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[2000] NSWFTT 10
Applicant: Rich
Respondent: Fair Trading Administration Corporation
File Number: BU1999-01414
Catch Words: Appeal against the decline of an insurance
claim by the Fair Trading Administration
Corporation – Building Services Corporation
Comprehensive Insurance Scheme – cl 5(1) –
jurisdiction of the Tribunal – type of defects –
major structural or general defects – single
skin wall – Expert evidence – weight
Primary Legislation:  Fair Trading Tribunal Act 1998
 Home Building Act 1989 – ss39(2), 88, 91
 Building Services Corporation Act 1989
 Building Services Corporation Regulation
1990 – cl 3(1)(a) & (b), 4 & 31
Matter for Decision: The primary application
Cases Cited:  Penn v Fair Trading Administration
Corporation [2000] NSWFTT 5.
 PQ v Australian Red Cross Society (1992)
1 VR 19
 Ramsay v Watson (1961) 108 CLR 642
Before: P.H. Molony, Senior Member
Hearing dates: 14 and 15 August, 2000 and 5 October 2000
Date of Decision: 23 November 2000

2. REPRESENTATION
Applicant: Mr. A. Searle of Counsel instructed by
Carmody Crampton, Solicitors, Young
Respondent: Ms. E. Kennedy of Counsel instructed by the
Solicitor for the Department of Fair Trading
ORDERS 1) I find that:
a) the cracking to the external walls is
a major structural defect under
sub-clause (b) of the definition of
major structural defect in Clause
31of the Building Services
Corporation Regulation 1990.
Those defects are both inherent
from the manner in which the walls
and the house were constructed, and
damage induced as a result of that
faulty construction.
b) the cracking in the external walls is
a major structural defect under
sub-clause (a) of the definition of
major structural defect in Clause 31
of the Building Services
Corporation Regulation 1990,
resulting from the walls being
inadequately stressed. Those
defects are both inherent from the
manner in which the walls and the
house were constructed, and damage
induced as a result of that faulty
construction.
c) the numerous defects in stressing
the walls by means of the tie down
rods and top plates, as specified in
Mr Rendell's report of 3 October
2000, together constitute a major
structural defect under sub-clause
(a) of the definition of major
structural defect in Clause 31 of the
Building Services Corporation
Regulation 1990. Those defects
are inherent.
2) I direct that the application be listed for
a telephone directions hearing before me
at 4pm on 21 December 2000 so that
directions can be made with respect to

3. the further conduct of the application.

4. Reasons for Decision
Introduction
1) On 28 May 1999 Mr (‘the Applicant’) lodged a Notice of Appeal
in the Fair Trading Tribunal against a decision of the Fair Trading
Administration Corporation (‘the Respondent’) dated 4 May 1999.
That decision was to decline the Applicants’ claim under Clause
5(1) of the insurance scheme known as the Building Services
Corporation Comprehensive Scheme. This scheme covers
indemnity for losses incurred by the Applicants in respect of
residential building work. The residential building work, the
subject of the claim, was the construction of the Applicants’ home
at Young. The work was commenced in September 1991.
2) As a result of evidence obtained in the course of the hearing the
Respondent made a further decision on 5 October 2000, in respect
of defects enumerated in a report from Mr Rendell, a building
consultant retained by the Applicant. That decision was
conveyed to the Applicant and to the Tribunal by the
Respondent’s Counsel, Ms Kennedy, on the final day of hearing.
The decision was to decline the claim on the basis that, while the
Respondent accepted that the defects were major structural
defects, the claim was made out of time, and was not
encompassed in the original claim. The Applicant contended that
the defects reported on by Mr Rendell did not constitute a new
and separate claim as the Respondent maintained, but formed part

5. of the initial claim which had been declined by the Respondent,
and was therefore within time.
3) With the consent of the parties, it was agreed that I would
determine whether or not there was a separate second claim, and
if so, that I treat the application as including an appeal against
the Respondent’s decision of 5 October 2000. In adopting this
course I bore in mind the Tribunal’s duty to determine
proceedings in an informal, expeditious and inexpensive manner.
4) It should also be noted that at the same time as this application
was heard, I had listed for hearing before me another application
involving an appeal against a decision of the Respondent relating
to a property at Young, in which the Applicants are Mr and Ms
Shiller. The parties in each case were represented by the same
Counsel and Solicitors, and aside from some minor differences,
the issues to be determined were identical, as was much of the
evidence. While it was initially inte nded to hear each
application consecutively, it rapidly became apparent that this
would only lengthen each hearing. It was therefore agreed by the
parties’ respective Counsel and myself, that I should hear
evidence common to both applications only once, and take that
evidence into account in determining each application.

6. Jurisdiction
5) The Fair Trading Tribunal may exercise such functions as are
conferred or imposed on it by the Fair Trading Tribunal Act 1998
(‘the FTTA’) and by any other Act or law (section 6 FTTA). The
Home Building Act 1989 (‘the HBA’) is an Act that confers
jurisdiction on the Tribunal. Section 39 of Schedule 4 of that
Act provides, in summary, that the provisions of the Building
Service Corporation Act 1989 (‘the BSC Act’) and the Building
Services Corporation Regulations 1990 (‘the BSC Regulations’)
remain in force in relation to residential building work insured
under that legislation prior to its repeal. The building work in
Jimmy Noonan Close was covered by that insurance, and so that
legislation applies in this case.
6) Section 85 of the BSC Act provided for a right of appeal to the
former Commercial Tribunal by a claimant aggrieved by a
decision in relation to the Scheme. Clause 37 of Schedule 4 of
the HBA provides that the provisions relating to appeals to the
Commercial Tribunal, contained in Part 5 of the BSC Act,
continue to apply to decisions made in relation to claims under
the Scheme. Under the transitional provisions contained in
Schedule 5 of the FTTA, a reference to the former Commercial
Tribunal is to be read as a reference to the Fair Trading Tribunal
(clause 6). Accordingly, this Tribunal now has the jurisdiction

7. previously conferred on the Commercial Tribunal in respect of
appeals in relation to the Scheme.
7) The Fair Trading Administration Corporation has the functions
and powers previously held by the Building Services Corporation
in relation to provisions of insurance under the Building Services
Corporation Insurance Scheme (section 39(2) of the Home
Building Act 1989). Pursuant to section 88 of the BSC Act, the
Tribunal has the power to confirm the decision of the Respondent
or to substitute for that decision any other decision or order that
the Respondent could have made.
The Relevant Law
8) Section 91 of the BSC Act provides for the establishment of the
Comprehensive Insurance Scheme (‘the scheme’) to apply to
residential building work carried out after 4 February 1991. The
terms of the scheme are found in Form 4 of Schedule 1 to the BSC
Regulations. It covers certain residential building work that was
carried out by a person who was the holder of an appropriate
licence under the BSC Act (clause 3). The scheme provides that
successors in title to the owner of the land on which the
residential building work was carried out are beneficiaries (clause
4).
9) Losses indemnified under the scheme include losses in rectifying
defects in insured work (clause 5(d)) and losses in repairing

8. damage caused to the dwelling by a defect in the insured works
(clause 5(e)) up to a maximum, aggregate claim of $100,000 for a
single dwelling (clause 6). Claims must be made within time
limits set out in the terms of the scheme. Clause 7 provides, in
part, as follows:
“TIME LIMITATIO NS
7.(1) Subject to subclause (2), to qualify for the benefits under
this Scheme the beneficiaries must notify the Corporation
in writing of the matters that could give rise to the losses
referred to in clause 5 of 5A within the following times:
(a) …
(b) for loss relating to heads of claim in clause 5(1)(d)
or (e) incurred in rectifying major structural defects
or in repairing damage to the dwelling that has
occurred in consequence of major structural
defects- within 6 months after the beneficiary first
becomes aware of the defect, but not later than 7
years from:
(i) the commencement of insured building work
which is not also insured owner builder work;
or
(ii) …
(c) for loss relating to heads of claim in clause 5(1)(d) or
(e) other than those referred to in paragraph
(b)–within 6 months after the beneficiary first
becomes aware of the defect, but not later than 3
years from:
(i) the commencement of insured building work
which is not also insured owner builder work; or
(ii) …
(d) …
(e) …
(2) The Corporation may extend the times specified in
subclause (1) if it is satisfied that the delay in notification

