VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
CIVIL DIVISION
building & PROPERTY LIST	vcat reference No. BP1017/2020	
CATCHWORDS	
Building contract – contract to build a rooming house – whether this is domestic building work within the meaning of the Domestic Building Contracts Act 1995 – sections 3, 5 and 6 and authorities considered – breach of a term of the contract to achieve specified finished floor level due to flood risk – whether this necessitates the building being demolished and rebuilt – whether the entering into of an agreement under s173 of the Planning and Environment Act 1987 makes it unreasonable to demolish and rebuild the building – means of calculating amount of loss and damage caused by defective work as distinguished from completion costs by reference to the schedule of progress payments set out at s40 of the Domestic Building Contracts Act 1995.	
APPLICANT	Algebra TIP Pty Ltd ACN 629 634 644	
RESPONDENT	D&M Group (Vic) Pty Ltd ACN 139 698 383	
WHERE HELD	Melbourne	
BEFORE	Acting Deputy President S. Kirton	
HEARING TYPE	By Videoconference	
DATE OF HEARING	22 April 2021, written submissions received 29 April 2021	
DATE OF ORDER	22 June 2021	
CITATION	Algebra TIP Pty Ltd v D&M Group (Vic) Pty 
Ltd (Building and Property) [2021] VCAT 652
	
Order
1.	The respondent must pay to the applicant damages in the sum of $453,542.84.
2.	The question of costs and interest is reserved. There is liberty to apply on the question of costs and interest. Any application must be accompanied by written submissions (limited to 6 pages) and affidavit(s). The respondent to the application for costs or interest must file and serve any submissions and affidavits in response no more than 28 days after the date of the application. The application will be decided on the papers not earlier than 29 days after the date of the application. 

S Kirton
Acting Deputy President 	

APPEARANCES:		
For the Applicant	Mr T Allen of Counsel	
For the Respondent	No appearance 	

Reasons
Background
1.	The respondent failed to attend the hearing and did not file any evidence. Prior to the hearing the Tribunal received an email sent on behalf of the respondent in which the sender advised that the director of the respondent would not be attending the hearing nor would the respondent be responding to any legal action. 
2.	As at the date of the hearing and as at the date of this decision, the Australian Securities and Investments Commission records indicate that a strike off action is in progress against the respondent. However as the respondent is not under administration and is still registered, the Tribunal has jurisdiction to continue with this proceeding.
3.	As the respondent has not filed any evidence, my findings are based on the evidence given by the applicant. Having said that, the applicant tendered a detailed witness statement with voluminous exhibits and lengthy legal submissions and I am satisfied of the following matters based on the evidence before me.
The project 
4.	The applicant is the trustee of a trust established by Ms Tania Koit for investment purposes, specifically, she said, to generate passive income as part of preparations for retirement and to provide longer term financial support to family members. Ms Koit is the sole director and secretary of the applicant. She gave evidence that in September 2018 she was given information about building and running a rooming house, and decided to go ahead with that as an investment opportunity. 
5.	Ms Koit discussed the options with an advisor, Mr Baker, and he provided her with the design for a ‘micro apartment’ style rooming house. This design differed from the traditional shared accommodation rooming house in the sense that each bedroom had its own ensuite bathroom and kitchenette, as well as a separate entry from outside.
6.	In November 2018 the applicant purchased a property in Shepparton with the intention of building a rooming house on it. The sale settled on 20 December 2018. Ms Koit engaged a project manager, MPIP Pty Ltd, whose representative was Mr Michael Yeh.
progress of the construction 
7.	On 3 June 2019, Ms Koit caused the applicant to enter into a building contract with the respondent. The contract was a standard form AS4300 for “the design and construction of a single level 9 bedroom class 1b rooming house”. Mr Yeh was noted as the project superintendent. The contract included a number of documents including planning permission documents, building permit documents, architectural and engineering drawings and specifications. One of the planning permit documents was a letter dated 13 March 2019 from the Greater Shepparton City Council which noted that  because the land is liable to flooding, the minimum floor level of the proposed dwelling “must be 112.10m AHD or in accordance with BCA 2016 Part 3.1.2.3(b) whichever is the greater”.
