I doubt that the tile was set onto drying mortar (not cement). It looks like the mortar was placed onto the back of the tile (back buttered) and then the tile was pressed to the wall. Back buttering usually mitigates poor adhesion issues but in this case there was some other reason it didn't stick. Most likely bad mortar or a factory film on the back of the tile.
That said, the tile and grout in and of itself should not be the waterproof barrier. There should have been a waterproof backing applied first.





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