9. was due to circumstances outside the control of the
beneficiary.
(3) If the Corporation exercises its discretion under
subclause(2) , it may assess the indemnity for the cost of:
(a) completing incomplete work or rectifying defective
work; or
(b) …
on the basis of the reasonable market costs prevailing at
the latest time the notification would have been required to
be made in the absence of that discretion.”
10) Clause 10 of the scheme provides that the BSC has no further
liability under the scheme more than 10 years after the
commencement or the residential building work, “for any reason
attributable to that work”.
11) “Residential Building Work” is defined (as far as is relevant here)
in section 3 of the BSC Act as follows:
““residential building work” means any work involved in, or
involved in coordinating or supervising any work involved in:
(a) the construction of a dwelling; or
(b) the making of alterations or additions to a dwelling; or
(c) the repairing, renovation, decoration or protective
treatment of a dwelling.”
12) “Dwelling” is defined in section 3 of the BSC Act as follows:
““dwelling” means a building or portion of a building that is
designed, constructed or adapted for use as a dwelling (such
as a detached or semi-detached house, transportable house,
terrace or town house, duplex, villa-home, strata or company
title home unit or residential flat).
 It includes any swimming pool or spa constructed for use in
conjunction with a dwelling and such additional structures

10. and improvements as are declared by the regulations to
form part of a dwelling.
 It does not include buildings or portions of buildings
declared by the regulations to be excluded from this
definition.”
13) ‘Major structural defect’ is defined in clause 31 of the BSC
Regulations:
“major structural defect” means an inherent or
damage-induced defect:
(a) in an element that provides essential supporting structure
to the whole or any part of a dwelling ( for example, a
footing, beam, column or a suspended slab) which
renders the element inadequate for its structural purpose;
or
(b) in a substantial functional element essential to the
habitability of a dwelling ( for example, a panel wall,
masonry veneer wall or slab on ground) which is of such
a kind that the element itself does not have adequate
structure for its purpose.”
14) “Damage- induced defect” is defined in clause 31:
“damage-induced defect” means a defect in an element of a
dwelling, or part of a dwelling, caused when the element was
damaged:
(a) by the holder of a licence, or holder’s employee or agent,
in doing residential building work connected with that
dwelling; or
(b) as a consequence of such work having been done
defectively.”
15) It is for the Applicants to prove their case to the Tribunal on the
civil standard of proof, namely the balance of probabilities.
Issues
16) There are a number of issues to be determined in this case which
are inter-related. The first is whether the defects, which are the

11. subject of the original claim encompassed the defects in the
alleged second claim. If so, they will be “major structural
defects” and the claim will have been made within time. If not,
it will be necessary to determine whether the defects encompassed
in the first claim are ‘major structural defects’ within the meaning
of that phrase in the BSC Regulations. If they are not ‘major
structural defects’, they are described as general defects.
17) An issue would then arise as whether the Tribunal should exercise
its discretion to accept the claims outside of the time limits set in
the terms of the BSC Comprehensive Insurance Scheme. It is
agreed that the building work, which is the subject of the dispute,
commenced in September 1991. In accordance with the terms of
the scheme set out above, Mr Rich would have been required to
notify FTAC (or before it the BSC) of the defects by September
1994 in the case of general defects, and by September 1998 in the
case of major structural defects. Outside of these time limits it
is for the Tribunal to determine whether the failure to notify was
due to “circumstances outside of the control” of the Applicants.
The determination of the extension of time issues is not
considered in these reasons. If, after the Tribunal determines the
issues mentioned in paragraph 16, an extension of time issue
arises it was agreed that written submissions would be sought
from the parties before any determination is made.

12. The Evidence
18) In order to understand the nature and complexity of the issues it
is necessary to traverse the evidence presented to the Tribunal in
some detail.
19) The Tribunal heard sworn evidence from the following persons –
a) called on behalf of the Applicant –
i) the Applicant himself, Mr Rich;
ii) his partner, Ms Rich;
iii) Mr Rendell, a Building Consultant
iv) Mr Shayler, National Technical Manager, CSR Building
Materials - Hebel
v) Mr Simpson, a Consulting Civil and Structural
Engineer;
vi) Mr Tierney, a Concreter who had worked on both
houses; and
vii) Mr Burnes, also a Concreter who had worked on both
houses.
b) called on behalf of the Respondent –
i) Dr Kanan; and

13. ii) Mr McNamara, Principal Structural Engineer.
20) The Tribunal had tendered to it expert reports from –
a) Mr Rendell dated 22 June 2000 and 3 October 2000.
b) Mr Shayler dated 27 July 1999 and 30 July 2000.
c) Mr Simpson 18 September 1999, 30 May 2000 and 4 October
2000; and
d) Mr McNamara dated 1 February 2000, 11 August 2000, 12
September 2000 and 22 September 2000.
21) In addition the Tribunal had tendered to it affidavits by:
a) Mr Rich dated 26 November 1999;
b) Mr Tierney dated 14 August 2000;
c) Mr Burnes dated 14 August 2000; and
d) Mr Kuster, the builder of the house, dated 29 September
2000.
22) The Applicant’s claim is based on the fact that there is extensive
cracking to both the external and internal walls of the house, with
consequent problems resulting from an alleged failure of the
structures weather proofing. At the commencement of the
hearing there was a marked difference between the understanding

14. of the experts retained by the Applicant and those retained by the
Respondent as to the method of construction of the house.
23) The Applicant’s home was constructed using Hebel bricks.
These are aerated auto-claved concrete bricks, and are typically
used to crate a single skin structure, without internal framing,
which is rendered to make it weatherproof. The precise date of
commencement of the building is unclear, although Young Shire
Council records indicate that the footings were inspected 2
September 1991. The Applicant’s purchase of the property was
finalised on 1 May 1992.
24) In his affidavit of 20 November 1999 Mr Rich outlined what then
followed:
3. Approximately 8 months after we had moved in following
settlement of our purchase we noticed cracks appearing
in different parts of the inside and outside of the house. I
contacted Paul Kuster, the princ ipal of P A Kuster Pty
Ltd, by telephone and informed him of the problem. He
told me he would come up to have a look but despite
numerous other calls he failed to show. Eventually after
about 12 months since I first contacted him I sent him a
letter demanding he attend my place to inspect the
problem otherwise I would take legal action. Mr Kuster
responded to the letter and after an inspection he
patched up the cracks.
4. However, the patch work was unsuccessful and after a
month to six weeks the cracking re-appeared. I kept
ringing Kuster to let him know the problem hadn't been
fixed and that the cracking was getting worse. Everytime
he told me he would come back and fix the problem. He
never responded to these calls although he made
promised that he would come and see to the problem.
5 . The cracking continued to get worse and worse. I didn't
know where to turn. I then decided to ring Mr Basham
who owned a property across the road which Kuster had

15. also built and told him of our problems. He told me that
he was having the same problems. He also told me that I
had 7 years to lodge a claim with the Department of Fair
Trading and we decided to keep in contact with each
other regarding the cracking in our respective house.
6. Some time later I spoke to Mr Basham and he told me
he had been in contact with a structural engineer by the
name of Simpson who was coming to look at the problem.
He told me he would ask Simpson to see me when he was
in Young to look at his house.
7. I engaged Mr Simpson to do the report on my house
and he prepared the report dated June 1998. I then
decided to make a complaint to the Department of Fair
Trading which I did at the end of July 1998.
8. The Department investigated our complaint but by its
letter dated 6 October 1998 advise us that Kuster was not
prepared to rectify the works and we should submit an
Insurance Claim Form. However we were informed that
we should obtain three quotes to accompany the Claim. I
tried to get quotes from local builders but none seem ed
to be interested.
9. So I decided in March 1999 to lodge the Insurance
Claim Form anyway following advice from an officer of
the Department of Fair Trading.
10. I eventually obtained 3 or 4 quotes from builders.
11. At no stage did we realise that our claim should have
been submitted earlier.
25) With respect to the problems caused by the cracking in the house,
Mr Rich said:
a) that the bed in his eldest daughter’s bedroom had to be
moved because:
i) the wall moves, and
ii) moisture penetrated during winter.

16. b) in winter, mould forms throughout the house and
condensation drips off the windows.
c) when windy, drafts circulate throughout the house. This is
so despite efforts to stop drafts, by fitting rubber seals
around the doors and using snakes to block gaps under
doors.
d) that there are constant drafts in his bedroom making it was
necessary to have the heater on all the time in the cooler
months.
e) that water comes down the bathroom’s walls.
f) that his daughter’s rooms are cold despite the fact that the
roof is insulated.
g) that some of the cracks in the house are visible both
internally and externally.
26) Mr Rich gave evidence of two meetings with Dr Kanan of PPK
Consultants, expert consultants retained by the Respondent. In
view of the conclusions I have reached it is not necessary to
outline that evidence of determine the conflicts it raised between
Mr and Mrs Rich’s recollection of those meetings and Dr
Kanan’s.