8.	Construction of the Project commenced on or around 17 June 2019 and continued until September 2019. The applicant made a number of progress payments, totalling $239,200.
9.	In mid September 2019 Mr Yeh advised Ms Koit that he had concerns with the as-constructed level of the building and he would organise for a survey to be done. The survey determined that the finished floor level (FFL) was 600mm lower than the height allowed by the approved building plans.
10.	The relevant building surveyor issued a Stop Work Order to the respondent on 12 October 2019. The Order stated, amongst other things:
(a)	Building work has been carried out on the land in contravention of the Building Act 1993. The building work that contravenes the Building Act 1993, the construction of a residential building to the incorrect finished floor height of 111.50 AHD, in lieu of the required 112.10 AHD.
(b)	Prior to removal of the stop work building order you as the owner/builder must provide evidence of either, a written statement / approval from the Goulburn Broken CMA that current floor height of the building is to their satisfaction and an amended report and consent from Greater Shepparton City Council showing a FFL of 111.50 AHD as approved.
OR
Provide engineered and architectural plans showing the work required to re-construct the building/floor to the correct FFL of 112.10AHD. The plans must include a certificate 126 of design and a signed variation between the owner and builder highlighting the cost of works for the rectification.
11.	The respondent failed to adequately address the Stop Work Order, despite numerous discussions between the respondent, the applicant, the project manager and the building surveyor, including an application to Domestic Building Dispute Resolution Victoria. Ms Koit said that eventually she was advised that the only way to have the Stop Work Order lifted was to enter into a Section 173 agreement with the Greater Shepparton City Council, which would allow the dwelling to remain 600mm below the permitted FFL, provided that the applicant indemnified the Council and the water authority (Goulburn Broken CMA) against any loss caused by the floor being too low.
12.	In January 2020 the applicant entered into a s173 agreement with the Council and the water authority and on 20 February 2020, after the agreement was registered, the building surveyor cancelled the Stop Work Order.
13.	On 2 March 2020 the applicant became aware of a complaint by the Council of a lack of fencing on the building site and rubbish which needed to be cleaned up. The project manager emailed the respondent requiring it to provide appropriate fencing and to clean the site. The respondent replied saying it was unable to afford the cost of fencing and asked the applicant to pay for it, with a credit to be deducted from the final payment. The applicant engaged North East Temporary Fencing at a cost of $715 to install a fence.
14.	At about this time the applicant became aware of other concerns with the building works, including the failure to proceed with due expedition. On 24 February 2020 the applicant served a Show Cause Notice on the respondent in accordance with the contract, detailing the lack of progress and the respondent’s failure to provide a Contractor’s Program, and giving the respondent the opportunity to show cause why the contract should not be terminated. The respondent failed to respond to this Notice.
15.	On 20 March 2020 the building surveyor issued a letter to the respondent requesting an update on the progress of the works and a schedule of the works to completion. The respondent failed to respond.
16.	Ms Koit made many further attempts to contact the respondent, including by phone, SMS and email, between February and June 2020. There was no response. On 15 June 2020 the applicant sent a Notice of Termination to the respondent, terminating the contract.
17.	Based on the matters set out above, I am satisfied that the contract was validly terminated. Clause 44.10 of the contract provides that if the contract is terminated by the principal, the rights and liabilities of the parties shall be the same as they would have been at common law had the defaulting party repudiated the contract and the other party elected to treat the contract as at an end and recover damages. 
the applicant’s loss and damage
18.	In accordance with that entitlement, the applicant claims it has suffered loss and damage, calculated as the amount it will cost to put the applicant in the position as if the contract had been performed. That is, the reasonable cost of rectifying the defective work and completing the incomplete works, less the balance due to the respondent under its contract. It contends that this amount totals $392,222.84, plus liquidated damages of $61,320, calculated as follows:
Incomplete works:			
Cost to complete build from lock-up (25% of cost to rebuild per Sessions Builders quotation)	$122,767.25		
Less amount still to be paid under original contract	$128,800.00	($6032.75)	
Defective works:			
Demolition of defective works per Sessions Builders quotation	$28,000.00		
Cost to rebuild to lock-up (75% of cost to rebuild per Sessions Builders quotation)	$368,301.75		
Preparation and registration of s173 Agreement	$1,238.84		
Fence hire paid for by the applicant	$715.00	$398,255.59	
Total damages for defective and incomplete works:		$392,222.84	
Plus liquidated damages 	$61,320	$453,542.84	
What is the reasonable cost of rectifying defective work and completing the incomplete works?
