had continuing liability “under the warranties.” However, no relevant warranty was identified.
158 	The failure by Pattersons in its written submissions to identify the warranty which was said to have been breached by the deterioration of silicone is unfortunate. The relevant warranty is not apparent. Certainly, AWS had an obligation to perform the work in accordance with the statutory requirements, good industry practices and in compliance with relevant standards, tolerances and codes. However, it was not suggested that the mere use of silicone around the shower screen breached any of those requirements. AWS also warranted that its works, when completed, would be suitable for use and occupation. There is no evidence that the ensuite was not fit for purpose when initially occupied by reason of the use of silicone as a material. For a similar reason, it cannot be said that the works were defective because of the use of silicone. Finally, although AWS warranted that the materials supplied would be of good and merchantable quality, there is no evidence that the silicone utilised was not of this quality. For these reasons, I reject Pattersons’s assertion that the use of silicone breached of any warranty contained in the Service Level Agreement. 
159 	The liability of AWS to come back and replace silicone which had been in a satisfactory condition on the day it was installed but deteriorated afterwards is governed, in my view, by the defects liability mechanism in the contract. Accordingly, if the deterioration of the silicone occurred within the DLP, AWS would have been obligated to come back and rectify it.
160 	There is evidence that a defective works order was issued in respect of the ensuite in February 2015. However, there is no evidence that Patterson’s issued any further notice in relation to unit 7 until 2017. At this point the DLP- even if it had been extended by 12 months under clause 23.6 in respect of the defect which was the subject of the first defective works order -had expired by more than a year. There was no contractual obligation on AWS to come back and rectify any defect after this point, even though it still retained legal liability for defects. 
161 	Accordingly, on the evidence before me, I do not consider that in 2017, after the expiration of any extended DLP, AWS had any obligation to come back to rectify degraded silicone. Mr Abreu contended that maintaining silicone is a maintenance issue. There was no evidence from Mr Smith on the matter. I accept Mr Abreu’s argument and find that after the expiration of the DLP, silicone maintenance was a responsibility of the owner or occupier, rather than that of AWS. 
Final comment regarding silicone
162   Because AWS had no positive obligation to come back and rectify any defect in the work under the defects liability regime after February 2016 at the latest, it fell to Pattersons to decide what to do about problems in the bathroom after that point. Mr Abreu contended that if Pattersons had gone back to the site when a problem first emerged with the silicone they could have fixed the problem for about $400. Instead, they did nothing until water had caused damage throughout the apartment, leading to the necessity for expensive repairs. The upshot is that even if I had been prepared to find that AWS had liability, the liability would have been capped at the cost of rectifying the silicone and would not have extended to the consequential damage.
Grout failure
163  Pattersons’s final argument was that grout had cracked in the shower. Little was made of this at the hearing, but the allegation was raised in written submissions. Pattersons referred to one photo evidencing the cracking. This hardly suggests there was a systemic failure in the grout. However, Pattersons point to Mr Abreu’s statement that he agreed with Mr Smith’s report “100%” as an acknowledgement that the cracked grout was a cause of leaks in the shower.
164 	In connection with the alleged grout defect, I place no weight on Mr Abreu’s indication that he agreed with Mr Smith’s report. As I have previously indicated, it is clear from the whole of Mr Abreu’s evidence that he accepted Mr Smith’s view that a cause of the water escaping from the shower alcove was the failure of silicone around the shower screen. He clearly did not accept all of Mr Smith’s opinions.
165  AWS’s response to the allegation that the grout had failed was that the cracking did not amount to a defect. The cracking in the photograph could be explained by the movement in the underlying structure. The wall beneath the tiles would be protected by the membrane, and any moisture penetrating would ultimately be drained by the puddle flange.
166   Apart from the mere existence of a crack in the grout in the shower alcove, which was found to exist just on three years after the work had been completed by AWS, there was no commentary from Mr Smith to suggest why the crack should be regarded as a defect. It is not suggested that the crack was there when AWS completed its work. The crack could easily have been repaired, and as such it can, and in my view should, be viewed as a maintenance item.
167   In any event, I accept Mr Abreu’s evidence that any moisture penetrating through the crack in the grout will be trapped by the membrane and ultimately escape by the puddle flange.
168   I accordingly find against Pattersons in respect of this alleged defect.
Summary
169 	As applicant, Pattersons has the burden of proof. It has failed to demonstrate that there was any defect in the work of AWS. In this regard, I note that the suggestion that AWS had failed to remove the shower screen was disproved. 
Pattersons could not establish on the balance of probabilities that AWS had failed to replace the tiling in the shower alcove. The theory that the membrane under the tiles had failed was withdrawn at the hearing. The theory that the grout had broken down, which was raised as a reargaurd action in the submissions, has been rejected.  Because break down of silicone under the shower screen was acknowledged by Mr Smith and was demonstrated by a photograph in his report, Pattersons must fail in its submission of res ipsa loquitur. I have accepted, on the contrary, AWS’s contention that the cause of the leaking in unit 7 was the breakdown of the silicone around the shower screen. I have rejected the proposition that there was a breach of warranty because of the use of silicone as a material, and I have found that the failure of the silicone around the shower screen is a maintenance issue rather than a construction defect. Finally, Pattersons have demonstrated no breach by AWS of its obligations under the defects liability mechanism in the contract. On these bases, the claim against AWS regarding the unit 7 ensuite fails.
THE COUNTERCLAIM
170	AWS filed a counterclaim seeking the sum of $9,900 which had been held back by Pattersons under the Frankston contract. Pattersons did not dispute that the money had been held back, but contended that it was entitled to withhold the payment under clause 18.8 of the Service Level Agreement, which empowers Pattersons to deduct, withhold or set-off from moneys due to a subcontractor any money due from the subcontractor to Pattersons. But for this clause, the money should have been paid within 25 business days of the delivery of a valid payment claim, pursuant to clause 18.6.
171	As Pattersons’s claims against AWS under both the Frankston contract and the St Kilda contract have been dismissed, there is no money due from AWS to Pattersons upon which clause 18.8 can operate. It follows that Pattersons must now pay to AWS the sum of $9,900. 
172	In its counterclaim, AWS also claims interest. If AWS seeks interest under a term of its contract with Pattersons, it must specify that term. It must also identify the date from which the interest is to be calculated and the relevant rate of interest.
173	If there is no term of the contract which entitles AWS to claim interest, the Tribunal has jurisdiction to award damages in the nature of interest under s 184(2)(b)(ii) of the ACLFT Act. In awarding such interest, the Tribunal may under s 184(4) use the interest rate applicable from time to time under s2 of the Penalty Interest Rates Act 1983, which currently runs at 10%.
Conclusion and orders
174	As Patterson has failed in its claim against AWS in respect of the Frankston contract and has failed also in connection with the St Kilda contract, its entire claim against AWS will be dismissed.
175	On its counterclaim, AWS will be awarded $9,900. Leave will be granted to AWS to make an application for interest within 30 days.
176	As far as I am aware AWS has incurred no legal costs but I will grant leave to AWS to make an application for costs within 30 days. Any such application must address the rules regarding costs set out in s 109 of the Victorian Civil and Administrative Tribunal Act 1998 (the VCAT Act).
177  AWS has incurred a filing fee of $311.00 in respect of its counterclaim, but has paid no hearing fees. The Tribunal has jurisdiction to order an unsuccessful party to reimburse to the successful party any fees paid in certain circumstances, under s 115B of the VCAT Act. Leave will be granted to AWS to make an application for reimbursement of fees within 30 days.

C Edquist 
Member