17. 27) Mrs Rich also gave evidence of the first inspection by Dr Kanan
from PBK. As to the effects of the condition of the house on
their day to day life, Mrs Rich said:
a) that her children get coughs and colds regularly, as do the
whole family.
b) the walls are wet and mouldy, and they have spent a large
amount of money cleaning them. The windows are wet and
drip continually.
c) the house is cold and wet.
d) the house is breezy and despite efforts, they are unable to
locate the source of the drafts.
e) they have been so cold in the house that they have changed
their heating from electric to gas.
f) that their daughter Courtney’s room, which is at the rear left
hand side of the property, is always damp: there is water on
the windows, mould on the ceiling and walls. They had to
remove her bed from the walls because the bedding was
getting damp and mouldy.
g) the heating is on every day in the cooler seasons.
She described living in the house as depressing.

18. 28) There was considerable expert evidence called by both parties as
to the nature and cause of the defects in Mr and Mrs Rich’s home.
Before turning to that evidence it is convenient to refer to the
evidence of Mr Tierney and Mr Burnes, who both worked on the
construction of the house. Their evidence had a considerable
impact on the Tribunal’s consideration of the expert evidence.
29) Mr Tierney is a concreter /handy man. He said that in
constructing both the Rich and Shiller homes, a system called the
Australian Litebrick Company System was used. This involved a
cement slab being laid, into which holes were drilled, with rods
then glued into the holes at regular distances. Mr Tierney said
that the rods, once glued into the holes, were very firmly fixed.
He called these rods the “set-out rods”. They were 1m high.
30) Once the rods were drilled into the slab, the first course of Hebel
bricks was laid in a course of mortar to provide an even surface.
When an even surface had been achieved, Hebel blocks were put,
one over the other, on top of the steel rods and dry stacked,
without the use of adhesive or mortar. The set out of the rods
and the bricks was in accordance with a colour-coded plan
provided by the Litebrick Company. The bricks were made in
such a way that they were keyed into each other, having tongue
and grove ends. Each brick had holes drilled through it so that
the brick could be inserted over a rod if necessary.

19. 31) The construction of each house proceeded with the Hebel bricks,
as modified, being dry-stacked. When they were laid to a level
where they had reached the top of the 1m high set-out rods, a
connecter was used to add a further metre of height to the rods.
This was a simple process as the rods were threaded, and it was
simply a matter of using a connecter to screw the two together.
This process continued until the walls reached the desired height.
At this point, a top plate of timber was drilled and fitted over the
top of the set-out rods. Washers, bolts and nuts were then fitted,
and the walls were tensioned down. Mr Tierney said that there
was no adhesive used on the walls externally. He said it was his
understanding that Council had been told of the method and had
approved it.
32) Mr Tierney said that the set-out rods were placed at varying
distances apart depending on where they were sighted, at
distances of between 1200mm down to 450mm in the corners.
Mr Tierney said that he thought that the houses had been designed
by Mr Carpenter, a local architect. Mr Carpenter’s plans had
been given to the Litebrick Company who had prepared a laying
plan for the Hebel bricks, which was colour-coded showing which
bricks, of what size, were to be use d where. Mr Tierney said that
in laying the bricks at both houses, these plans had been followed.
He did not know if Mr Carpenter was aware that the bricks were
to be dry stacked.

20. 33) Mr Tierney was cross-examined extensively by Ms Kennedy. In
the course of cross-examination, he told of how he, his partner Mr
Burnes and a local builder, Mr Kuster, had come to be involved in
the formation a company, Ferbane Pty Ltd, which had developed
the Rich and Shiller homes using the Australian Litebrick
Company construction method. Much of the evidence given by
Mr Tierney assisted the parties in finding further information
about the construction method, but is not relevant to my
determination of the issues in this case.
34) In cross-examination Mr Tierney said:
a) CSR Hebel manufactured the bricks for the Australian
Litebrick Company;
b) the Australian Litebrick Company drilled the bricks at its
own premises: he did not know if CSR Hebel was aware of
this;
c) that Hebel bricks were extremely water resistant and that an
external coating, created by Edgar Lucth from Queensland,
called ‘Supa Coat’, was used as render. This involved the
application of a blue substance to seal the bricks before
putting on a render of Supa Coat. The blue coating stopped
flakiness and provided a surface for the Supa Coat to be
applied to. Mr Tierney said that the Supa Coat used on the
Rich’s property was different to that used on the other

21. properties as it contained more pebbles and provided a
rougher texture.
d) with respect to the internal walls of the properties, these
were not constructed using the Australian Litebrick method,
but Hebel’s ordinary method as the bricks were extremely
thin and could not be drilled. Hebel glue was therefore
used on all internal walls.
e) where internal walls abutted onto external walls, no ties
were used, but the internal walls were fixed to the external
walls by using Hebel glue.
f) that the only information the Australian Litebrick Company
provided to he and his partners about the building system
were the colour-coded plans.
g) that when working on the Rich’s home he had done a bit of
everything including laying the bricks, fitting of set-out
rods, as well as the cement work around the house.
h) there was a damp course at the property. He comment ed
that the Council had inspected the footings.
i) with respect to the specification of the building, that he was
never shown the specifications, but that he knew the Council
was aware of the system being used, because there had been
a meeting with Mr Page, the Building & Health Inspector,

22. from the Council, explaining how the system worked. It
was put to him that the specifications given to Council
showed that the bricks were to be glued. He agreed that
this was the case, but said that the first time he had seen the
specifications was the day before he gave evidence.
35) Mr Burnes, also a Concreter, gave evidence, that he had worked
on the construction of these dwellings. He said that the
brickwork was dry stacked, on threaded rods, at distances of
between 600mm & 1200mm. These rods were chemically
anchored into the slab and, when the bricks had been dry stacked,
were bolted down using the specifications provided by the
Litebrick Company. Internally, the walls were 100mm thick.
The blocks had a tongue and groove on them which enabled them
to be fitted together.
36) Mr Burnes confirmed Mr Tierney’s evidence that the Litebrick
Company drilled a hole in the Hebel blocks at its premises across
the road from CSR Hebel in Gosford. He was unable to say
whether CSR knew that the bricks were being drilled or were
being used without adhesives. He said that the Council knew of
the method of construction because when they inspected the
footings, they would have seen the dry stacked brick blocks above
and below the footings. When told that there were specifications
that said that the walls were to be glued using adhesive, he said

23. that it was news to him. The specifications did not reflect what
really happened.
37) In cross-examination, Mr Burnes recalled a meeting with Mr
Page, the Building Inspector, Mr Jackson from the Australian
Litebrick Co, Mr Kuster and Mr Tierney where the method of
construction was discussed. He could not recall what was said.
38) Mr Burnes said that the render on the houses were provided by Mr
Lucht, who came down while they were building Rich’s home and
showed them how to use his products. The outside render was
trowelled on while the inside was sprayed on. He agreed that a
blue substance was first applied. He did not know whether the
render was CSR approved. He was asked about how the internal
and external walls were secured to each other where they abutted.
He said there was tie every 2nd
course and a thin layer of glue.
39) The evidence given by Mr. Tierney and Mr. Burnes in the course
of the hearing as to the method of construction, provided levels of
detail and access to information which had not previously been
available to the various expert witnesses retained by the parties.
That evidence led each of those experts to reassess their
respective opinions to various degrees.
40) There was a six week period following that evidence up to 5
October 2000 for them to do so. These inquiries led to an
affidavit sworn by Mr K uster, the builder of the house, being filed

24. on 3 October 2000 (and tendered 5 October 2000). Attached to
the affidavit were a series of documents concerning the Lite Brick
system which Mr. Kuster said had been in his possession and had
been given to the Young Council. These were:
a) a uniform distributed load test report on Hebel – Litecrete
from the CSR Concord Research & Development Centre
(undated);
b) a report dated August 1991 from Associate Professor A. W.
Page of the University of Newcastle reporting test results on
AAC “Litebrick” Panels;
c) a copy letter dated 26 November 1991 from the Brisbane
City Council to Lite Brick Holdings Pty Ltd advising that,
…approval is granted to use the Lite Brick A.A.C. Building
System in the Brisbane City Council Area provided the
System is used strictly in accordance with the
Manufacturer’s and Engineer’s recommendations.
d) a copy letter dated 18 December 1992 from the Queensland
Department of Housing Local Government and Planning to
Lite Brick AAC Holdings Pty Ltd advising that the Lite
Brick AAC Building System had been approved for use in
the Departments construction program -
…subject to the following:
 System is to be installed strictly in accordanc e with
technical information supplied with original
submission.