19.	Following the termination of the contract, the applicant engaged a building consultant, Mr Anthony Catanzaro of BSS Group, to provide a report on the status of the building work. His report identified numerous defects and incomplete works. 
20.	The applicant and its project manager attempted to engage other builders to complete the works and rectify the defects identified by Mr Catanzaro. About 15 builders refused to provide a quote. The only builder willing to consider taking over the project was Session Builders. However once it was provided with Mr Catanzaro’s report, Session Builders advised that it would withdraw its quote to complete the works and instead would provide a quote to knock down and rebuild the structure. Session Builders provided a revised quote dated 23 June 2020 to demolish and rebuild as per the approved plans. That quotation was revised again on 23 March 2021 to $28,000 to demolish and $491,069 to rebuild.
21.	Mr Catanzaro gave evidence that in his opinion the Session Builder’s quotation was reasonable. He said his rough estimate of the cost to demolish and rebuild would be about $500,000, based on the average industry rates for an entry-level home, but with increased complexity as the project would require nine bedrooms, nine bathrooms and nine kitchenettes. Mr Catanzaro also said that if the FFL was 600mm too low, he agreed that it would not be possible to satisfactorily complete the existing structure, as the only way of rectifying the incorrect level would be to demolish and rebuild.
22.	I accept the opinion of Mr Catanzaro that it is necessary for the applicant to demolish and rebuild the existing structure in order for the applicant to achieve conformity with the original contract. I accept the submission that as the 16 builders approached to complete the works refused to do so, it will be practically impossible to complete the dwelling and instead it will be necessary to demolish and rebuild. Accordingly, I am satisfied that the cost of so doing is reasonable and necessary, in accordance with the established principles for assessing the measure of loss and damage for a breach of contract. I also accept the amount of the Sessions Builder’s quotation of $519,069 is reasonable, in light of Mr Catanzaro’s opinion.
23.	Although the applicant entered into a s173 Agreement, I do not accept that this means it would be unreasonable to demolish the existing structure. Ms Koit said upon receiving the BSS Group report:
I was unaware of the extent of these defects in the building works at the time of the Applicant entering into the s173 Agreement. I now felt like the s173 Agreement that the Applicant had entered into was completely useless as I realised that the s 173 Agreement didn’t actually address the building defect, it just cured a planning issue. I would not have caused the Applicant to enter the s173 Agreement had I been aware of the extent of the defects at the relevant time.
24.	The s173 Agreement does not provide contractual conformity, nor does it provide the applicant with finality of remedy or certainty of outcome. If the dwelling is allowed to be occupied at its existing level, there is a real and ongoing risk of structural damage to the property from flooding, in Mr Catanzaro’s opinion, which I accept. This opinion is confirmed by the Council and the water authority, which state in the s173 Agreement: 
The Owner agrees and acknowledges that as a result of the finished floor level of the Dwelling being constructed some 600mm below the prescribed finished floor level, it is more likely that the Dwelling will be inundated in times of flood, and the Owner on behalf of future owners and/or occupiers of the Dwelling accepts full responsibility for and indemnifies GBCMA and the Council in respect of any loss or damage due to flooding of the Dwelling, as a result of the floor level being 600 mm below the prescribed finished floor level.
25.	Further, the applicant is exposed to an ongoing risk, in that the terms of the s173 Agreement require it to indemnify the water authority and the Council for their losses caused by flooding in the future. This liability enures even if the applicant no longer owns the property, as one of its terms is that the applicant agrees that it has accepted full responsibility to indemnify the water authority and the Council on behalf of future owners and/or occupiers of the dwelling. This means the applicant is facing an uncertain liability for ever. 
26.	In 	Kirkby & Anor v Coote & Ors the Queensland Court of Appeal considered an appeal in respect of a property in which a number of footings had subsided causing substantial damage, caused by the negligence of the designer of the footings. The owner claimed that the risk of failure of the remaining footings warranted the house being demolished and rebuilt, while the designer argued partial underpinning was reasonable. While the present case concerns the risk of flooding and financial exposure, not footings failure, I consider the comments of Keane JA apposite. His Honour referred to Bellgrove v Eldridge and said at [52]:
In speaking of the reluctance of the law to confine a plaintiff to a "doubtful remedy", the High Court was contrasting the case before it with a case where it is clear that the expenditure imposed on the defendant is disproportionate to any benefit to the plaintiff in terms of the vindication of the plaintiff's right to recover its actual loss from the defendant. In this case, the damages recovered by the respondents are not disproportionate to the benefit to the respondents in terms of respondents' entitlement to have a house structure which will be, as it should have been, free from risk to its stability so far as its foundations are concerned. It is only by this level of expenditure that the respondents can now achieve a structure which is as stable as it would have been had it not been for the negligence of the first appellant. It is only by this expenditure that the respondents can be freed of a real risk of catastrophic failure with serious consequences for life, limb and property. His Honour found that the risk identified by the respondents' witnesses was a real risk to the stability of the structure which could only be obviated, and the respondents' right to a stable house thereby vindicated, by the demolition and reconstruction of the house.
27.	In the present case, I am satisfied that the applicant is facing a real and ongoing risk of flood damage to the property and further, that the applicant is facing a real risk of having to indemnify the water authority and the Council in respect of any loss or damage for ever. Accordingly, I am satisfied that the appropriate measure of the applicant’s loss and damage is the cost to demolish and rebuild the building so that the finished floor level complies with the level that was specified.
How to assess losses caused by defective work and losses caused by incomplete work?
28.	Because the Sessions Builder’s quotation is to replace what had been built by the respondent, it is impossible to precisely calculate the loss related to rectifying the defective work and the loss related to completing the contract works. I am satisfied that the respondent’s work had reached lock-up stage, based on the opinion of Mr Catanzaro (report p.9) and Ms Koit’s evidence that the respondent had rendered the lock-up stage progress claim and the applicant had paid it. That means that the respondent still had to carry out fixing stage and then completion. However even with that finding, it is not possible to precisely sate the value of the defective works as opposed to the value of the necessary completion works. 
29.	The applicant submits that in order to differentiate between the costs of rectifying the works already done and the costs of completing the contract, the Tribunal should have regard to the schedule of progress payments set out at s40 of the Domestic Building Contracts Act 1995 (the DBCA). That section provides that a builder must not demand or recover more than the percentage set out in the Table at s40 unless the parties have agreed to a different payment schedule. It then sets out percentages for each stage.
30.	The Table provides as follows:
TABLE	
Column 1	Column 2	Column 3	

Type of contract	Percentage
of contract price	
Stage	
Contract to build to lock-up stage	20%	Base stage	
"	25%	Frame stage	
Contract to build to fixing stage	12%	Base stage	
"	18%	Frame stage	
"	40%	Lock-up stage	
Contract to build all stages	10%	Base stage	
"	15%	Frame stage	
"	35%	Lock-up stage	
"	25%	Fixing stage	
31.	According to the Table, with contracts to build a complete dwelling (which this was) the builder cannot claim more than 25% for fixing stage. Relying on the Table the applicant contends that the cost of rebuilding to lock-up stage should be 75% of the Sessions Builder quotation and the cost of completing the works should be 25% of the quoted price.  
32.	I accept the logical basis of the submission, but disagree with the percentages contended by the applicant. The applicant has not taken into consideration the percentage allowed for completion stage. While the Table prescribes 25% for fixing stage, it does not prescribe the amount a builder can charge for the stage following fixing, i.e. the stage when all works are complete and an occupancy permit has been issued and the builder is entitled to the final payment (as defined in s42 of the DBCA). 
33.	Having said that, it is a simple matter to calculate the percentage allowed on completion, by reference to the other stages set out in the Table and elsewhere in the Act. For contracts to build all stages, the Table addresses the base, frame, lock-up and fixing stages, which add up to 85% of the contract price. To that must be added the deposit, and by s11 a builder can only claim a deposit of 5%. That means the most a builder can charge at the completion stage is 10% of the contract price.