25.  “Supa Coat” textured coating is to be applied to the
AAC block by approved applicators only and is to be
applied in accordance with information supplied with
original submission.
 approved licensed block layers only are permitted to
perform work associated with the system.
e) a undated document entitled “Design Data for Processing”;
and
f) a copy undated letter from Graeme Holmes & Associates Pty
Ltd, Consulting Civil & Structural Engineer s explaining the
Litebrick Wall System.
41) In outlining the expert evidence I consider it necessary to have
regard to the initial opinions given by the various experts and
how they changed in the light of this information.
42) The Applicant called Mr Rendell who in evidence in chief was
taken through his report in some detail. He said that he
concluded that the property was suffering from major structural
defects for a number of reasons. These were:
a) Non-compliance with Ordnance 70 in relation to special
masonry.
b) Rain and water was not prevented from entering the
dwelling.

26. c) Non-compliance with the manufacturer’s specifications with
respect to damp-proofing, dry-beds, wall intersections, the
absence of fibre- glass matting, and the presence of tie-rods.
d) The fact that the bricks had been dry-stacked and that no
adhesive had been used to bind them. He acknowledged
that the tie-rods – set-out rods - fulfilled this function in
part.
Mr Rendell said that he did not consider that the structure was
structurally sound, or serviceable.
43) In cross-examination, it was put to him that the non-compliance
with Ordnance 70 was not a true non-compliance as the
certificates he said he would require were discretionary only. He
was asked about his experience in working with Hebel bricks and
listed a large number of projects where Hebel had been used of
which he was the project manager. He said that in the last 12
months, he had had to investiga te the use of Hebel on a number of
occasions and it was only in that time that he had investigated
them deeply. It was put to him that the specifications for the use
of Hebel had changed dramatically since 1991/92 when these
dwellings were constructed and now. He agreed that he had used
edition 6 of the Hebel manual in preparing his report, and had not
seen editions 3, 4 & 5. He had spoken with Michael Sabe from
CSR to see if they had changed dramatically.

27. 44) Mr. Rendell agreed that structural codes were aimed at securing
four essential elements – strength, stability, durability and
serviceability. It was put to him that the strength of the structure
had not been compromised – he disagreed, cited a number of
items in his report. He thought that the cracking was the most
obvious example of this.
45) He was asked on what basis he had concluded that the Hebel
bricks had been dry-laid. He said this was on the basis of a
non-invasive examination by him and on the report from Mr
Simpson. He said that he had examined those bricks that he
could see, and could see no sign of adhesive between the blocks.
46) He was asked on what basis he concluded that there were no ties
between abutting walls. He said that where there were vertical
cracks between abutting walls, it should be possible to see ties.
His examination of the cracks between abutting walls – that is
where external- internal walls abut external walls - had showed no
evidence of ties. He qualified his statement by saying, that was
not to say they were not there, but that he could not see any when
he would have expected to.
47) He said that single-skin walls, should not be regarded as
impervious to rain and needed to be rendered or sealed. This was
the purpose of the rendering. He put the bubbling of the render
around the edges of the Rich’s property down to one of two
causes: rendering inappropriately applied or the wrong render.

28. 48) It was put to him that mesh reinforcing control joints and slip
joints were not required by the Hebel manual at the time of the
construction of the building. He said that he was not aware of
this. He agreed that if mesh reinforcing had not been required,
he would not have used it, but was not prepared to concede as
much with respect to control joints and slip joints. He described
these as common building practice.
49) He was questioned about his views of crack width and reliance on
the Australian standard to determine that crack width indicated
structural damage. In reply to this, Mr Rendell said that the
number of cracks and their size, in the context, indicated a lack of
structural integrity. He qualified this by saying that he was not
saying that the walls could not hold the roof up, or that they were
not stable, but their serviceability was poor.
50) It was put to him that the paths around the property were higher
than the damp course, thereby allowing surface water to enter the
walls. He said that this might be the situation at the side, was
the situation at the front, but was definitely not the situation at
the rear of the property. This is so as the damp course at the rear
was 3 or 4 brick levels above the concrete pathway. He had
taken moisture levels at a spot above the damp-course and had
found readings of 99.9, the highest possible, and 77.7.
51) Mr Rendell gave further evidence ( following my granting the
Applicant leave to re-open their case) on 5 October 2000. In

29. doing so he was taken through a further report dated 3 October
2000 which outlined his opinion having taken into account, and
investigated, information obtained about the Litebrick
construction method.
52) Mr Rendell said that upon receiving design data for the use of the
Litebrick construction method – obtained by the Respondent’s
experts - he had gone to the Rich’s home to examine the state of
the fastenings. He had removed some of the roof tiles, at both
the front and back of the house, and cut back the sizillation in
order to get a clear view. Of major concern, he found:
a) the wooden top plate is not F17, seasoned, kiln dried
hardwood as specified in the design data, but F8 pinus
radiata, a softwood.
b) in two places on the front elevation of the house he found
that the top plate had a thickness of less than 23mm,
whereas the design data specified that in no instance was the
top plate to be less than 35mm thick.
c) the top plates where they abutted were not spliced as
specified in the design data. In the instance he observed
there was,
… just a rough, out-of-square, out-of line, butt joint with
a 3-4mm gap. The only tie between the two top plate
members were 2 X jolt head nails, both skewed from one
member to the other.

30. This meant that there was no continuity of top plates around
the building’s perimeter as specified in the design data.
d) that of the 10 rods he examined at the Rich’ s house he could
turn the nuts on 8 by hand. None of the nuts were
tensioned to the specified level of 15kN. One nut was so
loose that he could insert a 20c coin under the washer.
e) none of the tie-rod bolts he examined was fitted with “load
indicating washers” as specified, and the washers fitted were
undersized.
f) the rods were randomly spaced, invariably at greater
distances than those set out in the design data.
g) none of the piers he observed were reinforced with fibre
glass as specified in the design data.
h) the masonry pier in the north-east corner of the house which
supports a lintel spanning an opening of 1800mm, has only
one tie-down rod. This does not comply with the design
data requirement that there be, “2 X Member rods either side
of all openings 1200mm or wider”. That pier also was not
as wide as specified.
53) Mr Rendell concluded that the large number of non-compliances
with the Litebrick design data had most likely led to the defects
set out in his first report. He was of the view that the

31. non-compliances constituted a major structural defect. He
remained of the view that the defects enumerated in his first
report still constituted major structural defects, the damage being
inherent and defect induced as a result of the failure to comply
with the design data.
54) The following points emerged from Ms Kennedy’s second
cross-examination of Mr Rendell:
a) he had tested the nut tension on 10 of the rods.
b) he was unable to say how many rods there were in the
structure as they were set out randomly.
c) that the design data recommended the set out of rod centres
rather than specifying them.
55) Ms Kennedy challenged Mr Rendell’s conclusions that the
problems he had discovered following receipt of the Litebrick
design data were responsible for the defects set out in his first
report. Mr Rendell said that the fixing and top-plate problems
were logically responsible for the cracking, which were the result
of the cumulative effects of that poor work. The Litebrick
system relied on tensioning to provide the structural stability
which Hebel constructions normally gained from the use of
adhesive. The absence of tensioning, together with the other
non-compliances, had, in his opinion, led to the cracking. Mr

32. Rendell agreed that he would always refer such questions to an
engineer, but commented that ‘basic logic and experience tells
me’ that that the construction defects led to the cracking.
56) Mr Rendell was questioned further about the Table of
Classification of Damage with Reference to Walls – Table C1 of
Appendix C of AS 2870-1996 ‘Residential Slabs and Footings –
Construction’ – a copy of which is annexure 1 to these reasons.
It was put to him that the cracks in the walls at the Rich’s house
were damage category were 1 and 2 cracks and that they were not
structural. Mr Rendell disagreed saying that a degree of
judgement had to be applied when applying the Table, as is
indicated in the notes to the Table. It remained his view that the
cracks were of damage category 3 because of the nature of the
construction of the walls, the effect of the cracks on living
conditions in the house, and his conclusion that the cracking was
likely to deteriorate.
57) Mr Shayler, the National Technical Manager of CSR Hebel, and a
Civil and Structural Engineer gave evidence on behalf of the
Applicant. He did so before the evidence of Mr Tierney and Mr
Burnes was led, and without the benefit of knowing of, or seeing,
the material attached to Mr Kuster’s affidavit. Mr Shayler has
been the National Technical Manager for CSR Hebel since August
1998, and two reports he had written, dated 27 July 1999 and 31
July 2000 respectively were tendered. It was Mr Shayler’s view,