34.	Applying those percentages, I am satisfied that a reasonable method of calculating the applicant’s loss and damage relating to completion of the works is 35% of the Sessions Builders quotation (being fixing stage and completion), while the proportion of the quotation relating to compensation for the defective works (i.e. the works already performed by the respondent up to lock-up stage) are 65% of the quoted amount, plus the demolition costs. 35% of $491,069 is $171,874.15 and 65% is $319,194.85.
Other costs - preparation and registration of s173 Agreement ($1,238.84) and fence hire ($715.00)
35.	As set out above, the applicant incurred costs of $1,238.84 to prepare and register the s173 Agreement. I am satisfied that this is a wasted expense as the building is to be demolished and rebuilt. Accordingly the s173 Agreement serves no purpose. Further, I am satisfied the expense was reasonably incurred in an attempt to mitigate the applicant’s loss, even though the mitigation was ultimately unsuccessful. As the expense was necessitated because of the respondent’s breach of the term of the contract relating to the finished floor level I am satisfied that the respondent is liable to reimburse this amount to the applicant.
36.	As set out above, the applicant paid for fence hire totalling $715.00. This was the respondent’s obligation under the contract and accordingly the respondent must reimburse the applicant $715.
Liquidated damages
37.	Further, the applicant claims liquidated damages of $61,320, in accordance with clauses 35.6 and 35.7 of the contract, being $292 per calendar day from 18 November 2019 (being the day after the Date for Practical Completion) to 15 June 2020 (being the date of termination of the contract), specifically 210 days at $292 per day.
38.	Based on the evidence before me, it is unarguable that the works were delayed for 210 days due to the action (or inaction) of the respondent and that no extensions of time were claimed by the respondent. Further, it is a clear term of the contract that liquidated damages run at $292 per day. Accordingly I am satisfied that the respondent is indebted to the applicant for liquidated damages fixed at $61,320.
Summary of loss and damage
39.	In summary, I find that the applicant has suffered the following loss and damage for which the respondent is liable: 
Incomplete works:			
Cost to complete build from lock-up (35% of cost to rebuild per Sessions Builders quotation for $491,069)	$171,874.15		
Less amount still to be paid under original contract	($128,800.00)	$43,074.15	
Defective works:			
Demolition of defective works per Sessions Builders quotation	$28,000.00		
Cost to rebuild to lock-up (65% of cost to rebuild per Sessions Builders quotation)	$319,194.85		
Preparation and registration of s173 Agreement (which costs were unnecessary as the dwelling is to be reconstructed)	$1,238.84		
Fence hire	$715.00	$349,148.69	
Total damages for defective and incomplete works:		$392,222.84	

Is the work domestic building work within the meaning of the Domestic Building Contracts Act 1995?
40.	Because the building is described as a rooming house, the question arises whether this is work that falls within the meaning of the DBCA.  ‘Domestic Building Work’ is defined in s3 of the Act as ‘any work referred to in section 5 that is not excluded from the operation of this Act by section 6’.  
41.	Having considered the authorities in relation to s5(1)(e) and s6(1)(c) (which are usefully summarised by Digby J in H Buildings v Owners Corporation (H Buildings)) I am satisfied that the work the subject of this contract is domestic building work within the meaning of the DBCA. 
42.	In order to reach that conclusion, I have considered the following questions and answered them as follows:
a.	Is the work referred to in s5? Yes.
b.	Is the work excluded by s6? No.
a)  Is the work referred to in s5?
43.	Section 5 of the DBCA relevantly provides:
5	Building work to which this Act applies 
(1)	This Act applies to the following work—
(a)	the erection or construction of a home, including—
(i)	any associated work including, but not limited to, landscaping, paving and the erection or construction of any building or fixture associated with the home (such as retaining structures, driveways, fencing, garages, carports, workshops, swimming pools or spas); and
(ii)	the provision of lighting, heating, ventilation, air conditioning, water supply, sewerage or drainage to the home or the property on which the home is, or is to be;
(b)	the renovation, alteration, extension, improvement or repair of a home;
(c)	any work such as landscaping, paving or the erection or construction of retaining structures, driveways, fencing, garages, workshops, swimming pools or spas that is to be carried out in conjunction with the renovation, alteration, extension, improvement or repair of a home;
(d)	the demolition or removal of a home;
(e)	any work associated with the construction or erection of a building—
(i)	on land that is zoned for residential purposes under a planning scheme under the Planning and Environment Act 1987; and
(ii)	in respect of which a building permit is required under the Building Act 1993;
(f)	any site work (including work required to gain access, or to remove impediments to access, to a site) related to work referred to in paragraphs (a) to (e);
(g)	the preparation of plans or specifications for the carrying out of work referred to in paragraphs (a) to (f);
(h)	any work that the regulations state is building work for the purposes of this Act.