33. having inspected Mr. Rich’s property on 28 March 2000, that
there was cracking in both the exterior and interior walls, and that
the exterior coating on the premises had failed. Mr Shayler said
that in his opinion the house was not structurally sound as the
Hebel bricks had been dry stacked, without the use of adhesive.
He explained the strength of AAC Hebel structures was dependent
on the bonding of the block created by adhesive. CSR Hebel had
never tested dry stacked walls and it was difficult to predict the
effect of the absence of adhesive. Mr Shayler also noted that the
absence of both slip and control joints in the structure would
contribute to its instability.
58) In cross-examination Mr Shayler was asked on what basis he
concluded there was no adhesive used in the construction? He
replied that a number of factors had led him to do so. First, the
report by Mr Simpson said that no adhesive had been used.
Other indications of the absence of adhesive were:
a) that many of the cracks in the house followed the jointing
pattern. Mr Shayler was of the view that this was unusual
unless there was no adhesive.
b) the adhesive was not visible, and should be so as it should
have been applied so that it was 2 to 3mm thick.
Ms Kennedy challenged Mr Shayler as to the thickness of
adhesive required, suggesting that at the time of construction a

34. thickness of only 1mm was required. He denied this. She put to
him that it was highly unlikely that the walls were dry-stacked,
and that his conclusions as to the structural integrity of the house
would differ if the walls were not dry stacked. Mr Shayler
maintained his view that the walls were dry stacked.
59) Ms Kennedy challenged Mr Shayler on his views with respect to
slip and control joints, and the requirements for them in the Hebel
Technical Handbooks. Given the later evidence that the house
was constructed in accordance with the Lite Brick System design
data, I consider that evidence to be of little relevance.
60) Mr Simpson, a consulting civil and structural engineer was called
by the Applicant. His reports of 18 September 1999 and 30 May
2000 were tendered. Mr Simpson had inspected a series of house
constructed in Young by Mr Kuster, including the Rich and
Shiller homes, in May of 1998. He had determined the method of
construction by examining photographs of the houses under
construction and by questioning an owner who had observed the
construction.
61) His understanding was that the houses were constructed of dry
stacked Hebel bricks as a single skin, with 12mm steel reinforcing
rods at 900mm centres. He assumed that there were reinforcing
bars as the roofs had not blown off. On his inspection in 1998 he
observed a consistent pattern of cracking in all houses, which
followed the joint line – the weak point - between the Hebel

35. blocks. He commented that if there was adhesive he would not
expect the cracking to follow the joint line. In his report of 18
September 1999 he commented that:
Hebel blocks should be laid using thin bed adhesive between
all blocks as recommended by the manufacturers CSR Hebel.
Alternatively, it is possible to construct the walls with the rods
and no adhesive provided reinforcing mesh is used over all
block joints during the rendering process. This method is
sometimes used in Queensland.
62) Mr Simpson said that the walls did not provide a full
weatherproof seal. He was of the view, given the method of
construction, that the cracking would get worse. This was so as
the Hebel blocks would be compressed and shrink over time,
which together with a loosening of the tie bars, would allow
further movement.
63) In cross-examination it was suggested that the cracking evident in
the houses were settling cracks. He replied that the houses were
built on moderately reactive clays, and that he thought settling
cracking would be minimal. He agreed with Ms Kennedy’s
proposition that there were four elements to structural adequacy:
strength, stability, durability and serviceability. He accepted
that the first three were evident in the houses, but was of the view
that the houses were not serviceable as they were not
weatherproof. Mr Simpson was challenged on this conclusion.
He said that if a Hebel wall was properly constructed and
rendered, no extra waterproofing should be necessary. In his
view this was not the case with these houses. He was referred to

36. the reports prepared by PPK Consultants and by Mr Rendell, both
of which he had read. It was put to him that the cracking was all
category 2 cracking for the purposes of AS 2870-1996, and that it
was not structural. In reply Mr Simpson said that in his view AS
2780-1996 did not really address the issue of serviceability and
habitability. In any case, a distinction needed to be made
between a single skin wall such as existed here and cavity walls
or brick veneer constructions. While category 2 cracking may be
acceptable in cavity walls or brick veneer constructions, in his
view it constituted a major problem in single skin walls. It was
put to him that the cracking would be considerably worse, if there
was no adhesive used with the Hebel bricks. He maintained his
view that there was no adhesive used, although he did qualify this
by saying that he believed adhesive was used around the windows.
64) Mr Simpson was not recalled to give further evidence after the
design data for the Lite Brick construction method came to light.
A further report from him was however tendered, by consent, on 5
October 2000. That short report dated 4 October 2000 was
written after Mr Simpson had read Mr Rendell’s report of his
investigation of whether the Rich and Shiller homes complied
with the Lite Brick design data. He wrote:
The Rendell Report compares the as built building method
used on the said premises against the specifications for the
construction method adopted as outlined in the document titled
“Tests of AAC Litebrick Panels”, the report by Graeme Holmes
& Associates Pty Ltd and the document titled “Design Data for

37. Processing” plus other reports as mentioned in the
supplementary report.
In general the writer concurs with the conclusions of the
Rendell report. The total lack of pre-tensioning in the vertical
wall bars combined with the lack of tensile strength in the
render (as evidenced by the extensive render cracking) means
that the walls as a major structural element contain major
structural defects from both a strength/stability viewpoint as
well as a weatherproof/habitability viewpoint. The walls in
these two houses have not been constructed in accordance
with relevant specifications.
65) The Respondent called two expert witnesses both from PPK
Environment & Infrastructure Pty Ltd. The first was Dr Kanan, a
Senior Structural Engineer, whose evidence was interposed
during the Applicant’s case, after Mr Tierney and Mr Burnes had
given their evidence.
66) In evidence in chief Dr Kanan said that he had inspected the
Rich’s house on 16 December 1999 on instructions from the
Respondent. While there he had taken extensive notes and taken
photographs of what he observed. He recalled that when he had
arrived, he had sat down at a table with Mr and Mrs Rich and
discussed with them what he intended to do, and had asked them
about various bits of information he needed. He had then started
the inspection. Mr Rich had originally accompanied him. When
he finished, he had again spoken with Mr Rich who had asked
when the report would be ready. He had told him it would be 2
or 3 weeks. Dr Kanan could not recall exactly what was said.
He thought Mr Rich might have asked if it was structural, in
which case he would have told him he would get a copy of the
report from the Department. Dr Kanan said he recalled

38. discussing living in Queensland with Mr Rich. Mr Rich had
offered to drop Dr Kanan back in town, which offer he had
accepted.
67) Dr Kanan said that when he returned to his office he had prepared
a draft report, which he had discussed with his principal, Mr
McNamara. After that discussion the final report had been
finalised between the two of them.
68) Dr Kanan had met Mr Rich again on 4 April 2000 when preparing
a report on the Shiller’s house. By that time he had completed
the Rich’s report. He said that Mr Rich had approached him and
asked how things were going. He had replied that there was
another problem, referring to the Shiller’s house.
69) Much of the cross-examination of Dr Kanan was directed to the
inconsistencies between his recollection of the event of 16
December 1999 and 4 April 2000, and that of Mr and Mrs Rich.
Given the conclusions I have reached, it is not necessary to set
out that evidence in these reasons. Dr Kanan was asked why he
had not signed the report form PPK, if it was his report. He
replied that the practice at PPK was for the investigating engineer
to prepare a draft report, which was then discussed and refined
together with the principal – in this case Jim McNamara – who
acts as a quality assurance reviewer. The principal then signs
the final report. He said that his draft report and the final report
were the same, apart from editorial and grammatical corrections.