(2)	A reference to a home in subsection (1) includes a reference to any part of a home.
[underlining added]
44.	The word ‘home’ is defined in s3. The relevant part of the definition is:
home means any residential premises and includes any part of a commercial or industrial premises that is used as a residential premises but does not include—
…
(c)	a rooming house within the meaning of the Residential Tenancies Act 1997; 
…
45.	Accordingly, as the subject premises is a rooming house within the meaning of the Residential Tenancies Act 1997, the building work is not domestic building work within the meaning of s5(1)(a)-(d), as each of those subsections refer to a ‘home’.
46.	However for the following reasons I am satisfied that the building work is domestic building work within the meaning of s5(1)(e). That is, it is a building being built on land zoned for residential purposes (ss(i)) and for which a building permit was required (ss(ii)). 
47.	This subsection deliberately uses the word ‘building’ instead of ‘home’.  The word ‘building’ is defined in s3 of the DBCA: 
building includes any structure, temporary building or temporary structure and also includes any part of a building or structure. 
48.	Byrne J in Fletcher Construction Australia Limited v Southside Tower Developments Pty Ltd (Fletcher Construction) stated in reference to subparagraph (e):
A number of things need to be noted about para (e). First, it is work related to a building, not to a home. Therefore, the residential flavour introduced by the definition of “home” in s3 is not present. Subject to any [other] limitation … any structure or part of a structure is included.
49.	The premises being built by the respondent is unarguably a building. The land on which it is being built is zoned for residential purposes, as is evidenced by the relevant planning scheme (a copy of which was tendered).  A building permit was required for the work, as is confirmed by the building permit that was issued (and tendered in evidence).
50.	The only outstanding question about the application of s5(1)(e) is whether the phrase “any work associated with the construction or erection of a building” includes the work of actually constructing or erecting the building, or only work associated with the construction or erection. The question arises because the present case involves the complete construction of a building, not just work associated with its construction. 
51.	The overwhelming view of the authorities is that the meaning of the subsection includes the work of actually constructing or erecting the building, as well as associated work. I agree. 
52.	In Fletcher Construction Byrne J was considering whether works to refurbish and convert an existing multi-storey office building into 151 residential units, with caretakers apartment, gymnasium, food shops and car parking was ‘domestic building work’ within the meaning of the DBCA.  In reference to the meaning of “associated” in subparagraph (e) His Honour stated:
… unlike paras (a), (b), (c) and (d), it is in terms not concerned with construction, erection, improvement or demolition but rather with “work associated with” construction or erection. I am entirely unable to accept that this means work ancillary to the erection or construction of a building is covered by para(e), but not the erection or construction itself. This would be to create an impossible distinction which would be unworkable in practice.
53.	Deputy Chairperson Dr Damien Cremean in Lazaway Pools v Caldera  stated in relation to a swimming pool that such an interpretation is ‘a matter of simple logic’.
54.	McDonald J in Burbank Australia Pty Ltd v Owners Corporation adopted and applied this same interpretation (without citing authority) in relation to a multi-apartment development solely for residential purposes.
55.	In Republic of Turkey v Mackie Pty Ltd (Republic of Turkey) Vickery J applied a narrower interpretation of s5(1)(e) in relation to whether a contract for the building of a new consular residence was a major domestic building contract, as defined in the DBC Act, and hence exempt from the provisions of the Security of Payment regime. His Honour found that while s 5(1)(e) could not apply because the works in question were not works ‘associated’ with the construction or erection of a building, but rather were for the actual construction or erection of a building, the contract was a major domestic building contract by virtue of s 5(1)(a), (c), and (d) of the Act.