39. He was unable to produce a copy of his draft as the reports were
not saved by versions.
70) The other expert called by the Respondent was Jim McNamara the
Principal Civil/Structural Engineer with PPK. Reports signed by
Mr McNamara relating to the Rich's house and dated 1 February
2000, 11 August 2000, 12 September 2000 and 22 September
2000 were tendered. In evidence Mr McNamara explained that
PPK has a “very vigorous” reporting system which allows it to
report in a “uniform and consistent” manner. This procedure was
followed with both the Rich and Shiller houses. Dr Kanan had
conducted a thorough survey inspection of the properties and had
then drafted a report based on the observations he had made.
That report had been discussed with Mr McNamara and then
redrafted by Dr Kanan, until it met with Mr McNamara’s
approval. He had then sighed the report. “I effectively prepared
the report”, said Mr McNamara. He had since inspected the
house, when the Tribunal conducted a view of the property during
the hearings conducted in Young in August 2000.
71) Mr McNamara said that the findings of the initial inspection of
the property (conducted by Dr Kanan) was numerous cracking in
the property which could be broken down into three types:
a) vertical and diagonal cracking;

40. b) block wall joint cracks which followed the path of the block
joints; and
c) render cracking.
72) Mr McNamara explained that cracking is caused by a combination
of movements within the structure:
a) roof timber shrinkage;
b) concrete slab shrinkage;
c) differential movements, resulting from the daily expansion
and contraction of materials due to heat and cold; and
d) foundation movement and reactive movement.
Any masonry wall, he said, will have some cracking - the current
code considers 1mm acceptable. In the both houses, Mr
McNamara said that the various cracks could be attributed to
various causes. Thus cracks one course down from the roof were
due to roof movement, while the diagonal cracking was typical of
settlement cracks, which wall shrinkage could often exacerbate.
73) Mr McNamara said that the walls constituted a major structural
element of a structure, with an important structural role as well as
a functional role. Mr McNamara said that when he wrote the
first report he expected the walls to have been properly glued, and
considered that the cracks did not affect the load carrying

41. capacity of the walls. Walls, he said, have to be strong enough
to carry the load placed upon them, they have to be durable,
stable and serviceable. The structural codes set out the basic
criteria required to meet these objectives. He concluded that the
Rich's house was stable, strong, durable and serviceable, and,
based on the foundation code Table in AS 2870-1996, that the
cracking was minor. His view was that the cracking at the Rich's
house was not significant, although he conceded that that might
not be the case for those living there.
74) Mr McNamara had addressed the issue of the absence of control
and slip joints in his report of 11 August 2000. His view that
was that there was no requirement for control or slip joints in the
Rich's property at the time it was constructed. In his report of 11
August 2000 he had undertaken a comprehensive review of the
codes and the relevant Hebel technical manuals applicable at the
time before reaching this conclusion. He explained that at the
time he had undertaken this analysis he believed that the house
had been built in accordance with CSR Hebel recommendations.
He thought the rods referred to in Mr Simpson's report were tie
down rods for the roof, which would have been drilled, and faced,
down the inside face of the walls. The first time he knew this
was not correct was when he heard Mr Tierney and Mr Burnes
give their evidence to the Tribunal. It is informative to set out
what Mr McNamara said about this in that report:

42. Mr Simpson states that 'no mortar was used between the
blocks". The basis of this statement is unclear although his
earlier report on four houses in the Close (April 1998) also
states the "reported" absence of adhesive on the external
walls but the use of thin bed adhesive on the internal walls.
The PPK inspection noted that all faces of the walls were
rendered and it was generally not possible to see any jointing
in the blocks. The one area where external block walls are
exposed appear to be properly bonded. Such a statement of
reliance on steel rods to stabilise the walls seems unlikely
because:
• the walls would be highly unstable without the adhes ive. It
would be possible to easily push over wall or push out
individual blocks;
• the 12 mm rods which are required to hold down the roof
would supply minimal benefits to wall strength and
stability;
• a tradesman who applies adhesive to the internal wall is
unlikely to omit it on the external walls;
• the building would have been seen by Council inspectors
and other tradesmen prior to wall rendering. Any
experienced person would have strongly questioned the
absence of adhesive; and
• the specification for the work included in Young Council's
files indicates that the work was to be carried out by a
CSR Hebel approved Contractor (Mr Kustor) and that the
workmanship was to be of a type approved by CSR Hebel.
The statement that the un-mortared joints was the genesis of
the cracks is inconsistent with the fact that the claimed
adhesive fixed internal walls show a similar level of damage as
the claimed dry fixed external walls.
The second point of concern raised relates to the waterproof
performance of the wall. None of the inspections have
identified telltale evidence of rain entry to any walls. Also the
current masonry code AS3700 – 1998 states that for an
external single skin wall reliance for waterproofing should be
placed on an applied costing. Failure of that coating, if it has
occurred, is not a structural failure.
Mr Simpson therefore based his conclusion of a structural
defect on a seemingly erroneous assumption.

43. 75) With respect to the issue of whether the dampness at the house
was a result of the absence of a dampcourse, Mr McNamara said
that in an earlier report he had canvassed the possibility that there
was no dampcourse. He now accepted that there was a
dampcourse, in the light of the evidence to the Tribunal, but
considered that the height of the path at the front of the property,
above the dampcourse, was a cause of rising damp.
76) Mr McNamara was taken to his report of 11 September 2000
which sets out his assessment of the structure in the light of full
information about the construction methods used, and with the
benefit of the design data and test reports on the Lite Brick
system. He said that following brief discussions with Professor
Page and Mr Holmes, he had concluded that the Lite Brick system
offered a level of structural equivalence with Hebel construction
methods and he concluded that the structure was properly fixed.
His report states his opinion:
Evaluation of Wall Strength and Stability
From the Tribunal evidence that the internal AAC walls were
constructed with thin bed adhesive and the previous
evaluations of their defects I reconfirm that the defects in
thes e walls are 'General Defects' in accordance with Clause 31
of the Building Services Corporation Regulation 1990.
I also confirm that the defects in external walls as constructed
utilising the 'Lite Brick' wall system are also 'General Defects'
in accordance with the regulations based on the evidence
provided to the Tribunal, the above documentation and
telephone discussions. These confirm the likelihood of
adequate structural stability and strength for the external AAC
walls and a structural equivalence to the thin bed adhesive
walls which were previously assumed in and accepted as

44. structurally adequate in my earlier analysis. The basis of this
opinion is:
• that the external walls have performed structurally
adequately for the period of approximately eight to nine
years since their construction. By structural adequacy I
refer to the ability to support, without obvious distress, the
applied loading including win earthquake or accidental
impact.
• the level of defects in the external walls which, although
slightly higher than the internal walls, can be attributed to
the more severe environmental conditions that the external
walls are subjected to - particularly ground movement,
material shrinkage and temperature and moisture effects;
• the system adopted by Lite Brick Holdings utilises
prestressing principles which are commonly used and are
well understood in structural engineering. Whilst we do not
have the design drawings and a record of construction
relevant to the above property I understand from
discussions with Graeme Holmes that special engineering
designs were prepared for each house layout to ensure the
structural adequacy of the walls. The evidence provided to
the Tribunal gave no indication of any short cuts to these
requirements during the construction of the walls;
• the fact that testing undertaken by University of Newcastle
and CSR confirms this structural adequacy confirms the
serious and professional approach adopted by Lite Brick in
proving the structural adequacy of the system. The fact
that both the Brisbane City Council and Queensland
Department of Housing, Local Government and Planning
have independently reviewed and have ac cepted the
system gives an additional level of confidence in the
system;
• I have presented the opportunity during discussions with
Professor Page and Mr Holmes to raise any concerns that
they may have with the system which may have been
gained through their experience in evaluating the Lite
Brick system. Whilst clearly neither engineer was in a
position to endorse the system they also did not nominate
any areas of concern.
Because the substitution of stressed rods and vertical block
keys are structurally equivalent to the adhesive jointed blocks
it is not surprising that these two wall types have cracked
similarly. As stated in the previous assessments the cracking
of these houses are consistent with movements within and
adjacent to the walls. These mechanisms include:

45. • foundation movements - both settlement and ground
heave;
• shrinkage of the blocks - a known phenomenon with AAC
materials-
• temperature effects;
• shrinkage of the ground slab;
• moisture movements in the roof trus ses.
As stated in previous reports the cracking in the walls is a
result of site environmental conditions including temperature
and moisture changes, ground movement and natural material
shrinkage and expansion. Because regular vertical control
joints and horizontal slip joints were omitted from the masonry
wall construction these movements could not be readily
accommodated in the walls without causing cracking. These
joints were not a requirement of building practice at that time.
Because relatively shallow foundations were constructed in
accordance with building ordinance requirements of that time
the vertical movements in those walls is greater than a
building designed in accordance with the current Building
Code of Australia requirements.
Whilst these cracks are unattractive and causes obvious
discomfort to the residents they do not weaken the wall and
are unlikely to lead to premature failure of the house. it is also
relatively simple and inexpensive to repair these cracks with a
suitable flexible sealant which will, after repainting, address
any visual and climatic concerns. Future cracking should be at
a relatively reduced scale to that of today.
77) Mr McNamara then turned to the impact of the findings made by
Mr Rendell as to how the structure failed to comply with the Lite
Brick design data. Specifically, he considered the absence of
proper top plate splicing, and the lack of tension in the tie rod
bolts to be of major concern, and to put the structura l stability of
the building in doubt. As to the other non-compliances detected
by Mr Rendell, he was unable to say what impact they may have
on the structural integrity, but did think that they might possibly
exacerbate the problems created by the top plate splicing and lack

46. of tie rod tensioning. Mr McNamara said that he did not lack of
stressing force in the walls, created by the failure to tension down
the walls as specified. He was of the view that the looseness in
the walls created by the lack of tension, should have enabled
micro- movement between the blocks, and not led to the cracking
that was evident. He remained of the view that the cracks were a
mixture of settling cracks and movement cracks associated with
shrinkage and normal expansion and contraction.
78) In cross-examination Mr McNamara agreed with the suggestion
that with the Rich's house the failure of the render would make
the structure less strong. He also agreed that, with dwellings,
the concept of serviceability of a structure implie s that it be
reasonably habitable, and that one of the functions of a wall is to
keep the elements out. He agreed that he had done no
independent checks to see if the Lite Brick System was followed.
79) In addition to the large volume of evidence presented to the
Tribunal, I also had the advantage of a view of both the Rich and
Shiller houses.
Discussion of the Evidence
80) There is little dispute as to the factual background to this appeal.
What is hotly in dispute is the nature, extent and cause of the
defects in the Rich's house, and whether or not the cracking alone
constitutes a major structural defect for the purposes of the BSC

47. Comprehensive Insurance Scheme. To resolve the later, I must
first determine the nature, extent and cause of the defects.
81) There are two strongly divided views as to the nature and severity
of the cracking among the various experts called by the parties.
Mr Austin and Mr Rendell are of the view that the cracking is
structural, and results from the method of construction. They
think that the problems of non compliance with the Lite Brick
design data highlight and go some way towards explaining the
cracking, while creating serious issues as to the structural
stability of the houses themselves. Mr Rendell, while the only
professional witnesses without an engineering qualification,
tenaciously chased down the defects and provided much of the
information upon which the others formed their opinions. At all
times both Mr Austin and Mr Rendell had a clear idea of the
construction method used to build the houses, and based their
findings on that knowledge. The only facet of the construction
method they had not discovered, before Mr Tierney and Mr
Burnes gave their evidence, was the keying of the blocks. Mr
Shayler, from CSR Hebel, agreed with their earlier conclusions,
on the assumption that their understanding of the construction
method was correct.
82) Dr Kanan and Mr McNamara took the opposing view that the
cracking was relatively minor. Mr McNamara did agree that the
failure to properly splice the top plates, and to tension down the

48. tie rods constituted a serious structural problem. He insisted,
however, that the cracking was not related to these defects.
83) If one closely examines the reports submitted by PPK a number of
things become clear:
a) in the first report, of 1 February 2000, the assumption is
made that the building was constructed in accordance with
normal Hebel methods. This is so despite the fact that the
authors had access to the Simpson report which clearly set
out Mr Simpson's understanding of the construction method,
and his sources. Indeed the PPK report addresses and
criticizes Mr Austin's report. No explanation is given as to
why it was assumed that the building was constructed in
accordance with normal Hebel methods, rather than as stated
by Mr Austin, who had made inquiries as to the method
used.
b) in the second PPK report of 11 August 2000 (quoted at
paragraph 74 above) Mr McNamara, who still had not
inspected the premises himself, commented on Mr Austin's
'reports' of the lack of adhesive, and listed a number of
reasons as to why the reported method of construction was
unlikely. This included a statement that, 'The one area
where the block walls are exposed appear to be properly
bonded'. This was something that neither Mr Austin or Mr

49. Rendell could see. It is also something I could not detect at
my view of the property.
c) the third report of 12 September 2000 (quoted at paragraph
76 above) addresses the issue of the impact of the evidence
given to the Tribunal that the house was built using the Lite
Brick construction method. As noted, this evidence did not
cause Mr McNamara to change his opinion. Of particular
interest is the fact that he reviewed and affirmed his opinion
without making any further inspections or tests at the house.
The problem, in not doing so, was highlighted by Mr
Rendell's discoveries when he did conduct further on site
investigations.
84) The other issue requiring comment with respect to the PPK
reports and Mr McNamara evidence is the methodology adopted in
preparing the first and second reports. While there is nothing
inherently wrong about an engineer, such as Mr McNamara,
giving an opinion based upon the observation of others, that
opinion is necessarily dependent on the accuracy and relevance of
those observations to the issues at hand, and is, of its nature,
likely to be given less weight by a tribunal of fact than a expert
report based on an expert's own observations: see PQ v Australian
Red Cross Society (1992) 1 VR 19 per McGarvie J. and Ramsay v
Watson (1961) 108 CLR 642. That is certainly my view when I
come to weigh the PPK reports against those of Mr Austin and Mr

50. Rendell, especially as a number of the assumptions and
observations which Mr McNamara and Dr Kanan relied upon were
proved incorrect.
85) I have little confidence in the PPK reports and in Mr McNamara's
evidence. The PPK opinions have been made on the basis of a
series of assumptions which proved unfounded. viz, the false
assumption that the house was not built as stated by Mr Austin,
and the later false assumption that it was built in accordance with
the Lite Brick design data. Expert opinion evidence to be
persuasive in cases such as this should be based on independent
inquiries and investigation, followed by expert assessment and
evaluation. I am persuaded that this was not the case with the
PPK reports. I conclude that while Mr McNamara's evidence and
reports may be uniform and consistent, they are not persuasive. I
prefer the evidence of Mr Austin and Mr Rendell, which does not
suffer from any of defects I perceive in that of Mr McNamara.
Application of the Law
86) In making submissions of law Counsel for both parties referred
me to a decision of Senior Member Fleming in Penn v Fair
Trading Administration Corporation [2000] NSWFTT 5 as to the
interpretation of the meaning of major structural defect in Clause
31 of the BSC Regulation. Senior Member Fleming wrote (at
paragraph 45):
Are the defects ‘major structural defects’?

51. To determine this issue the Tribunal must first consider the
meaning of the definition of ‘major structural defect’ found in
Regulation 31 of the BSC Regulations and set out above. To
facilitate this discussion it is set out again here:
““major structural defect” means an inherent or
damage-induced defect:
(a) in an element that provides essential
supporting structure to the whole or any part of
a dwelling (for example, a footing, beam,
column or a suspended slab) which renders the
element inadequate for its structural purpose;
or
(b) in a substantial functional element essential to
the habitability of a dwelling (for example, a
panel wall, masonry veneer wall or slab on
ground) which is of such a kind that the
element itself does not have adequate
structure for its purpose[s].”
The definition is in terms which convey that it is intended to be
comprehensive and exclusive, in for instance the use of the
word ‘means’; Sherritt Gordon Mines Ltd v FCT (1976) 10 ALR
441 at 455. At the same time each limb of the definition is to
be read disjunctively. The examples cited in each limb are
illustrative of the nature of the ‘element’ to which each applies
and they themselves are not exclusive.
… Regulation 31(1)(a) distinguishes ‘an element’ which has a,
singular, structural purpose. Regulation 31(1)(b) distinguishes
a ‘substantial functional element’ that may have inadequate
structure for its purposes.
…
The Tribunal accepts that the ‘element’ which is defective in
this dispute, with the exception of the retaining wall in the
garden, is the cavity brick wall of the house. The evidence
before the Tribunal is that this ‘element’ of the dwelling is
made up of an inner and outer brick ‘skin’, a cavity between
them which should be clear of debris, weepholes to allow for
water drainage and flashings covering joints to prevent water
entry. The Tribunal finds that the ‘cavity brick wall’ as a
whole is the element which is defective, and that the defect is
as a result of the poor standard of work carried out in
construction.
The evidence before the Tribunal illustrates the difficulties in
the definition of ‘major structural defect’ where an ‘element’ of
a dwelling may both provide ‘essential supporting structure’ to
the dwelling and be a ‘substantial functional’ element of the