56.	That decision was distinguished by Digby J in H Buildings, where he said:
Vickery J was not required to consider the broad application of s 5(1)(e) and, in particular, did not consider its application in relation to a multi-storey development, and that his Honour was not assisted therefore by any reference to authority in relation to the application of subsection (e) of s 5(1) of the Act. Moreover, his Honour’s observations in those respects … were made in obiter because the decision relied on s 5(1)(a), (c), and (d) of the DBC Act applying. Accordingly, the decision as it relates to the application and meaning of s 5(1)(e) is of limited utility in the present case. 
57.	I agree with Digby J that the decision in Republic of Turkey was obiter and can be distinguished. Insofar as I am bound by the comments of Byrne J, McDonald J and Digby J, I follow them. In any event, I agree with their reasoning (and that of Dr Cremean) that to interpret the phrase “associated with” in s5(1)(e) narrowly would create an impossible distinction unworkable in practice. 
58.	The applicant provided an example in the context of this development: “To use the facts of this proceeding as an example, the narrower interpretation would result in ancillary works, such as works connecting the rooming house to the sewerage mains, being deemed domestic building work, but not the rooming house itself. It is both unworkable and illogical to suggest that an owner has rights under the DBCA in relation to the connection works but not the structure actually being connected.” I agree. I am satisfied that the works are works within the meaning of s5(1)(e).
b)  Is the work excluded by s6?
59.	The second part of the definition in s3 is that the work must not be excluded by s6. The only part of s6 applicable to the present matter is s6(c) which reads:
(1)	This Act does not apply to the following work – …
(c)	any work in relation to a building intended to be used only for business purposes.
60.	This raises the question of what does the phrase “for business purposes” mean in the context of a building used as a rooming house, where residential accommodation is rented to tenants. 
61.	This definition has been considered by a number of authorities. In Maclaw No. 651 Pty Ltd v HIH Casualty and General Insurance Ltd (Maclaw) Judge Davey at [27] stated:
The references to “business purposes” should be given its ordinary meaning and in my opinion it refers to non-residential buildings. It is not concerned with whether or not the ultimate occupants of the premises own, hire or lease the premises provided those premises are residential premises.
62.	In relation to what amounts to a ‘residential premises’, Judge Davey in Maclaw at [18] and [23] stated:
[18] Accordingly it is my view that provided the units are designed for long term or permanent occupancy the units are within the definition of residential premises whether or not the actual occupancy is short or long term’… 
[23] The question is whether the premises are being built to enable people to reside in it. It matters not whether the subjective intent is for short or long stays. 
63.	In H Buildings Digby J stated at [100]:
On the plain ordinary language of s 3(1) of the DBC Act, a ‘home’ includes any premises in which a person or persons reside or intend to reside. In my view, the natural and ordinary meaning of the words ‘residential premises’ describes a structure suitable for occupation as a natural person’s permanent home. Further, it is to be noted that s 3(1) of the DBC Act expressly stipulates that a residential premises may form part of a commercial or industrial premises. 
64.	Applying those definitions, I am satisfied that the mere fact that residential accommodation is constructed to be rented out does not make it “a building intended to be used only for business purposes”.  
65.	Having said that, in the present case the residential accommodation is described as a ‘rooming house’. It needs to be ascertained whether this ‘rooming house’ is a residential premises within the meaning of that phrase as set out in Maclaw and H Buildings; that is, do the physical characteristics of the work show that it is a building designed for persons to reside in on a long term or permanent basis?
66.	The time for ascertaining the use of the building is when the contract was entered into. In Port Phillip City Council v Domain Hill Properties Pty Ltd Byrne J considered the Macquarie Dictionary definition and common usage of the word ‘residential’ and concluded:
In the Macquarie Dictionary, the meaning of “residential” is given as “adapted or used for a residence”. In common usage the word in conjunction with “building” refers to the physical characteristics and intended use of the building rather than its actual use.  A building which is constructed by the erection of a new building or by the modification of an existing building is properly called a residential building where the purpose of its construction is to provide residential accommodation. (underlining added)
67.	In H Buildings Digby J cited with approval the reasoning and considerations of Judge Davey in Maclaw (set out at paragraph 62 above) and said:
The design purpose of the premises to be determined by the application of objective criteria, including the physical characteristics of the building, at the time the contract is entered into. For these purposes, subjective intent of the parties and actual later use of the development are irrelevant. Further, it matters not that in Maclaw the works were for ‘serviced apartments’ and in the present case the Planning Permit was for a ‘residential hotel’. Considering this fact alone would inappropriately ignore the test as outlined in Maclaw.
68.	The case of H Buildings concerned a multi storey residential hotel development called the Resort Torquay which offers residential apartments accompanied by the benefits normally offered to occupants in a hotel complex, such as a hotel restaurant, recreational options such as pool and gymnasium facilities, conference and function centre facilities, a shop or shops, bars and alike. Notwithstanding those benefits, Digby J stated that physical characteristics of a building which are suggestive that a premises is a residential premises include separate entries and normal household facilities, including full kitchens and laundries. Having considered the contract and design documents, His Honour found that the apartments in the Resort Torquay are structures which the contract establishes are designed and constructed to be homes in the nature of apartments suitable for permanent residence. 
69.	In the present case the evidence established that the work was designed using a ‘micro-apartment’ design which differed from a ‘traditional shared accommodation design’ in the sense that each of the nine rooms in the building has its own ensuite bathroom and kitchenette. Each room also has its own separate entry from outside by way of an external sliding door. There is also a laundry within the building. Ms Koit gave evidence that she deliberately chose a ‘micro-apartment’ design rather than a ‘shared accommodation’ design because, inter alia: 
a.	it would attract long-term tenants; and 
b.	its design was not limited to having it operate as a rooming house and it allowed the building to be rented to a single tenant if desired. 
70.	Ms Koit’s evidence is supported by the design documents and building permit approved plans, which I accept. I am satisfied that the work the subject of the respondent’s contract comprises a building that is designed and intended to be used as a residential premises and therefore is not captured by the s 6(1)(c) exclusion. 
Concluding comments on the application of the DBCA
71.	I am satisfied that the work falls within the meaning of s3 of the DBCA as it is work referred to in section 5 and is not excluded from the operation of the Act by section 6.  
72.	In my opinion, this interpretation is not inconsistent with the objects and purposes of the Act. It is acknowledged that a ‘rooming house’ is a building expressly excluded from the definition of a ‘home’ (in s3). However, just because a building is excluded from the definition of a ‘home’ does not mean that it is intended to be excluded from the operation of the DBCA. The DBCA is clearly intended to apply to certain works outside of those involving a ‘home’. For example, the implied warranties listed in s8 differentiate between warranties which apply only to a ‘home’ (s8(e)) and those that apply to ‘work’, which may be work on a building or a home (s8(a)-(d) and (f)).
73.	The applicant has submitted that there are logical reasons why it may have been intended a rooming house be excluded from the definition of ‘home’ but not necessarily from the DBCA. For example, it may be excluded from the definition of home because it may be inappropriate to warrant a rooming house is fit for occupation on its completion (as is the case for homes under s8(e)) as further licences or approvals may be required for a rooming house before it can in fact be occupied. However, if built on land zoned for residential purposes and not excluded by s6(1)(c) (as is the case here) then clearly such a building requires the application of the DBCA. I agree with that submission.
Conclusion and orders 
74.	Based on my findings set out above, I am satisfied of the following matters:
a.	the applicant entered into a building contract with the respondent;
b.	the building works were domestic building works within the meaning of the DBCA;
c.	the respondent is in breach of the contract, in that the as-built dwelling is 600mm lower than the approved FFL, there are other defects as identified by Mr Catanzaro which the respondent failed to rectify, the respondent failed to appropriately fence the site and the respondent failed to proceed with or complete the works;
d.	by reason of the breaches, the applicant was entitled to terminate the contract and did so validly; 
e.	as a result, the applicant has suffered loss and damage of $392,222.84 plus liquidated damages of $61,320 making a total of $453,542.84.
75.	I will make the following order: 
1	The respondent must pay to the applicant damages in the sum of $453,542.84.

2	The question of costs, fees and interest is reserved.

S Kirton
Acting Deputy President