52. dwelling. The Tribunal accepts that it is clearly wrong to
state that a cavity brick wall does not have a function in
keeping water from penetrating into the interior of the house.
However, at the same time the Tribunal finds that the two
limbs of the definition are directed at different aspects of a
building. Clause 31(1)(a) is, in the Tribunal’s view, directed
at those aspects of the building which are ‘essential’ to the
structural integrity of the building. Without them, the building
would not be structurally sound. It would be without ‘support’.
On the evidence before the Tribunal, a ‘cavity brick wall’ of a
‘cavity brick dwelling’ primarily provides the essential
structural support for the building. While it also functions to
prevent water entry its primary ‘structural purpose’ is to
support the building. Without the walls the building would not
be able to stand up. The Tribunal finds support for this view
in the wording of the definition and in particular in the
reference to ‘structural purpose’ in Clause 31(1)(a). The
Tribunal also accepts the evidence of Professor Marosszeky
that ‘structural purpose’ has a particular meaning in the
context of building, which refers to the ability of the building to
withstand the load placed on it.
Clause 31(1)(b) refers to the effect of the defect on the
‘habitability’ of a dwelling. However the examples contained
in this clause, namely a panel wall, masonry veneer wall or
slab on the ground, are all elements of a dwelling which,
according to the expert evidence before the Tribunal, relate to
non-structural aspects of the building. They are ‘substantially
functional’ in that they, for instance, prevent the transmission
of sound within the structure or provide protection from the
ground below or, in the case of a masonry veneer wall, provide
protection from the weather. To a lay person it is clear that a
building is not habitable without walls, be they cavity brick or
of some other construction. However, in the Tribunal’s view,
to interpret this in this simple way would be to misconstrue the
wording of the definition and to effectively encompass all parts
of the building within Clause 31(1)(b). As with the issue of
functionality all elements of a building may be said to affect its
habitability. A dwelling would similarly not be considered
habitable without a floor, ceiling, windows, roof, suspended
slab in the case of a multi story dwelling, or without the
supporting structures of beams, footings etc which ensured
that it was safe and structurally sound. The Tribunal is of the
view that the use of the word ‘habitability’ contained in Clause
31(1)(b) must be referable to the ‘substantial functional
element’ that is identified as defective. It is not intended to
also encompass structural elements of the building.
The Tribunal reads the word ‘element’ in Clause 31(1)(b) as
qualified by the words ‘substantial’ and ‘functional’. In other
words, the element itself must be a substantially functional
one to come within clause 31(1)(b). The example is given of
a masonry veneer wall. Evidence was given to the Tribunal
as to the difference between this and a cavity brick wall. In

53. the case of a masonry veneer wall it is the timber or steel
frame internal to the wall which fulfils the load bearing, or
‘structural purpose’, of the wall and the masonry veneer which
functions as weatherproofing. In this case, the purpose of the
masonry veneer wall is substantially functional.
The Tribunal is of the view that the cost of rectifying the
defective work is not relevant to whether the defect is a ‘major
structural’, or ‘general’ defect. In this case there is no
dispute that rectification work will be needed and that this will
be at a significant cost to the Penns.
87) Having given that passage a lot of thought, I am in substantial
agreement with the comments of Senior Member Fleming. I have
set the extract from Penn out at some length, as the remarks made
need to understood in the context of the structure to which they
relate. Ms Kennedy argued that Penn decided that where an
element provided essential supporting structure and was also a
substantial functional element essential to the habitability of the
structure, then it could only be classified as a major structural
defect under clause (a) of the definition, and not clause (b).
Thus, she submitted that even if I were satisfied that the cracking
in the walls (as a substantial functional element essential to the
habitability of the dwelling) meant that they did not have
sufficient structure for their purposes in terms of clause (b), I
could not find that this constituted a major structural defect
because the walls (as notified in the original claim) were adequate
for their structural purpose in terms of clause (a). This is so
because the Tribunal in Penn found that the word habitability in
sub-clause (b) related to substantial functional elements only, and
did not apply to structural elements.

54. 88) The difficulty with such an analysis is starkly highlighte d in the
present situation where the structure has a single skin wall, which
all concerned acknowledge is designed to serve a structural
purpose, as well the as the purposes of excluding the elements and
vermin, etc. In that sense the walls are a functional element
essential to the habitability of the house. I am satisfied that the
walls do not have sufficient structure to fulfil that purpose, yet on
Ms Kennedy's submissions that lack of structure does not
constitute a major structural defect because, in her submission,
the walls provide essential supporting structure and are adequate
for that purpose. While the two limbs of the definition of major
structural defect in Clause 31 are clearly disjunctive, there is
nothing in the definition which indicates that they are mutually
exclusive.
89) A close reading of the passage from Penn shows that the Tribunal
there was endeavouring to highlight the distinction between the
two tests in the definition of major structural defect, and was
anxious to make the point that an element which provides
essential supporting structure would not suffer a major structural
defect for the purposes of paragraph (a) of the definition, if it
lacked adequate structure for the purpose of habitability, yet was
adequate for its structural purpose. This is so, as the test with
respect to lack of adequate structure for the purposes of
habitability is set out in clause (b) of the definition, and requires
that the element be a substantial functional element essential to

55. habitability. If an element satisfies the requirements of both
limbs of the definition, in that it provides essential supporting
structure and is also a substantial functional element essential to
habitability, there is no reason why it could not suffer a major
structural defect under either or both limbs of the definition,
provided the criteria specified in the definitions is met. In my
view Penn should not be read as saying otherwise. It is clear
from the Senior Member’s findings of fact that, while she did not
go through the process of applying paragraph (b) of the
definition, she was of the view that it did not apply, and confined
her considerations to paragraph (a) of the definition.
90) Each of the examples given in the definition are illustrative of
building elements which clearly satisfy the criteria set out in the
limb of the definition to which they relate. None of the
examples cited in Clause 31 relate to building elements which
might satisfy the requirements of both limbs of the definition.
This is understandable as to do so would only create confusion.
The absence of such an example, however, does not justify the
conclusion advanced by Ms Kennedy.
91) The purpose of the BSC Comprehensive Insurance Scheme was to
provide protection, within defined limits, to those whose homes
suffer from either general defects or major structural defect as
defined. Clause 31 in defining major structural defects
acknowledges that they can be structural or can arise because a

56. functional element essential to habitability does not fulfil its
purposes. I can see no basis for finding that an element which
fulfils both a structural purpose and is a functional element
essential to habitability, cannot suffer a major structural defect
because, while it fails to fulfil one those purposes, it continues to
fulfil the other. In my view such a construction is artificial, and
imposes a Catch 22 on those who own homes which are
constructed in such a way that single elements of the structure
satisfy both limbs of the definition of major structural defect. In
my opinion, the issue of whether a defect is a major structural
defect will in each case require the particular defect, and the
context in which it arises, to be assessed in the light of each limb
of the definition of major structural defect. If the element under
consideration fulfils both a structural purpose and is a substantial
functional element essential to habitability, the inquiry should be
directed to whether there is a major structural defect under either
limb of the definition.
92) Applying that approach to the Rich's home, I am satisfied that:
a) the cracking to the external walls is a major structural defect
under sub-clause (b) of the definition of major structural
defect in Clause 31. Those defects are both inherent from
the manner in which the walls and the house were
constructed, and damage induced as a result of that faulty
construction.

57. b) the cracking in the external walls is a major structural defect
under sub-clause (a) of the definition of major structural
defect resulting from the walls being inadequately stressed.
Those defects are both inherent from the manner in which
the walls and the house were constructed, and damage
induced as a result of that faulty construction.
c) the numerous defects in stressing the walls by means of the
tie down rods and top plates, as specified in Mr Rendell's
report of 3 October 2000, together constitute a major
structural defect under sub-clause (a) of the definition of
major structural defect. Those defects are inherent.
93) It should be understood that in so finding I have formed the view:
a) that the claim as initially made by Mr Rich and rejected by
the Respondent did relate to a major structural defect;
b) that the cracking in the external walls alone constituted a
major structural defect;
c) that the construction defects in the stressing of the walls, by
use of the tie rods and top plates, was a contributing cause
to the major structural defect in the external walls, and was
properly part of the first claim. In making this finding, I
accept the opinions of both Mr Rendell and Mr Austin on
this issue; and

58. d) that the cracking in the internal walls, while undoubtedly
significant, amount to general defects as they do not satisfy
the requirements of either limb of the definition of major
structural defect.
Orders
94) In the light of the above it will not be necessary to consider the
extension of time issues. I propose to formally record my
findings in paragraph 92. The parties will no doubt require some
time to consider their respective positions and the further conduct
of the application. I propose to direct that the application be
listed for a telephone directions hearing before me at 4pm on 21
December 2000 so that directions can be made with respect to the
further conduct of the application.
P. H. Molony
Senior Member
23 November 2000

59. Annexure 1

60. I HEREBY CERTIFY THAT THIS IS A TRUE AND ACCURATE
RECORD OF THE REASONS FOR DECISION OF THE FAIR
TRADING TRIBUNAL .
REGISTRAR